Market Diversity on IME Agenda

EghtesadOnline: The Iran Mercantile Exchange intends to diversify the market by offering a variety of trading instruments in the new fiscal that started on March 21, the CEO said.

News ID: ۷۴۷۰۲۴

10 April 2019

Hamed Soltaninezhad said offering Commodity Funds for agro products is one of the IME plans that will be pursued this year, expressing the hope that the move would help attract investments to finance the key agriculture sector.

“Since inception, a variety of trading instruments has been launched in the IME and this year it intends to introduce new products as underlying assets for existing financial instruments” he was quoted as saying by IBENA.

The IME head pointed to efforts to meet the financial needs of market participants saying the market is witnessing new trading methods and settlement mechanisms, particularly in the spot market, according to Financial Tribune.

“With the provision of tender-based deals and multiple settlement mechanisms the needs of buyers and sellers in the market will be addressed.”

Soltaninezhad added that the IME aims to use commodity funds as new underlying assets for future contracts and option contracts as a move to expand the derivatives market.

Options are a type of derivative security. An option is a derivative because its price is intrinsically linked to the price of something else. If one buys an options contract, it grants the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date.

With regard to commodity-based certificate of deposits, the groundwork has been provided in the IME to launch a CD market for copper and rebar which is awaiting okay from the Securities and Exchange Organization, he said.

2 New Instruments

Apart from expanding underlying assets for the existing financial instruments, the IME offers two new trading instruments, namely Dayn (debt) securities and royalty securities.

Buying dayn, or Bai’al-Dayn, is a kind of trade that involves the sale and purchase of securities or DPs according to Islamic law. Securities or DPs will be issued by debtors to creditors as evidence of indebtedness.

The IME chief stated that trading Dayn securities will enhance liquidation of frozen financial assets of  producers.” The trades in Dayn securities will significantly ease financial constraints of most enterprises,” he said.

Soltaninezhad said expanding royalty securities would help promote transparency of the IME market.

Royalty financing is a type of investment where the business gets money based on future revenue. The investors get their money back through royalties that are a percentage of a particular company's revenue.

Royalty financing comes with a lower risk of default because payments are much more flexible. Investors are guaranteed a certain amount of profit in this financing instrument.

IME trading value rose 52% in the previous fiscal (March 2018-19) to stand at 1,786 trillion ($13 billion). Trading in the spot market accounted for half of the value of the deals where an aggregate 24.8 million tons of goods worth 884.3 trillion rials ($6 billion) were traded.