EghtesadOnline: Iran’s stock market launched the short-selling of shares as a new a financial instrument on Sunday. The mechanism is touted to function as a tool for hedging market risks and helping investors gain when the market is down.
Short-selling was unveiled with the participation of eight companies, including five companies listed with Tehran Stock Exchange and three companies listed with Iran Fara Bourse (over-the-counter stock market), Securities and Exchange News Agency reported.
In short-selling, investors borrow shares they believe will decrease in value by a set future date or the expiration date, Financial Tribune reported.
The investor then sells the borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost.
The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.
The version of short-selling used in Iran is similar to conventional short-selling across the world with the difference that they have been adjusted by the Islamic Jurisprudence Committee of the bourse to comply with Sharia laws.
Short-selling has long been demanded by domestic investors as there had been hurdles to its implementation.
Designing a model that is consistent with conventional models, applicable in Iran’s stock market and at the same time conforms to Sharia law has been a difficult enterprise.