Ten companies listed on the Tehran Stock Exchange and Iran Fara Bourse (over-the-counter stock market) will start short selling of shares on Feb.23, CEO of the Securities and Exchange Organization said.
According to Shapour Mohammadi, the short-selling rules are similar to conventional short-selling across the world, but they have been adjusted by the Islamic Jurisprudence Committee of the SEO to be compatible with Sharia laws.
Short selling has long been demanded by domestic investors but there have been hurdles to its implementation. Designing a model that is consistent with the conventional models, applicable in Iran’s stock market and at the same time conforms to Sharia law has been a major challenge.
Short selling occurs when an investor borrows a security and sells it in the open market, planning to buy it back later for less money. Short selling means securities can be sold before they are acquired.
Short sellers bet on, and profit from, a drop in a security's price. Short selling has a high risk/reward ratio: It can offer big profits, but losses can mount quickly and infinitely.
In short selling, investors borrow shares they believe will decrease in value by a set future date or the expiration date.
The investor then sells the borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost.
The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity, according to Investopedia.
Mohammadi said with short selling being operational Iran’s stock market repertoire of financial instruments will be completed, Fars News Agency reported.
“Our stock market is equipped with various financial instruments such as future contracts, call and put options and credit sales,” he said.
