Iran Mercantile Exchange;strengths and weaknesses in international interactions

A fresh variety in newly-developed business contracts is a chance Iran Mercantile Exchange (IME) is making use of in a post-sanction context to expand its interaction with international markets. The total value of IME deals in the first ten months of the Iranian calendar year (March 2016-January 2017) exceeded 15 billion dollars, while aluminum suppliers had no share in the deals. The IME’s Managing Director, Hamed Soltani-Nejad believes that the basic infrastructure has been laid for greater international exchange and that will be put into practice once currency clearance issues are resolved.

What attractions does the IME pose to domestic and foreign customers?
To domestic customers, the IME is a transparent and palpable market with a normal risk. It has its own special advantages for foreign customers as well. However, clearance using foreign currencies is still a major challenge for us in our international deals.

Taking that into account, is the IME technically disconnected from other global mercantile exchange markets?
Due to the sanctions, we held no direct connection with global markets, as currency clearance was blocked. But the post-sanction era has created fresh opportunities for cooperation, encouraging other international markets and adding to their tendency toward presence in the IME. Meanwhile, we have so far received several offers from international companies which are seeking to present their commodities in the IME. Hoping to remove obstacles on our way, we are looking forward to a growing participation of such foreign firms.

Why has the IME opened branches in the free economic zones? And what is making those zones a favorable field for foreign firms?
The first positive point about the free zones is the tax exemption. Secondly, in those areas business is possible not just in Iranian rial, but in foreign currencies as well. Thus, with its physical presence, the IME has facilitated interactions in the free economic zones. We are now currently active in such zones as Anzali, Arvand, Kish and Aras and are also planning to open branches in the rest of the other free zones. This way, we are helping the companies export their products through the IME, while paving the way for the customers to get into the deals and complete the process.

Is the IME equipped with the necessary infrastructure for international interactions?
The IME has been particularly focusing on two major goals: creating access to an interaction system and opening up branches in the free economic zones. Those have been pursued alongside the clearance issue. Meanwhile, we also have on our agenda clearing services for foreign currencies. To that end, we need cooperation on the part of domestic banks in order to be able to transfer money in euros and dollars. The same holds true, of course, for foreign banks as well.

Is the IME capable of backing up Iranian companies in international marketing?
Yes. In fact, that is something which can be carried out in a better and more acceptable mode through the IME, as it is able to submit supply statements to a greater number of international buyers. Currently, the IME issues statements on the availability of supplies in English and makes them accessible on its website. It is also planning to take up the task of transferring commodities to the destination markets as well. There are common online smart services which automatically identify potential customers for different commodities and provide their data to the suppliers. That is another activity we are planning to add to our international services.
Tell us about the protection measures you can adopt to cover currency rate risks.
Offering mechanisms to cover customers of Iranian commodities in the face of currency rate fluctuations is also part of our plans. Still, we are basically doing our best to provide a chance for the customers, in which they don’t have to do business in rials. If that is not possible, then the currency risk could be covered through our “currency exchange” plan, which is being prepared at the moment.

How exactly does the “currency exchange” plan cover the currency risk?
Since the plan is set to use “Futures and Options” contracts, it enjoys the potential to cover the fluctuation and the risks. This is a coverage method common in global markets nowadays.

Is there any chance for the physical presence of foreign customers in the IME?
Yes. At the moment there are already some foreign firms which have been accepted. More will also be there based on offers they provide us. Those offers will be reviewed by our special admission board, paving the way for the firms’ presence. We have already set up interaction codes for foreign companies present in the IME, through which they can make direct purchases. Such codes are many, particularly in the oil products ring. But here the issue is currency conversion again. Those firms have to use an Iranian agent, through which they conduct the payment process, something which increases the costs of their deals.  
We are planning to remove those obstacles and facilitate the process. One step is setting up a visa-free regime, as applied in the free economic zones. In fact, for foreign companies there are three entry channels letting them into the IME: purchase of raw materials (the export ring), foreign commodities and their marketing inside Iran, foreign investment aimed at developing key industries such as steel production and petrochemicals.  
Basically, foreign manufacturers are facing a few complications selling their products in Iran. The biggest challenge is the return costs after the goods fail to get sold as well as costs incurred due to quality loss. To tackle that issue, we have provided the chance for the foreign firms to present their products in the IME in advance through “forward deals”, helping them sell their goods for more reasonable prices.

 

Hamed Soltani-Nejad
Managing Director of Iran’s Mercantile Exchange