Removal of sanctions: a chance to invest in Iran Mercantile Exchange
By Farhad Daneshvar
Iran has entered the 2016 with the good news of the removal of banking sanctions on exporting petrochemical products - a gift to Iranian banking sector, petrochemical industry and its Capital Market in particular the Mercantile Exchange.
On the second day of the New Year, Iranian sources reported that after five years of sanctions on the Islamic Republic’s banking system, Tehran finally received payments for exports of its petrochemical products through an international bank in Spain, a breakthrough for both Tehran’s petrochemical industry and the financial system as well.
Petrochemicals and oil based products alongside with a range of agricultural products as well as metal and minerals are traded in Iran’s Mercantile Exchange (IME). The recent removal of sanctions on Iran’s banking system can be considered as a green light for foreigners to think of investing in the IME.
Iran's Foreign Minister Mohammad Javad Zarif has also vowed the removal of rest of the sanctions in the coming days which is expected to pave the way for foreigners to invest in the country and its commodities exchange of the IME.
Iran Mercantile Exchange was established in September 2007, following the merger of the agricultural and metal exchanges of Tehran. Trades in the IME are carried out in the spot, derivatives and secondary markets.
According to the Regulations Governing the Foreign Investment in the Exchanges and Over-The-Counter (OTC) Markets, foreigners wishing to invest in Iran’s capital market have to obtain a trading License from the Securities and Exchange Organization (SEO).
The IME announced that about $124 million worth of various commodities weighting over 0.292 million tons were traded in its domestic trading and exports halls between Dec. 26-31.
IME Total Market Data Dec.26.2015 – Jan. 6.2016
Meanwhile, in December 2015, 1.42 million tons of different commodities were traded on domestic and export trading floors, including 0.814 million tons of various commodities worth more than $357 million in oil and petrochemical trading floor, 0.594 million tons of different products worth approximately $226 million in metals and minerals trading floor, and approximately 0.109 million tons of agricultural products worth $23 million in agricultural trading floor in the spot market.
Officially, products and commodities are listed and traded in the IME in three classifications: Industrial Products and Commodities, Oil Products and Petrochemicals as well as agricultural products.
Ferrous and non-ferrous metals such as steel, different types of cement, coke, precious metals concentrate, and other basic products are traded in the industrial products and commodities classification in the industrial trading session from 10:30 to 12:00 (GMT+3.5 hours), in metals and minerals trading floor through semi electronic open outcry. Gold bullions are traded from 12:00 to 12:30 (local time) in the same trading floor.
The trades of oil products and petrochemicals are carried out from 13:30 to 16:00.
Products such as cereals, oilseeds, oilcakes, wheat, feed wheat, feed barley, yellow corn, maize, raisin, lentil, chick peas, sugar, meat, eggs, saffron and pistachio are traded in Agricultural classification in the fully electronic multi-commodity trading system.
Offerings and orders
Offerings of the commodities in the spot market are announced and notified 24 hours, before the trading takes place, through the exchange website so the sellers and clients would be able to place their orders with the brokers and rest assured for trading to be matched and cleared.
In the derivatives market the clients order their trades as per specifications of the futures contract and in accordance to the order types specified in terms of order validity and the price.
Tradable contracts in IME:
Seven types of contracts including cash, forward, credit and futures facilitated trade in the IME based on the settlement and clearing terms as well as conditions mentioned in the offering notice of the traded commodities.
In this type of contracts, the buyer is obliged to pay in cash the total contract value in addition to broker's commission fees, and the seller is required to deliver the commodity within 3 days.
In this type of contract, the whole contract value is paid by the buyer and the seller is committed to deliver the product in specified date and time. This type of contract is considered as a financing instrument for sellers.
In this kind of contract, the product is delivered to buyer immediately, and its value will be paid to seller in maturity date. This type of contract is considered as a financing instrument for buyers.
Futures contract is a kind of contract in which the seller is committed to sell a certain amount of product at a given price in maturity date and in contrast, the other party undertakes to buy the product with the same characteristics in maturity date. In order to have both sides fulfill their obligations, they shall deposit a certain contract value as collateral to clearing house and in accordance with futures price fluctuations shall adjust the initial collateral. On their behalf, the clearing house can give the possession of a part of collateral to the other party as "concession of the occupation". The juridical meaning is that both parties permit clearing house to tenure the collateral.
5-Call Option Contract
A call option contract is a contract giving the holder the right, but not the obligation, to buy a specified amount of a commodity or a commodity-based security at a specified price within a specified time from the owner. The owner will be committed to sell the commodity or the commodity based security on holder's request.
6-Put Option Contract
A put option contract is a contract giving the owner the right, but not the obligation, to sell a specified amount of a commodity or a commodity based security at a specified price within a specified time to holder. The holder will be committed to buy the commodity or the commodity based security on owner's request.
7-Standard Parallel Forwards Contract
It is a kind of contract in which a given amount of commodity will be sold based on standard parallel forwards contract features. The contract value shall be paid in accordance with contract in settlement deadline and the commodity shall be delivered in maturity date. The buyer can sell the equivalent amount of purchased commodity via standard parallel forwards contract.
According to Iranian law ten percent (10%) of income tax gained from sale of the commodities listed on the commodity exchanges and ten percent (10%) of the income tax of the companies whose shares have been listed for trading on the domestic or foreign exchanges and five percent (5%) of the income tax of the companies whose shares have been listed for trading on the domestic or foreign OTC markets shall be exempted with the approval of the SEO as of the listing year to the year during which they have not been de-listed from the listed companies on such exchanges or markets.
The companies whose shares are listed for trading on the domestic or foreign exchanges or on the domestic or foreign OTC markets shall enjoy a tax exemption for doubling the afore-mentioned exemptions provided that they have at least twenty percent (20%) free–floating shares at the end of their fiscal year as confirmed by the SEO.
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