Rial-dominated bonds are the basis for transactions in the soon-to-be launched foreign exchange derivatives market, the head of Securities and Exchange Organization, Muhammad Fetanat. He said in an interview with Tejarat Farda weekly publication that almost 95% of the deals to be carried out in the new market will not involve the physical exchange of hard currency.
Last week, the Central Bank of Iran approved the launching of a foreign exchange derivatives bourse under SEO supervision. The Securities & Exchange High Council had approved the framework of the plan in November in line with government plans to help revitalize domestic manufactures.
Similar to other countries, foreign exchange derivatives bourse is expected to hedge against fluctuations in foreign exchange rates through a variety of instruments, namely futures and options contracts. The move is expected to help improve the confidence of importers, exporters and investors in the future of the forex market and facilitate the much-needed foreign direct investment.
On when the forex derivatives bourse will be launched, the senior official said "The first requirement is to unify currency rates. If realized in the short-run, the bourse will be launched immediately after the sanctions are lifted. If not, the forex bourse will operate based on foreign exchange rates in the parallel market which could add to the complexity of operations."
Fetanat stressed that the efficient implementation of forex bourse demands consensus at the national level and the elite and major stakeholders should be briefed on the subject by the mass media.
On the impact of a surge in foreign exchange rates on listed industries in Tehran Stock Exchange, Fetanat said "Export-based companies usually benefit from a weak rial while industries that depend heavily on raw material import will face difficulties."
He suggested that the positive and negative impact of forex volatility be examined thoroughly on industries on a case-by-case basis.
Five Islamic scholars in the Islamic Jurisprudence Committee in the SEO who are competent in interpreting the Sharia supervise the compliance of capital market instruments with Islamic principles both for Sukuk and forex derivatives markets, according to Fetanat.
>> Future of Capital Market
Noting the likely cuts in interest rates in future line with declining inflation, Fetanat expected the capital market to perform better in the remaining three months of the fiscal year (ends March 20, 2016). However, he warned that the economy will continue to grapple with the credit crunch even after the sanctions are lifted due to the systematic plunge in international crude prices that has wiped out almost 70% of the revenues of oil exporting countries.
Developing a debt market and launching Islamic contracts were cited by the official as two solutions for funding projects. He recommended the government to include the two alternatives in next year's budget (March 2016-17) as well as the next five-year development plan (2016-21).
