Iran Mercantile Exchange Introduces New Financial Instruments

EghtesadOnline: Iran Mercantile Exchange plans to expand its underlying assets based on new financial instruments, the IME chief said.

News ID: ۷۸۴۶۲۰

27 April 2019

Hamed Soltaninezhad referred to the launching of Dayn (debt) securities, tender-based trade, one-day future contracts and royalty securities as new financial instruments to be put into effect in the current fiscal (started March 21), IRIB news agency reported.

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

The IME chief said earlier that trading in Dayn securities will help enhance liquidation of frozen financial assets of producers and expressed the hope that trade in this security will ease the mounting financial constraints of businesses, according to Financial Tribune.

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 company's revenue.

Outlining the achievements of the IME in the previous fiscal (2018-19), Soltaninezhad said commodity-based securities jumped 385%, and derivative contracts rose 25% compared to a year ago.

The aggregate value of trades in Iran’s capital market reached 4,400 trillion rials ($32 billion) in the previous fiscal, he said, adding that the trades in IME accounted for 39% of the total of Iran’s capital market.

“The value of trades in IME amounted to 1,780 trillion rials ($1.2 billion) during the period”, he said on the sidelines of the 12th Exhibition of Bank, Exchange, and Insurance that ended on Thursday.

“Record Year”

Soltaninezhad called the previous fiscal, “the year of records” for capital market when trades in all IME markets hit unprecedented levels.

During the mentioned period, over 4.7 million tons of petrochemicals worth 370 trillion rials ($2.7 billion) were traded.

As per earlier reports, in the petrochemical and petroleum sector, 1.4 million tons of chemicals, 3.2 million tons of polymeric materials and 1,740 tons of different gases were traded via the IME.

Trades in industrial and mineral products reached 320 trillion rials and about 20 trillion rials worth of agro products were traded during the year.

With regard to agricultural products, 2 million tons of  crops valued at 26.4 trillion rials were traded in the spot market.

The IME chief admitted that the value of trades in agricultural products declined in the second half of the previous year, saying the IME is striving to lift the market with the help of appropriate policies.

In line with this plan and as part of other efforts to expand financing for the agro sector, the IME unveiled an options contract for saffron in March.

During the current fiscal, 66 tons of saffron was traded in the IME physical ring and 27 tons was sold  in the form of certificates of deposit – one third of the total annual production of the costly spice.

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.

“We witnessed 109% growth in the petroleum sector, double growth in the key petrochemical sector and 60% growth in industries,” the IME was quoted as saying.

In addition, about 148.8 million standard parallel salaf contracts worth 20.4 trillion rials were conducted in the previous fiscal.

Standard parallel salaf is an Islamic contract similar to futures, with the difference being that the contract’s total price must be paid in advance.