Brokers and market makers are the intermediaries through which most investors access the Iraq Stock Exchange. The framework administered by the Iraq Securities Commission (ISC) provides for licensing, supervision, and conduct rules applicable to these intermediaries. For investors, understanding the role and obligations of intermediaries supports informed engagement with the markets. For firms operating in intermediary roles, the framework defines both the licensing requirements supporting their authorisation and the conduct rules governing their operation.
Categories of Intermediary
Intermediaries operating in the Iraqi capital markets include, including brokers, firms executing securities transactions on behalf of clients, market makers, firms providing two-way quotes in specific securities, supporting market liquidity, Investment dealers, firms trading for their own account in addition to client business, Investment advisors, firms providing investment advice without execution capability, custodians, firms holding securities and cash on behalf of clients, depository participants, firms operating within the depository framework, and specific roles supporting particular market segments or products. Each category has its own licensing framework and conduct rules.
Licensing Requirements
Intermediaries operating in the Iraqi capital markets typically require ISC licensing. Licensing requirements include:
- Corporate form and ownership meeting applicable standards.
- Minimum capital appropriate to the licensed activity.
- Qualified personnel including senior management and operational staff.
- Operational infrastructure supporting compliant operation.
- Compliance functions supporting ongoing adherence to applicable rules.
- Anti-money-laundering procedures and capability.
- Where applicable, sector-specific qualifications for particular activities.
- Specific documentation supporting the licensing application.
Licensing supports the integrity of intermediation in the markets.
Conduct Rules
Licensed intermediaries operate under conduct rules:
- Client identification and suitability requirements.
- Fair dealing with clients including best execution obligations.
- Conflict of interest management.
- Information barriers and confidentiality protections.
- Restrictions on personal trading by employees.
- Order handling and trade execution standards.
- Recording and reporting of client communications.
- Client asset protection including segregation arrangements.
- Specific rules for particular activities such as proprietary trading or market making.
Conduct rules govern intermediaries’ day-to-day interactions with clients and the market.
Capital and Prudential Requirements
Intermediaries face capital and prudential requirements supporting their stability and protection of client assets, including minimum capital levels appropriate to the activities undertaken, ongoing capital adequacy reflecting risk-weighted positions, liquidity requirements supporting ability to meet client obligations, reporting of capital position to the regulator, internal capital management and risk assessment processes, and Where applicable, specific requirements for particular activities. Prudential requirements protect against intermediary failures that would harm clients and the broader market.
Market Making
Market makers provide a specific function supporting market liquidity. Their obligations typically include, including maintaining two-way quotes in designated securities during trading sessions, minimum quotation size and maximum spread between bid and offer prices, continuous presence during defined market hours, specific reporting on market making activity, Where applicable, particular obligations during volatile market conditions, benefits associated with market maker status including specific access and information arrangements, and Coordination with the ISX on operational matters. Effective market making supports orderly markets and investor access to liquidity.
Supervision
Licensed intermediaries are subject to ongoing ISC supervision, including periodic reporting of activities and financial position, on-site inspections verifying compliance with applicable rules, investigation of specific concerns about intermediary conduct, Where applicable, disciplinary action for violations, engagement on policy and regulatory matters affecting intermediaries, Coordination with international regulators for intermediaries with cross-border operations, and specific reporting on suspicious activity and other compliance matters. Supervision supports the continuing integrity of the intermediation function.
Client Protection
Client protection is a central concern of the intermediary framework. Specific protections include client identification and suitability assessment, segregation of client assets from intermediary assets, complaint handling procedures supporting client remedies, where applicable compensation arrangements for intermediary failures, and information rights supporting client monitoring of their accounts. Investors should engage with intermediaries that take client protection seriously rather than treat it as a formal compliance matter.
How We Can Help
Etihad Law Firm advises intermediaries and their clients on regulatory matters, initial licensing applications for intermediary firms, ongoing compliance with the Iraq Securities Commission framework, response to inspections and inquiries, defence of alleged violations, client disputes, and the integration of intermediary operations with broader business strategy.