The Central Bank of Iran has instructed lenders to channel more resources into investment funds.
The new directive is backed by an earlier decision by the High Council of Securities and Exchange, the top stock market policymaker, to lift the struggling market.
The bylaw allows banks to play a bigger role in investment funds and own shares in investment banks, according to IBENA, the news agency affiliated to the Monetary and Banking Research Institute.
"Acquiring units of investment funds, designed specifically for market making operations, as well as acquiring shares of investment banks by banks and non-bank credit institutions is possible as per the new rules," an excerpt of the bylaw reads.
Market makers essentially act as wholesalers by buying and selling securities to balance the market. Their operations help improve the liquidity of shares.
In the same vein, the CBI has agreed to increase the investment ceiling for bank-affiliated investment companies in the share market
The ceiling is set at 500 trillion rials ($2.2 billion) up from 300 trillion rials giving the funds more leeway, a move clearly in line with a series of other efforts to "boost the capital market and improve the role of banks in augmenting investors’ confidence.”
As per the new measures, there are no restrictions on creating new fixed income investment funds by banks. Lenders can set up more than one investment fund.
Rules governing the operation of bank-based investment funds bans them from investing in any sector other than the capital market.
After historic gains from the beginning of the current fiscal year (last March) Tehran’s share market started to plunge in mid-August. The benchmark of Tehran Stock Exchange, TEDPIX, grew close to 300% before diving deep into the red.
Market observers blame major shareholders, institutional traders and those seemingly with inside information for the downturn saying that they increase offers when share prices reach their peak.
With the obvious aim of propping up the sluggish share market and boost demand, fixed income investment funds are henceforth obliged to invest 50% of their resources in Justice Shares.
Justice Shares are shares of government-owned companies that were given free to the six lowest income deciles 15 years ago. Shareholders were not allowed to sell the shares until last May.
Justice Shares are owned by an estimated 50 million Iranians largely from the middle and lower end of the economic ladder. Analysts partially blame the excessive supply of Justice Shares for the bearish trend of the once lucrative stock market that started in mid-August and “has yet to get back on its feet,” market observers say.
