A board member of Tehran Stock Exchange says there are plans to revise rules guiding the performance of market makers in the stock market.
Market makers have come under mounting criticism due to their poor performance in balancing supply and demand.
"Given the drawbacks in the performance of market makers, there are proposals based on which new guidelines will be developed," Javad Eshqi-Nejad was quoted as saying by IRNA.
Market makers essentially act as wholesalers by buying and selling securities to balance the market—the prices they set reflect market supply and demand. They help keep the market functioning, meaning if investors want to sell a particular security, they are there to buy it. Similarly, if they want to buy a stock, they're there to have that stock available to sell to investors.
Market making operation gained traction after Iran's equity market took a drubbing under a prolonged sell-off since mid-August.
Analysts blame market makers for the new bout of volatility. To improve liquidity of shares the regulator has asked listed companies to designate market markers. Nonetheless, retail investors complain that market makers have deviated from their mandate and are involved in swing trading for personal short-term gains.
Eshqi-Nejad ascribed the setback with market making operation partly to flaws in rules, saying that “flaws would be removed over time”.
While the operation of market makers is new in Iran’s share market, rules governing their performance were developed in past. Left in limbo for years, their weaknesses and drawbacks were unknown.
Market experts say the capital held by market makers is in the neighborhood of 550 trillion rials ($2.2 billion), which is enough to restore balance in the fragile market.
According Hassan Qalibaf-Asl, managing director of the Securities and Exchange Organization, market making is used by about 300 listed companies, which is almost half of the total firms listed at the TSE and the junior exchange Iran Fara Bourse.
