Need to Protect Retail Shareholders Gains Traction

EghtesadOnline: The need for protecting retail shareholders in the stock market has resurfaced following successive drops in the market in recent days.

News ID: ۷۴۸۷۶۷

21 October 2019

In recent years there have been talks about introducing insurance cover for retail shareholders, but Majid Qasemi, a member of Iranian Insurers Syndicate says offering risk cover in the stock market would be beyond their capability.

"We cannot presume that a single insurance company is capable of handling risks pertaining to retail shares. A consortium of insurance companies needs to be formed for covering risks in the stock market," IRNA quoted him as saying.

However, insurers are studying the issue, Financial Tribune quoted him as saying.

Tehran stocks shed more than 6,000 points on Monday, to close trading session 1.9% lower. TSE’s benchmark lost more than 10,800 points on Tuesday to reach 308, 978.9, sending TEDPIX 3.4% lower, the biggest since May 6.

Shares of 315 companies recorded negative prices on Tuesday, accounting for 97% of the total, with losses amounting to 400 trillion rials ($3.5 billion).

The market experienced another drubbing on Sunday with the TSE’s benchmark shedding another 8,000 points, or 2.8%.

IRNA said many insurance companies are keen on covering retail investors against market fluctuations, though their unfamiliarity with issuing mechanisms makes them hesitant.

However, there are ambiguities surrounding proposals for introducing coverage for retail investors. Such plans basically are against market mechanisms, as risk is almost an inseparable part of any investment.

The government has taken a series of measures towards supporting retail investors, with its focus on implementing corporate governance rather than compensating losses caused by fluctuations.

Government spokesman Ali Rabiei has said that the cabinet passed a bill on Wednesday to protect retail shareholders.

"The law seeks to guarantee the rights of retail shareholders, promote corporate governance, and consequently attract more retail investment to the capital market."

"It will also provide tighter legal guarantees for foreigners planning to put their money into the capital market," he told reporters.

Iran ranked 173rd on the strength of minority investor protection index with a score of 33.33 in World Bank’s Ease of Doing Business Report 2019.