New measures approved by the Securities and Exchange Organization (SEO) to improve transparency might not be enough.
The SEO – the governmental body charged with regulating and supervising Iran’s financial market – aims to introduce a new set of transparency measures next week. However, some traders and investors are already questioning the measures, saying lack of transparency might be a much tighter knot to untie than believed by the authorities.
According to Mohammad Fetanat, head of the SEO, the organization seeks to “boost TSE’s dented sentiment.” The plan entails reducing legally-allowed caps on stock price volatility, called the limit-up and limit-down. These limits determine how much prices are allowed to move up or down in a determined period. If prices move beyond these limits, the SEO would bring trading to a halt in order to prevent euphoria-driven boosts or panic-driven busts. Currently these limits are set at four percent of the market price, but they will increase to five percent as of May 22.
This new measure is unlikely to be applauded by investors. Apart from the short rally when a framework nuclear deal between Iran and the West was reached a month ago, the stock market has performed depressingly over much of the past year. The government’s privatization program, which aims to sell 80 percent of all state-owned enterprises by 2016, has all but come to a complete halt for lack of interest and the risk of massively selling off undervalued shares.
“While it is an indisputable right of the public limited companies to be listed and publicly traded at stock market, launching the IPOs could disturb the market by causing massive lineups aimed at garnering the lucrative shares,” Fetanat noted.
Critics believe the increase in the limits of allowed price changes would spark faster price drops than increases in an already thumbs-down atmosphere.
The second measure that the SEO is planning to introduce requires companies to send their information directly to the SEO’s information system. This would halt the common practice of delegating the responsibility to confer this information to intermediaries.
Fetanat argued that: “Complying with international standards in financial statements and balance sheets while having bilingual databases like CODAL is essential.”
While this measure will indeed give the SEO a clearer picture of what is going on in the market, it is not likely that it will equally increase this body’s supervisory capacity and pre-active role.
Pressure has been building up on Mohammad Fetanat, head of the SEO and only on the job since six months ago, to push through financial reform aimed at improving transparency and reducing insider trading.
A group of protesting traders gathered in front of the Hafez culture hall earlier this week to air their grievances over alleged unfair trading practices such as insider trading, preferential practices and concentration of market power in the hand of a few large institutional investors.
Ramin Rabii from Turquoise Partners – one of the core intermediaries in the private sector between Iran and the international community – believe that sanctions have played an important role in reducing trader equality in the financial market.
Critics also complain about what they call the exceedingly complex and bureaucratic investment regulations, arguing that disentangling the “bureaucratic maze,” as Fetenat puts it, is possibly even a larger priority for the SEO than transparency.
