IRAN. The Tehran Stock Exchange (TSE) today begins offering derivatives based on Iranian banks to diversify its market and attract foreign investors.

The exchange is introducing six futures contracts on two banks, Managing Director Hassan Ghalibaf-Asl told Bloomberg July 23 in a telephone interview. The contracts, based on Parsian Bank and Karafarin Bank, will expire in two, four and six months. The exchange said it hopes to increase the number of companies covered by futures contracts to at least 10 by March.

“This new product will attract the foreign investors to Iran’s capital market, which isn’t very well known to them,” Ali Karamad, owner of Tehran-based asset management company Karamad Group, told the news agency. “It gives them security, knowing that Iran’s market is introducing instruments similar to those in international markets.”

Investors in emerging markets have received better returns than those in Europe and U.S. over the last year. The MSCI Emerging Markets Index rose 19% in the past 12 months, compared with a 12% gain in the Standard & Poor’s 500 Index and 16% for the Stoxx Europe 600 Index.

The TSE’s benchmark index, the TEDPIX, surged 55% in the first half, making it the second-best performing broad market index, according to the World Federation of Exchanges.

The  index hit a historical record of 14,987 on July 12. 

Since the beginning of the new Persian year year in March 2010, the index has risen from 12,537  to  near 15,000, Fars News Agency reported.

While Ghalibaf-Asl predicts the exchange will be “attractive to foreign investors,” it faces the obstacle of international sanctions on Iran over its nuclear development.

“It is questionable that they can attract a significant level of foreign investment or trading” because of the sanctions, Professor Bruce Weber, who specializes in electronic trading and exchanges at the London Business School, told Bloomberg.

“Will they be able to attract international investors?” Weber asked. “Some of the questions people will have are ‘could an investor repatriate the dividends?’ A local investor might not need to ask, but an international investor would.”

Karamad said that while the sanctions “won’t be entirely ineffective,” the government has promised that the measures won’t threaten foreign investors’ funds.

“Iranian banks are working with intermediary banks,” Karamad said. “HSBC and Barclays may comply with sanctions, but we can work with banks in Kuwait, Azerbaijan and other countries. The whole world hasn’t sanctioned us.”

The Tehran Stock Exchange, founded in 1967, today lists 337 companies with a total value of 732 trillion Iranian rials (US$81 billion). An average of 1.2 billion shares were traded daily in the Iranian month of Khordad, which ended June 21, and an average of 9,886 trades were completed per day, according to data on the exchange’s website.

“The futures market will be received very warmly,” Karamad said. “It gives the traders a 1-to-10 leverage, which will lead to higher profits for clients and for the brokers. Those who have a higher appetite for risk will favor futures deals.”

“Our plan is to increase the number of companies whose shares are offered in futures contracts to at least 10 by the end of this year,” Ghalibaf-Asl said, referring to the Iranian year ending March 20. “We’re working on an index whose futures could be offered next year,” he said.

“Sukuk and options may be the next instruments in line to be available for Iran’s traders,” Hossein Khezli-Kharazi, general secretary of the country’s Securities & Exchange Brokers Association, said.

Iranian Minister of Economy Seyyed Shamseddin Hosseini has called on July 23 for more foreign investment in a bid to boost the country's revenues.

Speaking at a conference on foreign investment, Hosseini highlighted 'financial prosperity as one of Iran's top priorities to fully utilize the vast potential in the country,' IRNA reported Friday.

Hosseini expressed optimism that reforming foreign investment regulations has contributed to a surge in  investments.

One of the regulation changes lifts the ban on investors to withdraw their capital or interests for a period of three years, the minister said. 

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