With Shares in a Tailspin, SEO Asks Market Makers to Intervene

EghtesadOnline: The stock market regulator met with institutional buyers, main stockholders and market markers on Thursday to mull ways to prop up the market suffering from retail traders distrust and sell-offs.

News ID: ۷۵۰۸۸۴

05 September 2020

The managing director of Securities and Exchange Organization Hassan Qalibaf-Asl said the meeting was positive and hoped that the market and investors would soon benefit from the measures agreed at the meeting.

Institutional traders manage more than 70% of the market and are expected to help when times are bad.

Qalibaf-Asl stressed the need for market markers to take action, saying that “they can help balance the market and increase liquidity of shares”.

Market makers essentially act as wholesalers buying and selling securities to balance the market—the prices they set reflect market supply and demand.

They help keep the market functioning. That is if investors want to sell a particular security, they are there to buy. Similarly, if they want to buy a stock, they are at hand to have that stock available to sell to investors.

Regulations governing the operation of market makers are now in place and “they have been asked to participate actively from Saturday,” Qalibaf-Asl was quoted as saying by IRNA.

Following historic gains since the beginning of the current fiscal year (March), Tehran’s share market went into a tailspin from early August.

The benchmark of Tehran Stock Exchange, TEDPIX, grew close to 270% before diving deep into the red and paring 25% of past gains.

Rising to the Occasion

Tempted by the unseen gains, an unusually large number of novice investors rushed to the market after the government rolled out a red carpet and regularly announced that it would support the bourse come what may.

With retail traders hit hard, many said the ball is in the government’s court, insisting that now is time for the authorities to rise to the occasion.

The government has made concerted efforts to prop up the market sporadically by requiring institutional buyers and investment funds to boost demand. But such moves failed to deliver and proved to be a temporary solace.

Institutional buyers bought shares worth 21 trillion rials ($90 million) from retail traders in the last three trading sessions, according to the Securities and Exchange News Agency.

On Thursday, Qalibaf-Asl said it has been decided to broaden the operational scope of investment funds, giving them more leeway in the troubled market.

“Funds help investors with limited financial knowledge, or those who are unable to directly invest in the market… indirect investment is always better.”

CBI Appeal

As concerns grew about the wobbly climate in the stock market, the Governor of the Central Bank of Iran Abdolnasser Hemmati was forced to take a public stance to calm the situation.

In a note posted on his social media account, Hemmati recalled that diverse groups of investors have entered the market. He underscored the need to protect investors’ interest and ensure their long-term presence in the bourse.

He called on the main shareholders in all listed companies, who had made fat profits, to do their fair share as market makers and help in the liquidity of shares.

Market observers blame the main shareholders and institutional traders, and those with “inside information” for the current downturn, saying that they had increased offers when share prices reached the peak.

Hemmati added that the CBI remains in favor of expanding the capital market given its key role in funding the economy.

“The CBI considers capital market expansion and its increasing financial function in line with structural economic reforms and [boosting] financial stability”.

The senior banker added that the CBI will continue increasing its monetary instruments in line with efforts to grow the stock market.

He pointed to implementing the open market operation, expansion of debt market by selling government bonds and issuing the so- called ‘Productive Credit Certificate’ (known by its local acronym Gam) as monetary and financial instruments strongly tied to the capital market.

Gam is a market oriented financial instrument introduced by the CBI in January that can be traded in money and capital markets.  Lenders help credible businesses by offering a tradable credit certificate similar to LCs.  The certificate should be submitted to suppliers of raw materials, machinery and equipment.

Like bonds, the certificates have maturity dates and the supplier can cash the certificate by selling it in the stock market.