In an interview with EghtesadOnline, the following was discussed:

Solutions for Creating Competition in Brokerage Firms / The Cost of Brokerage Licenses Exceeds 10 Billion Tomans

A capital market expert stated that anyone can establish a brokerage with an initial investment of 10 billion tomans and by providing certain infrastructural requirements in terms of location and human capital. However, established brokerages are traded at higher prices based on their value-added services, number of clients, financial turnover, and profitability.

News ID: ۲۰۰۰۴۲۹

06 December 2024

Hamidreza Jihani, a capital market expert, responded to a question from EghtesadOnline regarding whether there is a monopoly in granting licenses to brokerages by saying: "In some professions and businesses in our country, there is no formal and open monopoly; however, there are certain regulations and parameters for establishing that business which creates a perception among the public that there is indeed a monopoly regarding entry into this field."

The expert continued: "There has long been an impression that there is a monopoly on obtaining licenses for establishing brokerages; this is primarily due to the high sensitivities present in this industry, as it is responsible for safeguarding people's investments. The Tehran Stock Exchange has made efforts to seriously adhere to the relevant considerations and regulations, which is why this perception about obtaining licenses for establishing brokerages exists."

He added: "The brokerage industry is a high-risk sector, and its risks relate to data security and transaction information. The trustworthiness of its managers is also very significant. Just like banks, people's assets are entrusted to brokerages, and during banking transactions, there can be errors or mistakes that may lead to the potential loss of people's assets."

Jihani also discussed the conditions regarding the pricing of brokerage licenses: "Anyone can apply for a brokerage establishment by securing an initial investment of 10 billion tomans and providing certain infrastructural requirements in terms of location and human capital. The value of established brokerages is traded at higher prices based on their value-added services, number of clients, financial turnover, and profitability."

Regarding the supervisory actions that the Stock Exchange Organization can implement, he said: "The Stock Exchange Organization can implement a ranking system for brokerage firms through directives, whereby brokerages with the lowest scores could have their licenses revoked, allowing new companies interested in operating in this market to be granted licenses instead."

He further added: "This action would create a competitive environment for brokerages to attract more clients and provide more services to satisfy their customers."

He continued: "The brokerage industry is a service-oriented sector, and consequently, any company that can provide better services and satisfy investors will be able to attract more clients."

In conclusion, Jihani stated: "There are prominent experts and groups capable of establishing brokerages; however, the main issue is that the ranking system for brokerages and the revocation of licenses for weak brokerages should be included in the law. Unfortunately, due to weak regulations at present, this possibility is not within the authority of the Stock Exchange Organization."