Is a gradual increase in the amplitude of the oscillation off the agenda?

For more than 15 months, shareholders have been waiting every day for the prices to turn in the glass hall, according to Tejarat News. But the phone does not oscillate to hear expert discussions about the negative effects of range limits. It was five months ago that the then head of the stock exchange organization promised to gradually increase the range of price fluctuations; But according to surveys, this promise seems to have been forgotten.

The downward trend of the stock market continues and for more than 15 months now, shareholders have been waiting for the turn of prices in the glass hall every day. Prices that most experts emphasize on their value, but there are not many buyers in the market. In the meantime, it seems that market managers should not be expected to do anything but verbal support.

Supports that sometimes peak under the pressure of protests and make the market green for a few days, but again day after day and day after day. The complaints of the shareholders and the advice of the experts do not come to fruition either.

Experts who have been talking about the challenges in the trading rules of Tehran Stock Exchange for several years, and place great emphasis on eliminating the range of fluctuations and canceling the mandatory pricing imposed on the stock exchange industries. Perhaps this is why sometimes, at different time points, the policymaker publicly opposes these line-up restrictions but does not provide a written plan to address them. Last year, the Supreme Council of the Stock Exchange left the decision on the range of fluctuations to the Exchange Organization.

In this regard, in early July of this year, Mohammad Ali Dehghan Dehnavi, the then head of the Exchange Organization, announced, “According to the decision of the Supreme Exchange Council, it has decided to move in the direction of adding half a percent to the fluctuation range every month. Does not exist.” About 5 months have passed since that promise.

Dehnavi has been replaced by Eshghi, many officials of the Exchange Organization have changed, and many former members of the Supreme Council of the Exchange are no longer present.

In these circumstances, however, the promise of a gradual increase in the amplitude of the oscillation seems to have been forgotten. The members of the Supreme Council of the Stock Exchange talk about handing over this decision to the Exchange Organization and emphasize that in the previous meetings of this council, the issue of the scope of fluctuation has not been raised anymore. The officials of the stock exchange organization also avoid answering. Isn’t it time to upgrade the stock market by removing the exciting rules? When are microstructures to be made available to eliminate oscillation amplitude? Is there a plan in place? The answer to all these questions seems to be negative from market managers.

Mohammad Hadi Salimizadeh, Public Relations Manager of the Stock Exchange and Securities Organization, says: “The range of fluctuations of all symbols cannot be changed or increased or decreased, but the policy that the board is currently pursuing is not on the agenda at the moment. Let’s move to gradually increase the amplitude of fluctuation in some symbols that have a higher quality and while having a good buoyancy, some components such as subordinated options and loan sales are also active on their symbol. This process will also be logical, step-by-step and prudent. But the issue of reopening the swing range is not on the agenda at all.

Market generalities are more important than details

Hamidreza Danesh Kazemi, the representative of the associations in the Supreme Exchange Council, says in this regard: As you know, the structure of the members of the Supreme Exchange Council has recently undergone changes and I am representing the Brokers’ Council in the Supreme Exchange Council. During this period, only two meetings were held in the Supreme Council of the Stock Exchange, the first meeting was related to the introduction of the chairman of the Exchange Organization and its board members, and the second meeting discussed the generalities of the market. The initial atmosphere is about approving the plans and strategies of the members of the board of directors of the organization, and as a result, there is no talk about increasing the range of fluctuations.

He continued: In the second session of the Supreme Stock Exchange Council, 10 capital market strategies were discussed and issues such as transparency and flow of capital market information, financial literacy and promotion of people’s culture, quality development of financial institutions focusing on indirect investment, market development and deepening Debt, derivatives were discussed with the aim of hedging, developing and completing the product chain, preventive and comprehensive mechanisms for preventing violations, amending laws and regulations with emphasis on the role of the organization, quality and speed of grievance redress, and strengthening infrastructure and technology. But in this meeting, too, there was no talk of increasing the amplitude of the fluctuation.

There was no resolution from the beginning

Mostafa Beheshti-Sersht, a member of the board of directors and former executive deputy of the Exchange Organization, regarding the decision to increase the amplitude of fluctuations during the presidency of Dehvani Dehnavi, said: The issue of determining the amplitude of fluctuations was left to the new board of directors of the organization; But there was no proposal or resolution regarding the monthly increase of half a percent.

He added: “Of course, the gradual increase of the fluctuation range was considered and emphasized by the board of directors of the organization, and this issue was even explicitly mentioned in the decree dated 19 May, in which the fluctuation range returned to positive 5 and negative 5, but various questions were raised about increasing the fluctuation range.” Was; Including at what rate should the fluctuation range increase? What is the range of the domain? Does the oscillation amplitude apply equally to all symbols or not? What are the determinants of the oscillation range of each symbol and what model should it follow? Is the amplitude of the fluctuation allowed to change during trading hours or not? To respond to them, the Center for Islamic Research, Development and Studies was asked to prepare a comprehensive plan in this regard and submit it to the Board of Directors for review.

Beheshti-Sresht stated: Of course, one of the important points mentioned in the instructions that were approved by the board of directors of the organization in August of this year, is the possibility of increasing the fluctuation range of symbols with market-oriented. According to Article 21 of this instruction, the market maker can propose to the stock exchanges to increase the range of price fluctuations during the marketing activity, which is in accordance with the criteria approved by the board of directors of the stock exchanges and does not require a license from the organization.

Stock; Responsible for changing the amplitude of the oscillation

Ali Saeedi, a resigned member of the Supreme Council of the Stock Exchange, had previously told the “World of Economics” about holding meetings and programs of the Exchange Organization: ” Majid Eshghi has been the chairman of the stock exchange and other members of the board of directors. Meetings of the specialized commission of the Supreme Council of the Stock Exchange have also begun.

Regarding the reopening of the fluctuation range, he said: “Any change in the fluctuation range of securities is within the authority of the Exchange Organization, and if this organization has a plan in this regard, it will inform.” At the same time, given that changes in stock market microstructures require special conditions, such as stability and equilibrium, now may not be a good time to open the range.

The wider range of price volatility requires large company size and, at the same time, high free float to eliminate the possibility of price manipulation as well as the possibility of excessive volatility. Saeedi adds: The stock exchange organization may have made a decision to change the price fluctuation during the presidency of Mr. Dehghan Dehnavi, but in the new composition of the managers of the organization, the issue needs to be investigated.

Mass behavior; Gives oscillation range

Pooria Khaledian, one of the stock market experts, stated: “Unfortunately, in the Iranian capital market, the existence of a limited range of fluctuations is a factor in intensifying group and exciting behaviors.” For example, we have seen in many cases that by forming a sales queue in a large symbol, other companies in the industry of that symbol also find a decreasing trend, and sometimes even they are sold in the queue; While the price reduction of a symbol may not necessarily be related to other companies in its group. Now the trading trend of that group is affected until the equilibrium of the mentioned share, while if the range of fluctuation was not limited or wider, the mentioned share reached the price equilibrium faster and we saw less spread of selling pressure to other symbols and group behavior.

The capital market expert continued: “After the fall of the market in August 1999, there were many discussions about maintaining or eliminating the range of fluctuations in order to create balance in the capital market, and some cases were implemented, but in practice it did not have the necessary efficiency. Two reasons; Either there was no serious determination and power to make a change or the decisions were not made in time and their implementation was not principled.

Khaledian added: “In short, in order to develop the capital market, it is better to study similar cases in other stock exchanges in the world and take a step towards the development of the capital market by following the correct example of those markets.” However, the persistence of a limited range of fluctuations in the Iranian capital market not only reduces market risk, but also is one of the market risks that can, in addition to intensifying mass behavior in transactions, delay the market balance for a considerable time.

Elimination of oscillation amplitude requires grounding

Mehrzad Jahani, another stock market expert, despite emphasizing the inefficiency of the country’s stock market due to the limited range of fluctuations, considers its elimination to deepen the market and train traders.

In this regard, he said: “One of the limitations that has existed in our capital market for many years is the range of fluctuations, which has sometimes been accompanied by changes due to different conditions.” If we look at the world’s major stock exchanges, we find that they are often traded without limiting the range of fluctuations, which contributes to market efficiency, which of course requires a deep market, which is not the case in the Iranian capital market.

He added: “From different angles, we can look at the issue of range limitation, which has advantages and disadvantages.” Controlling the excitement of new entrants in unbalanced market conditions, preventing price manipulation by stronger market participants and ‌ can be considered as advantages of fluctuating range and on the other hand delay in discovering the real stock price and creating false excitement in the market can be considered as disadvantages of fluctuating range. In recent months, we have seen a lot of sectarianism in the market, and experience has shown that the smaller the range, the longer and more erosive the trends, which we saw similar to last winter. Jahani stated: “It seems that gradually increasing the range of daily price fluctuations is the most sensible procedure that the organization can provide the conditions for its implementation.”

This procedure can start with large and fundamental shares that also have legal support, and gradually, as the minds of market participants adapt to the new mechanism, it can be applied to medium and then small shares, but in order to reduce the risk of implementing this process. In addition to increasing the amplitude of daily price fluctuations, the base volume can also be increased so that the final price does not face unusual changes in case of emotional trading in unbalanced conditions.

He said: “Also, in order to develop the capital market and step on the path of maturity with acceptable efficiency, the necessary training should be given to capital market activists to witness the complete elimination of the range of fluctuations and the volume of the base at the right time.”

Source: the world of economy

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