As we discussed in “Consensus Trading Market (CTM) article“, CTM aims to ease the trading of companies which have not been accepted in any market of Tehran Stock Exchange due to some limitations about number of stockholders, number of free-floating shares, company`s registered capital, profitability status, equity to total assets ratio and etc.
According to Mr. Hamooni, CEO of Farabourse Exchange, since June 2011, more than 160 companies have been listed in Farabourse base market. He added that 53 of these are companies that were delisted from Tehran Stock Exchange (TSE) and the rest are the ones that haven’t been listed in TSE and according to law, their stock’s trades should be done in base market. Almost 30% of companies in TSE and Farabourse are in the base market. This market is riskier than other markets in terms of transparency and disclosure. It aims to discover reasonable price and also to provide the possibility of trading for shareholders who want secondary trading.
A new classification in order to implement the instructions for acceptance, supply and transactions of securities in Iran’s Farabourse Exchange was announced on February 28, 2017. prior base market and CTM were merged and are classified in three new categories: A, B and C based on new instructions.
What is the criteria of this classifications?
Financial institutions including different exchanges and Central Securities Depository of Iran were classified in class A. The responsible committee considered liquidity and transparency as essential criteria in order to determine the boundary between B and C classes.
In the first step, disclosure based on auditor’s report is considered. If the auditor’s opinion about the company is unqualified or qualified the company’s tick is shown in class B and if the auditor’s opinion is adverse or disclaimer, the tick will be transferred to class C. Besides this, companies’ liquidity factor should be at least 10% in order to be in class B.
In class A, the fluctuation range is 5% similar to First and Second market of Farabourse Exchange. In this market, pre-opening session is from 8:30 A.M to 9:00 A.M and the core trading session is during 9 A.M to 12:30 P.M.
In class B, fluctuation’ range is 10% and the first pre-opening session is from 8:30 to 9:00 A.M, after that continuous auction is during 9AM to 12 PM. The second pre-opening starts at 12 and finishes at 12:30 PM. At 12:30 PM, discontinuous auction will be done. Trades in class C are done only on three trading days: Saturday, Monday and Wednesday. Trades in this class is done through two discontinuous auctions at 9 A.M and 12 PM. In this class, there isn’t any fluctuation’ range.
In the past, trading in previous base market and CTM faced different problems and was done apart from the natural flow of demand and supply. This issue created major disruptions in transparency of trades in these markets. But recently, it’s possible for customers to trade online and this can lead to facilitate the trades. Although uncertainties and lack of transparency is high in base market, new instruction and actions help traders and investors to decide more wisely.