SEO to Change Daily Price Spread for Supporting Retail Investors

EghtesadOnline: The Securities and Exchange Organization plans to change the daily price spread from the current ±5% asymmetrically as of Feb. 13, according to SEO's managing director.

News ID: ۷۸۵۹۴۷

08 February 2021

Mohammad Ali Dehqan-Dehnavi made the statement late Saturday, citing decisions made by the High Council of Securities and Exchange, the top stock market policymaker.

As per the decision, share prices will spread from -2% to +6% per day, according to Securities and Exchange News Agency.

The new measure is aimed at avoiding the further depreciation of share prices and supporting millions of retail investors suffering a pile of losses.

"Narrowing the price spread to -2% will give investors more time to analyze their shares and avoid the further devaluation of equities," he said.

Riding on the back of fresh liquidity flooding the share market, the main gauge of Tehran Stock Exchange, TEDPIX, jumped 300% in less than five months and crossed the historic high of 2.1 million points.

Triggered by the institutional traders’ huge selloff, mostly in shares of companies affiliated to the government, the bubble burst and the TEDPIX crashed and lost half its value, leaving millions of retail traders in the lurch.

Other Measures

The stock market regulator earlier in the week allowed the Capital Market Stabilization Fund, a fund created to help resolve the credit crunch in the bourse, to issue put options worth 30 trillion rials ($125 million).

A put option is a financial market derivative instrument that gives the holder the right to sell an asset at a specified price (the strike) by a specified date. Put options are most commonly used to protect against a fall in stock price below a specified level.

SEO’s board members also decided to revise guidelines governing trade in treasury stocks, obliging issuers to adopt a “buy and hold” approach.

Treasury stock, also known as treasury shares or reacquired stock, refers to outstanding stock that is bought back from stockholders by the issuing company.

The newly-appointed chief of SEO also pointed to a plan for establishing a union to protect the right of retail stock traders.

"Preliminary steps have been taken to set up the retail investor union," Dehqan-Dehnavi said.

Apart from partaking in regulatory decisions, the union could be tasked with improving the financial literacy of individual traders.

Given the unprecedented increase in the number of retail traders in recent months, observers say now is the time to give voice and space to retail investors in decision-making.

Tempted by unprecedented gains in the first few months of the current fiscal year, 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.