Table of Contents
- 1 What is a stock market?
- 2 What is a stock exchange?
- 3 What are the types of stock exchanges?
- 4 What is a National Stock Exchange?
- 5 Is a Stock Market Different Than a Stock Exchange?
- 6 What are the main roles of stock markets in the economy?
- 7 Is the Iraq Stock Exchange performance an economic barometer for Iraq?
- 8 How can the Iraq Stock Exchange play a major role in the economy?
- 9 Why stock market is important?
- 10 What are the advantages and disadvantages of investing in a stock market?
- 11 Why Do Companies Go Public?
- 12 About The Iraq Stock Exchange
What is a stock market?
The stock market is a complete system including the stock exchanges (the centralized trading platforms enabling buying and selling stocks and other financial securities), the network of investors, brokers, investment banks, regulators, and other participants. As a component of a free-market economy, a stock market allows companies to raise capital by offering shares (when you purchase even one share, you become a shareholder in that company) while allowing investors to benefit from the financial achievements of the listed companies through capital gains (increase in a share price) and dividends (receiving from the company’s profit).
What is a stock exchange?
A stock exchange is a platform where investors (individuals and institutions) buy and sell securities such as stocks and bonds. Investors must open a brokerage account through a licensed brokerage house to be able to trade on the stock exchange.
What are the types of stock exchanges?
There are different types of stock exchanges in the world depending on the types of securities they trade and their operations. The major types of stock exchanges are as follows:
- National Stock Exchanges (NSEs) (such as the Iraq Stock Exchange)
- Regional Stock Exchanges
- Electronic Communication Networks (ECNs)
- Over-the-Counter (OTC) Markets
- Foreign Exchange Markets
- Commodity Exchanges
- Derivatives Exchanges
- Cryptocurrency Exchanges, and
- Spot Markets.
What is a National Stock Exchange?
National Stock Exchanges (NSEs) are the main stock exchanges in a country where companies established in that country are listed. Iraq Stock Exchange (ISX) is a national stock exchange in which only Iraqi private joint stock companies can be listed.
Is a Stock Market Different Than a Stock Exchange?
A stock market is a broader concept including the stock exchanges, investors, brokers, investment banks, and regulators. A stock exchange is a centralized trading platform where investors buy and sell mainly stocks and other securities like bonds. The largest stock exchanges in the world are New York Stock Exchange (NYSE), Nasdaq, and Shanghai Stock Exchange (SSE).
What are the main roles of stock markets in the economy?
Enabling companies to raise capital while enabling investors to generate capital gains and dividend income: The main roles and purposes of the stock exchanges are to enable companies to raise capital (a way to get a source of funds for liquidity and investment needs instead of obtaining a loan from a bank which will have an interest cost) while enabling investors to generate capital gains through the increase in share price (share price might also decrease after buying the share if the company doesn’t perform well thus you might record a loss) and income from dividends when the company decides to distribute some part of its net profit to shareholders.
Making it easy for investors to become a shareholder in a company: One of the most important roles of a stock market is to make it easy for investors to become a shareholder in a company (you become a shareholder by buying only one share) and exit that investment by selling the shares. All you need is to open a brokerage account and send your buying and selling orders for the stocks.
Providing liquidity for investors: One of the main features of the stock markets is to provide liquidity. Stock investments are liquid investments that can easily be converted into cash without having a significant impact on their value.
Allowing to diversify risks: Investors diversify their investment risks by buying the shares of different companies operating in different industries through stock exchanges; the stock market allows you not to put all the eggs in one basket by investing in more than one company.
Enabling to build wealth: Investors have a chance to build wealth through stock investments if they can depend on good investment strategies by investing in growing and profitable companies at the right time by setting meaningful return targets for themselves.
Bring transparency and trust to the market: Listed companies are subject to regulatory requirements and standards which make their financial information more trustable compared to unlisted companies.
Stock market indices serve as benchmarks for investors: Stock market indices reflect the overall performance of the stock market and the economy. Among the well-known indices in the world are S&P 500 and Dow Jones Industrial Average. In Iraq, to serve the market and create an index to better reflect the performance of the Iraq Stock Exchange (ISX), Rabee Securities (RS) started the RSISX Index both in local currency (IQD) and USD starting 2009, becoming a benchmark index to evaluate the performance of the ISX.
The stock markets are used as economic indicators (economic barometers): In healthy and active stock markets, stock prices reflect all positive or negative material developments about the companies, sectors and the overall economy; thus, rising markets are generally associated with economic growth and investor optimism, while falling markets can reflect economic uncertainty or economic contraction. In Iraq, we believe it is crucial to make the stock market well-known and understandable with all its concepts to the public. It is also very important to increase the number of listed companies on the ISX by including growing and young businesses to better reflect the economy and provide more investment opportunities for investors.
Is the Iraq Stock Exchange performance an economic barometer for Iraq?
Yes, ISX broadly follows the economy of Iraq. Until 2014, Rabee Securities’ RSISX Index showed an upward trend in-line with the increase in oil prices and growing economy. While after 2014, with the decline in oil prices and emerging security issues the index showed a downward trend until mid-2020 which also affected by the Corona pandemic. Since mid-2020, RSISX Index has been in a significant and ongoing upward trend reflecting the growth in the economy, and improvement in the security issues. (Please subscribe to our YouTube channel, “Rabee Securities Media” to watch the videos of the Program “Stock Market Week”, our tutorial videos about investing in the ISX, and interviews made with RS).
How can the Iraq Stock Exchange play a major role in the economy?
By attracting capital to listed companies. The majority of Iraqis today do not have viable outlet for their savings, and ISX will provide them good future buy in to the growing economy. This capital could be used to fuel the private sector.
Why stock market is important?
Stock markets are an important arm of the financial markets which enable companies to raise capital while allowing investors to generate capital gains and dividend income. Stock markets make it easy for investors to become shareholders in companies which also allow them to diversify their risks by investing more than one company. Stocks are liquid investments which you can turn into cash easily. Investors can build wealth through investing in stocks if they make meaningful investment decisions. Investing in stocks makes it easy to follow the value of your investments. Listed companies are subject to regulatory requirements and standards which bring transparency and trust to the market. Stock market indices serve as benchmarks for investors thus anytime you can compare your investment with the benchmark index to see if your investment overperformed or underperformed it. The healthy and active stock markets are used as economic barometers.
What are the advantages and disadvantages of investing in a stock market?
The most important advantage of investing in a stock market is having easy entrance to and exit from company investments. Making risk allocation is easy in a stock market by investing in companies operating in different industries. Another advantage is knowing exactly at any time the value of your investments. On the other hand, investors need to consider that investing in stocks carries risks because the value of stocks can fluctuate based on many factors such as financial performance of the company, market conditions, and investor sentiment.
Why Do Companies Go Public?
What are the benefits and advantages of being listed on a stock exchange?
There are a lot of advantages of going public:
- The main advantage is the ability to raise capital for growth and liquidity needs. Companies can raise capital through the listing or after the listing on a stock exchange by accessing a larger pool of investors to fund growth, expansion, or liquidity needs like research and development.
- Being listed on a stock exchange increases transparency and trust for the company. When you compare two similar companies operating in the same industry, investors are willing to invest more in the company which is more transparent about its operations and future plans. Increase in the willingness to buy by investors results in an increase in share price and total company value.
- Provides liquidity to the shareholders, because they can benefit from the stock market to sell their shares while it won’t be easy to do that without being listed.
- Being publicly listed contributes to a company’s visibility and credibility which in turn might help with potential partnerships, mergers and acquisitions.
- Being listed can improve a company’s image and credibility in the eyes of customers, suppliers, and other stakeholders.
- Publicly listed companies become accessible to institutional investors including mutual funds, pension funds, and hedge funds, which can result in increased demand for the company’s shares that contributes to an increase in value of the company.
What are the disadvantages of being listed on a stock exchange?
The disadvantages of being listed on a stock market can be different depending on the industry that the company is operating in, the size of the company, and its strategic goals.
The major disadvantages of going public are as follows:
- Public companies are subject to several regulatory and reporting requirements which can create additional costs such as the costs of audits, legal fees, and ongoing regulatory filings.
- Going public generally results in an equity dilution (decline in founders’ ownership percentages).
- To meet quarterly earnings expectations and satisfy investors, the company management might focus more on short-term goals, which might lead to a loss of focus on long-term goals.
- Listed companies on stock exchanges are often expected to show consistent growth. When they fall short of these expectations, stock prices might decline and result in negative investor sentiment.
- Publicly traded companies need to manage complex regulations and provide governance standards including the management of investor relations, communicating with shareholders, and addressing market expectations which adds administrative burden.
About The Iraq Stock Exchange
Is there a stock exchange in Iraq?
This question “Is there a stock exchange in Iraq?” is one of the questions that we heard the most. The answer is a big “YES”. Below is the short history of the stock exchange in Iraq:
When was the ISX established?
-1991: Baghdad Stock Exchange (BSE) was established.
-March 9th, 2003: War started in Iraq; Baghdad Stock Exchange closed.
-April 18th, 2004: The Iraq Stock Exchange (ISX) was established (The ISX is a completely separate entity from the Baghdad Stock Exchange and is not responsible for any outstanding liabilities or obligations incurred by that organization, which no longer exists).
-June 24th, 2004: The ISX began trading with 59 companies using a cry-out system.
-August 2007: The ISX opened to foreign investors.
-April 19th, 2009: First electronic trading session was held through the NASDAQ OMX Platform (Whiteboards have been replaced by electronic trading workstations)
-November 1st, 2009: Trading sessions increased from three to five per week (Sunday-Thursday).
-January 14th, 2013: First trading started on the non-regular (NR) market. NR market was established to separate the ISX-listed companies that have low trading volume and traded number of days.
-November 11, 2014: NASDAQ’s X-stream Trading technology went live for the ISX. The X-stream Trading upgrade provides ISX with a widely deployed high-end, multi-asset trading platform that complies with international standards.
-January 16, 2022: Trading hours of the ISX were determined as follows:
–Pre-opening period: From 9:30 to 10:00 am.
–Trading session: From 10:00 am to 1:00 pm.
— The extended session for the cross transactions and special deals: From 1:00 pm to 1:30 pm.
-July 3, 2022: First trading started on the Undisclosed Companies Market (UCM). UCM platform was established to allow companies to trade that have been suspended from trading by ISC due to not disclosing their financial statements with the aim of protecting the rights of shareholders.
What is the ISX aiming to achieve?
According to the ISX Law, the Iraq Stock Exchange (ISX) aims to achieve the following:
-To operate and regulate its members and listed companies in a manner that is consistent with the goal of protecting investors and promoting investor confidence in the market.
-To promote the interests of investors in efficient, reliable, competitive, transparent, and honest markets.
-To organize and facilitate fair, efficient, and orderly transactions in securities, including the clearance and settlement of such transactions.
-To regulate its members’ dealings in securities-related services and transactions and define the rights and obligations of the parties concerned and the means to protect their legal interests.
-To assist in capital-raising for companies that either are listed or which desire to be listed on the ISX.
-To engage, as appropriate, in investor education programs to educate potential investors about opportunities for investments at the ISX.
-To collect, analyze, and publish statistics and information necessary to achieve the goals stipulated in this Law.
-To establish and support contacts with the stock exchanges of Arab and international markets that may be beneficial to the development of the Exchange.
-To undertake other services and activities necessary to support its objectives.
What is the number of listed companies on the ISX?
The total number of listed companies on the Iraq Stock Exchange are 103* (33 of them trade on the Non-Regular market, and 15 of them trade on the Undisclosed Companies Market). The breakdown of the number of companies by sectors are as below (*As of October 9, 2023): Banking (42), Industry (20), Services (11), Hotels & Tourism (9), Agriculture (8), Investment (6), Insurance (5), Telecom (2). (*As of October 9, 2023) (To get more details please go to the recent RS_Daily Bulletin).
In which sectors I can invest in the ISX?
There are 8 sectors that can be invested in the ISX. The ranking of sectors by the size* of the sectoral Mcap are as follows: Banking, Telecom, Industry, Hotels & Tourism, Services, Agriculture, Insurance, and Investment. (To get more details please go to the recent RS_Daily Bulletin).
Who owns the Iraqi Stock Exchange?
The Iraq Stock Exchange (ISX) is financially and administratively independent of the Iraqi government including the Ministry of Finance. The ISX is organized as a non-profit entity that is owned by its members, the Brokers. It is regulated by the Iraq Securities Commission (ISC) and follows the operational procedures outlined in its By-laws that are fully compliant with the Iraqi Securities Law. The ISX has its own set of operating rules independent from the rules of the member brokers. It is committed to developing a transparent, open, and competitive trading environment. (Source: ISX)