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ISX to liberalize transaction cost
August 1, 2005
In a bid to boost trade volume in the small Iraqi bourse, the Governing Board of the Iraq Stock Exchange, ISX, has approved a move to float commission rates charged by the fifty or so brokers licensed to trade in the exchange, according to informed sources. Brokers have been charging a uniform 1% on the value of the buy or sell transaction. Brokers now can charge less or more then 1% depending on the size of the transaction and the range of service they offer, the same source added. The ISX will continue to charge brokers a fee equal to one fifth the commission calculated at 1% for accounting purposes.
Governor of the exchange Dr. Kubba said "the move is aimed to liberalize the market injecting competition among brokers" . "The move is expected to lower transaction cost of doing trade in the ISX to half current figures" he explained. Trade volume in the ISX has increased about 10 folds compared with pre 2003 figures. "But trade is still very small compared with nearby regional exchanges such as that of Amman and Cairo" commented Dr. Kubba adding that the reduction in transaction costs is but one component in a strategy to develop the ISX to regional standards. Current trade figure, hover between $1 million and $4 million.
Automation, opening up to international investors, and improving the regulatory environment to international standards are the other building blocks of the ISX according to Dr. Kubba The Iraq Stock Exchange working with the support of donor countries has been studying automation requirements including electronic trading and a central depository system. It is hoped that this project will bear fruit during 2005. "A lot has been done on the regulatory front" noted Dr. Kubba pointing to the fact that "the ISX is now a self-regulatory organization outside the direct control of government". He explained that oversight over the bourse has been delegated to an independent government agency, the Iraq Securities Commission. This arrangement has freed the bourse from the direct intervention and micro-management of government departments such as the Finance Ministry as was the case in the days of the defunct Baghdad Stock Exchange. He added "as result the bourse is that much more efficient and is free of caps on price movements that were imposed by the Ministry". A second tangible result of the new regulatory arrangements has been that members of the bourse have been able to democratically elect the management of the ISX. Last June some fifty members of the exchange successfully arranged a general meeting during which eight governors were elected for the ISX.
Dr kubba who sits on the Board of Governors of the Exchange as an independent member with Information Technology expertise acknowledged that little progress has been made on opening the ISX to foreign investors. "This matter is outside the control of the ISX" he explained adding the delay "can be squarely blamed on the current transitional government of Iraq". The ISX has been urging the government of Iraq to sanction the move to open up the exchange to international investors for the last twelve months he said. "We have devised regulatory systems to regulate such trade ensuring property rights of foreign investors" adding "that sufficient measures have also been put in place to prevent money laundering and criminal activities". Despite these measures the government of Iraq remains aloof, he said. "They have neither given the green light nor openly and publicly opposed opening up" he stressed. "This situation is not helping the bourse as both local and international investors have been thrown into confusion" he added.
Meantime trade volume has been slipping gradually. Today's volume, August 1, is just over $1 million compared with $1.5 10 days ago. Prices have been steadily falling also. In particular the last few weeks has seen a significant fall in banking stock. For example the shares of the Middle Bank fell today below the ID8 barrier closing at ID 7.9. The shares of this particular bank were being traded around ID10 couple of weeks ago.
Analysts attribute the decline in the price of banking stock to government intervention. The Company Registrar seems to have blocked transactions according to which foreign banks bought significant holdings in Iraqi private banks. One such deal relates to the acquisition of the Jordanian Export Bank of 49% stake in the Iraqi National (Ahli) Bank. "Investors are still awaiting the resumption of trade in the ISX of the Ahli shares" one broker noted. According to Dr. Kubba the ISX cannot allow resumption of trade of shares that are subject of dispute especially if the quarrel involves the Company Registrar. "The ISX has been informed officially by the Company Registrar that trade cannot be resumed in new share issues by the Ahli Bank" Dr. Kubba explained. He added that "legally speaking an objection by the Company Registrar, right or wrong, to proceedings taken by the Ahli Bank in the issue of new shares means a veto on the resumption of trade in these shares". Informed sources say that this issue which is one of several similar ones has now been put before the cabinet for a quick resolution. The position of the cabinet has not come out yet.
Source: Aman ISX
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