The Securities and Exchange Organization wants to tap into the National Development Fund of Iran, the country’s sovereign wealth fund, to prop up the struggling stock market, the SEO chief said.
After dramatic gains in the first four months of current fiscal year (March-July 2020), Tehran stocks plunged to historic lows from August and lost 30%.
“We are trying to transfer 1% of NDFI revenues to the Capital Market Stabilization Fund,” Securities and Exchange News Agency quoted Hassan Qalibaf-Asl as saying.
The CMSF was created in 2017 to help resolve the credit crunch in the bourse. It has the task of supporting stock markets and safeguarding the interest of investors.
The fund was launched with an initial 3 trillion rials ($13 million) capital borrowed from the NDFI. The idea of borrowing from the NDFI is not new goes back to its inception.
At its birth, the NDFI was supposed to inject 1% of its resources into the fund – a plan that never saw the light of day.
“The SEO is pursuing the issue for long,” Qalibaf-Asl said, adding that “this would be a great opportunity given the current status of the market”.
The effort to borrow coincides with the stock market regulator struggling to save the stock market from imminent collapse. The regulator has asked market makers and main shareholders to intervene and boost demand. So far such efforts have been futile.
Market makers essentially act as wholesalers by buying and selling securities to balance the market—the prices they set reflect market supply and demand.
Tempted by past gains, an unusually large numbers of novice investors rushed to the market after the government rolled out a red carpet and regularly announced that it would support the bourse.
With retail traders hit hard in recent weeks, many blame the government for the chaotic situation, saying that now is the time for government to fulfill its unending promises to buttress the bourse come what may.
The government has tried to prop up the market sporadically by requiring institutional buyers and investment funds to boost demand.
But such efforts have proved to be a temporary and failed to persuade the deluge of novice investors.
NDFI, which is independent of the government, was founded in 2011 as a sovereign fund for future generations when government earnings are high, especially from oil and gas exports.
Like all wealth funds, it lends to both public and private firms in need when government revenues are down, namely during low oil prices.
