The High Council of Securities and Exchange has mandated the Capital Market Development Fund (CMDF) with implementing market making operations to help ensure liquidity of shares offered by state-run companies.
As per the council’s move, a percentage of the ceded shares by the government will be transferred to the CMDF, Muhammad Ali Dehqan-Dehnavi, the managing director of Securities and Exchange Organization, said.
“In return the fund is obliged to implement market making operations up until one year after the government shares are sold to the public,” he was quoted as saying by SEO News Agency.
Market makers essentially act as wholesalers buying and selling securities to balance the market—the prices they set reflect market supply and demand.
Market makers help keep the market functioning. If investors want to sell a particular security, they are there to buy it. Similarly, if they want to buy a stock, they make that stock available.
The measure has legislative backing. The Majlis has allowed the government to allocate a maximum 5% of its earnings from divesting shares in the bourse to market makers. The decision was made following an amendment to the 2021-22 budget to improve liquidity of shares.
Market makers gained increased traction in recent months after share prices fell to unprecedented lows in summer 2020.
With shareholders unable to cash their shares as sell-side pressure mounting, the regulator resorted to market makers to help improve the liquidity of shares.
During the heydays of the bourse last summer, the government sold a segment of its stake in three banks, two insurance firms and four refineries via two exchange-traded funds.
Buyers were mainly ordinary people and non-professional investors, who incurred heavy losses when price bubble burst in August 2020. Many lost their entire savings.
Struggling with deep budget deficit, the former government had pinned high hopes on selling shares and assigning market makers to protect share trade against volatilities.
As per provisions of the March 2021-22 budget, the government needs to generate 950 trillion rials ($3.5 billion) from selling assets in state companies. This is almost eight times the 115 trillion rials ($430 million) forecast in the previous budget.
Highlight: The Majlis has allowed the government to allocate a maximum 5% of its earnings from selling shares in the bourse to market makers. The decision was made following an amendment to the 2021-22 budget to improve liquidity of shares
