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SSeeccuurriittiieess && EExxcchhaannggee OOrrggaanniizzaattiioonn ooff IIrraann
1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
iinntt..ddeepptt@@ttssee..iirr
Regulations Governing
the Establishment License and Operations of
Brokerage Firms on the Exchange
Introduction: Pursuant to notes 2 and 6 of article 7 of the Securities Market Act
ratified in November 2005, the existing regulations have been drafted to
handle the scoring and screening of applicants for brokerage activities as well
as setting out the requirements for commencing brokerage activities on the
Exchange.
Article 1: The Securities and Exchange Organization (SEO) shall determine the
number of issuable licenses for the purpose of establishing brokerage firms or
type of activity and shall, in an application call, invite the applicants for
establishing brokerage firms or obtaining the business license on the
appropriate Exchange to submit their information and documents. The range
of services to be rendered, the appropriate Exchange and other conditions
shall be included in such call.
Article 2: The applicants for brokerage activities on the Exchange can fall
under two groups as follows:
A) The persons who, as founders of brokerage firms, apply for the
establishment of such firms and brokerage activities on the
Exchange.
B) The brokerage firms which have already been established but
have not, by the time of application call, received the license for
brokerage activities on the appropriate Exchange.
The scoring of group (A) applicants shall be handled as per the article (4) and
the scoring of group (B) applicants as per the article (5). In order to obtain the
license, the applicant shall have to earn at least fifty (50%) percent out of the
total scores associated with his own group. The list of these applicants shall, as
2
SSeeccuurriittiieess && EExxcchhaannggee OOrrggaanniizzaattiioonn ooff IIrraann
1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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the qualified applicants, be arranged in the order of highest scores.
Prioritization for license issuance shall take place on the basis of the scores
obtained in each group of eligible applicants and for the number of issuable
licenses in each group as specified in article (1).
Article 3: The time-limits for establishment of the brokerage firms, obtaining
eligibility requirements to start activities and practical commencement of
operations are as follows:
A) For the group (A) applicants as stated in article (2), the time-limit for
establishment, obtaining the eligibility to start activities and
practical commencement of operations as per the issued license
shall be four months as of the priority service date.
B) For the group (B) applicants as stated in article (2), the time-limit for
obtaining eligibility to start activities and practical commencement
of operations shall be two months as of the service date of business
license.
Note 1: If the applicant does not take action, as the case may be, to establish
the firm, obtain the qualifications and start the activities within the time-limits
specified in this article, the license issued to him shall be automatically
cancelled, unless the applicant presents sufficient evidence and the SEO's
board of directors agrees to extend the time-limit.
Note 2: The priority notice shall be delivered to the founders' representative or
sent to his address and the license for brokerage operations shall also be
forwarded to the last applicant's declared address.
Article 4: The scores of group (A) applicants, as stated in article (2) shall, in
respect of the total scores, be based on the following factors:
3
SSeeccuurriittiieess && EExxcchhaannggee OOrrggaanniizzaattiioonn ooff IIrraann
1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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A) Capital: For cash capital one point for each one billion Rials with a
maximum of 30 points on the condition that the applicant obtains
at least 20 scores from this factor.
B) Founder's Characteristics: The scores of founder's characteristics
shall be the total scores for natural and legal founders where each
one is calculated as follows:
B-1) Legal Founder: The maximum scores of brokerage firm founders that enjoy
legal entity shall total 35 scores. The scores allocated for each one of the
founders shall be calculated on the basis of appendix 1 herein.
B-2) Natural Founder: The maximum scores of brokerage firm founders who
enjoy natural personality shall total 35 scores. The score of each of founder shall
be calculated on the basis of appendix 2 herein.
Note: The strategic shareholders in brokerage firms who obtain the
establishment license shall not be authorized to transfer their shares in the
brokerage firm to another party for the period of three years as of the
establishment date. The transfer of their shares in the emergency state shall be
subject to the Organization's agreement.
Article 5: The scores of group (B) applicants, as stated in article (2), shall in
respect of total scores, be based on the following factors: such scores shall be
calculated on the basis of the brokerage position prior to the call application
under article (1).
A) Capital: For each two billion Rials of paid-in capital by the
applicant brokerage firm, one score up to the limit of 10 scores are
calculated. The applicant shall have to obtain at least 5 scores
from this factor.
B) Brokerage Branch Office: In case the broker has, at the discretion
of the Organization, opened an office in each city (other than
Tehran), to receive the customers' orders and render other types of
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SSeeccuurriittiieess && EExxcchhaannggee OOrrggaanniizzaattiioonn ooff IIrraann
1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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services and there is a trading post available in that city to execute
the customers' orders, one branch shall be deemed to exist in
return for each trading post. Where there are two branches, for
each branch one score and more than that for each branch three
scores and up to the maximum limit of 12 scores shall be
calculated for the applicant broker.
C) Special Trading Floor: Where there is a special trading floor, two
scores for each floor in Tehran and 4 scores for each floor in
provincial cities (other than Tehran) and up to the maximum limit of
10 scores shall be calculated.
D) Personnel: For each one of the personnel holding the certificate of
capital market two scores and up to the maximum limit of 14 scores
are calculated providing that the applicant has been engaged in
the brokerage operations for at least 4 months and his name has
been recorded on the insurance list of this company personnel.
E) Systems: In order to establish and operate proper systems for
internal control, accounting, brokerage, website (to provide the
customers with information and other services) and the like, a
maximum of 20 scores shall be calculated at the discretion of SEO.
F) Issued Licenses: For the licenses of portfolio management and
accredited broker one score for each license and for the formation
of each portfolio of common securities at the discretion of the
Organization and appropriate to the size of operations up to the
maximum of 5 scores shall be calculated. For the conclusion of
each accredited contract, 3 scores and for the conclusion of each
portfolio management contract, 2 scores shall be calculated. The
scores limit of this factor shall be 14 scores in the maximum.
G) Transactions Value: The total value of non-block transactions
(fewer than 100 thousand shares in each transaction) conducted
by the applicant broker during the six months ending in the
application call shall be computed in proportion to the total value
5
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1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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of such transactions and compared with figure A which is
calculated in the following formula and for each percentage
exceeding figure A, one and half (1.5) scores up to the limit of 10
scores shall be taken into account:
A=
1
Number of active brokers at the application call time
H) Number of Clients: The number of the applicant brokerage firm
clients who have had at least one transaction through the
brokerage firm during the six months ending the application call
date shall be calculated and divided into the total number of such
clients at the level of all brokerage firms and then for each
percentage exceeding figure A as calculated in paragraph (G), 2
scores up to the limit of 10 scores shall be taken into account.
I) Violations: For each violation committed by the applicant
brokerage firm which has resulted in the written notice by entering
it in the records (dossier), two negative scores and for each
violation which has resulted in the prohibition of business conduct,
4 negative scores shall be calculated and deducted from the
applicant's total scores.
Article 6: The professional qualifications of the managing director and board
members of the group (B) applicants under article (2), shall, within the specified
time-limit, be approved by SEO or failing that, their application shall be
rejected. Accordingly, the professional qualifications of board members and
the managing director of the group (A) applicants, shall, prior to establishing
the brokerage firm, be approved by SEO in accordance with the prevalent
regulations and then the subscribed capital shall be credited in the bank in the
name of the under-formation brokerage firm and the relevant receipt shall be
presented. Such capital shall be exclusively spent on operating the purpose of
the brokerage firm.
6
SSeeccuurriittiieess && EExxcchhaannggee OOrrggaanniizzaattiioonn ooff IIrraann
1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
iinntt..ddeepptt@@ttssee..iirr
Article 7: The group (A) and group (B) applicants under article (2) shall, within
the time-limits specified in article 3 shall have to take action to provide the
required facilities, personnel and systems endorsed by SEO as described below
for issuance of their business licenses on the appropriate exchange and, if not,
their licenses shall be automatically rendered void.
a) To locate a headquarters for the brokerage firm with a proper
surface area allocated for business or administrative purposes in
the name of the brokerage firm or rented by it.
b) To create a department to receive the clients' orders and recruit
and train at least one specialist for this department in
accordance with the prevalent rules.
c) To create a department for transactions and recruitment of a
specialist to act as administrator of the transactions and a
specialist to act as dealer as well as their training as per the
relevant rules.
d) To create a finance department and recruitment of a well-
experienced administrator for this department.
e) To draft the procedures for receiving and executing orders,
entering and keeping accounts preparing the necessary forms as
well as designating the scope of powers and individuals'
responsibilities thereon.
f) To purchase and implement accounting and brokerage systems
and other necessary software and present at least one balance
sheet of the firm's status.
g) To procure the proper office equipment for the firm's operations.
h) To gain admission to the Association of Exchange Brokers and
membership in the appropriate Exchange.
Note 1: Where the headquarters is rented by the brokerage firm at the time of
starting operations, the firm shall, within one year after its foundation, have to
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1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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buy a proper location in the name of the brokerage firm for its headquarters
pursuant to paragraph (A) of this article.
Note 2: If any of the conditions specified in this article is not met during the
course of brokerage firm operations, the SEO's board of director may, while
suspending the brokerage business activities set a maximum time-limit of up to
three months to satisfy the conditions and shall, when such conditions are not
met during the said specified period, revoke the brokerage business license.
Article 8: The existing regulations comprising an introduction, eight articles and
five notes were approved by the SEO's board of directors on September 22,
2007. After the approval date of the existing regulations, articles 2 and the
notes thereto, 3, 7, 8, 9 and the note thereto, 16, 16 and the note thereto, 17,
18, 20, 21, 24 and 25 of the By-Laws on the Broker's licensing and operations (in
the form of a legal entity) approved on December 7, 2004 by the Securities
and Exchange Council shall be repealed.
Appendix 1: The Methodology of Scoring the Founder of the Brokerage Firm as
a Legal Entity
The scoring of the brokerage firm founder enjoying the legal entity is obtained
by multiplying the three factors of (a) the score of business purpose, (b) the
coefficient of the type of legal entity and (c) shareholding coefficient as
follows:
a) Score of business purpose: Considering the type of activity, the score of
business purpose is earned as follows:
a-1) Banks, insurances and authorized financial institutions, equating to 12
scores
a-2) Financial and credit institutions, equating to 8 scores
8
SSeeccuurriittiieess && EExxcchhaannggee OOrrggaanniizzaattiioonn ooff IIrraann
1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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a-3) Other legal entities (including manufacturing, trading, cooperative and
service companies) equating to 5 scores
b) Type of legal entity coefficient: Such coefficient is earned as follows:
b-1) The public joint-stock companies and cooperative companies having over
250 shareholders or members, equating to one.
b-2) The public joint-stock companies and cooperative companies having 50
to 250 shareholders or members equating to 0.8%.
b-3) The public joint-stock companies and cooperative companies having
fewer than 50 shareholders or members as well as the private joint-stock
companies, equating to 0.65%.
b-4) Other legal entities, equating to 0.5%.
c) Shareholding Coefficient: For the founder that raises 20% or more of the
brokerage firm's total capital, the shareholding coefficient equals one.
For the founder that raises lower than 20% of the brokerage firm's total
capital, 0.1% is deducted from number one in return for each one lower
percent.
Appendix 2: The Methodology of Scoring the Founder of the Brokerage Firm as a Natural
Personality
In order to do the scoring of the brokerage firm founder having a natural
personality, the score of his experiences is calculated as described in item (a)
below and added to the score of his/her education background calculated as
described in item (b) and the sum is multiplied by his shareholding coefficient
earned as described in item (c).
A) Work Experience Score: In order to calculate the founder's work
experience score, first his score in each position is calculated on the
9
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basis of the following formula and the scores of varying positions are
added to each other:
Duration of work experience in each position in months × coefficient of business purpose of
founder's place of work × coefficient of founder's position × coefficient of the month.
The limit of each founder's work experience score is 6 scores and the
aggregate work experience scores of brokerage firm founders having natural
personality will be 20 scores in the maximum. The maximum score of business
purpose of the founder's place of work and his position coefficient are
extracted from the table below:
No. Applicant's main
area of activity Applicant's position
Coefficient of
business purpose
Coefficient of
applicant's position
1 Brokerage Managing Director 1 1
Agent 1 1 0.85%
Executive Board Member 1 0.7%
Agent 2 1 0.7%
Non-Executive Board Member 1 0.5%
Line Senior Officer 1 0.6%
Line Officer 1 0.4%
Other Personnel 1 Up to limit 0.3%
2 Exchanges or regulatory
entities in the capital
market
CEO 1 1
Executive Board Member or Similar
Authority 1 0.9%
Line Senior Officer 1 0.9%
Middle Manager Connected with
Brokers' affairs 1 0.85%
Other Middle Line Managers 1 0.6%
Non-Executive Board Member 1 0.6%
Senior Officer Connected with Brokers'
Affairs 1 0.65%
Other Line Senior Officers 1 0.5%
10
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Line Officer 1 0.4%
Other Personnel 1 Up to limit
0.3%
3 Financial intermediary,
Central Depository
Companies and Capital
Market Associations
Managing Director 0.9% 0.9%
Executive Board Member 0.9% 0.85%
Line Senior Officer 0.9% 0.8%
Middle Line Manager 0.9% 0.7%
Non-Executive Board Member 0.9% 0.6%
Line Senior Officer 0.9% 0.4%
Finance Manager, Head of Accounting
Department or Head of Internal
Accounting
0.9% 0.3%
Other Personnel 0.9% Up to limit
0.2%
4 Large Manufacturing or
Service Companies
Managing Director 0.7% 0.8%
Executive Board Member 0.7% 0.7%
Non-Executive Board Member 0.7% 0.4%
Senior Manager 0.7% 0.5%
Finance Director, Head of Accounting
Department or Head of Internal Auditing 0.7% 0.4%
Finance Senior Employees 0.7% 0.3%
Other Finance Employees 0.7% Up to limit
0.2%
5 Medium
Manufacturing or
service companies
Managing Director 0.6% 0.8%
Executive Board Member 0.6% 0.7%
Non-Executive Board Member 0.6% 0.4%
Senior Manager 0.6% 0.5%
Finance Manager, Head of Accounting 0.6% 0.4%
11
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1133 MMoollllaassaaddrraa AAvvee..,, VVaannaakk SSqq..,, TTeehhrraann 1199991199 IIRRAANN.. TTeell:: ((9988 2211)) 8888667799557788 FFaaxx:: ((9988 2211)) 8888667799554444 EE--mmaaiill:: iinnttll@@sseeoo..iirr
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Department or Head of Internal Auditing
Finance Senior Employees 0.6% 0.3%
Other Finance Employees 0.6% Up to limit
0.2%
6 Small Manufacturing
or Service
Companies
Managing Director 0.4% 0.8%
Executive Board Member 0.4% 0.7%
Non-Executive Board Member 0.4% 0.4%
Senior Manager 0.4% 0.5%
Finance Director, Head of Accounting
Department or Head of Internal Auditing
0.4% 0.4%
Finance Senior Employees 0.4% 0.3%
Other Finance Employees 0.4% Up to limit
0.2%
7 Governmental Affairs CEO 0.6% 0.8%
Senior Manager 0.6% 0.7%
Middle Manager 0.6% 0.5%
Director and Heads connected with financial
affairs or investment
0.6% 0.8%
Senior employees connected with financial
affairs or investment
0.6% 0.7%
Other Personnel 0.6% 0.3%
8 Auditing Auditing director 0.8% 0.8%
Head of Auditing Department 0.8% 0.7%
Senior Auditor 0.8% 0.6%
Auditor 0.8% 0.5%
Assistant auditor 0.8% 0.4%
9 Other items University lecturer (instructor) for courses such
as: Economics, Financial Management,
Accounting, Investment
0.7% 0.7%
University lecturer (instructor) for other related
courses
0.5% 0.7%
Official expert of Justice Administration in the
related fields
0.6% 0.5%
Attorney-at-Law 0.5% 0.5%
Other 0.4% Up to limit
12
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0.5%
Notes:
1- The month coefficient is 0.2% which may be altered by the SEO's
board of directors.
2- The senior manager means a manager who is one rank below CEO.
3- The middle manager means a manager who is two ranks below
CEO.
4- If the applicant has more than one position during a specific period
of time, thus the position with the highest scores will be taken into
account.
5- The line officers or employees mean that group of managers or
employees who perform their assigned tasks in connection with the
legal entity's main area of activity.
6- The large company means a company that its personnel are over
200 members or its total assets are in excess of 100 billion Rials or its
gross income exceeds 100 billion Rials during one year.
7- The medium company means a company that its personnel are
more than 50 members and fewer than 200 members or its total
assets are over 50 and less than 100 billion Rials or its gross income is
more than 50 and lower than 100 billion Rials during the year.
8- The small company means a company which is deemed not to be
large or medium manufacturing or service companies.
9- Where a limit is set for scores, the applicant's scores shall be
calculated by SEO in view of the applicant's work experience score
in a manner that they shall not exceed the prescribed limit.
B) Education Background Score: The education background score of the
brokerage firm founder is specified as described in the contents of the
13
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table below. The total education background scores of the brokerage
firm founders having natural personality will be 15 scores in the minimum.
No. Last Education Degree Major Scores per person
1 PhD. Financial Management, Economics, Accounting and Financial Engineering 6
2 PhD. Management, Banking, Insurance and Industrial Engineering 5.5
3 PhD. Mathematics, Statistics, Engineering and Law 4.5
4 PhD. Other fields of Study 3.5
5 Master Financial Management, Economics, Accounting and Financial Engineering 5
6 Master Management, Banking, Insurance and Industrial Engineering 4
7 Master Mathematics, Statistics, Engineering and Law 3.5
8 Master Other fields of Study 3
9 Bachelor Financial Management, Economics, Accounting and Financial Engineering 4
10 Bachelor Management, Banking, Insurance and Industrial Engineering 3
11 Bachelor Mathematics, Statistics, Engineering and Law 2.5
12 Bachelor Other fields of Study 2
Notes:
For each article written with respect to finance which has been published in
accredited journals or has been approved to be published 0.5% score and for
each book compiled in relation to finance one score are added to the above-
named scores. The total scores for articles and books will be 4 in the maximum.
If the founder's major differs at one level from his major at a lower level of
education, the difference between the scores of the higher level and the
scores of lower level is calculated in the same field and is added to the
founder's scores in the lower level so as to obtain the founder's education
background score. For instance, if the founder presents a master degree in
financial management and a bachelor degree in engineering, his education
background score shall be calculated as follows:
Founder's education background score = engineering bachelor score + (financial management
master score –– financial management bachelor score)
14
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= 2 + (5 - 4) =3
C) Shareholding Coefficient: For the founder who provides 15% or more of
the total brokerage firm capital, the shareholding coefficient equating
to one. For the founder who provides lower than 15% of the total
brokerage firm capital 0.1% is deducted from number one in return for
each one lower percent.