markets regulator Securities and Exchange Organization has approved a new securities clearing model to address the concerns of foreign investors about risk settlement in Iran’s financial markets.
The new regulations dubbed “Blue Model” were approved last week, according to Mohammad Reza Mohseni, the chief executive of Central Securities Depository of Iran, SENA reported.
Currently, brokers shoulder the risk burden of their client’s failure to honor their trade obligations. Since most Iranian brokers are small, they do not have the liquidity to clear trades in stressful circumstances. Based on the Blue Model, banks can act as custodians for settlements, by clearing trades for their brokerages. However, banks can set a predetermined ceiling for the cash they provide for each client. Clearing trades for clients above that limit will still be up to the brokerage.
“The CSDI is cooperating with banks, brokerages, SEO and other relevant organizations that are providing legal and technical assistance to execute this model in the shortest possible time,” Mohseni said.
Having a bank act as counterparty to securities trading adds security and liquidity, which foreign institutional investors expect. Based on the Blue Model, banks can provide liquidity for clearing trades for certain clients.
Clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing of payments is necessary to turn the promise of payment into actual movement of money from one bank to another.
Iranian officials are working hard to streamline investment regulations and increase market transparency to attract foreign investment to Tehran’s securities markets. Increased foreign investment would grease the wheels of Tehran Stock Exchange and Iran Fara Bourse, providing much needed liquidity.
However, any investment should be made with a long-term horizon, as the state of most corporate Iran and the general economy do not lend well to bullish short-term predictions, analysts say.
“Currently, foreign investors can register with CSDI and trade on any exchange. Investments from Germany make up half the total investments by foreigners in Iranian markets,” Bahador Bijani, SEO’s vice chairman for International and Foreign Affairs, told IRNA last month.
