The Tehran Stock Exchange (TSE) is working to establish the first hedge fund, the SENA news agency said Sunday.
Mahmoud Goodarzi, the TSE chief said, "We have met financial institutions to exchange views on setting up a hedge fund -- a fund that has not been utilized in the capital market so far. The Securities and Exchange Organization [SEO] has voiced agreement and will issue the license for hedge fund.”
A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies, including leveraging or trading of non-traditional assets, to earn above-average investment returns.
Hedge fund investment is often considered a risky alternative investment choice and usually requires a high minimum investment or net worth, often targeting wealthy clients.
Launching the fund is seen as a major development as it will provide market participants an additional risk management tool, allowing them to protect their portfolios against adverse market conditions. It demonstrates the commitment of TSE and the SEO to promote a secure and stable investment climate in the oft struggling market.
Observers say expanding market instruments like the launching the hedge fund can and will contribute to the diversification of investment strategies and attract a wider range of investors, including institutional players. By offering a comprehensive and sophisticated basket of instruments, the TSE seeks to enhance market influence and efficiency -- fostering greater liquidity and stability.
Future Contracts
The official highlighted the advantages of future contracts in relation to deepening the capital market and the expansion of market instruments. “Over the past year and a half, in collaboration with the SEO, the Central Securities Depository, and the TSE Technology Management Dept. we are now able to use equity futures,” Goodarzi said.
Future contracts were unveiled earlier this month during the 15th Exhibition of Financial Industries in Tehran to help underpin stability and predictability in the volatile bourse.
“The TSE has utilized equity futures for trading on three symbols, namely Social Security Investment Company, Tehran Refinery, and Bank Saderat. By the end of the year [March 2024] 30 major symbols that account for almost 80% of the market value will use futures in line with their maturities.”
Future contracts offer space for investors and traders to diversify their portfolios and engage in strategic trading. Such contracts help enhance market efficiency and provide a valuable venue for market participants seeking risk management and advanced trading strategies.
With the introduction of future contracts, the TSE aims to deepen the market by offering a wider range of investment tools and attracting participants.
"By adding the instruments, the TSE's multifaceted and specialized basket will be completed. Other market entities such as the Energy Exchange and Iran Fara Bourse can also utilize the instruments to facilitate two-sided trading and contribute to market stability," Goodarzi added.
TSE’s embrace of the new instruments is expected to help enhance stability in the capital market, attracting a broader investor base and positioning the market on a trajectory of sustained growth.
Developing new tools and mechanisms to help SMEs is among the goals of the Securities and Exchange Organization.
Iran’s capital market now funds an estimated 25% of the economy, which was a meager 5% in 2011-12 while banks accounted for 95%. The growing interaction of the capital market and business over the past decade shows potential.
The total value of Iran's capital market reached 90,833 trillion rials ($181.6 billion) by the end of the last fiscal year on March 20. It was 71,863 trillion rials ($143 billion) a month earlier, indicating that the cap grew 26% in one month, the SEO reported earlier.
The SEO chief earlier said that it will strive to reform market regulations and procedures to address discrepancies and improve transparency to help attract investors to the sluggish market.
