What’s keeping Foreign Money out of Iran’s Stock Exchanges?

Moreover, Tehran Stock Exchange (TSE) regulations are also problematic. At present, nonstrategic ownership of more than a 10% stake in any listed company is prohibited. Furthermore, the TSE suffers from a low average free float ratio, while there are also limits on base volume — the metric used to determine the closing price of a share, depending on quorum of stocks traded daily and on market capitalization of the listed firms.

Additional problematic regulations include the volatility range devised for price movements of equities, meaning shares cannot gain or drop more than 5% per trading session. This is not to mention the lack of online English-language trading platforms, currency fluctuations, weak corporate governance and potential links of large listed firms with powerful political entities.

Finally, the classification of sectors also acts to hinder foreign investment. NASDAQ, which hosts more than 1,800 firms — three times that of the TSE — is made up of just 10 sectors. In comparison, the TSE has more than 30 sectors. This can be mind-boggling for foreign investors, especially since the TSE’s market capitalization is less than 1% of that of NASDAQ’s.

Beyond the domestic barriers to foreign investment, there are important external restrictions that continue to hold back the inflow of offshore capital. Primary US sanctions remain in place, especially impacting correspondence between Iranian banks and major international counterparts. In addition, there are restrictions on dollar transactions imposed by the US Treasury’s Office of Foreign Assets Control.

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