Big Changes Planned for Iraqi Stock Markets

"We're looking to have more than one financial center in Iraq. Maybe in the future we will also look at setting up an exchange in Basra," said Rubaye. "We want to try and connect other regions with Baghdad."

Rubaye is also preparing to tackle an issue that has dogged the ISX since its establishment in 2004. "Once we have gone live with our new Nasdaq trading platform in July, we're going to invite foreign banks to submit their proposals to operate as a custodian." The lack of a custodian is viewed as the biggest hurdle to expanding the exchange and attracting foreign investors. Aside from political risk, they are also concerned about third-party risk in the absence of custodian services.

"The biggest challenge is the custody issue," says Sadeer Munir, managing director of the Baghdad-based financial advisory firm Melak Iraq. "I can't remember the number of times we have had discussions with investors about custody. Big institutions are shying away from the market, as they don't have a custodian they can work with. Resolving that issue will serve as a big catalyst to growing the market. If you compare the size of the ISX to that of surrounding countries, it's easy to see that it should be a lot larger."