Economy, Business And Markets

State of Trade

State of TradeState of Trade

Last year was bleak for shareholders in Tehran. Risk aversion was high. Money sipped away from the equity markets as banks soaked up deposits. Heavyweight industries in the Tehran stock Exchange, like banking, petrochemical, steel and mining companies were held in limbo as sanctions damaged their business. The ever-looming sanctions also darkened the already morose mood among investors. However, the worst-hit group in the bearishness was the 99 firms in the business of selling and buying shares for others. Most of these brokers had to nurse losses as the volume of trade dropped in Iran’s capital markets.  

Nonetheless, the top 10 brokers handled half the transactions in the stock market and took home handsome profits. Contrariwise, the 10 worst brokers barely handled one percent of all trade. The 146 billion shares traded for the year breached 500 trillion rials in value, Boursepress reported.

As with other sectors of the economy, state-affiliated players owned the lion’s share of the brokerage market. Saba Tamin Brokrage, a subsidiary of the Social Security Organization, was the lord of all brokers, handling 11.9 percent of all trade. Bank Melli’s brokerage came as a close second, being the middleman for 11.1 percent of all transactions, though handling most of the government’s block offering of state-owned firms hypes their share.

The size of the state-owned players in the bastion of the free market economy is alarming. Firstly it unbalances the playing field, and kills competition between brokers, by driving smaller brokers off the edges of the map. Lower competition means higher brokerage costs, further discouraging trading. Secondly, the large role of these brokers and their clients in the stock markets makes it harder for smaller investors to place competitive orders further discouraging trade.

But the rest of the top 10 brokers were  not state-owned – with market shares ranging from 5.4 to just shy of two percent, pointing to the increasing role of the private sector in the financial industry.

All this is set to change. With Iran and the P5+1 (Britain, China, France, Russia and the United States and Germany) reaching the framework agreement ensuring the peaceful nature of Iran’s nuclear program, economic sanctions that had crippled stock performance and created a general bearishness will be removed. A reversal of these along with the entry of foreign investors will increase trading volume. Something brokers stand to gain from.

The brokerage business will be one of the most lucrative in the coming years. over $95 billion market cap, the TSE is one of the largest exchanges in the Middle East, although it is comparatively underdeveloped. Thus it is a no-brainer that the brokerages are set for fierce competition as Iran’s equity markets grow in the future.