Iran Mercantile Exchange launched the online trading of gold coin certificates of deposit on July 12, starting spot gold trading in Iran.
The exchange started offering gold CDs for trading in March, though trading could not be done online. Investors had to place orders with brokers and then wait for them to carry out the transaction on their behalf.
Online trading gives better access to traders and curbs favoritism by brokers.
Certificates of deposit are securities that show ownership of underlying assets that are usually kept with a certified third party. The owner of the gold certificate gets to save money on gold trading, delivery, storage and insurance costs.
Like gold futures, the contracts are offered on Imami gold coins that approximately have a third of an ounce of gold in them. The coins are called Imami, as the visage of Imam Khomeini, the late founder of Islamic Republic, is engraved on it. Imami gold coins closed at 10,940,000 rials per coin on Thursday.
Sixteen brokers are authorized to carryout CD trading, though more brokers can join in, once they create the necessary changes to their platforms.
Gold CDs can be traded from 09:00 a.m. to 12:30 a.m. local time and delivery can take place within two days via Refah Bank's main branch near Vanak square, central Tehran, according to SENA.
> A Rival to Traditional Outlets
The offering of spot gold trading will elevate IME's position in Iran's gold trading arena.
The exchange has been offering gold coin futures contracts for years. Yet, spot trading is still done traditionally in Iran on the black market through bureaux de change and independent traders.
Tehran's Sabzeh Meydan and Ferdowsi Street are the main hubs for currency and gold trading in Tehran. Even swaps and forward contracts are offered there, outside government jurisdiction.
However, the Central Bank of Iran sends anonymous traders to influence trading on the black market.
Billionaire Iranian businessman Babak Zanjani, who has been sentenced to death for corruption pending the final verdict on his appeal, started out as a CBI trader. Zanjani managed to get around sanctions by selling oil abroad during the presidency of Mahmoud Ahmadinejad. He was found guilty of embezzling more than €2.7 billion after Hassan Rouhani, who pledged to tackle high-level corruption, became president in 2013.
If trading picks up on IME, some of Ferdowsi and Sabzeh Meydan's trade volume will move to the exchange. Some trading will also come from mutual funds that can change their charters to allow for trading gold CDs and futures.
> An Issue of Trust
Trust is an issue with these certificates. Certificates are capable of being duplicated about as easily as paper money, which is mildly ironic given that modern-day bullion buyer's motivation is frequently to avoid the debasement of monetary printing.
Alarmingly, the CBI has a track record of rampant money printing and currency devaluation—the 2012 devaluation of the rial is the most recent example brought about by excessive money printing.
Redeeming these CDs could also easily come into question. Commercial banks like Refah have a track record of that too.
Before 2010, foreign exchange bank wires could be cashed within a day at commercial banks. However, during the currency crisis and ever since banks declined from cashing wires in the wire's original currency instead, they paid clients in rials.
The exchange rate for this conversion, however, was far from market prices, consequently forcing losses on customers.
