Blue model: A new portal in order to attract foreign investors

The CEO of CSDI said: by operating the Blue Model, there would be a major revolution for the entrance of investors into Iran’s capital market

The CEO of Central Securities Depositories of Iran said: by operating the Blue Model, there would be a major revolution for the entrance of investors into Iran’s capital market especially for foreign investors.

As CSDI department of public relations reported, Dr. Mohammad Reza Mohseni mentioned that in the last meeting of the board of directors of   securities & exchange organization, the Blue Model for increasing the pace of attracting domestic and foreign investors had been approved

He, in order to describe the blue model, also added: “in other countries besides using different models about the clearing house activities, there are issues of sensitivity and standards in order to be a member, broker and an intermediate for settling the standards. These concerns have a specified logic and it is the necessity of finalization in a safe and secure situation as to prevent any disruption that may cause or increase the systemic risk.”

Dr. Mohseni continued: “Therefore, the members of the clearing houses in other capital markets are generally from the financial institutions which have acceptable and reliable financial solvency. In Iran capital market, brokers are playing a key role. Brokers, in addition to financial intermediation for trades, perform other services from financial advisory to asset management and clearing the trades in the clearing house

He also added: “Brokers in Iran’s capital market are fully regulated and because of the amount of capital and their small size they are very agile. This feature however is counted as an advantage. However, from the clearing house’s membership perspective and the risk of settling the deals particularly because of the time difference between the cash settlement and securities settlement, it has become one of the reasons for investor’s especially foreign investors to ask for a lower risk option.

Dr. Mohseni  stated : “In order to respond to this request and strengthening the members of the clearing house of capital market,  CSDI therefore has designed a plan to decrease the settlement risk and increase the settlement efficiency  through…the banking system and qualified commercial banks which are interested. Thus, the correspondent bank responsible for settling on behalf of its brokers will settle the commitments of trades. In this model the correspondent bank will play the role of the custodian bank.

He declared that the activities of the custodians have been considered in different events and occasions especially after JCPOA. In this matter, it should be noted that although most of the custody  services in Iran’s capital market is performed by Central Securities  Depository of iran ( from safekeeping to corporate actions, tax services and reporting), other custodial services like asset management , etc. will be performed  by of the other financial institution in capital market.

CSDI’s CEO added: “So far, an independent custodial institution has not been operative in Iranian capital market. Since in most of the countries this kind of financial institutions, especially the international one, is for supporting the investors mainly the retail investors. Foreign investors formerly have been demanding this kind of institution in Iranian capital market.”

He mentioned: “As  the back-office services provider perusing this request of investors by cooperation of  SEO and some of the Financial Institutions,  CSDI has offered a model to Securities and Exchange Organization board of directors which makes settling the  trades feasible for qualified investors (CSDI is responsible for qualification) by triangular cooperation of CSDI, broker and  correspondent bank.”

Dr. Mohseni said: “At the four hundred and twenty fourth meeting of the board of directors, this model has been approved in the form of the refinement for the article 17 of the law of ‘ registry , depository, settlement and clearing in order to provide a new opportunity for attracting the foreign investors in the Iranian capital market.”

He said: “In order to perform this model, by cooperating with the banking system and the support of the brokers, Securities and Exchange Organization and other  pillars  the capital market, CSDI tries to provide the technical, legal and other infrastructural supports. So, by this model it is possible to walk towards developing the foreign investment and offering custodial services.”

The passage of refinement for the article 17 of the law of ‘recoding, depository, settlement and clearing’ which has been approved at the four hundred and twenty fourth meeting of the board of directors is as following:

“The responsibility of settling the securities’ trades for qualified investors belongs to the correspondent bank which has to be introduced through writing to the Central Securities Depository of Iran. Moreover, the specified credit ceiling for any qualified investor has to be determined and announced. By the correspondent bank the settlement of the securities’ trades above the declared credit limit is still the broker’s responsibility.”

Release Date: 10/23/2016

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