Iran – Ambitious modernization program for the Tehran Stock Exchange

Published June 22nd, 2007 - 08:40 GMT

Global Investment House- Kuwait – Iran Economic & Strategic Outlook – Tehran Stock Exchange – The Tehran Stock Exchange (TSE), which first opened in April 1968, is Iran’s largest stock exchange. As of April 2007, a total of 324 companies, with a market capitalization of US$42,452.5mn were listed on TSE .

TSE is a full member of the World Federation of Exchanges (the former Federation Internationale des Bourses de Valeurs or FIBV) and a founding member of Federation of Euro-Asian Stock Exchanges (FEAS).

Trading takes place through the Automated Trade Execution System which is integrated with a clearing, settlement, depository and registry system. The TSE is solely an order-driven market and all transactions are executed in the manner and under the principles of  open auction. The TSE is presently seeking the installation of the new trading software during second quarter of 2007.

Presently, TSE trades mainly in securities offered by listed companies. Corporate bonds are also being traded at TSE, with plans to introduce other financial instruments in the near future. The introduction of project-based participation certificates that bear a fixed annual return during the period of the project and promise the final settlement of the profit at the date of its completion, has diversified the market.

The main share price indices on the TSE are the TSE All Share Price Index (TEPIX), the Industrial Index, the Financial Index, the TSE Dividend & Price Index (TEDPIX), the TSE Dividend Index, and the TSE-50. In 1990, the All-Shares Price Index (TEPIX) was introduced to the market as the main indicator of share price movements. TEPIX is a weighted market value of all share prices appearing on the TSE Board and is measured every two minutes. In addition to the TEPIX, daily price indices of shares of each company, each sector, and the top fifty most active companies (TSE-50) are computed.
The new By-Law for Foreign Portfolio Investment (FPI) was approved by the government in June 2005. Under this new By-Law, foreign investors can participate in the TSE for the first time. However, some limitations have been imposed on foreign investors where they may own a maximum of 10 percent of each listed company, and there were restrictions on the withdrawal of their main capital and capital gain for the first three years of their investment. Repatriation is possible once a year under the current regulations.

As of April 2007, there are 324 companies listed on the TSE with a total market capitalization of US$42,452.5mn from a myriad of sectors in the economy. Close to 60% of the market capitalization relates to listed companies from the Basic Metals Sector, Motor Vehicles and Trailers Sector, Chemicals and By-Products Sector, and Non-Metallic Minerals Products Sector. A combined total of 161 companies from the said sectors are listed on the TSE , which translates to 49.7% of total companies listed on the TSE. Largest stocks include Isfahan Mobarakeh Steel Co with a market capitalization of US$3,218mn, which translates to 7.6% of total market capitalization, Ind.Co. Copper National Iran (Sanaye Mese Iran) which represents 6.8% of total market capitalization, and Saipa Co at 5.3% of total market capitalization. This indicates that the capital market in Tehran is heavily concentrated on  four economic sectors with companies that make up nearly half of the total listed companies on the exchange. While a total of 163 companies listed are spread out amongst 26 sectors, with a the Food and Beverages Sector alone accounts to 32 companies at a market capitalization of US$897.5mn.

Share trading in terms of the number of shares traded increased in 2005/06 by 2.3%. However it decreased in terms of value and number of deals where they decreased 2005/06 by 45.5% and 9.6% respectively. In general, the stock market in 2005/06 shed value as it is manifested by the decline of its major stock price indices. The TSE price index (TSPIX) at the end of 2005/06, declined by 21.9%, while the Financial Sector Index, and the Industrial Index, declined by, 38.8%,19.4%  respectively, and the Dividend Index gained 11.8%.

The Tehran Stock Exchange (TSE) has started an ambitious modernization program aimed at increasing market transparency and attracting more domestic and foreign investors. Concrete measures that have been taken in the planning and operations of the stock exchange such as the settlement system, geographical expansion, new exchange laws in order to attract local and foreign capital.





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