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Business And Markets

SEO Boss: Tweaking Share Market Price Spread Is Crucial

The managing director of the Securities and Exchange Organization says changes in daily price spread is crucial for the share market.

Majid Eshqi said this in a meeting Sunday with members of the Iran Chamber of Commerce, Industries, Mine and Agriculture (ICCIMA) to discuss developments in the stock market. 

“We have pooled minds with experts and officials and reached a consensus. We expect meaningful modifications in the price spread in a month or two,” IRNA quoted him as saying. 

Eshqi said the process “would be in phases to avoid any potential harm to the market.”

Share prices in the Tehran bourse move down -5% and rise +5% in each trading session. This range has existed for years. 

However, observers say limiting the daily price fluctuation is not in the interest of the share market and undermine the liquidity of shares. 

Eshqi said limiting the price spread is seen as an “interventionist practice that disrupts the demand-supply balance.”

The latest planned move is also supported by the High Council of Securities and Exchange, the top stock market policymaker. The council had earlier approved raising the  daily price limits in the bourse that has fallen on hard times since August 2020. 

The regulator made temporary changes in the highly volatile market. To help save the market from further decline and protect retail investors from unrelenting selloff, the SEO increased the limit up price and cut the limit down. 

As per the decision that came into effect last February, share prices could move from -2% to +6% in a day.  As anticipated, that move failed to prop up the market, delayed market correction and prolonged the downturn. Market conditions deteriorated further as the ill-advised move also undermined the liquidity of shares. 

Later in April, the SEO increased the limit down price to -3%  to ease sell-side pressure but that too was an exercise in futility that compelled the regulator to find other ways out of the deepening crisis. Failing to shore up the market, the regulator allowed the daily price range to return to the conventional -5%-+5%. 

 

 

Feedstock Prices a Major Constraint 

During the weekend meeting ICCIMA members expressed concern about the government’s arbitrary decisions to raise prices of feedstock sold to manufacturing companies, notably petrochemical, metal and cement companies. 

They pointed to “the rising pattern of gas prices sold to industries since September,” arguing that it was not legal. 

They called for new formulas for setting feedstock prices based on acceptable and well-defined criteria, asking policy and decision makers to put a permanent end to the unhelpful practice of arbitrary prices. 

Eshqi concurred that the recent rise in feedstock prices is not justified and “lacks economic rationale”, saying it can undermine the viability of major industries. 

“Such issues can apparently impact the profitability of listed companies. This also is not good for the government.” 

The government argues that rise in feedstock prices is because of soaring prices of the natural gas in international markets. However, stakeholders insist that the Oil Ministry should lower feedstock prices for petrochemical companies.

Up until last week, the stock market was mostly bearish due in part to concerns about the rising prices of feedstock sold by the government to major commodity companies.