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Message From the Chair

This has been an extraordinary couple of years for Iran, and I’ve had the privilege of seeing the major political and economic strides our country has taken from the vantage point of the Securities and Exchange Organization of Iran.

Iran has entered a new and promising period of international commercial, financial and political interaction. As the regulatory and supervisory body of the Iranian capital market, the SEO is at the vanguard of interacting with our foreign friends with an interest in the Iranian capital market, and we feel the impact and possibilities of this new period for our financial markets.


I would like to identify three themes in this message. These themes are quite general and I hope they will give a good framework for thinking about Iran’s capital market and of course Iran itself as a commercial and investment destination. These themes are growth, innovations and engagement.


Talking about growth, it’s very important to note that stability is a key prerequisite for growth in any commercial and investment activity. Iran is a stable country in a chaotic region. There are many reasons for this. We have been a nation for over twenty-five centuries, we have prevailed as a nation over enormous threats in ancient and modern times, our diverse people have lived together as one nation for a hundred generations, and we have developed and relied on institutions from the beginning of our national history. We have also long had governments and statesmen capable of navigating our country through instability around us; we still do today. You will not have to look long at a map to remind yourself that Iran is surrounded by instability. Yet, even in the context of 15 years of wars and chaos on our borders, not only have we maintained our stability, but have made tremendous economic advances.


Now turning to growth in our capital market let me tell you that Iran’s capital market has recently experienced considerable growth. TEDPIX, the main stock index in Iran capital market has increased over 269 per cent during the past two years. Even with this growth the PE ratio is about 6.5 which is considerably lower than average of the emerging markets.


Our Sukuk market has shown even more remarkable growth. The total outstanding Sukuk value at the end of 2015 was just $1.8 bn (market rate) while this figure now is about $19 bn.


Our funds market has also grown significantly. As of today the value of funds is standing at above $40 billion.


What is particularly pleasing about this growth is that it has been combined with much innovation. In the last year, we have witnessed a rapid pace of financial innovation in the Iranian capital market. Let me mention some examples of this.


Treasury Sukuks were issued for the first time last year worth about $4.8 bn. This instrument gained so much recognition and attention, so much that President Rouhani at the end of an economic session a few months ago referred to this as quote: “a big step and one of the most authentic securities in the country”. The treasury bill issuances as of today is amounted to $10 billion.

The SEO developed a market for mortgage-backed securities and published rules covering them broadening the available funding modes.


On the institutional side, the SEO published regulations on credit rating agencies and has begun to issue licenses. There are a couple of rating agencies active in the market, while there will be more standing in the line to get their licenses.


The SEO has also introduced a regulatory framework for venture capital funds and licensed the first five of these to improve investments in knowledge-based companies as our dynamic market keeps up with our dynamic entrepreneurs.


I believe the rapid innovation we have witnessed indicates two things. One is the importance we place in Iran on having a knowledge-driven market, so that our growth is intelligent and creative.


The other is the importance we place on having a resilient financial system to support a resistant economy. Resilience and resistance are desirable features for our financial system and economy because they promote sustainable development and reduce our vulnerability to external shocks. These are appropriate features to develop in the largest Islamic financial system in the world.


Now, we are particularly pleased that our growth and innovation have been accompanied by greater engagement with our foreign friends.


In April 2018, almost 11 years after its initial application, the SEO became an ordinary member of IOSCO. As a consequence of SEO joining IOSCO, our various national exchanges have now been admitted to the World Federation of Exchanges (WFE).


Speaking of exchanges, I should note that our Tehran Stock Exchange is one of the oldest in the Middle East, founded more than 50 years ago, and today with a market capitalization of around 268 billion dollars. As we continue developing, I believe in time Iran’s capital market will be seen as combining the longest history in the region with the greatest dynamism and warmest hospitality towards foreign participants. Our other Exchanges, i.e. Iran Fara Bourse with a market cap of about 92 billion dollars and our two commodity exchanges, i.e. Iran Mercantile Exchange and Iran Energy Exchange are also expanding and improving their operations.


As the world’s largest Islamic financial system, we also plan to better use the deep knowledge and expertise of our Sharia scholars in developing new Islamic instruments to support our companies and economy.


My purpose in describing to you our plans and priorities is to invite you to look not only at where our markets are, but also at where they are heading. As you think about the potential trajectory of Iran’s market, I encourage you also to look at other countries and their market development. Yes, there will be challenges as domestic markets internationalize and integrate foreign investment on a large scale, and they are not for everyone. But it is because of these challenges that outsize returns are available to those who can carefully manage them. In managing the challenges of participating in the Iranian market, it will be important to be patient, take a long term view, find trusted domestic partners, and form your own conclusions.


So, I would encourage each of you who have not already done so to visit Iran and pursue your own understanding of our country, its people and its opportunities. If you do so, please consider that the hospitality of the SEO will be at your service when you come to Iran.


Best wishes!


Shapour Mohammadi