Among the measures approved by the stock market regulator to boost the demand side was a decision to allow 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).
The measure is in line with efforts to prevent the further depreciation of stock prices, particularly in blue chips, Securities and Exchange News Agency reported.
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 the price of a stock below a specified price.
If the price of the stock declines below the strike price, the holder of the put has the right, but not the obligation, to sell the asset at the strike price, while the seller of the put has the obligation to purchase the asset at the strike price if the owner uses the right to do so.
SEO’s board members also decided to revise guidelines governing trade in treasury stocks, obliging the issuers to adopt a “buy and hold” approach.
Treasury stock, also known as treasury shares or reacquired stock, refers to previously outstanding stock that is bought back from stockholders by the issuing company.
In addition, the Central Securities Depository of Iran is obliged, in coordination with banks, to facilitate issuing credit cards backed by the so-called Justice Shares in the coming days.
Justice Shares are shares of government-owned companies given free to the six lowest income deciles almost a decade ago. Shareholders were not allowed to sell the shares until last May.
As per the plan, the shares are to be used as collateral and the amount of credit will be 60% of the share portfolio.
The new measures come on the heels of a steep downturn in the struggling share market. On the back of fresh liquidity from neophyte investors, TEDPIX, the main index of Tehran Stock Exchange, crossed an all-time high of 2.1 million points on Aug. 9 – an unprecedented 300% growth since the beginning of the current fiscal year (started March 20) when the benchmark was near 500,000 points.
TSE’s benchmark crashed to reach 1.1 million points, down 45% from the historic levels.
With retail traders hit hard in recent weeks, many blame the government for the chaotic situation, saying that now is the time for the government to fulfill its unending promises to buttress the bourse come what may.
The government has tried to prop up the market sporadically by requiring institutional buyers and investment funds to boost demand. But such efforts have provided temporary relief and failed to restore the trust of novice investors.