A Glance on the Law of Foreign Investment in the Stock Exchange and OTC Markets of Iran

Investing in the Exchange and Over-the-Counter (OTC) markets of Iran, is not merely confined to Iranian nationals. As the matter of fact, “Foreigners” whether individuals or legal entities may also enter such markets in accordance with the applicable relevant laws and regulations inter alia “The By-Law on the Foreign Investment in the Exchanges and OTC Markets” approved by the Council of Ministers on April 18th, 2010 (hereinafter “the By-Law”).

In this respect, it is noteworthy that according to Article 1, para. 6 of the By-Law, “the foreigner” is defined as “(a) a person who does not have the Iranian citizenship; (b) any legal entity that has been registered in a country other than Iran; (c) any legal entity that has been registered in Iran in which the total shares of the persons stated in subparagraphs (a) and (b) above in the capital of such entity exceed 50%. In the event that the mutual fund is deemed to be a foreign entity, it shall remain to be the same (foreign entity) as long as the shares of the persons stated in subparagraphs (a) and (b) above in its capital have not reduced to 40%.”

The defined Foreigner may be considered as a Strategic Foreign Investor or a Non-Strategic Foreign Investor. In the first mode, “the Foreign Investor is intended to possess more than 10% of the shares of a company listed in the Stock Exchange or OTC Markets or after possession of shares of such company, acquires a seat in the board of directors of the respective company” (Article 1, Para. 10 of the By-Law). However, in either cases, the Foreign Investor shall obtain the required Trade License from the Securities and Exchange Organization in order to be able to purchase, sell or trade securities in the Stock Exchange or OTC Markets to the extent permitted in the respective license, and the relevant organization shall issue the license within 7 business days upon receiving the complete information and documentation of the applicant and notify it to the applicant or his/her agent accordingly (Article 1, Paras. 8 & 9 and Articles 2, 4 & 5 of the By-Law).

Furthermore,  based on the relevant By-Law, the other regulations governing trades and activities of Foreigners in the Stock Exchange or OTC Markets would be the same regulations applicable on Iranian nationals while the Foreign Investor is permitted to invest in the Stock Exchange or OTC Markets up to the limit provided by Foreign Investment Promotion and Protection Act (FIPPA) ratified in 2002 and its executive by-law unless the High Council of Stock Exchange and Securities sets some restrictions in some occasions. (Articles 2 & 3 of the By-Law).

Therefore, the relevant by-law in line with the administrative policies intend to pave the way to attract foreign investment and investors.

Submitted by Dr. Mahnaz Mehrinfar and Mrs. Golsa Daghighi