After establishing the stock exchange mechanism in Iran, it should be noted that one of the most important missions of this market has been providing high liquidity. In a simpler word, every investor desires to be able to liquidate his or her stocks any times he wants or at least in a very short period of time.
However, the long-term halt in the trading of symbols in the stock exchange and Farabourse is the opposite of such mission. A glance at the historic records of many shares listed at the securities and exchange market shows that, halts such as this or long-term suspensions of their symbols have occurred frequently in the market. Suspension in the trading symbol of refining companies in the securities market during recent years resulted in a decline in the capital of many investors up to 70 percent after waiting for the reopening of the symbol for many months. Such incidents in the stock market have occurred frequently and their persistence can lead to diminished confidence of the investors.
Currently, almost 9 percent of symbols listed at the stock exchange and Farabourse have been halted due to various reasons including ambiguity in information, non-presenting of financial statements on time, non-organizing of general assembly of share holders and other cases. Three banks, namely Saderat, Mellat and Tejarat have been interrupted from trading based on the requirements of the Central Bank to provide financial statement by international standards and very recently after 9 months from the beginning of the fiscal year the financial statements of the Saderat Bank have been issued on the issuers’ system revealing 34 Tomans loss for each share. Now, since these shares have not been traded during the past four months, shareholders and many investment funds will face loss after the opening of the symbol.
One of the strangest incidents that happened during the past months was the incident of the Electricity Meter Manufacturing Company (Sherkat Kontorsazi Iran). After being traded at prices lower than one thousand Tomans (ten thousand Rials), the share of this company reached the level of two thousand tomans in a very short period and very suddenly following the suspension of the symbol, it increased by 4 times the level of its opening after only a few months. This occurred at the time when audited financial statements of the company have also appeared on the issuers’ system and the shares have been traded in the market for some time and suddenly their trading was halted and all the incidents including the same audited statements are being contradicted by relevant foundations. There is still ongoing conflicts regarding the profitability of this company and in the meantime only those investors who had allocated their capital to buying shares of this company have suffered significant loss. The above mentioned cases are only examples of trading halt and suspension at the securities exchange market.
Although suspension of a symbol has been designed and implemented with the objective of further transparency regarding the information of companies and the capital market and the administrators of the capital market have also announced that the trading halt of a symbol will only last one week, however, in certain cases the extension in the halt will result in the blockage of the investors’ capital in that company’s shares and therefore creating a limbo for investors until the directors of the company take effective measures to end the halt and provide the required information. Examining the suspended symbols reveal that in some cases halts have lasted for a number of months or even over a year and despite the request of the organization to receive the required information concerning the performance of the company, directors of such companies have not carried out any fundamental measures in this regard and as mentioned earlier their behavior leads to the blockage of investors’ capital and further loss for them. Now, not only the organization should be held accountable towards investors for halt in the trading of companies, but also investors should pay the opportunity cost of their blocked capital.
As pointed out above, the symbol of banking companies have long been suspended from trading. As a result, approximately 6 percent of total value of the capital market has been locked and in this situation the performance of the total index has become vague. Normally, companies that end their fiscal year in March (Esfand) should hold their general assembly within the months of Ordibehesht until Tir. Considering the past trend it can be said that historically Banks’ assemblies are held at the end of the month of Tir, this year also banking companies prepared themselves to organize their assemblies. However, their financial statements were not approved by the Central Bank due to the disagreements between the Central Bank and Iran Auditing Organization concerning the auditing method of banks. Central Bank’s standards are the relatively strict “IFRS” which is the basis of the modern standards, and as expected most banks faced significantly negative adjustments. As an example mentioned earlier, Saderat Bank had announced its last profit for the year 1394 to be equal to 150 Rials per share, but in the last audited report the above number had a 327 percent negative adjustment and turned into a loss of 340 Rials. In fact, this company has created a loss equal to one third of its board value of 100 tomans at the time it was closed.
Although capital market administrators had the objective of protecting small investors when they halted the above symbols so that they return to the market with more clear financial statements, however such measure resulted in their loss. The symbols of Saderat Bank, Mellat Bank, Tejarat Bank and Post Bank have been suspended on 24th of Tir, 28th of Tir, 29th of Tir and 2nd of Sharivar, respectively, banks whose value constitute over 206 thousand billion Rials (equivalent of 6 percent) of the total value of the stock market. Also in Farabourse the symbols of Dey Bank, Tourism Bank and Iran Zamin Bank have been suspended since 29th of Tir, 24th of Mordad and 27th of Ordibehesht, respectively, which represent more than 20 thousand billion Rials (equivalent of 5 percent) of Farabourse.
In such conditions, investors will face numerous problems considering the suspension of banks’ symbols and as a result many other institutions in the capital market will face new challenges. On the other hand, the symbol of Mapna Group as one of the largest companies that are active in the country’s electricity industry has been suspended, due to disagreement among major shareholders of the company. Considering that most halted symbols have faced significant negative adjustments, it is possible that they have inappropriate reopening, thus leading to an unreal stock market index.
Another outcome of halt of symbols in the capital market is the two way loss for credit clients. In case the acquired credit by the client is not settled, then additional interest costs will be imposed on the client and this trend will enter both the client and the brokerage in a lose-lose deal. On one hand clients face difficulties repaying the principal of the capital they allocated to the company’s shares, and on the other hand they have to pay interest for shares they cannot even sell. As a result, the author believes that in this situation, this ability to liquidate is also questionable. Such condition will not have convenient consequences and new investors will not enter into such market.
However, it should be noted that prolonging the halt in the trading of symbols is neither the desire of the supervising institution, nor that of the executive institution of the market. The reason is that none of these institutions desire the halt to become longer and liquidity is of great importance for both. However, in some cases there is no other solution than suspending the trade of a symbol in order for the companies to provide clear and correct information, something that has not been realized for the companies mentioned earlier.
Such incidents will only lead to reduced trust from investors and the only way to avoid it is a change from within the companies, a change that will hopefully be implemented soon to prevent further loss for the investors and regain their trust.