Trading volumes on the Baghdad exchange are expected to receive a boost from Iraqi banks raising capital to meet a proposed minimum capital requirement of ID250bn ($214m).
“Within three years, all operating banks will require a minimum capital of ID250bn,” says Shwan Taha, chief executive of Baghdad-based Rabee Securities. “A couple of years ago, you could have started a bank with around ID50bn.”
$3bn: Iraq Stock Exchange’s current market capitalisation
85: Companies registered on the stock exchange
Source: Iraq Stock Exchange
Banks make up about 75 per cent of the bourse’s weightings and with many needing to issue billions of new shares on the exchange. Current volumes average between ID1.2bn to ID1.8bn of trading a day.
The proposed minimum capital requirements are contained within securities legislation, which lawmakers hope will be approved by the end of 2010.
“The new legislation also contains new requirements for listing companies, underwriters, issuers and brokers,” says Taha al-Rubaye, chief executive of the Iraq Stock Exchange (ISE). “For example, companies looking to list must provide financial statements for the previous two years.”
Approval of the legislation would also result in the creation of important tools such as custodian banks, mutual funds, as well as enabling online trading and companies to list at market value.
In this way, the legislation would not only boost trading volumes, but also attract much-needed foreign investment.
“A lot of funds cannot currently invest in Iraq because there aren’t any custody services,” says Taha. “And it will enable larger companies to list on the ISE, which should prove attractive to foreign investors.”
The current law only permits listings at the value of the company’s capitalisation rather than their market value which has deterred companies from going public.
There are currently 85 companies listed on the ISE. In April last year, the ISE began automated trading on an OMX platform with five companies. Shares from 82 companies are now traded on the electronic system.
The ISE’s market capitalisation currently stands at ID3.5 trillion.