Economy, Business And Markets

SEO Set to Revamp Biggest Mutual Fund

Analyst at Securities & Exchange Organization
SEO Set to Revamp Biggest Mutual Fund
SEO Set to Revamp Biggest Mutual Fund

The Capital Market Development Fund, as the most precious mutual fund in terms of resources, has always been assigned with the task of supporting stock markets and safeguarding investors. Nevertheless, since its establishment, the fund has come under mounting criticism, until last week when Securities and Exchange Organization’s CEO Mohammad Fetanat announced the fund’s management transfer and administrative shift in a press conference held by SENA.

The so-called development fund was launched in March 2013, but went into effect three months after TEDPIX's sharp and continuous plunge, which in turn happened after the benchmark touched its all-time high in July 2014. Its commitments were initially declared as follows:

1.  Boosting investors’ confidence and enhancing market stability in times of turbulence,

2. Increasing the liquidity of stocks and curbing fluctuations,

3. Reducing investment risks and providing long-term benefits to market participants.

In fact, the fund manages big capital and leading companies’ market making as the depth of domestic markets were and still are shallow. In other words, a single eminent company's underperforming, be it in the auto, banking or chemical industries sectors, could pull down the whole market.

For the first few months, many supported the fund’s performance. However, gradually suspicions raised about the management of the fund was transferred to Iran’s Financial Institution, a subsidiary of SEO. The critics argued that a supervisory and regulatory body of the domestic capital market should not interfere and manipulate the market and the management of the fund has to be outsourced. Moreover, the fund’s function was not transparent since there was no official website so the fund’s portfolio and ratios could be published like other mutual funds.

Another objection pertained to the possibility of abuse by speculators as they could take a long position on a renowned share knowing that the fund will bolster it; many called it risk-free arbitrage. It was also argued that having access to confidential information, like institutional investors' trading patterns, by the fund’s authorities would give them the chance to readily outperform the market, instead of sustaining it. The fund’s institutional stakeholders and creditors were distressed by their shrinking resources, calling for reform.

All the wrangles aside, the development funds' management team has managed to uphold the market and protect investors over the past two years amid economic woes like recession as a result of contractionary policies adopted by the government and oil prices decline; and political developments as a result of western sanctions imposed against Iran over its nuclear energy program.

Market making could never be trusted to this extent if it were not for the fund's role, as institutional investors have long been reluctant to support their principal shares in the form of market making – although, to be fair, their reluctance has been partly due to the dearth of instruments such as short selling.

And now as of July 22 when the annual general meeting of the fund is held, the management will be passed on to five banks as major stakeholders to practice market making for top companies in TSE and IFB stock exchanges.

An official website has been set up to satisfy demand for transparency. The fund's resources are dedicated to industries with highest market value as illustrated by the figures in the following diagram. The current value of the fund is said to be $195 million. The fund has faced declining liquidity and needs fresh financing to resume assisting the market.

Intro: As of July 22 when the annual general meeting of the fund is held, the SEO management will be passed on to five banks to practice market making for top companies in TSE and IFB stock exchanges