Iran Mercantile Exchange in a Glance

Introduction The need to an organized market which could be able to make a free interaction

between supply and demand and the positive impacts of such a market on the

production and consumption, made the government and the parliament of Islamic

Republic of Iran take the required legal measures to establish and operate Mercantile

Exchanges in Iran. Eventually, Tehran Metal Exchange was established in September

2003 as the first commodity exchange in the country. Later on, Iran Agricultural

Exchange was established in September 2004.

Subsequently, Tehran Metal Exchange merged with Iran Agricultural Exchange and

formed Iran Mercantile Exchange Company (IME) according to the approval of the

Exchange Supreme Council and the new Act of the exchange and securities market of

the Islamic Republic of Iran.

The Iran Mercantile Exchange utilizing the valuable experiences of the metal and

agricultural exchanges and aiming at establishing an organized and self-regulated

market for trading of various products and commodities launched operation on August

20 of the year 2007. The brilliant and efficient performance of the IME encouraged the

government to pursue the policy and process of deregulation of the market prices

leading to real and sound price discovery of numerous products and commodities,

through IME.

In light of this the government ratified the bill to deregulate the pricing of the

petrochemicals and petro products on 27/01/2008 in order to set up a viable market and

to provide access to a transparent and fair market place for the real consumers within

the framework of launching the crude oil and oil by-products exchange and, such a

momentous responsibility was vested in IME.

By virtue of this resolution the oil ministry and the affiliated departments and

companies were required to take action to offer the oil derivatives publicly on the

trading floor of the exchange as per regulations.

Shortly after the resolution was passed, the first phase of the crude oil exchange dubbed

as the ” oil and petrochemical products exchange” was inaugurated on 18/02/2008 with

the oil and economic affairs ministers in attendance and the exchange officials

 

simultaneously in Tehran and Kish Island Free Trade Zone trading floors through

which transactions of all ranges of oil products and petrochemicals officially

commenced. Later on, in November 2009 the international trading floor of crude oil and

petrochemical products in the Kish Island was put into operation with Dr. Shamseddin

Hosseini, the minister of economic affairs, in attendance, which aims at providing

facilities for trading of the exporting commodities.

Now IME, having more than 7 years of experience, is engaged in trading of minerals

and metals, petroleum and petrochemicals and agricultural products in the form of

spot, credit and forward contracts. It has also launched futures contracts on Copper

,Gold bullion and Gold coins which will be extended to other products.

Vision & Mission Since Commodity Exchanges are considered as organized markets for lawful exchange

of commodities and as a means for development of the capital market and different

economic sectors, the results of their performance may have a very concrete impact on

production, distribution and consumption sectors and eventually, economic welfare of

societies, as commodity exchange reflects the desires of producers and consumers and in

such a market, all the market participants act in a competitive, transparent and

regulated environment.

The most important objectives and outputs of mercantile exchange are the following:

1-Creating a lawful and organized market to facilitate the exchange of commodities

2-Organizing the commodity market through the executive mechanism supervising

proper performance and ensuring the interests of transacting parties

3-Transparent price discovery based on interaction between supply and demand and

the market needs

4-Providing risk management to the market

5-Possibility of transactions in spot, credit, futures and options and other modern

financial instruments.

6-Expansion of investment and providing financial facilities for transactions

7-Providing information on domestic and foreign market conditions of the admitted

commodities in order to bolster the knowledge of market participants

The Pillars of IME

 

Pillars of the IME (Public Joint Stock) are as follows:

1)General Assembly

2)Board of Directors

3)Managing Director

4)Inspector/Auditor

The Company is managed by an uncharged Board of Directors consisting of seven

members who are elected for a period of two years by the Ordinary General Meeting

according to the Articles of Association, Trade Act and internal regulations. The Board

of Directors elects an individual other than the members of the Board of Directors as

Managing Director for a period of two years.

Tradable Contracts in IME 1- Spot Contract: In this contract, the buyer should pay the total price of the contract

plus the broker’s fees in cash and seller must supply the traded goods to the buyer

within a maximum of three days.

2- Forward Contract: In this contract, the buyer pays the contract total price at the

time of transaction and seller will supply the goods on the previously declared maturity.

3- Contract on Credit: In this contract, commodity is supplied to buyer immediately

and its price is paid to seller on maturity date.

4- Futures Contract: In this contract, the seller commits to sell a specified amount of an

underlying asset to the buyer against a specified amount of money on a specified

maturity date, the seller delivers the asset at a specified maturity and the buyer pays the

amount of the contract. The parties authorize the clearing house to withdraw from their

margin account an amount proportional to price fluctuations and trend. Either party

may, before maturity date, and through conversion of commitment, transfer its

obligations to a third party, and closes the contract after settlement. All contracts shall

be settled on the agreed maturity date stated in the contract specifications.

5- Options Contract: This includes call option and put option.

5-1) Call option: The right but not the obligation to buy a specific amount of a given

commodity at a specified price during a specified period.

5-2) Put option: The right but not the obligation to sell a specific amount of a given

commodity at a specified price within a specified period.

It should be noted that the following points should be included in all the contracts:

 

1) Specifications of commodity and the type of contract

2) Amount of commodity

3) Measuring unit of the commodity subject of transaction

4) Transaction time

5) Commodity standard, size and dimensions

6) Delivery date

7) Delivery and packaging standard

8) Warehouse or delivery location

9) Currency

10) Maturity

Trading Formalities in IME 1-Appointment of a broker (since all the commodity exchanges in the world are

brokerbased, therefore, there is no possibility for independent transaction for any

mercantile exchange and any trade should be performed only through a broker, and for

the same reason, the first measure each transacting party takes is to appoint a broker).

2-Completing of order registration form by broker including the price offer

3-Deposit of the minimum required amount of transaction in the broker's account with

the clearing house.

4-Transfer customer's order to the trading floor by the broker.

5-Participation in auction by the broker and performance of transactions on the trading

floor.

6-Depositing of the balance of transactions papers after deduction of initial deposit and

crediting the broker's account in the clearing house.

7-Settlement of transactions in the clearing house and issuance of trading documents.

8-Financial settlement of transactions in the clearing house.

9-Transfer of money after deduction of expenses and crediting the trader's account with

bank account.

Tradable Commodities at IME According to the ratifications of admission board tradable commodities at IME's

tradnig floor are listed as follows:

Industrial and Mineral Products

 

Secondary Subgroup No.Main Subgroup

Main Group No.

Beam 1

long Dimensions

steel 1

Rebar 2 U-Channel 3 Angle 4 Steel Wire 5 Pipe & Profile 6 Industrial Rebars 7 Hot Rolled Sheet 1

Flat Dimensions

Cold Rolled Sheet 2 Galvanized Sheet 3 Tin-Plate 4 Colorfull 5 Wide Steel Belt 6 Thin Steel Belt 7 Slab 1

Billets Blum & Billet 2 Pig Iron Ingot/Cast Iron 3

1 HMS 1

Scraps 1 HMS special 2 2 HMS 3 3 HMS 4 Aluminum Billet 1

Billets Aluminum2

Slab 2 Blume 3 T-Bar 4 Rod 1

Dimensions Sheet 2 Cattode 1

Copper 3

Slab 2 Rod 3 Billet 4 Sheets 5 Low-Assay 1

Low-Assay Copper

Granulated Overflow 2

Convertor Overflow 3 Reverb Overflow 4 Copper Oxide 5 Zinc Billet 1 Zinc 4 Lead Billet 1 Lead 5 Gold 1 Precious 6

 

Silver 2 Metals Nickel Billet 1

Nickel 7 Nickel Pellet 2 Coke 1

Industrial & MineralMetrials

8

Coal 2 Molybdenum Sulfur 3 Percious Metals Concentrates 4

Cement 5

Oil By-products and Petrochemicals Products

Secondary Subgroup No.Main Subgroup Main Group No.

Vacuum Bottom 1 Fuel Oil

Fuel Oil 2 30/40 1

Bitumen

Petroleum By-products 1

40/50 2 60/70 3 85/100 4 100/120 5 250mc 6 Emulsion 7 Base Oil 1

Oil Engine Oil 2 Paraffin 3 Slack Wax 4 RPO 1 Extract Industrial 1 Carbon Black 400 1

Solvent

402 2 403 3 404 4 406 5 410 6 High Density Polyethylene 1

Polymers Petrochemicals 2

Low Density Polyethylene 2 Linear Low Density PE 3 Terephthalate Polyethylene 4

Terephthalic Acid 5 Ploy Styrene 6 Poly Propylen 7

 

Poly Carbonate 8 Poly Butadyn Rubber 9 SBR 10 PVC 11 Epoxy Resin 12 ABS 13 Melamine Crystal 14 Ethylene Glycol 1

Chemical

Styrene Monomer 2 Linear Alkyl Benzene 3 Orthozylene 4 Parazylene 5 Crude Fuel Oil 6 Nitric Acid 7 Chloridric Acid 8 Sulfuric Acid 9 Acetic Acid 10 Castic Soda 11 Urea 12 Ammonia 13 Benzen 14 Methanol 15 Sulfur 16 Sodium Carbonate 17 Calcium Carbonate 18 Vinyl Acetate 19 Sodium Hypochlorite 20 Toluene Di Isocyanate 21 1,3 Butadiene 22 Di Ammoniom Phosphate 23 Pyrolize Benzene 24 Pentane Plus 25 Heavy Aromatic 26 Amin Ethanol 27 Oxo Alcohol 28 Raffinate C4 29 Ethanol 30 Gas Liquids 1 Gases And

Feeds Argon 2 Agricultural Products

 

1- Grains: various kinds of corn , grain , wheat , rice , bran 2- Dried and Trans Products: various kinds of pistachio , date , raisins , saffron , cumin , tea , sugar 3- Oil Seeds and Oil Seeds Cakes: various kinds of oil seeds like soybean and oil seed cakes like soybean , canola , cotton seeds meal, Safflower cake , corn , palm 4- Cereals Group: pea , lentil

Futures Contracts Iran Mercantile exchange is commited to prepare the ground for the Islamic Republic to

achieve the goal of putting the country on the top place of Middle East region in twenty-years

landscape. This goal would be realized by innovations in financial instruments which provide

smooth path for investors and market participants. Henceforth, IME , in addition to

implementing spot transactions has launched futures contract trading since June 2008 aiming at

providing a safe, sound, transparent and regulated market for investors with hedging purposes.

The derivatives (future) exchange is a venue for sellers and buyers and market participants ,in

general, where the transactions are executed through exchange-developed electronic platform.

These trading facilities are equally provided by easy access of participants in the exchange

market. Order placing and order routing are constantly implemented by the back-office

ordering system via brokers of the exchange for the clients and continues to matching of orders

and post-trade operation.

Key Features of Futures Transaction in IME:

١) Risk management (Hedging): taking short or long positions in the market aimed at

minimizing or eliminating risks associated with the possible price movements in the spot

market. For instance, a major producer or consumers in order to eliminate or mitigate

the risks and uncertainties of future prices of his productions or raw material can easily

hedge and insure favored price against volatilities in prices in future by taking selling or

buying positions in futures contracts.

٢) Speculation : participants can invest and speculate in the market by taking different

positions and make profits from possible favorable price movements in the future as

predicted by the investor. When the time is mature and the market trend is in favor, the

investor offsets the position and gains the benefits of the positive difference between his

price and the settlement price of the market.

٣) Arbitrage : taking positions at the same time in different markets and benefitting from

the risk-free difference of the prices between the two markets. Most often such activities

are interexchange or interstate trading strategies.

 

٤) Financial leverage is one of the key advantages of the futures contracts as the hedger or

investor can hold positions by depositing only a short percentage of the total value of the

contract.

٥) Retail investors are also welcome to this market to protect and fix in advance their

selling or purchasing price for the consuming product of their interest.

٦) Investors or clients may sell or purchase the underlying asset through futures contracts

and if not interested in taking or making delivery they can close their positions and quit

the contract.

٧) Same initial margins and exchange fees are paid by clients in this market

٨) Equal access to the trading platform for the different national and foreign participants

in this market

٩) Trading hours from 10:00 through to 17:00 local time (06:30 – 13:30 GMT)

١٠) Electronic execution of the transactions

Currently the following commodities are listed in Futures Contracts section:

١- Bahar Azadi Gold Coin

٢- 10 OZ Gold Bullion

٣- 1 OZ Gold Bullion

٤- 8 mm Coper Wire

Listed Companies Based on latest available data 135 domestic companies and 68 foreign companies have

been listed on IME's trading floor which supply their products in industrial,

petrochemical and agricultural rings.

Foreign companies mainly come from South Korea, China, Turkey and Russia.

Country Working Area Company No. South Korea PETROCHEMICALS BAZELL 1

South Korea METALS DAEWOO 2

South Korea PETROCHEMICALS LG CHEM 3

South Korea PETROCHEMICALS SAMSUNG 4

China PETROCHEMICALS INNER INDUSTRIAL 5 China METALS NANYANG 6 China METALS CHINA SHOUGANG 7

 

China METALS CHINA NATIONAL BUILDING 8 China PETROCHEMICALS Tianjin 9 China METALS Tianjin Hopetone 10 China METALS TANGSHAN IRON&STEEL GROUP 11 China PETROCHEMICALS TIANJIN REDTRIANGLE INTERNATIONAL 12 China METALS LIAN YUNGANG 13 China PETROCHEMICALS WUXI XINGDA 14 China METALS CHANGED IRON AND STEEL GROUP 15 China METALS BEIJING 16 China METALS PANZHIHUA 17 China METALS FAITH 18 China METALS RIZHO 19 China METALS Tangshan-Haixing 20 China METALS JIAN IRON AND STEEL 21 China METALS PINGXIANG IRON AND STEEL 22 China METALS TANGSHAN CHANG INDUSTRY 23 China METALS TANGSHAN HAIXTNG STEEL 24 China METALS ZHEJIANG MATERIALS INDUSTRY 25 Russia METALS ALTAICOKE 26 Russia METALS ASHA 27

Russia METALS CHELYABINSK METALLURGICAL PLANT OAO 28

Russia METALS Glencore 29 Russia METALS MATCHEL 30 Russia METALS URAL STEEL 31 Russia METALS MITTAL 32 Russia METALS Red October 33 Russia METALS SEVERSTAHL 34 Russia METALS rostove Electrometallorgikal Works 35 Russia METALS ZAPSIB 36 Russia METALS JSC 37 Russia METALS M.M.K 38 Russia METALS O.E.M.K 39 Turkey METALS ICDAS 40 Turkey METALS COLAK OGLU METALURJI A.S 41 Turkey METALS EKINCILER 42 Turkey METALS HABAS 43

KazakhstanMETALS K.S.P STEEL 44 KazakhstanMETALS Casting 45 KazakhstanMETALS Nizhneserginsky 46

Ukraine METALS DONETSK STEEL 47 Ukraine METALS ILICH 48 Ukraine METALS AZOVSTAL 49 Bahrain METALS ALBA 50

Chili METALS DEL COBRE DE CHILE 51

 

Spain METALS ESPANOLA DE LUMINACHION 52 UAE METALS DUBAL 53

Taiwan METALS SHANG SHING 54

Germany METALS SALZGITTER MANNESMANN INTERNATIONAL 55

Malaysia PETROCHEMICALS RECRON 56 India PETROCHEMICALS HAZEL MERCANTILE LIMITED 57 India METALS SELL 58 Korea PETROCHEMICALS KUMHO 59 UAE METALS MiDDLE EAST METAL 60 Qatar PETROCHEMICALS Q.V.C 61

Morroco PETROCHEMICALS OCP 62 India METALS ARCELORMITTAL 63 Saudi

Arabia PETROCHEMICALS SABIC 64

Azerbaijan PETROCHEMICALS SUMGAITE 65 Swiss METALS METALOR 66 Saudi

Arabia METALS UNITED GULF STEEL CO 67

UAE METALS LUCKY ALLOYS 68

Export Trading Ring Parallel to its domestic transactions, the Iran Mercantile Exchange launched its export

trading ring in Kish free trade zone in order to grab regional and global markets.Then

export trading ring as a section of IME's spot market inaugreated by the minister of

economic affairs and finance on 25th November 2009.

Now different types of oil products and petrochemicals and also wheat are being traded

by the brokers on behalf of foreign clients. A look at transactions data of export ring

since the begining up to now reveals that trading curve is upward sloping and market

participants have welcomed the new born trading floor.

The minister of economic affairs and finance, Seyyed Shamsoddin Hosseini, during the

opening ceremony of export trading ring at Kish free trade zone stated: "Thanks to

God for launch of this new product of capital market. This occation is conducting us

toward internationalization."

The president of the securities and exchange organization, Ali Salehabadi praised the

statrtup of IME's export trading floor, as well. He emphasized that" Since Iran

possesses a quarter of regions petrochemical products, launching this trading floor gives

the country a strategic position. Subsequently Iranian commodity market would

transform from a price taker entity to a price maker one."

 

According to the experts the launch of this international trading floor as a significant

development in both national and regional levels, will undoubtedly address different

economic sectors of the nation. Owing to the fact that Iran is one of the world major oil

producing countries and is regarded as one of the important producers and exporters of

the oil products and petrochemicals at the international level, the establishment and

launch of this international trading floor is key to boost the global transactions of such

products and commodities and underscores it’s necessity for the country in both

economic and political aspects.