Monetary, Capital Markets Strive for Transparency

EghtesadOnline: As the 50th anniversary of Iran’s capital market was being celebrated with much fanfare at the Iran International Conference Center on Sunday, an unlikely guest appeared on the stage to herald the close cooperation of “monetary and capital markets” to promote transparency in the financial conduct of domestic listed firms.

News ID: ۷۴۴۷۵۶

29 January 2018

Governor of the Central Bank of Iran, who heads the entity regulating the financial market, said “transparency in the capital market is undoubtedly a prerequisite for the development of this market and promoting its role in the economy.”

In comments published on the CBI website, Valiollah Seif said that transparency begins with the rules and regulations governing the market and then encompasses trade mechanisms and strong oversight.

“Among these, one of the most important elements is transparency in the financial reporting system and financial reporting of securities issuers,” Financial Tribune quoted him as saying.

“Perhaps there is no other characteristic in the stock market that equals financial transparency because in today’s world decision-making is based on forecasting and good forecasting is dependent on healthy and transparent information.”

CBI as the financial sector’s regulator and the Securities and Exchange Organization as the entity regulating the stock exchanges have in the past been at loggerheads over certain issues.

Mandatory upgrades in banks’ financial reporting standards which led to the adoption of the International Financial Reporting Standards (IFRS) by all Iranian lenders in 2016 caused disruption in their stock functions after unhealthier balance sheets emerged in light of the new standards.

Dismayed by the new revelations, Tehran Stock Exchange had to halt the trading of many of its listed banks in the aftermath. For some of the banks, the trading suspension has yet to be lifted.

Seif referred to this reform in banks’ financial statements along with curbing the inflation rate, management of the currency market, organizing the unlicensed credit institutions and enhancing supervision over banks as steps taken by the CBI to promote transparency.

Seif called for drawing on the experience of other countries in stock-related issues in order to put a permanent end to “bad accounting” practices in the country.

The official called for a resolution to the conflict of interest between accounting and auditing by devising three main sectors to handle the issue separately. He referred to the three sectors as one for “devising accounting rules,” the other “regulating the works of auditors” and the last for “auditing the public sector.”

He announced plans for the full adoption of the latest IFRS standards for banks and said the regulator is willing to enhance cooperation with the SEO to promote transparency, which he said would ultimately benefit both the capital and the monetary market.

Coming a Long Way

Later at the event, Shapour Mohammdi, the head of SEO elaborated on the stock market progress over half a century in Iran. Saying that in 1997, there were only 263 firms active in the stock market, he said the number has increased to 585 as of 2017.

Mohammadi also pointed to the development of the nascent bond market, saying its value has now reached 1.6 quadrillion rials ($35.5 billion) – a market whose beneficiaries include banks, companies and the government itself.

On the same wavelength, Economy Minister Massoud Karbasian  said  financing by the stock market had registered a twelve-point increase over 11 years.

“While the financing capacity of the stock market was 42 trillion rials ($933.3 million) in 2007, that figure last March reached 522 trillion rials ($11.6 billion),” he said.

While the government is struggling to develop the stock market, Iran’s bank-based economy has proved to be a hurdle to this goal with banks still accounting for about 90% of the county’s financing.