Frontier, FEAS Newsletter, December 2015, Issue 4 FRONTIER Newsletter from the Federation of Euro-Asian Stock Exchanges December 2015, Issue 4 Iranian market infrastructure is ready to welcome global investors Tehran Stock Exchange has all the underpinnings to serve to the needs of investors. Hassan Ghalibaf Asl, the veteran chief executive of the exchange, drives a technology-oriented, diversified, fair and transparent marketplace. Hassan Ghalibaf Asl, CEO Tehran Stock Exchange The Tehran Stock Exchange (TSE) is the largest stock 2010 by listing single stock future contracts. Embedded Put exchange in the Islamic Republic of Iran, which opened in Option Contracts were introduced in 2012. February 1967. TSE, a founding member of the Federation The TSE trading system is an order driven system, which of Euro-Asian Stock Exchanges, has been recognized one of matches buying and selling orders of the investors. All the world's best performing stock exchanges in the years transactions must be carried out on the Trading Floor using 2002 through 2013. Today, TSE has evolved into an exciting the Exchange's Automated Trading System (ATS). Trading is and growing marketplace where individual and conducted from 9:00 am to 12:30 pm for cash and bonds institutional investors trade securities with a total market and derivatives market, Saturdays through Wednesdays, capitalization of US$ 91,143 million of over 318 companies with the exception of public holidays, including a pre- in 37 sectors such as chemicals, financial services, metals, opening period of 30 minutes starting from 8:30 am. TSE telco operations, manufacturing and other industries. Since defines daily fluctuation for all products and rights 7 years ago, around 170 mutual funds have been formed in respectively as ± 5% and ± 10%. This can be changed in our market, managed by professionals, making the capital specific situation by the TSE in case of unusual price market a safer place for ordinary investors with less movements resulting in an extremely high or low P/E ratio. financial literacy. Short selling is not permitted. The clearing and settlement TSE has two equity markets as well as two separated period is T+3 for shares as well as T+1 for corporate bonds. markets for bonds and derivatives. Equity markets are divided into two segments: First market (including two boards) and second market. In bonds market, muni bonds and SEO's registered companies' participating bonds can be issued at TSE. The futures market was launched in July Frontier, FEAS Newsletter, December 2015, Issue 4 Foreign investors who are willing to trade on TSE are 10 Top Sectors by Market Cap, Oct 2015 described as non-strategic and strategic. Non-strategic Motor Vehicles Chemicals & By- And Auto Parts; others; 17,16 products; 26,39 foreign investors are subject to below restrictions: a) the 3,02 Medical, Precision number of shares owned by the foreign investors shall not & Optical Instruments; 3,27 exceed 20% of the floating shares of the each listed Transportation and companies on TSE. b) The number of shares owned by each Storage; 3,38 Metal Ores Mining; Monetary foreign investor shall not exceed 10% of the total number 4,41 intermediation; of any company. Refined Petroleum 13,24 Products; 5,33 Post and Strategic foreign investor refer to the one who intends to Basic Metals; 7,67 Diversified telecommunicatio possess over 10 percent of a listed share. Such foreign Industrials ns; 8,25 (Holdings); 7,89 investors should contact "Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)" which TSE Market Capitalization (USD Million) provides license to acquire up to 100% of a listed share (as 200.000 172888 Foreign Direct Investment "FDI"). 140843 150.000 116638 107650 91143 TSE operates a fair, efficient and transparent market 100.000 86690 58698 equipped with diversified instruments and easy access to 48712 42600364403631543885 50.000 27544 create added value for shareholders. TSE aims to achieve 5892 7358 11761 below strategic goals: 0 Increasing the share of capital market in financing the economic activities Applying effective rules and procedures to protect the market's integrity and shareholders' rights Expanding market with the use of updated and efficient technology and processes Developing financial knowledge and improving investment and shareholding culture in Iran Facilitating market access by means of information technology Observing accountability and transparency in TSE Markets cooperation with shareholders main board 65 Constant expansion of the company's intellectual First market secondary board 61 properties and human resources Equity Market second market 192 Total 318 Participation Certificates (Islamic Bond) 6 Sukuks 2 Bonds and Certificates of Deposit (CD) 1 Derivatives market ETFs 4 Single-Stock Futures Contracts 7 Embedded Put Option Contracts 2 2 Frontier, FEAS Newsletter, December 2015, Issue 4 Iran Fara Bourse weighs on innovation for liquidity and diversity Amir Hamooni, the hard-working CEO of Iran Fara Bourse, has transformed the domestic SME market into a sophisticated one with diversified product portfolio. It is nothing short of a benchmark for alternative markets around the world. Amir Hamooni, CEO Iran Fara Bourse As an innovative marketplace for small to medium size Iran Fara Bourse Annual Index and Market Capitalization 1,200 900 businesses, Iran Fara Bourse (IFB) was established in 2008 867 776 800 1,000 as an official stock exchange under the supervision of SEO. 697 1,015 700 IFB maintains markets for both listed and unlisted 939 800 600 780 securities including equity, sukuk, certificate of deposit 500 600 419 (CD), mortgage rights, exchange traded funds (ETF), 400 IFX Index IFX IRRTrillion 276 472 intellectual property (IP) rights and construction fund 400 300 190 200 certificates. Only recently, Islamic treasury bills market 200 278 100 was launched on IFB. Investors can trade securities listed 85 0 0 on IFB by any of its registered brokers using different 2010 2011 2012 2013 2014 Oct 31, 2015 means such as the online trading. The IFB has licensed 99 Market Capitalization IFX: Total Return Index brokerage companies to intermediate trading on its markets. IFB carries a broad portfolio of projects to broaden its Iran Fara Bourse Market Capitalization By Sector services such as segregating markets for small and Chemical Products 14% medium sized enterprises, introducing a platform for Banks & Credit Institutions Basic Metals venture capital and private equity firms, launching a 2% 18% 31% segment for selling incomplete projects of government 3% Financing Securities 3% 2% Petroleum Products 2% 40% through IFB auction market and creating new indices. 3% Investment Companies 3% 3% Insurance & Pension Funds Iran Fara Bourse Annual Trades 8% Support to Financial Intermediaries 14 70 11% Mortgage Rights 12.0 12 11.0 60 4% Others 9% 9% 8% 9.5 10.0 15% 10 50 Inner Ring (2014/12/31): IRR 939,133 Billion 12% Outer Ring (2015/10/31): IRR 779,720 Billion 8 40 6.8 6 61 30 Billion USD Billion USD 4.8 52 4 40 20 27 2 10 15.6 15 0 0 2010 2011 2012 2013 2014 Oct 31, 2015 Traded Volume Traded Value-$ Billion 3 Frontier, FEAS Newsletter, December 2015, Issue 4 Investment banks help to spur capital markets activity Since 2007, investment banks are actively involved in underwriting, brokerage, advisory and other capital market transactions. They add value through high-quality professional services for individuals and institutions, explains Ali Sanginian, CEO of Amin Investment Bank. Ali Sanginian, CEO Amin Investment Bank Securities Market Law of the Islamic Republic of Iran in from SEO of which 6 of these Investment banks are November 2005 was a breakthrough for the financing directly linked to the traditional commercial banking system. As a result, financial institutions such as system while 3 of them are operating independently. investment banks have been introduced. Based on the Since 2007, the public and private companies both in Securities Market Act, the investment bank is a medium government and private sectors began to fulfill their between securities issuer and public investors and is financial needs through investment banks rather than allowed to perform brokerage activities, act as a dealer, existing traditional banking system. As a result, the share market maker, and adviser, portfolio of securities, of banking system in financing fell slowly (from 93% in subscription, subscription undertaking and similar 2007 to 74% in 2013) whereas the share of capital market activities through receiving permit of the SEO. The main solutions gradually rose (from 4% in 2007 to 20% in areas of investment banks’ activities include: subscription, 2013).Currently the majority of finance solutions through underwriting and pledge to buy securities in the investment banking in Iran was equity issuances (96%) secondary offerings either on their own or through while around 4% was done through debt issuances. formation of syndicates. The secondary areas of activity Revenue breakdown of investment banks in Iran as are as follows: advisory services, marketing and/or follows: 53% investment and asset management, 35% managing the trend of securities transfer, office underwriting and financial services, 6% market procedures represented by the issuer concerning the making/book runner, 2% valuation advisory and 5% other securities and obtaining the license thereof, services financial services. Most of Investment Banks in Iran have relating to design and issue of financial instruments for their own investment funds (ETF, Fixed income and companies, assets management, investment funds and mutual funds). Investment Banks in Iran, are trying to management, brokerage, broker/dealership, portfolio introduce new financing solutions. They advise their management, market-making, attraction of the protection clients which instrument would work best according to of banks, insurances, credit financial institutions and the company’s financial structure, securities exchanging financial entities for the company in the area of securities regulations and market atmosphere.