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Iran Capital Market Dealing Exam study materials
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Iran Capital Market Dealing Exam practice questions

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Question 1Capital Market Law and Regulation

Under the Iranian capital market framework administered by the Securities and Exchange Organization (SEO), which body holds the primary statutory authority to license and supervise securities market intermediaries?

  1. The Securities and Exchange Organization Correct answer.
  2. The Ministry of Economic Affairs and Finance
  3. The Tehran Stock Exchange board of directors
  4. The Central Bank of Iran

Explanation

The Securities Market Act of the Islamic Republic of Iran establishes the SEO as the regulator with authority to license, regulate, and supervise market participants and intermediaries. The Central Bank supervises banking and monetary matters, and the Ministry of Economic Affairs and Finance does not license intermediaries directly. The exchange's board governs listing and trading matters within the rules set by the SEO.

Question 2Capital Market Law and Regulation

A dealing firm wants to begin executing client orders on the Tehran Stock Exchange. Which step is required before it may act as a broker?

  1. Registering with the Central Bank as a credit institution
  2. Obtaining a broker licence from the SEO and exchange membership Correct answer.
  3. Filing a notification with the Ministry of Cooperatives
  4. Approving its own compliance manual without regulatory review

Explanation

Brokerage activity requires a licence from the SEO plus admission as a member of the relevant exchange. Banking registration is irrelevant to securities dealing, and self-approval of internal manuals does not substitute for regulatory licensing. The Ministry of Cooperatives has no role in broker authorization.

Question 3Capital Market Law and Regulation

Which document is the foundational statute governing the establishment of the Securities and Exchange Organization and the regulation of Iran's capital market?

  1. The Direct Taxes Act
  2. The Banking Act
  3. The Commercial Code
  4. The Securities Market Act Correct answer.

Explanation

The Securities Market Act creates the SEO and sets out the regulatory architecture for securities issuance, trading, and intermediaries. The Banking Act governs banking activity, while the Commercial Code addresses general commercial matters such as companies and negotiable instruments. The Direct Taxes Act concerns taxation and does not regulate market supervision.

Question 4Capital Market Law and Regulation

A client places a buy order for a listed equity and the broker executes it on the exchange. Which party bears the primary obligation to settle the cash leg of the trade?

  1. The client directly, without broker involvement
  2. The exchange's listing department
  3. The clearing house through its settlement guarantee arrangements Correct answer.
  4. The issuer of the security

Explanation

Settlement is handled through the central clearing and settlement infrastructure, which manages the delivery-versus-payment process and guarantees settlement for members. The client settles with its broker, not directly with the market, and the issuer has no settlement obligation. The listing department has no role in trade settlement.

Question 5Capital Market Law and Regulation

Which of the following best describes the SEO's approach to disclosure by listed issuers?

  1. Voluntary disclosure left entirely to issuer discretion
  2. Disclosure limited to annual audited financial statements
  3. Mandatory periodic and ad hoc disclosure of material information Correct answer.
  4. Disclosure only upon request by individual shareholders

Explanation

The SEO regime requires listed companies to publish periodic reports and to disclose material events promptly so that investors can make informed decisions. Disclosure is not discretionary, and it extends beyond annual financial statements to interim reports and ad hoc announcements. Individual shareholder requests are not the trigger for the disclosure obligation.

Question 6Capital Market Law and Regulation

An intermediary receives a large client order that could move the market price. Under market conduct rules, what is the most appropriate action?

  1. Front-run the client order for the firm's proprietary account
  2. Share the order details with other clients to attract counterparties
  3. Execute according to the client's instructions while managing execution to avoid improper price impact Correct answer.
  4. Delay execution indefinitely until the price stabilizes on its own

Explanation

Firms must act in the client's interest and execute orders on the agreed terms while avoiding conduct that distorts the market. Front-running misuses confidential client information and breaches the duty of loyalty. Passing order information to other clients is a confidentiality breach, and indefinite delay is inconsistent with best execution.

Question 7Capital Market Law and Regulation

Which activity is most clearly classified as market manipulation under Iranian securities rules?

  1. Reducing a position because of a change in investment strategy
  2. Placing orders with no intention to execute in order to create a false impression of demand Correct answer.
  3. Buying a security for a long-term investment portfolio
  4. Publishing a research report with a sell recommendation

Explanation

Manipulation includes conduct that creates a false or misleading appearance of trading activity or price, such as spoofing through non-bona-fide orders. Genuine research, long-term investing, and legitimate position changes are normal market activities. The distinguishing feature is intent to mislead rather than genuine trading purpose.

Question 8Capital Market Law and Regulation

A broker learns that a client is trading on information about an unannounced earnings result obtained from an insider. What should the broker do?

  1. Refuse to facilitate the trade and report the suspicion to the compliance function Correct answer.
  2. Execute the order and inform other clients of the opportunity
  3. Execute the order but record the client's name in a private file
  4. Execute the order because the broker has no duty to investigate client information

Explanation

Intermediaries must have controls to detect and prevent insider dealing and must escalate suspicious activity to compliance or the regulator. Executing the order without inquiry exposes the firm to liability, and informing other clients compounds the breach. Keeping a private record without reporting does not satisfy the obligation.

Question 9Capital Market Law and Regulation

Which statement correctly describes the role of the SEO in approving collective investment schemes such as mutual funds?

  1. The fund may launch once its custodian signs the prospectus
  2. The fund must obtain SEO authorization and operate under a licensed management company Correct answer.
  3. The fund requires only exchange listing approval
  4. The fund is authorized automatically upon incorporation

Explanation

Collective investment schemes require SEO authorization, and their management must be carried out by a licensed entity subject to ongoing supervision. Custodian signature alone does not authorize a fund, and exchange listing is a separate matter from regulatory approval. Automatic authorization on incorporation is not the regime.

Question 10Capital Market Law and Regulation

A listed issuer plans a material transaction that is not yet public. Which disclosure standard applies?

  1. Disclose promptly once the information is material and no longer confidential Correct answer.
  2. Disclose only in the next annual report
  3. Disclose only if a journalist inquires
  4. Withhold the information until the transaction closes

Explanation

Material information must be disclosed promptly, subject to the limited ability to keep information confidential while a transaction is being prepared. Annual reporting is too late for price-sensitive events, and disclosure is not triggered by media inquiries. Withholding until completion denies the market timely information.

Question 11Capital Market Law and Regulation

Which of the following is a core obligation of a broker-dealer regarding client assets held in custody?

  1. Commingle client securities with proprietary holdings
  2. Use client cash for the firm's working capital
  3. Segregate client assets from the firm's own assets Correct answer.
  4. Transfer client assets to a director's personal account

Explanation

Client asset protection rules require segregation so that client property is identifiable and protected if the firm fails. Using client cash for firm expenses or commingling securities exposes clients to loss and is prohibited. Transferring assets to a personal account is a straightforward misappropriation.

Question 12Capital Market Law and Regulation

A dealing firm's compliance officer discovers that a trader executed personal trades ahead of a large client order. Which rule was most directly breached?

  1. The prohibition on front-running and misuse of confidential information Correct answer.
  2. The listing rules for new securities
  3. The disclosure rules for issuers
  4. The capital adequacy requirement for broker-dealers

Explanation

Trading ahead of a client order on the basis of confidential order information is front-running, a misuse of information and a breach of the duty to the client. Capital adequacy concerns financial resources, listing rules govern admission of securities, and issuer disclosure governs corporate announcements. None of these addresses the trader's conduct.

Question 13Capital Market Law and Regulation

Which body typically acts as the central securities depository and settlement operator for Iranian exchange trades?

  1. The Central Bank of Iran
  2. The Tehran Stock Exchange listing committee
  3. The Central Securities Depository of Iran Correct answer.
  4. The Ministry of Economic Affairs and Finance

Explanation

The Central Securities Depository of Iran holds securities in book-entry form and supports clearing and settlement of exchange transactions. The Central Bank performs monetary and banking functions, the listing committee handles admission, and the ministry sets policy. None of these operates the depository.

Question 14Capital Market Law and Regulation

An issuer wishes to raise capital through a public offering of new shares. Which sequence best reflects the regulatory process?

  1. Subscription and listing simultaneously without any prospectus approval
  2. Listing of the shares first, then SEO approval of the prospectus
  3. SEO approval of the prospectus, then public subscription, then listing of the shares Correct answer.
  4. Public subscription first, then SEO approval of the prospectus

Explanation

Public offerings require an approved prospectus before investors subscribe, and listing follows once the offering is completed and the shares are admitted. Subscription before approval would expose investors to unauthorized solicitation. Listing before approval reverses the required order, and dispensing with prospectus approval is not permitted.

Question 15Capital Market Law and Regulation

Which of the following best describes the standard applied to a broker's duty when executing client orders?

  1. Route all orders to an affiliated entity regardless of terms
  2. Act in the client's best interest and follow the agreed execution terms Correct answer.
  3. Prioritize the firm's proprietary trades over client orders
  4. Execute at whatever price maximizes the firm's commission

Explanation

Brokers owe a duty to act in the client's best interest and to execute in accordance with the client's instructions and agreed terms. Prioritizing proprietary trades creates a conflict that harms clients, and maximizing commission at the client's expense is a breach. Routing to affiliates without regard to terms conflicts with the duty of care.

Question 16Capital Market Law and Regulation

A mutual fund manager wants to buy a security for the fund from an account managed for a related party. What is the key regulatory concern?

  1. The transaction requires no documentation because it is small
  2. The transaction is a related-party dealing that must be managed under conflict-of-interest rules Correct answer.
  3. The transaction is permitted without review because both accounts are managed internally
  4. The transaction is prohibited only if the security is not listed

Explanation

Dealings between the fund and related accounts create conflicts of interest that must be identified, disclosed, and managed under the applicable rules. Internal management does not eliminate the conflict, and listing status does not determine permissibility. Size does not remove the need for documentation and review.

Question 17Capital Market Law and Regulation

Which of the following is the primary purpose of capital adequacy requirements for broker-dealers?

  1. To determine which securities a firm may list
  2. To guarantee profits for shareholders
  3. To set the maximum commission a firm may charge
  4. To ensure the firm can meet its obligations and absorb losses Correct answer.

Explanation

Capital adequacy rules require firms to hold sufficient regulatory capital so they can absorb losses and meet obligations to clients and counterparties. They do not guarantee profitability, set commissions, or govern listing decisions. Those matters are addressed by other rules.

Question 18Capital Market Law and Regulation

A client complains that a broker executed a trade without authorization. Which control is most directly designed to prevent this?

  1. Reducing the number of listed securities traded
  2. Increasing the firm's marketing budget
  3. Extending settlement cycles
  4. Obtaining and documenting client authorization before executing orders Correct answer.

Explanation

Unauthorized trading is prevented by clear authorization and order documentation before execution. Marketing spend, the range of traded securities, and settlement timing do not address whether the client consented. Authorization records also support dispute resolution and supervision.

Question 19Capital Market Law and Regulation

Which statement about the SEO's power to investigate suspected violations is most accurate?

  1. It may require production of records and refer matters for enforcement action Correct answer.
  2. It may investigate only listed issuers, not brokers
  3. It has no authority over licensed intermediaries
  4. It may only act after a court has already convicted the firm

Explanation

The SEO has supervisory and investigative powers, including the ability to obtain records from regulated entities and to pursue enforcement. It does not wait for a prior criminal conviction to act, and its jurisdiction covers licensed intermediaries as well as issuers. Limiting its reach to issuers misstates its mandate.

Question 20Capital Market Law and Regulation

A company's shares are suspended from trading pending clarification of a rumour. What is the most likely regulatory rationale?

  1. To punish the company for having shareholders
  2. To allow the exchange to trade the shares privately
  3. To prevent the company from ever resuming trading
  4. To protect investors and market integrity until accurate information is disclosed Correct answer.

Explanation

Trading suspensions are used to prevent trading on inaccurate or incomplete information and to preserve market integrity until disclosure occurs. They are not punitive measures for having shareholders, and they do not permit private trading by the exchange. Suspensions are normally temporary and lifted once disclosure is made.

Question 21Capital Market Law and Regulation

Which of the following best describes the treatment of inside information by persons subject to the market rules?

  1. It may be shared with family members who do not work in the market
  2. It must be kept confidential and must not be used for trading or passed to others Correct answer.
  3. It may be used for trading if the trade is small
  4. It may be published on social media once the trading day ends

Explanation

Inside information must remain confidential and may not be used to trade or be disclosed to others who might trade on it. Sharing with family, trading in small size, or posting after market hours all constitute prohibited misuse or disclosure. The prohibition is not limited by the size of the trade or the timing of publication.

Question 22Capital Market Law and Regulation

An intermediary wants to outsource its order-routing technology to a third-party vendor. Which regulatory consideration is most relevant?

  1. Confirming the vendor's marketing strategy
  2. Checking whether the vendor trades on the exchange
  3. Verifying the vendor's shareholder structure only
  4. Ensuring outsourced functions remain subject to the firm's controls and regulatory oversight Correct answer.

Explanation

Outsourcing does not transfer regulatory responsibility; the firm must ensure the outsourced function is subject to adequate controls, oversight, and access by the regulator. Vendor marketing strategy, shareholder structure alone, and the vendor's own trading activity are not the central supervisory concern. The key issue is continuity of control and accountability.

Question 23Capital Market Law and Regulation

Which of the following is the correct description of a 'market maker' obligation on the exchange?

  1. To guarantee profits to all clients
  2. To provide continuous bid and ask quotes within defined parameters Correct answer.
  3. To approve new listings
  4. To set the official closing price unilaterally

Explanation

Market makers commit to quoting continuous two-way prices subject to parameters set by the exchange to support liquidity. They do not guarantee client profits, unilaterally set closing prices, or approve listings, which are functions of the exchange and regulator. Their role is liquidity provision within defined rules.

Question 24Capital Market Law and Regulation

A firm discovers a material error in a client's account statement caused by its own processing failure. What is the appropriate regulatory response?

  1. Correct the error silently without notifying the client
  2. Wait for the client to notice before acting
  3. Correct the error promptly, inform the client, and record the incident for compliance review Correct answer.
  4. Charge the client for the cost of the correction

Explanation

Firms must correct errors promptly, inform affected clients, and maintain records that support supervisory review. Silent correction deprives the client of information and undermines accountability, waiting for detection shifts the burden unfairly, and charging the client for the firm's own error is improper. Transparency and documentation are core expectations.

Question 25Capital Market Law and Regulation

Which statement best captures the relationship between the SEO and the exchanges it regulates?

  1. Exchanges are unregulated private clubs
  2. The SEO sets the regulatory framework and supervises exchanges that operate within it Correct answer.
  3. Exchanges set rules that override SEO regulations
  4. The SEO operates trading directly and exchanges have no role

Explanation

The SEO establishes the regulatory framework and supervises the exchanges, which operate markets and enforce their own rules consistently with SEO requirements. Exchange rules cannot override the regulator, exchanges are not unregulated, and the SEO does not itself run the trading venue. The relationship is one of supervision and delegated market operation.

Question 26Capital Market Law and Regulation

Under Iranian capital market law, which body is the primary regulator responsible for licensing and supervising broker-dealers?

  1. The Securities and Exchange Organization (SEO) Correct answer.
  2. The Central Bank of Iran (CBI)
  3. The Ministry of Economic Affairs and Finance
  4. The Tehran Stock Exchange (TSE)

Explanation

The SEO is the statutory regulator of Iran's capital market, established under the Securities Market Act. It has broad authority to license, regulate, and supervise all market participants, including broker-dealers. The CBI regulates banking and monetary policy, while the TSE is a self-regulatory exchange operator.

Question 27Capital Market Law and Regulation

Which of the following best describes the legal status of the Tehran Stock Exchange (TSE) in relation to the SEO?

  1. The TSE is a self-regulatory organization that operates under SEO oversight. Correct answer.
  2. The TSE is a private company that is not subject to SEO rules.
  3. The TSE is an independent regulator with no accountability to the SEO.
  4. The TSE is a government ministry directly controlled by the SEO.

Explanation

The TSE is a self-regulatory organization (SRO) that operates the exchange and enforces certain rules, but it does so under the supervision of the SEO. The SEO approves exchange rules and can intervene in exchange decisions. The TSE is not a government ministry, nor is it independent of the SEO.

Question 28Capital Market Law and Regulation

A broker-dealer's license is issued by the SEO. Which statement accurately reflects the SEO's power to revoke or suspend such a license?

  1. The SEO may revoke or suspend a license for regulatory violations without prior court approval. Correct answer.
  2. The SEO may revoke or suspend a license only after obtaining a final court judgment.
  3. The SEO may revoke a license only if the broker-dealer requests it.
  4. The SEO may only issue warnings and cannot revoke a license once granted.

Explanation

The SEO has administrative authority to suspend or revoke licenses for violations of securities laws and regulations. This power is exercised through its own regulatory processes and does not require a prior court judgment. Court proceedings may follow, but they are not a precondition for regulatory action.

Question 29Capital Market Law and Regulation

Which of the following individuals is most likely required to be registered with the SEO as a 'securities representative'?

  1. A software developer who maintains the broker's trading platform.
  2. A person who solicits clients and provides investment advice on securities. Correct answer.
  3. A back-office clerk who processes account opening forms.
  4. A security guard employed at the broker's headquarters.

Explanation

Securities representatives are individuals who engage in client-facing activities such as soliciting investors, providing investment advice, or taking orders. They must meet qualification requirements and be registered with the SEO. Back-office, IT, and support staff do not perform these regulated functions and are not required to register as representatives.

Question 30Capital Market Law and Regulation

Under the Iranian Securities Market Act, which of the following is a primary objective of the SEO?

  1. To guarantee profits for listed companies.
  2. To protect investors and ensure the orderly and fair functioning of the capital market. Correct answer.
  3. To maximize tax revenue from securities transactions.
  4. To set monetary policy and control inflation.

Explanation

The SEO's mandate includes protecting investors, ensuring market transparency, and maintaining fair and orderly markets. It does not aim to guarantee profits or maximize tax revenue, and monetary policy is the responsibility of the Central Bank. These objectives guide the SEO's rulemaking and enforcement activities.

Question 31Capital Market Law and Regulation

A listed company's board approves a major asset sale that is not yet public. Under Iranian disclosure rules, which action is required?

  1. The company must disclose the decision only after the sale is completed.
  2. The company must immediately disclose the decision to the SEO and the public. Correct answer.
  3. The company must disclose the decision only to its major shareholders.
  4. The company may delay disclosure indefinitely to protect its competitive position.

Explanation

Material information that could affect the price of securities must be disclosed promptly to the SEO and the public. This ensures all investors have equal access to information and prevents insider trading. Delaying disclosure or selective disclosure to major shareholders violates these principles.

Question 32Capital Market Law and Regulation

Which of the following best describes the SEO's role in approving the prospectus for an initial public offering (IPO) on the Tehran Stock Exchange?

  1. The SEO acts as the underwriter for all IPOs.
  2. The SEO guarantees that the IPO will be profitable for investors.
  3. The SEO reviews the prospectus for completeness and accuracy but does not guarantee the investment's merits. Correct answer.
  4. The SEO sets the final offer price for all IPOs.

Explanation

The SEO reviews and approves the prospectus to ensure that it contains full and accurate disclosure. Approval does not constitute a guarantee of the investment's quality or profitability. The SEO does not set prices or act as an underwriter; those are market and private-sector functions.

Question 33Capital Market Law and Regulation

A broker-dealer holds client funds in a bank account. Which statement best reflects the SEO's custody rules?

  1. Client funds may be commingled with the broker's funds as long as records are kept.
  2. Client funds must be segregated from the broker's own funds and reconciled regularly. Correct answer.
  3. Client funds must be held in physical cash at the broker's office.
  4. Client funds may be used for the broker's proprietary trading if approved by the board.

Explanation

SEO regulations require broker-dealers to segregate client funds from their own assets and to maintain accurate records and reconciliations. Commingling or using client funds for proprietary purposes is prohibited. This protects clients in the event of broker insolvency.

Question 34Capital Market Law and Regulation

Under Iranian securities law, which of the following constitutes 'inside information'?

  1. Non-public information that could materially affect the price of a security. Correct answer.
  2. Rumors circulating on social media about a company's future prospects.
  3. Information about a company's past earnings that has already been publicly released.
  4. Analyst reports based on publicly available financial statements.

Explanation

Inside information is defined as specific, non-public information that, if made public, would likely have a material effect on the price of a security. Publicly released information and analyst reports based on public data do not qualify. Rumors may be non-public but are not necessarily specific or reliable enough to be inside information.

Question 35Capital Market Law and Regulation

A director of a listed company buys shares of that company based on confidential knowledge of an upcoming earnings surprise. This conduct is best characterized as:

  1. Acceptable if the trade is reported to the SEO within 30 days.
  2. Permissible because directors are allowed to trade their own company's shares.
  3. Market manipulation, because it involves a purchase.
  4. Insider trading, which is prohibited under Iranian securities law. Correct answer.

Explanation

Trading on material non-public information is insider trading, which is explicitly prohibited. Directors and officers are subject to additional restrictions and must not exploit confidential information for personal gain. Reporting the trade after the fact does not cure the violation.

Question 36Capital Market Law and Regulation

Which of the following is a key requirement for a company seeking to list its shares on the Tehran Stock Exchange?

  1. The company must have a monopoly in its industry.
  2. The company must have no outstanding debt.
  3. The company must have audited financial statements and meet minimum capital and profitability thresholds. Correct answer.
  4. The company must be owned entirely by the government.

Explanation

Listing requirements typically include audited financial statements, minimum capital, profitability track record, and adequate public float. Government ownership, monopoly status, or zero debt are not listing prerequisites. These requirements ensure that listed companies meet basic standards of transparency and financial viability.

Question 37Capital Market Law and Regulation

The SEO's enforcement powers include which of the following?

  1. Directly operating the exchange's trading system.
  2. Arresting and imprisoning violators without court involvement.
  3. Setting criminal penalties without legislative authority.
  4. Issuing warnings, imposing fines, and suspending trading in a security. Correct answer.

Explanation

The SEO can take administrative enforcement actions such as warnings, fines, and trading suspensions. It does not have the power to arrest or imprison individuals; criminal sanctions are imposed by courts. The SEO also does not operate the trading system, which is the exchange's function.

Question 38Capital Market Law and Regulation

A listed company fails to submit its quarterly financial statements on time. What is the most likely regulatory consequence?

  1. The SEO may impose fines and, in serious cases, suspend trading in the company's shares. Correct answer.
  2. The SEO will personally prosecute the CEO in criminal court.
  3. The company's shares will be automatically delisted without any hearing.
  4. No action will be taken because quarterly reports are voluntary.

Explanation

Timely disclosure of financial statements is a continuing obligation. The SEO can impose fines for late filing and may suspend trading to protect investors. Delisting is a more drastic measure that typically follows prolonged or severe non-compliance and requires due process.

Question 39Capital Market Law and Regulation

Which of the following best describes the SEO's authority over the Tehran Stock Exchange's rulebook?

  1. The SEO must approve any changes to the exchange's rules before they take effect. Correct answer.
  2. The SEO can only suggest changes but cannot require them.
  3. The exchange can change its rules without any regulatory approval.
  4. The SEO has no role in exchange rulemaking.

Explanation

As the regulator, the SEO reviews and approves exchange rule changes to ensure consistency with securities law and investor protection. The exchange cannot unilaterally amend its rules without SEO approval. This oversight maintains the integrity of the regulatory framework.

Question 40Capital Market Law and Regulation

A broker-dealer receives a client order to buy a large block of shares. The broker also has proprietary inventory of the same stock. Under SEO conduct rules, which action is most appropriate?

  1. Execute the client order first and then trade for its own account to avoid front-running. Correct answer.
  2. Trade for its own account first to hedge risk, then execute the client order.
  3. Refuse the client order because the broker holds inventory.
  4. Execute both simultaneously without disclosing the conflict.

Explanation

SEO conduct rules prohibit front-running, which is trading ahead of a client order to profit from the expected price impact. The broker must prioritize client orders and manage conflicts of interest. Proprietary trading ahead of a client order would violate these principles.

Question 41Securities Market Structure and Participants

Under the Securities Market Act of Iran, which body is the primary regulator responsible for licensing and supervising securities market participants?

  1. The Ministry of Economic Affairs and Finance
  2. The High Council of Securities and Exchange Correct answer.
  3. The Tehran Stock Exchange Listing Board
  4. The Central Bank of Iran (Bank Markazi)

Explanation

The Securities Market Act of Iran established the High Council of Securities and Exchange as the highest supervisory authority of the capital market, operating through the Securities and Exchange Organization. The Central Bank regulates money and banking, not securities licensing.

Question 42Securities Market Structure and Participants

Which entity operates as the executive arm of the High Council of Securities and Exchange, issuing licenses and enforcing capital market rules?

  1. The Central Securities Depository of Iran
  2. The Securities and Exchange Organization (SEO) Correct answer.
  3. The Iran Mercantile Exchange
  4. The Tehran Stock Exchange

Explanation

The Securities and Exchange Organization is the executive and regulatory arm that implements the High Council's decisions, issues licenses to market participants, and enforces compliance. The exchanges and the depository are market institutions subject to SEO supervision rather than regulators themselves.

Question 43Securities Market Structure and Participants

A brokerage firm wishes to begin dealing in securities on an Iranian exchange. Which authorization must it obtain before conducting dealing activities?

  1. An investment fund registration from the Ministry of Finance
  2. A membership card from the Tehran Chamber of Commerce
  3. A securities dealer/broker license issued by the SEO Correct answer.
  4. A banking license from the Central Bank of Iran

Explanation

Dealing in securities requires a license from the Securities and Exchange Organization, which authorizes the firm as a broker or dealer subject to capital, fit-and-proper, and compliance requirements. Bank, chamber, and ministry authorizations do not confer securities dealing rights.

Question 44Securities Market Structure and Participants

In the Iranian capital market, what is the primary role of the Central Securities Depository of Iran (CSDI)?

  1. Conducting monetary policy operations for the Central Bank
  2. Approving prospectuses for initial public offerings
  3. Registering ownership and settling trades through book-entry transfer Correct answer.
  4. Setting the maximum daily price fluctuation for listed shares

Explanation

The CSDI provides depository, registration, and settlement services, holding securities in book-entry form and transferring ownership on settlement. Price limits, prospectus approval, and monetary policy are functions of other bodies.

Question 45Securities Market Structure and Participants

Which function is performed by a clearing house in the Iranian securities market?

  1. Managing the investment portfolios of retail clients
  2. Publishing research reports on listed companies
  3. Issuing prospectuses for new share offerings
  4. Guaranteeing settlement by acting as central counterparty to trades Correct answer.

Explanation

A clearing house interposes itself between buyers and sellers as central counterparty, novating trades and managing counterparty risk so that settlement obligations are guaranteed. Research, portfolio management, and prospectus issuance are performed by other market participants.

Question 46Securities Market Structure and Participants

A company plans an initial public offering on the Tehran Stock Exchange. Which sequence correctly reflects the typical admission process?

  1. Offering to the public, then listing, then SEO approval
  2. SEO approval, then trading, then listing on the exchange
  3. SEO approval of the offering, then listing on the exchange, then trading Correct answer.
  4. Listing on the exchange, then SEO approval, then offering to the public

Explanation

An issuer must first obtain regulatory approval for the public offering from the SEO, after which the shares are admitted to listing on the exchange and only then may secondary trading begin. Trading before listing or offering before regulatory approval would breach market rules.

Question 47Securities Market Structure and Participants

Which of the following best describes the role of a market maker on an Iranian exchange?

  1. Auditing the financial statements of listed issuers
  2. Guaranteeing investors against any loss on their positions
  3. Continuously quoting bid and ask prices to provide liquidity Correct answer.
  4. Setting the official closing price for each listed security

Explanation

A market maker commits to quoting two-sided prices within defined spreads and sizes, thereby providing liquidity and reducing bid-ask gaps. Market makers do not insure losses, set official prices unilaterally, or perform audits.

Question 48Securities Market Structure and Participants

What distinguishes a broker from a dealer in the Iranian securities market?

  1. A broker is regulated by the Central Bank, while a dealer is unregulated
  2. A broker trades for its own account, while a dealer only executes client orders
  3. A broker may only trade bonds, while a dealer may only trade equities
  4. A broker executes orders for clients, while a dealer trades for its own account Correct answer.

Explanation

The distinction rests on whose account is being traded: a broker acts as agent for clients and earns commissions, whereas a dealer takes principal positions and bears market risk on its own book. Both are licensed by the SEO and may trade across asset classes.

Question 49Securities Market Structure and Participants

An investor wants a professionally managed, diversified portfolio with units redeemable at net asset value. Which market participant should the investor approach?

  1. A listing advisor at the exchange
  2. A licensed collective investment fund manager Correct answer.
  3. A market maker on the exchange floor
  4. A credit rating agency

Explanation

Collective investment schemes pool investor money under professional management and issue units valued and redeemed at net asset value. Market makers, listing advisors, and rating agencies provide entirely different services.

Question 50Securities Market Structure and Participants

Which activity requires a separate portfolio management license rather than a mere brokerage license?

  1. Transferring securities between a client's accounts
  2. Executing a client's buy order on the exchange
  3. Discretionary management of client investment accounts Correct answer.
  4. Opening a trading account for a retail customer

Explanation

Discretionary portfolio management, where the manager decides trades on the client's behalf, requires a dedicated portfolio management license because it involves fiduciary discretion over client assets. Order execution, account opening, and transfers fall within brokerage operations.