New Terms to Motivate Oil Traders in Iran Energy Exchange

EghtesadOnline: After the last two offers of crude oil on the Iran Energy Exchange (IRENEX) ending in vain, officials with the National Iranian Oil Company and capital market say they are determined to continue with the offers by sweetening the trading terms.

News ID: ۷۴۶۶۶۹

12 February 2019

At press briefing, Shapour Mohammadi, head of the Security and Exchange Organization said the terms the next time around are bound to improve.

"We hope that with change in trading terms and in the offering notices, and with Oil Ministry help, buyers would be more enthused," Mohammadi told reporters, according to Financial Tribune.

"This will apply to the size and price and whether it will be in rial or foreign currency, and on the type of the agreement that the Oil Ministry [is already] having with other customers."

The fourth offer of crude oil at Iran Energy Exchange ended with no deal last week, marking the second session of its kind after Tehran started selling oil on the stock market in October.

One million barrels of oil was on offer at a base price of $56.24 in cargoes of 35,000 barrels each. Those interested were required to buy at least one cargo and other conditions were the same as in the previous round.

Asked about rumors suggesting that the Oil Ministry offers oil at lower prices to some customers which apparently explains the lack of interest for IRENEX trade, Mohhamdi said he had no knowledge of the matter.

"About the oil offers on the energy exchange, it should be noted that this is a new product for IRENEX but familiar for the country which has international customers. However, the stock market mechanism is rather a new experience," Mohammadi said.

"In the last few offers things were slow.  As such, some customers showed interest and some did not," he added.

IRENEX chief Ali Hosseini confirmed to the Financial Tribune that in the next oil offers on the stock market (probably in two weeks), the NIOC will “adjust trading terms” to make it compatible with the demands of buyers. Hosseini refused to give details about the anticipated changes.

Undeterred by Sanctions

He said because crude oil is a national wealth, it is natural that price discovery take place on IRENEX and regardless of the sanctions oil and gas should be traded transparently.

IRENX has more flexibility and transparency compared to other methods of trading, he said.

Crude oil is an important item for Iran and the world and the fact that it is offered on the stock market makes it less susceptible to sanctions "because there are foreign buyers plus domestic clients."

"The beneficiaries are private companies who cannot be affiliated to the government. Sanctioning these companies and individuals will be against the rules simply because trading in all bourses is free for all the people," he noted.

Mohammadi, however, noted that despite the need for transparency and competiveness, the secrecy about the identity of traders will be upheld.

He referred to the fact that the SEO recently became an ordinary member of International Organization of Securities Commissions (IOSCO), saying that the message for foreign investors is that global standards are being observed in Iran’s capital market and the rights of investors, big and small, are protected and there is enough transparency.

He said that SEO can and will meet the standards of IOSCO and that most investors in the capital market have not left despite the re-imposition of US sanctions last November and new investors have also joined.

"The prospects that new investors see in the Iranian capital market in the long-term is not about one or two years…They see 5 to 10 years in future and may be longer. From this aspect, the capital market has preserved its attractiveness."

Gold Futures

On a different note Mohammadi weighed in on the reason why gold coin futures trading is still suspended in the Iran Mercantile Exchange.

"The same principle about the currency futures applies to the gold coin futures, in that the reference price of gold coins should be stable and be recognized by the domestic monetary market," he said.

"However, due to the fact that reference prices are grappling with significant volatility for now, futures trading is facing with a bit of more caution."

The popular gold coin futures trading was suspended on IME after the precious metal became extremely volatile in the past year soon after the rial tanked and currency prices jumped to all time highs.

IPOs

Asked about the dearth of initial public offerings, the SEO chief said that that is related to conditions of the market.

"Shareholders active in the stock market should be hopeful about the future of their stocks to give them a proper return and IPOs should be made proportionate to the liquidity that is manageable in the capital market. In addition to this, companies should prepare their financial statements and improve transparency," he said.

"Part of an IPO takes place outside the capital market and these are measures that companies should take."

IFRS

About IFRS standards, he said the Audit Organization and SEO have taken measures and some of the listed companies have prepared their balance sheets according to IFRS standards "but regarding the uncertainties that exist about taxes, we have linked it to an agreement with the National Tax Administration."

"This initiative is in the process of becoming operational, but since taxation is an important issue, we  first need a consensus."

SEO had required that all listed companies prepare their financial statements according to IFRS standards, but so far has stopped short of making them mandatory.

Mohammdi said one of the key ingredients of the forex derivate market is launch of currency futures and that will be established when the spot market is launched and therefore the "reference price becomes known."

"After the Central Bank of Iran launches the spot market, we can create the futures market within a year. That depends on the quality and volume of the deals and see if the reference price is dependable for futures trading or not," he said, referring to the regulated forex market planned by the CBI.