A comprehensive package designed to support the stuttering stock market came into effect on Saturday.
Henceforth the portfolio of private persons, worth up to a billion rials (around $3,000) for each person (this would be valid for almost 96% of private codes active in the bourse) will be insured through the issuance of put options for investors. The put options will mature in one year and the buy price is 20% higher than the portfolio value of Oct. 26, 2022, IBENA reported.
Share market officials earlier announced plans to offer put options for stocks of 15 large cap companies to support shareholders and reassure them that the stocks are safe.
A put option is a contract giving the owner the right, but not the obligation, to sell–or sell short–a specified amount of an underlying security at a pre-determined price within a specified time frame. Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities and futures.
Issuing put options is primarily to reassure investors that their shares hold value and that they rethink before selling.
Investors buy put option for stocks they own. It is like buying insurance, or hedging against a possible decline, because the put option guarantees a set sell price on that stock.
Sales put options for existing shares in fixed-income investment funds up to 400 trillion rials ($1.2 billion) will be published, guaranteeing the original value of the portfolio at the beginning of the period based on procedures determined by the Securities and Exchange Organization.
New resources will be provided via state funds for share purchasing and these resources will increase gradually. Also, money allocated to the capital market in the 2022-23 budget to the tune of 50 trillion rials ($151 million) will be deposited with the Capital Market Stabilization Fund (CMSF).
Last week, the government economic taskforce headed by President Ebrahim Raisi approved new measures to help revive the long-struggling capital market -- namely reducing tax on share trade and injecting another 110 trillion rials ($335 million) into the CMSF.
The CMSF was created in 2017 to help address the credit crunch in the bourse and support the beleaguered market.
As per CMSF articles of association, it is fed via three main financial sources, namely direct government investment, NDFI investment and income from trading fees charged by the Tehran Stock Exchange and the junior exchange Iran Fara Bourse. As per rules, 30% of the income from stock trade fees is deposited with the CMSF.
Rules stipulate that the NDFI invest 1% of its resources in the CMSF. The money is a loan at 12% to be repaid in five years.
Legal persons, including semi-public companies and financial institutions, retirement funds, military organizations are responsible, according to the new support package, to regularly monitor share prices under their management and avoid selling them until market conditions are stable. They have been recommended to take supportive measures such as purchasing shares and publishing put options.
One key clause in the package is the need for effective interaction between the Central Bank of Iran and the Ministry of Economic Affairs and Finance to control interbank rates.
Stock market authorities have often voiced concern about the harmful effect of high interbank rates on the bourse. This was conveyed in unequivocal terms in July to the CBI boss Ali Salehabadi by the head of the SEO, Majid Eshqi.
Interbank rates declined in the week to Oct. 22 logging 20.86%. It was 20.9% the week before, ecoiran.com reported.
The SEO is set to increase its direct deposits with the CMSF, restrict share marketing operations until further notice, pause underwriting securities and initial public offering until the market is once again stable.
Market Performance
Despite several past attempts there is no sign of improvement in the share market. The main index of Tehran Stock Exchange, TEDPIX, shed more than 46,281 points during the month to Oct. 22 and plunged 3.41% to settle at 1,308,960.
Eghtesadnews reported that the net capital outflow of the market in the month to Oct 22 reached 46 trillion rials ($140m) in 18 trading session.
Net capital outflow by retail investors continued last week reaching 16.7 trillion rials ($50.8m) in five trading sessions. Capital outflow by retail investors was 7 trillion rials ($21.3m) on Wednesday, the highest daily outflow since the beginning of the year.
