The Securities and Exchange Organization said it seek to improve trade in the two government-controlled exchange-traded funds.
The government-affiliated ETFs were listed in capital market in 2020 and hold stocks in some giant state-run refineries and banks.
The funds were launched in line with the government’s program to divest stakes to the public under privatization plans and secure funds for its budget deficits.
In one ETF government shares in three banks and two insurance companies were offered. The other holds share in four refineries.
However, flaws with the functioning of the ETFs soon emerged after their units were offered in the secondary market.
Investor complaints mainly were about the net asset value (NAV) of the ETFs in that the units are traded far below the NAVs.
NAV represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. It is commonly used as a per-share value calculated for a mutual fund, ETF, or closed-end fund.
For an investment fund, NAV is calculated at the end of each trading day based on the closing market price of the portfolio's securities.
The SEO’s action plan pivots around three proposals decided by its directors. But to be put into effect it must be approved by the High Council of Securities and Exchange, Iran’s top capital market policymaking body.
At the outset, the proposals say that natural entities holding the ETFs units be allowed to have voting power on the function of the ETFs. Presently, only government authorities have the right to make decisions on ETFs depriving individual investors of having a say in the annual meetings.
Since inception, the latter issue was seen as one of the main flaws of the ETFs. Critics argued that the ETFs should not be managed exclusively by the government noting that this method is not privatization per se.
Diversifying Underlying Assets
Another proposal says that the ETF portfolios need to be diversified to allow managers to include other assets, namely gold, bonds, and the like in the portfolios.
The fact that ETFs holds only one type of asset is seemingly incompatible with their nature as their portfolios usually comprises a sundry of assets.
Finally, it is proposed that the preferred equities be divested to private buyers to raise more liquidity for the ETFs and further loosen the government strong grip on the funds.
A preferred stock is a class of stock that is granted certain rights that differ from common stock. Preferred stockholders have a higher claim to dividends or asset distribution than common stockholders.
It merits mention that the initial buyers of the units of the refinery ETF, mostly ordinary investors, have lost at least 20% of their money because their value plunged below the price the government sold them during the primary offering.
The SEO boss Majid Eshqi earlier said the regulator is seeking funds to bolster the ETFs for implementing market making operation on the funds.
