CENTRAL EXCHANGE

Iran 2017 | FINANCE | INTERVIEW

TBY talks to Dr. Hossein Fahimi, Chairman of Central Securities Depository of Iran (CSDI), on providing the infrastructure for trading activity and ensuring its procedures and structures fully comply with international standards.

Dr. Hossein Fahimi
BIOGRAPHY
Dr. Hossein Fahimi is Chairman of the Central Securities Depository of Iran. He holds over 25 years of experience in the capital markets and financial services industry. His financial experience embraced his professional rise in the Securities and Exchange Organization of Iran (SEO) as a member of the Secretariat of the Arbitration Board. Previously, he was Vice Chairman of SEO and headed the Iran capital markets regulator, playing an active role in drafting, designing, and managing legal issues in the Iranian capital market.

What role does CSDI play in managing the systemic risks in Iran's exchange markets?

CSDI is the sole company responsible for providing the infrastructure for pre- and post-trade activities in Iran. We have four exchanges in Iran: the main Tehran Stock Exchange; Iran Fara Bourse, which is the over-the-counter (OTC) exchange; an energy exchange; and a commodity exchange. It is our responsibility to make all post-trade activities, including PS, SSS, and then CCP, and do the clearing after this. CSDI is the only company for post-transaction settlement and clearing activities in the four exchanges. It is important to have consistency between these and CSDI. We should have a central payment system to reduce all risks such as credit, liquidity, and legal. In terms of liquidity and settlement risk, we have a collateral management system that provides sufficient liquidity for executing previously failed obligations. We founded a special fund, the Settlement Guarantee Fund (SGF). We are able to clear all activities and transactions through brokerage firms and do not need a direct connection with individual investors. Since late 2015, CSDI has launched the Blue Model for reducing default risks in transactions. In this model, a correspondent bank will play the role of the custodian bank, and foreign investors will no longer have any concern about the default risk. It is worth mentioning that brokers will continue their responsibilities just as before and receive their fees. The point for the new situation is that there will no longer exist any default risk of broker's settlement commitments because a new account will be opened in the bank under the name of the investor for the settlement process.

Which steps need to be taken to make the Iranian capital markets better developed and more internationalized?

The internationalization of the Iranian capital markets is an entire program in which the exchanges, the regulatory body, and CSDI each have their own tasks. We are responsible for providing the main infrastructure in the market but are not in charge of making transactions or approving regulations. We are going to make the Iranian markets more similar to other prominent markets in the world in terms of the regulatory environment, IT software, standards, and risk-management mechanisms for which we are planning to revise all pre- and post-trade-related procedures and structures to fully comply with international standards.

What would be your message to international investors who are thinking of entering Iran's capital markets?

Iran is one of the most stable countries in the Middle East and is known as a land of opportunity. After 10 years of sanctions, it is a largely untapped market, with many uncompleted projects in different fields and investment opportunities in infrastructure, oil and gas, and mining. Iran offers a diversified market, with over 40 different fields of industry active in the Iranian capital markets. Iran has one of the highest interest rates in the world, at around 20%, and has succeeded in curbing inflation to under 10%. We have succeeded in providing a range of financial instruments to both local and foreign investors. We have had few credit risk events and have never defaulted in our history. In addition, SEO has assigned all Iranian listed companies to apply IFRS regulations to their financial statements and other audited financial reports in order to enhance not only the transparency but also the fairness and efficiency of the capital market. Moreover, we are going to improve and enhance our situation and create more similarity between the Iranian and foreign markets by applying internationally accepted standards such as IFRS and IOSCO regulations to internationalize the Iranian capital markets and improve relationships with our foreign counterparties. Our final message to all international investors willing to enter Iran's capital market would be that CSDI is fully prepared to provide custody services for any foreign natural or legal entity.