04/28/2010 05:12 am ET | Updated May 25, 2011

Iraq Stock Exchange: High-risk investments

Trading floors are known for being volatile. Those who think they're tough should try navigating the Iraq Stock Exchange.

On Jan. 12, the Tuesday trading session was cancelled. Intelligence reports pointed to a planned suicide attack somewhere in the capital. As a precaution, authorities ordered a strict curfew on Baghdad.

"The stock exchange has called off its session on Tuesday because of the inability of its employees to reach their workplace," a source told the Aswat al-Iraq news agency in a bit of an understatement.

And New York City investors thought midtown traffic was inconvenient.

This isn't the first time Shwan Taha, CEO of Rabee Securities, one of Baghdad's oldest and largest brokerage firms, has seen trading suspended. Of course, it's nothing compared to 2006 when it lasted for months during what the United Nations called a "civil war-like situation."

Today, Taha sees that relatively more security in the streets means the same for his investments.

"On the exchange, the largest sector is by far the banks," he explains while emailing stock reports over a problematic Internet connection. On this day, the Bank of Baghdad closed at 1.98 Iraqi Dinars - less than a penny.

"Then there is the tourism sector," he says. "But, that's really more real estate when you get into it."

Taha knows the intricacies of this market. He has traded shares in Baghdad since its first exchange opened in 1992. Back then it was the Baghdad Stock Exchange. Under the rule of Saddam Hussein it provided a prosperous living.

"It operated well until the invasion at which point it was closed. Then squatters moved in for a year," says Taha. "The U.S. tried to reopen it. But, reopening was a fanciful thing. They couldn't manage it. They were incompetent."

Without a formal system of trading, brokerages set about creating their own private exchange. In June 2004, the Iraq Stock Exchange opened with 15 listings. Today it has about 90 companies and recently moved to electronic trading.

"It's the same system that the NASDAQ uses," says Taha. Although, he acknowledges it can't rely on the country's battered power grid that leaves Baghdad in the dark unexpectedly and for long periods of time. "You have to factor in that the computer system and servers can't go off. So, the exchange runs on generators. Trading only happens for two hours a day."

As a back-up, the old system remains in place - whiteboards and dry-erase markers. Throughout the exchange building, a former restaurant in the heart of Baghdad, hanging boards represent each company listed. Traders, mobile phones pressed to their ears, crowd these boards, writing and erasing notes to buy and sell.

It's a definite skill that requires a fast hand and a shrewd eye. Now though, investors can verify their trades on the spot rather than waiting two weeks for certificates. That's something Taha hopes will bring in new investors.

"We definitely cater towards foreign investment. We've seen an uptick, especially frontier funds," he says. "But, the global custodians of the economy have not been to Iraq yet."

Iraq is still tiny compared to established markets in London and New York. By the end of 2008, the ISX had traded only $270 million compared to the NYSE's $16.7 trillion. But, in spite of the non-market volatility, many hope local and foreign investment will boost the nation's economy.

On the last day of January, despite the delay earlier in the month, the index was up 1.16 per cent. As Taha predicted, the banks dominated the trading. But, Tourist Village of Mosul (HTVM) represented one of the biggest gains, up 10 per cent on the day.

For people like Taha, this only proves there's money to be made at the ISX. Of course, the investment may be a little more high-risk than usual.