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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011 ISTANBUL STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Prior to the recent global recession which hit all economies throughout the world, the Turkish economy sustained strong economic growth for 27 quarters consecutively, making it one of the fastest growing economies in Europe. However, the global financial crisis has considerably challenged the macroeconomic and financial stability of many economies by adversely affecting financing facilities and external demand, thus causing a significant slowdown in all global economic activities. While the financial markets in Turkey proved resilient to the global financial crisis, the decrease in external demand and slowing international capital flows have had a negative impact on the economy, thus causing a 4.7 percent economic contraction in 2009. However, the perceived positive developments in the economy showed signs of a fast recovery beginning as early as the last quarter of 2009, with an impressive 6 percent economic growth rate, hence making Turkey one of the fastest recovering economies in the world. Its robust economic growth has continued in 2010 as well, having reached 11.8 percent, 10.2 percent and 5.5 percent in the first, second and third quarters of 2010, respectively. Turkey’s very recent economic performance has created an optimistic environment, enabling international organizations to regard it as the fastest growing economy in Europe and among the OECD countries. A rise in general index was realized in the 2003 based Consumer Price Index on December of the previous year by 6,40% and on the twelve months moving averages basis by 8,57% in December 2010. In 2010, imports increased by 31.6% compared to the value in 2009, from US$ 141 billion to US$ 186 billion, whereas exports increased by 11.5% from US$ 102 billion to US$ 114 billion. The difference between the growth rates of import and export signals the improvement in domestic demand. In addition, the rate of imports covered by exports stood at 61.4% as of December 2010. As another sign of the recovery from the global financial crisis, the non-seasonally adjusted unemployment rate decreased from 13% in October 2009 to 11.2% in October 2010. Number of unemployed persons decreased by 398 thousand compared to October 2009, and has reached to 2 million 901 thousand persons in Turkey as of October 2010. In 2010, the ISE National-100 Index increased by 21% in US$ terms to 2499.75 and by 25% in TL terms to 66,004.48. Besides, it recorded its all-time-high value of 2,984.43 on November 5, 2010. The stock market yearly total traded value increased to US$ 425.7 billion by 35% in US$ terms in 2010 compared to 2009. The average daily traded value of equities stood at US$ 1.7 billion in 2010. Exceeding its value before the financial crisis, the market capitalization of 338 ISE traded companies rose to a level of US$ 308 billion at the end of 2010 from US$ 236 billion at the end of 2009. As of end-2010, 12 ETFs (Exchange Traded Fund) are traded on the ISE Collective Products Market. The net equity investments within the free float of the ISE traded companies by foreign portfolio investors has been registered at around US$ 71.4 billion at the end of 2010 representing 66.18% of the free float. The turnover in fixed income securities transacted on the Outright Purchases and Sales Market increased by 10.3% to US$ 297.8 billion in 2010. The Repo/Reverse Repo Market turnover increased by 4.2% to US$ 2 trillion in the same period. The average daily traded value in the overall Bonds and Bills Market stood at US$ 9.2 billion at the end of 2010. In 2010, 22 companies offered their stocks for the first time to public on the ISE. Also, two Exchange Traded Funds (ETFs) started to be traded on the ISE Collective Products Market, one of the sub-markets of the Stock Market. The amount of funds raised through 22 IPOs was US$ 2.14 billion*. Information obtained from the Exchange. Key Information Contacts Capital Markets Board of Turkey www.cmb.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) www.takasbank.com.tr Central Registry Agency Inc. www.mkk.com.tr The Association of Capital Market Intermediary Institutions of Turkey www.tspakb.org.tr The Turkish Derivatives Exchange (TurkDEX) www.turkdex.org.tr PAGE 74
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011 KARACHI STOCK EXCHANGE The KSE 100 index registered a growth of 60% in 2009. Adnan Afridi Managing Director The year 2009 was a year of consolidation and recovery. Pakistan’s economic growth rate declined to just over 2% compared to an average growth rate of almost 7% over the 5 year period 2004-08. A weak global economy, high levels of political uncertainty and a poor law and order situation all played a role in the decline in the country’s economic activity. Despite being a slow year, the reduction in inflation, relative macro-stability, strong remittances and gradual monetary easing by the State Bank of Pakistan led to encouraging corporate performance. The capital markets have rebounded albeit with low volumes and their performance remains highly correlated with the political and security situation in the country. The KSE 100 index registered a growth of 60% in 2009 which is especially impressive against the backdrop of militant activity in the country. It is also encouraging to note that companies are once again beginning to show a keen interest in raising capital and towards the end of 2009 a significant increase in IPOs has been witnessed which signals a path to recovery in market activity for the next year. During 2009, the Karachi Stock Exchange reintroduced Deliverable Futures Contracts and adopted the global FIX protocol allowing Direct Market access for global traders. The Karachi Stock Exchange, also introduced the Debt Market; now trading in corporate bonds is being conducted through the Bonds Automated Trading System (BATs). We are hopeful that with continued support from the State Bank of Pakistan and active participation from asset management organizations, and banks, this market will be extended to include public debt as well. In line with our commitment to investors we continued to upgrade our risk management capabilities – the KSE introduced Client Level Margining on October 1, 2009. The objective of this mechanism was to bring about a shift from broker level margining to the Client/UIN level margining. All related trading/exposure capital is now available on the basis of UIN wise collateral positions in terms of respective sub-accounts. Moving forward, we remain committed to enhancing our risk management and surveillance measures to further increase transparency and to ensure a level playing field for all investors. HISTORY AND DEVELOPMENT The KSE is the biggest and most liquid exchange amongst the three exchanges of Pakistan. It came into existence on 18 September 1947. It was later converted and registered as a company limited by guarantee on 10 March 1949. Initially, only five companies were listed with a paid-up capital of Rs. 37 million (US$ 0.62 million). The year 2009 was year of consolidation and recovery. The KSE 100 Index registered a growth of 60% and close at 9386.92 points. As of Dec 31, 2009, ordinary shares of 651 companies were listed having listed capital of Rs. 814.48 billion (US$ 9.66 billion) with the market capitalization of Rs.2,705.88 billion (US$ 32.10 billion). In 1991 the secondary market was opened to foreign investors on an equal basis with local participants. This measure, along with a policy of privatization, has resulted in rapid growth of the market since 1991. Management The KSE has an independent Board of Directors (10 directors) with representation from the Members of the Exchange & from the Corporate Community. Five directors are elected from amongst the 200 members of the Exchange and four non member directors are nominated by Regulator i.e., SECP the Chairman is elected by Board from amongst non member Directors whereas, Managing Director is ex-officio member of the board KSE is in process of demutualization, it is presently a company limited by guarantee, will be converted into a company limited by shares. Automation of the Exchange KSE has a fully automated trading system with T+2 settlement system whereby all trades settle on the second day after the trade. Internet based trading system was also launched in December, 2004 to provide an additional facility for investors to enter their orders. KSE has also launched a single exchange-traded market for trading corporate bonds in Pakistan using BATS. KSE’s BATS provide live system based, on screen electronic Trading Platform which offer, market participants a transparent and efficient trading system features and facilities crucial for the Debt market Securities Trading. KSE also launched Stock Index Futures Contract. This marks a momentous achievement for the KSE. Unique Identification Number was introduced to provide a traceable link between every order entered at the trading system of the Exchange. VaR based margining system was also introduced in place of a slab based Risk management system. The new RMS included, amongst others, a new netting regime; a margining system based on Value at Risk (VaR) and Capital Adequacy. KSE has also adopted the FIX protocol (Financial Information Exchange) for both trading and market data. Due to this technology, KSE will be able to attract local, regional and global liquidity by providing KSE members to seamlessly interact with their automated trading platform and offer access to their international trading partners. ACCOMPLISHMENTS 2009 • Introduction of Corporate Bonds Automated Trading System • Data Vending and Launch of Mobile KSE Automated Trading System (mKats) •Implementation of internationally accepted industry classification Benchmark a jointly developed classification system launched by FTSE Group and Dow Jones Index. RISK MANAGEMENT • Introduction of Client Level Margining Regime • Restructuring of Net Capital Balance requirement • Pre-settlement mechanism in Ready & Deliverable Future Contract Market • Introduction of Exposure Dropout Facility during Trading Hours •Introduction of Client wise cash deposits allocation against exposure margin and losses • Change in Penalty requirements on Net Capital Balance Certificate. The National Clearing & Settlement Company has already been established. The company handles clearing and settlement of three exchanges of the country under one roof. Physical settlement to online real-time book-entry settlement of the securities through Central Depository System has also been introduced to eliminate the opportunities for forgery, fraud and delay in transfer. Transparency of the listed companies has been enhanced with the introduction of quality audits, quarterly financial reports and timely dividend payouts. Corporate governance is also now the part of the KSE’s listing regulation. FUTURE OUTLOOK KSE is determined to remain one of the growing investment institutions not only within the country but globally as well. • Corporatization and Demutualization of stock Exchange: National Assembly has passed the Stock Exchange (Corporatization, Demutualization and Integration) Bill and this will now be tabled in the Senate for its approval and afterward, will be notified in the official Gazette for its promulgation as Stock Exchanges (Corporatization, Demutualization and Integration) Act. • Introduction of New Products and New Measures: KSE plans to introduce new products into the market, to further cater to the growing needs of its investors and help develop Pakistan’s capital markets. KSE will be introducing: Exchange Traded Funds, Sector Based Index, new derivative products. PAGE 75
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