Opportunities for the Tehran Stock Exchange
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Discussion Material
Georges Ugeux
2016
Market Capitalisation of Global Exchanges
Figures going into 2015
Approximate Share of Global Market Capitalisation
 January 2015 Figures:
World Market Capitalisation
(January 2015)
 Global Market Capitalisation: USD 69.978 trillion
 Total Americas Capitalisation: USD 29.779 trillion
 Total Asia-Pacific Capitalisation: USD 21.744 trillion
 Total EMEA Capitalisation: USD 18.455 trillion
 Tehran Stock Exchange: Approx. USD 108 billion
27%
 The TSE is well placed among its Western Asian peers – eclipsed in
market capitalization only by Borsa Istanbul, the Tel Aviv Stock
42%
Exchange, and Saudi Arabia’s Tadawul; it is well matched by the Abu
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Dhabi Securities Market.
10%
Trends in Capitalisation – 5 Year
6% 6%
200%
9%
150%
NYSE
100%
NASDAQ
50%
London Stock Exchange Group
Japan Exchange Group
0%
2011
2012
2013
NYSE
2014
TSE
2015
Shanghai Stock Exchange
Other
Market Capitalisation Weight – by Industry Segment
Tehran Stock Exchange (January 2015)
New York Stock Exchange (March 2013)
Cement, etc.
2%
Pharma
3%
Telecoms
4%
Other
15%
Motor
Vehicles
3%
Chemicals
22%
Refined
Petroleum &
Nuclear Fuel
12%
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Metal Mining
6%
Telecoms
8%
Div. Industrials
8%
Monetary
Intermediation
11%
Basic Metals
10%
Utilities Basic Materials
4%
7%
Technology
5%
Consumer
Goods
12%
Oil & Gas
17%
Consumer
Services
8%
Industrials
12%
Health
Care
10%
Financials
21%
Global Trading Volume
Figures going into 2015
Monthly Trade Volume (January 2015)
 January 2015 Figures:
 Global Market Volume: USD 8.231 trillion
Trading Volume
 Total Americas Volume: USD 4.130 trillion
 Total Asia-Pacific Volume: USD 3.044 trillion
 Total EMEA Volume: USD 1.220 trillion
 Tehran Stock Exchange: Approx. USD 747 million
 The TSE’s trading volume is less than that of its Western Asian peers:
the Tel-Aviv Stock exchange has a monthly volume of about USD 4.209
18%
38%
15%
billion, the Tadawul about USD 43.126 billion, and the Bolsa Istanbul
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about USD 40.599 billion.
14%
5%
10%
NYSE
Shanghai Stock Exchange
NASDAQ
Shenzhen Stock Exchange
Index Performance
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5-year Performance
Index Performance (with TEDPIX)
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5-year Performance
The key challenges of regulated stock exchanges
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What we learned in US and European securities markets
Georges Ugeux . Tehran
2016
Governance
The Governance of the Exchanges
Corporate Governance
 Membership organizations
 Corporate Governance is key to the trust of investors
 Collusion between the Exchange and its members
to the detriment of investors
 Institutional investors questioning the use of their
orders to the benefits of the brokers
 Lack of transparency of the market structure
 Listed Exchanges
 Lack of ownership of the financial community
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 IPO is a One-off bonanza that makes members rich
and less committed to the future of the Exchange
 Conflicted interests from other platforms
 Key elements
 Transparency and timeliness of information
 Disclosure of significant events or evolutions
 Board composition and treatment of conflicts of
interests
of
Board
Members,
especially
representing the public sector
 Capacity to
interests
defend
effectively
 Rules on conflicts of interest
 Insider trading
 Financial expertise
 Board Committees
shareholders
Regulation
Member Firms regulation
Exchange Rules
 Self Regulatory structure
 Rule making
 Independence of the internal regulation from the
members
 How rules are conceived internally
 Supervision of Members
 Consultation of constituencies to ensure buying-in
of the proposed rules
 Implementation of the Exchange Rules
 Approval by Regulators
 Internal Audit
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 Regulatory authorities
 Rule implementation
 Inevitably influenced by the political world.
 Requires an Independent regulatory group
 Statutory rights of the regulator
 Definition of sanctions
 Risks of micro-managing
 Audit by regulators
 Support of the promotion of markets: good
regulation is a competitive tool
 Ability to mobilize law enforcement
Technology
Exchange technology
Mastering IT competition
 Trading technology
 Level Playing field.
 State of the art trading platforms are less
expensive and more accessible
 Exchanges need to be ahead of unregulated
trading platforms
 Speed needs to be controlled and enhanced
 Interconnectedness with members if critical in IT
reforms
 Robustness against hacking
 Approval by Regulators
 Trading floor vs. electronic platforms
 No need to take a defensive attitude
 Compatibility between the two systems
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 Block trades and market price influence require
trading skills
 IT as a competitive tool for exchanges
 Exchanges must be state of the art
 How to turn IT into a loyalty program for members
and investors
Liquidity and Bonds
Liquidity
 Liquidity providers
Bond market on exchanges
• Exchanges are not the optimal place for bond trading
 Primary liquidity: investors. Role of institutions vs
individuals
• Over the counter experience
• Future role of the banks in bond financing under
Basel III
 Secondary liquidity: market making. The absence
of market maker increases liquidity ruptures and
price errance
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 Price discovery
• Bonds are mostly institutional
• Islamic bonds
 Price discovery needs to be made on the
Exchange: losing priced leadership would be a
mistake
• Islamic finance is a limited segment of the
market, but a vibrant en effective one
 Circuit breakers of markets must be wide (at least
2X peak volatility: the Chinese experience in 2016
• The two compartments can easily cohabitate
 Circuit breakers on companies are important for
large capitalizations. Smaller ones would never
trade
• Could corporate bonds be structured both ways
•
Need for interest rate policies and arbitrage
• Interest rate derivatives
• Credit derivatives
Enhancing the Brand
Brand is based on reputation
 The leading brand must be trustworthy
Enhancing the brand
• Cobranding
 Integrity matters
• Third Party Advocacy
 Governance is paramount
• Leading events with key partners of the financial
community
 Transparency builds confidence
• Cobranding with listed companies
 Stock Exchange brands are natural leaders if
• Supporting members brands
 They are the center of price discovery
 They run the leading index
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 They listen to their members, but also to the listed
companies
 Their governance is dealing with possible conflicts
of interest
• Enhancing the brand
• New products branded by the exchanges
• Public and Media relations
• Investor relations
The Tehran Stock Exchange after the sanctions
Then opportunity of a generation to build the foundations of growth in Iran
 The Tehran Stock Exchange has an appointment with Iranian History. It is at the dawn of its development.
 Growth with equity is the key to corporate Iran and the growth of the country
 Iran privatization is a TSE opportunity by promoting IPOs
 Build an international strategy
 International Finance Corporation
 World Federation of Exchanges
 TASE and regional Exchanges
 Build liquidity while preparing opening to foreign investors
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 Risks of hot money could disturb greatly the markets. Need for a selective access by long term investors
(excluding foreign hedge funds for example)
 International dissemination of information
 Roadshows with companies and investors outside of Iran
 Close cooperation with Bank Markazi and Securities and Exchange Organization
YES WE CAN
MERCI