SEO Struggles to Curb Misuse in Securities Market

Head of the Securities and Exchange Organization, Shapour Mohammadi, defended his organization's performance in fighting securities fraud and improving Iranian markets. He was addressing the holdup that has halted the trading of major banks in stock markets.

Speaking on state TV, Mohammadi discussed the most pertinent issues facing the SEO. Mohammad Pour-Ebrahimi, the chairman of the Majlis Economy Commission was also present in primetime TV program.

The SEO is fighting securities fraud and insider trading. Recent information leaks before the  official release of corporate data has raised criticism. Usage of Telegram and other messaging apps have increased information leaks and the possibility of market manipulation. Some traders circulate false news and hype to move share prices on small stocks. The SEO is fighting market manipulation, has closed down some websites, and is legally pursuing offenders.

Codal, an information website created for instant official publication of corporate data and news is helping remove the lag in information sharing, in turn closing the opportunity window for market manipulation. However according to Mohammadi, the gap between the time information is collated and given to the SEO and the time it is posted on Codal, “there are people with access during that short window which the SEO is investigating."

In response to recent market failures during peak trading times, which outraged investors, Mohammadi downplayed the issue saying “the market [Tehran Stock Exchange] has failed only eight times.”

Investors sent a petition to Mohammadi last month calling for immediate changes.  SEO’s reaction was  swift. French IT giant, Atos SE, was contracted last week to upgrade the trading platforms and infrastructure for both TSE and IFB. The changes will take six months to come into effect, according to Mohammadi.

Mohammadi was also questioned on the many companies whose ticker symbols cannot be currently traded. Some market observers say almost half the market, mainly large cap companies, are out these days, and because of that trading has moved to small stocks, in turn creating grounds for market manipulation.

According to Mohammadi, only 71 symbols are halted out of the 600 companies listed on the Iran Fara Bourse and the TSE. These were mostly due to normal proceedings for holding general shareholders meetings and stock splits.

Highlighting Role of IFIS  

However, among the halted companies, banks, a major group by market cap, have been out of the trading scene since mid-June due to insistence by the central bank for lenders to adopt International Financial Information Standards—a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

The CBI is adamant on immediate IFIS adoption for several reasons. Most notably, their use is the prerequisite for connecting with international lenders, who since the removal of sanctions against the Iranian banking system in January have shied away from the lenders due to incompatibility of their  financial reporting practices with global norms.  

Also using these standards will make bank financial statements more accurate, helping the CBI better assess their performance, and thus force policy changes. The CBI needs this information as many lenders are burdened with mountains of bad debt that has choked off lending to companies. Banks may face write-offs that the SEO opposes favoring the protection of existing shareholders.

While the Ministry of Economy has differences with the central bank, the SEO has corresponded with both parties to get things moving again, but to no avail, said Mohammadi. Pour Ebrahimi said this is now an inter-agency issue and can be resolved only in the Bourse High Council-which is the highest authority in Iranian markets.

Also according to officials, the Health Ministry is looking to raise 40 trillion rials ($1.07 billion) through debt securities with 20% annual interest to repay debt to hospitals and pharmacies. The ministry is looking at a 20-trillion-rial initial offering.

Several government bodies have resorted to selling bonds as a way to meet their financial shortcomings, especially as banks have become increasingly unable to lend. The most recent bond sales were by the Ministry of Agriculture to raise money for its wheat purchase program from farmers.

The Government Trading Corporation of Iran in cooperation with the Agricultural Bank Brokerage has raised 36.6 trillion rials (nearly $1 billion) to buy wheat from farmers in the current fiscal year that started in March.