Legal Regulation of the Work of the Introducing Broker and the Financial Broker
Under the Provisions of Regulatory Regulation No. (35) of 2025 Issued by the Securities Commission
The financial sector in Iraq is witnessing rapid structural transformations aimed at integrating the national economy into the global financial system and meeting the Iraqi investor’s growing desire to access international markets. In this context, the Securities Commission issued Regulatory Regulation No. (35) of 2025 to govern the work of financial brokerage companies seeking to obtain a license from the Commission to trade in foreign securities and commodities markets.
This Regulation came to fill an important legislative gap and to establish a binding legal framework for trading activities in foreign securities and commodities, away from randomness and the risks of dealing with unlicensed entities.
This report aims to highlight the legal provisions contained in this Regulation, with a particular focus on the fundamental distinction between two models of financial service providers:
- Introducing Broker: whose role is limited to marketing intermediation.
- Financial Broker: who holds execution powers and manages clients’ accounts.
The report also provides a detailed analysis of:
- the financial requirements for each model
- the administrative requirements for each model
- the mechanisms of establishment and licensing
- the legal safeguards imposed to protect investors’ funds, including strict restrictions on dealing in cryptocurrencies, in order to present a comprehensive practical and legal guide that clarifies the rights and obligations of all concerned parties.
Section One: The General Framework, Scope of Application, and Establishment
This section sets out the general foundations for applying the Regulatory Regulation, in terms of its territorial scope and the legal form required to carry out the activities covered by it, as follows:
First Requirement: Scope of Application of the Regulation (Territorial Scope)
Introduction
Before discussing the details of licenses and types of companies, it is first necessary to define the “boundaries” within which this Regulation operates. Article (1) sets out clear definitions intended to separate “international trading” from “domestic trading,” in order to avoid any confusion between the provisions of this Regulation and the laws governing the Iraq Stock Exchange.
The Criterion for Distinguishing Between Domestic and Foreign Dealing
The Regulation establishes a decisive geographic and legal criterion for applying its provisions, based on the location of the market rather than solely the nationality of the security.
Paragraph (Tenth) of Article (1) of the Regulation defines “Foreign Securities and Commodities Markets” as:
“Any market outside the borders of the Republic of Iraq that is organized and licensed to trade in securities and commodities of various types.”
Accordingly, the criterion here is a geographic criterion (outside the borders of the Republic). Therefore, any trading that takes place within the Iraq Stock Exchange falls outside the scope of this Regulation, even if the listed companies are foreign.
Second Requirement: The Mandatory Legal Form and Exclusivity of Practice
Based on Paragraph (Third) of Article (1) of the Regulation, the legislator sought to regulate dealings in foreign markets by restricting the practice of all newly introduced financial professions—namely:
- the Financial Broker
- the Broker for Its Own Account
- the Introducing Broker
- Investment Management
- Investment Custody
- Financial Advisory to one specifically defined legal entity only, namely the “Financial Brokerage Company.”
Accordingly, the lawful practice of these activities—whether relating to shares, bonds, commodities, or any other financial instruments specified by the Commission in foreign markets—is only permitted through the establishment of a joint-stock company (or a limited liability company, as the case may be) that is duly licensed for this purpose.
This legal characterization categorically prevents the conduct of such activities on a personal or individual basis, as the Regulation requires acquiring the status of a “Financial Brokerage Company” as the sole and legitimate gateway into this sector. This is to ensure the existence of:
- Adequate financial solvency
- An administrative structure capable of bearing the risks associated with dealing in international markets.
Section Two: The Legal Regulation of the Introducing Broker Profession
First Requirement: The Legal Definition of the Profession and Its Nature
The “Introducing Broker” represents the simplest and least complex model within the licensing structure established by the Regulation. The legislator designed it to serve as a “marketing bridge” linking the local investor with global financial institutions. Since the nature of this broker’s work is limited to “referral and introduction” and does not extend to receiving funds or directly executing trades, the legislator granted it a distinct legal status characterized by relatively lighter financial requirements, in exchange for stricter oversight of the “quality” of the foreign party whose services it promotes.
Below is a detailed presentation of the provisions governing this broker, beginning with its legal definition, moving through its financial solvency requirements, and ending with its contractual and supervisory obligations:
Paragraph (Eighth) of Article (1) of the Regulation defines the Introducing Broker as:
“The broker licensed by the Commission to provide the service of introducing clients to a foreign broker licensed to deal in foreign securities and commodities markets.”
According to the above definition, the Introducing Broker is considered one form of a licensed financial brokerage company. Its role is limited to intermediation in contracting and does not extend to intermediation in the direct execution of transactions. Its core task is to introduce, coordinate, and connect the local investor with the licensed foreign institution by:
- Referring the client
- Facilitating initial communication between the two parties, and
- Providing the necessary information about investment services, without itself executing orders or managing investment operations. Such execution and management remain within the competence of the relevant foreign entity, in accordance with the applicable regulatory frameworks.
Second Requirement: Financial Requirements for Obtaining an Introducing Broker License
- Minimum Capital Requirement: Paragraph (A) of Article (3) of the Regulation provides that the capital of an applicant seeking a license to operate as an Introducing Broker must not be less than (300,000,000) three hundred million Iraqi dinars.
- Ongoing Solvency Requirement: Paragraph (C) of the same Article provides that the net equity ratio must not fall below 75% of the capital at any time. If it declines, the company must: submit guarantees, and remedy the shortfall within 15 working days, otherwise the company’s operations will be suspended.
- Financial Guarantee (Bank Guarantee): A non-conditional guarantee must be provided in favor of the Commission, in the form determined by the Commission, in the amount of: (150,000,000) one hundred and fifty million Iraqi dinars, and its value is reviewed annually.
This obligation is considered central to the Introducing Broker’s work, as it bears the responsibility of “due diligence” toward the foreign partner. It is not sufficient for the foreign company to be merely well-known; rather, its official licensing must be proven, and evidence of contracting with it must be submitted before promoting its services. This is intended to protect Iraqi investors’ funds from foreign companies that are not subject to regulatory oversight.
If you’re looking for a law firm in Iraq to clarify licensing and compliance requirements under Regulation No. 35 of 2025, contact Osama Tuma for Legal Services and Advisory for tailored legal guidance.
