The Iranian Association of Islamic Finance (IAIF), held a specialized session on "Trust in the capital market and ways to improve it" in cooperation with the Islamic Research, Development and Studies Center of the Securities and Exchange Organization (SEO) on 31 Jan. 2023.
In this meeting, Dr. Ali Saeedi, Faculty Member of a University and a senior expert in the capital market, Dr. Mohammad Ali Dehghan Dehnavi, Faculty Member of a University and former Head of the Securities and Exchange Organization, and Meysam Hamedi, Head of the Research, Development and Islamic Studies Center of the SEO, gave speeches.

At the beginning of this session, Meysam Hamedi said the issue of trust in the capital market is raised when we face a crisis. When this issue is raised, we are faced with different keywords including investors' expectations, investor confidence, investor support and investor optimism. Various individuals and institutions tried to define investor confidence.

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According to the United States Securities Exchange Commission, investor confidence means willingness to use investment opportunities in the market and use existing channels to reach the capital market and the perception of risk and return. In the report of this committee, confidence is divided into two components. First, optimism towards risk and return basis in the market and secondly, trust is a component of confidence.
Organisation for Economic Co-operation and Development (OECD) in a part of its reports has dealt with the discussion of trust in the capital market, and one of its components is predictability in the financial markets (stable and efficient markets) also the presence of the supervisory body in the market and the third component is the behavior of the stakeholder institutions in the capital market.
In the world, indicators to measure the level of trust in the financial markets are pursued, and the bank is often the most trusted entity in the financial markets, followed by investment funds, stocks and finally large joint-stock companies.

Then Dr. Dehghani said at the beginning of his speech: "the issue of trust in the last two or three years has been of great interest in the capital market, and this issue has been discussed by market activists. This topic covers a very wide area. When we enter the capital market, we face many different factors and stakeholders.

He mentioned the amount of transparency in our financial markets and companies’ financial reports is really critical. How many legal persons behave professionally in the market? How much the SEO, can monitor and control the market.
He went on to say that countries have various factors outside the capital market, such as political, social, etc. Those factors affect our capital market.

At the end, Dr. Saeedi the issue is very important and such issues are raised when we usually face a problem. In the countries that are leading there is a lot of literature in their capital market due to their confrontation with this problem earlier.
He said it can be effective if we examine the relationship between the concept of trust and confidence and what are their differences.

Dr. Saeedi stressed that if you check the speech of the heads of financial institutions, you can get some key words. One of them is stability and the next one is trust. In my opinion, it is consistency that leads to trust. Stability means slow fluctuations in the price of financial assets. Trust is a concept which has root in the psychological subject. Like the phenomenon of risk, which is different for various people, but this is a complex issue.

He went on to say that in the issue of trust, it does not matter what the real risk is. What matters is how we perceive the risk. Trust is a complex process to be formed and it takes a long time to be acquired. Sometimes the supervisory body says to retake the trust. This shows that it has not understood the process of trust. Trust is hard to be earned but it is lost easily. Therefore, it is necessary to examine how trust is obtained.

Dr. Saeedi mentioned is it a mathematical concept or a perceptual issue? In the capital market, there are effective factors in the formation of trust, endogenous and exogenous factors. But most of it is exogenous. We have a market that we say is based on supply and demand, but the internal parts of it are regulatory pricing and we expect the market goes based on this mechanism. This is a wrong expectation, and all the pressure of this issue is placed on the supervisory body, and it contradicts many of the principles of the market. Therefore, in this turbulent environment, ambiguities arise and how to build trust in this environment and how to gain trust is a difficult task.