In the modern world, the strength of an economy heavily relies on its securities exchanges and what they offer to investors.
The easy routes to financing they provide companies with are the backbone of modern finance.
Exchanges drive economies forward. Their transparency and regulations give investors confidence while raising the corporate governance bar for companies.
Iranian exchanges are taking their baby steps down this path. Among them, Iran Fara Bourse, an over-the-counter market emulating the ginormous NASDAQ, is testing new waters to expand its reach and size.
The seven-year-old exchange started out as a place for companies its larger brother, Tehran Stock Exchange, did not deem worthy.
Now, the exchange, led by Amir Hamouni, has fingers in many pies. It runs Iran’s largest bond market and its most vibrant stock market. Add to these a market for intellectual property and investment vehicles like Exchange Traded Funds, Housing Mortgage Rights and Exchange Traded Project Funds.
> Connecting SMEs to Private Equity Investors
Hamouni, who held a press conference on Monday, said they will create a platform to connect small- and medium-sized enterprises, startups included, to private equity and venture capital firms this year to help them fund their expansion.
“SME’s account for 16% of our gross domestic product and provide employment for 45% of the workforce,” said the chief executive.
To help them, IFB is setting up a market whereby they can offer their shares to private equity investors. It has been pushing the market’s regulations through the Securities and Exchange Organization, the market regulator, for two years.
The challenge for IFB is getting these companies up to speed with corporate governance standards, as most are family-run businesses for whom audited reports and annual shareholder meetings are a byword.
“Providing corporate governance training for SMEs will make up the bulk of our actions for setting up this market,” said Hamouni.
> Interaction With Foreign Companies
One of IFB’s grand aims is to make more companies comply with new regulations and corporate governance standards, paving the ground for interaction with foreign companies, according to Mahsa Tavakkoli Kousha, IFB’s head of strategic planning.
“We were dealing among ourselves before. Now, we look to do business with foreigners. For that, we have to raise business standards,” Tavakkoli told Financial Tribune.
IFB is growing in other territories as well. Total trade volume hit 450 trillion rials ($12.94 billion at market exchange rate) for the 12 months ending March 20, 2016, accounting for all the securities on offer.
According to Hamouni, it shows a 36% rise from the preceding 12 months.
The exchange handles 30% of Iran’s bond market today, IFB’s head of market data, Ehsan Harati, told Financial Tribune. That leaves 15% for other Iranian exchanges and 55% for banks who used to dominate the money market.
> Bond Trading Hub
Bond trading on IFB reached $6.3 billion for the period, ranking third in the Organization of Islamic Cooperation—a club of 57 Muslim countries, after Turkey’s Borsa Istanbul and Egyptian Exchange.
OIC is the second largest inter-governmental organization after the United Nations with 57 member states.
Demand for bonds is so high that bond funds are reluctant to trade their cache, for fear of being unable to buy replacements to fill their portfolio, said Hamouni.
This reluctance is bringing down the market’s liquidity.
According to the chief executive, bonds guaranteed by the government, especially Islamic Treasury Bills—22.5 trillion rials ($647.29 million) of which were sold last year, are the go-to for foreign investors.
Stocks are less alluring, as a foreign investor would take eight to 12 months to do due diligence on any company they intend to invest in. Other than their own predilections, foreign investors are a trading code away from buying into IFB’s portfolio of bonds and equities.
Harati said IFB is even rivaling TSE in stock trading.
IFB oversaw 45% of all stock trading during the 12 months ending March 2016. Its superior liquidity comes to light when comparing its $15.8 billion to TSE’s $97 billion.
However, Hamouni says he has no rivalry with TSE, as it is SEO’s policy. Going forward, the exchange is looking to future-oriented industries, like tech, to expand its stock listings, said Tavakkoli.
So, IFB may not want to enter TSE’s turf, but it soon will rival it in size and prestige.
