INTERVIEW-Iraq bourse sees boost from securities package

Thu Apr 8, 2010 5:44am EDT

* Regulations could help boost tiny volumes-bourse CEO

* Expects legislation to boost sales, volume by 50 pct

* Says might reap bonanza from banks' raising capital



By Ian Simpson and Waleed Ibrahim

BAGHDAD, April 7 (Reuters) - The Iraq Stock Exchange expects to boost its business by 50 percent once new securities legislation is in place as it will help to draw needed foreign investment, the bourse's chief executive said.

As the fledgling bourse approaches its first anniversary of automated trade, its next step is to put in place regulations and tools to help boost volumes, which average only $1 million to $1.5 million a day, Taha A. Abdulsalam told Reuters in an interview.

"Now we are going forward with the necessary things that make it easier for everyone to invest. I am convinced that I am doing right," Abdulsalam said on Wednesday.

"I believe we will see an increase of about maybe 50 percent (in volumes and sales once the securities legislation is approved) from what we see (now)."

Iraq is facing possibly months of political wrangling to form a government after inconclusive parliamentary elections in March while attacks, widely blamed on al Qaeda, seem designed to tip Iraq into all-out violence. [ID:nLDE63607L]

Abdulsalam did not know if the securities bill had cleared Shura Council, the top government review panel, and gone on to parliament. However, he was optimistic it would be passed soon, once parliament began sitting again.

He said on a normal parliamentary timetable, the legislation would be approved by the end of the year or perhaps as early as in six months.

Passing the legislation would result in the creation of such tools as custodian banks and mutual funds, allow online trading and let the bourse handle initial public offerings, Abdulsalam said.

The tougher capital requirements in the proposed legislation could also result in billions of new shares from banks, he said.



REGULATIONS NEEDED

The new regulations were "needed to make many possibilities happen for investors, for brokerage firms, to make it (the bourse) acceptable for everyone," Abdulsalam said.

The Baghdad bourse is a rare outpost of capitalism in an oil-heavy economy dominated by state companies. Launched in 2004, trading at the exchange was done using whiteboards, until April 19, 2009, when automated trading started with five companies.

Shares from 82 of the bourse's 91 companies now are traded on the electronic system. The rest will join when their annual books are approved, said Abdulsalam, who was head of research at the current exchange's predecessor bourse before the U.S.-led invasion in 2003.

About half the shares trade daily, and volumes were up 40 percent last year from 2008. Banks make up 70 percent of the bourse's weightings, trailed by industrial shares and insurers, he said.

Although the bourse allowed foreign investment in August 2008, non-Iraqi money makes up only 3 percent of trade.

"In the beginning, I heard from many foreigners that, 'When you have automation, we are going to invest in your stock exchange,'" said Abdulsalam, who was dressed casually in an open-necked shirt.

"Now I understand they are interested in seeing custodian banks, many developments, not only in the stock exchange but the country itself."



NO FOREIGN BROKERS

The bourse has 45 brokers, including 25 who can trade from off-site offices, and the exchange has been adding three to five brokerages a year. None so far is foreign.

Abdulsalam said the bourse's main challenge was not low liquidity but assuring investors that they could enter and exit the bourse without problems.

"This is the problem, this is the real problem," he said.

The stock exchange, on a Baghdad side street, is protected by blast barriers and a guard with a light machine gun at the entrance. Inside, dozens of investors, many grey-haired men, checked prices on wide-screen displays while brokers trade shares in full view on a glassed-in trading floor.

Many investors fled the exchange on Sunday when suicide car bombs shook the capital, killing 41 people.

"You know the Iraqis are new at this business and new to automation and new to democracy. We didn't have democracy before. We take every day and we learn every day from our mistakes," Abdulsalam said. (Editing by Karen Foster)