Iran: Regulated Forex Market Structure Announced

EghtesadOnline: In a meeting attended by officials from the Central Bank of Iran and an association comprising players in upcoming regulated forex market on Monday, details of the mechanisms of the new market were announced.

News ID: ۷۴۶۵۰۰

16 January 2019

The founding association includes major market players, namely the head of the Association of Private Banks and Credit Institutions, Association of Bureaux de Change Operators, representatives from public banks, Iran Fara Bourse (an over-the-counter market for securities and other financial instruments) and the National Informatics Corporation.

They discussed the nitty-gritty of technical and structural issues, composition of founders’ shares, capital of the company, articles of association and the process and mechanism for putting the official forex market into operation.

Earlier last week, rules for launching an official foreign exchange market were approved by the Money and Credit Council - a top financial decision-making body headed by the governor of CBI. The new foreign exchange market is planned to provide an avenue for foreign exchange trade in a fair and transparent environment, according to Financial Tribune.

According to the CBI website, the market is designed to trade foreign exchange in cash (banknote) in the first phase which will develop other trading methods in the following phases.

Also, the market has a broker-based nature and the deals are processed based on

“order driven” mechanism supervised by a self-regulated body within CBI frameworks.

Additionally, the CBI says, the Intercontinental Exchange system (ICE), as a standard trading infrastructure, is adopted for processing forex deals.

Chief of the Association of Bureaux says as any other market, demand and supply will determine rates in the regulated forex market.

Reza Torkashvand said for the market to begin work, initially there will be no limit on the amount to currency offered for a specified period of time.

“After that an average price for the first day of trading will is defined based on the supply/demand mechanism, the biddings and also as per forex rates in the [open market] a day earlier,” he was quoted as saying by Eghtesad News.

Transparency Factor

Head of the Association of Private Banks and Credit Institutions said establishing an official forex rate market is an important step toward transparency in currency trade.

“This market will offer exchange offices and other players in the market to trade forex in a more transparent environment,” Koroush Parvizian was quoted as saying by IBENA.

“Those who need foreign currency can buy it more conveniently and with lower cost in this market.”

The new market operates on an electronic platform where participants buy and sell in an order-based framework.

Rate Unification First

Amid all the positives and optimism, a market analyst is skeptical about the viability of the whole concept so long as a unified forex rate is absent.

Hossein Salimi, deputy president of money and capital markets at the Tehran Chamber of Commerce, Industries, Mines and Agriculture says there are parallel forex rates all over the market which he believes will be a hurdle for the official forex market.

“In circumstances where forex is traded at different rates, the (new) market is unlikely to succeed” Salimi told the Financial Tribune.

Pointing out that the idea will work only when there is a smooth demand and supply platform in the market, he said “Because of the detrimental impact of US sanctions, both the demand and supply side lack equilibrium.”

However, he did not deny the plus side of such markets and said this is a long-awaited measure with the ultimate purpose of forex rate unification but it needs proper groundwork that must be made available in the future.

“The concept behind creating a regulated market for forex trade is apparently good for the economy. But the time is not yet ripe,” he told the Tribune.