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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007
ISTANBUL STOCK EXCHANGE
Osman Birsen
Chairman & CEO
In 2006, there were 13 new listings on the
ISE Stock Market. The market capitalisation
of 316 ISE traded companies reached
US$ 163.8 billion at the end of 2006.
The Turkish economy has grown by a third since
the 2001 crisis. Extensive macro-economic and
structural reforms have helped to increase
confidence, reduce risk premia, and stimulate
domestic and foreign investment. However, Turkey
was seriously affected by the decline in the risk
appetite of the international financial markets in
early 2006, which led to a currency turmoil and
rising interest rates as foreign investors
temporarily withdrew from emerging markets.
This stemmed mainly from the concerns that US
interest rates would rise more than previously
expected. For the Turkish economy, the main
challenges that remain to be addressed are,
1) to further strengthen the fiscal and monetary
institutions in order to make the economy more
resilient to shocks, 2) to accelerate the pace of
reform in labor, product and agricultural markets
and in the social security and education systems.
The impressive package of fiscal consolidation
and institutional reform that has been applied
since the 2001 crisis has created a strong
foundation for economic growth. As a result of this
program, GDP growth rate has been strong and
stable, inflation has fallen, and the public debt
burden has been reduced significantly. On the
other hand, the current account deficit remains
larger than expected.
In 2006, the decisive implementation of a
comprehensive economic program has helped
Turkey significantly improve its macroeconomic
situation. The ongoing process of EU accession
and the signing of a new Stand-By arrangement
with the IMF for the period of 2005-2008 have
created two strong anchors for increasing Turkey’s
growth potential and improving a better
functioning market economy.
As far as the Istanbul Stock Exchange (ISE) is
concerned, some of the ISE member brokerage
houses, banks and some ISE traded companies
were bought by foreign investors through takeovers,
mergers and acquisitions. Consequently,
the share of foreign banks in the Turkish banking
sector increased.
As of the end of 2006, the ISE-National 100 Index,
the main stock market index on the ISE,
decreased by 6.1% in US$ terms compared to the
values at the end of 2005. The stock market total
traded value increased to US$ 229.6 billion by
13.8% as of the end of 2006, compared to the end
of 2005. The average daily traded value stood at
US$ 919 million at the end of 2006.
In 2006, there were 13 new listings on the ISE
Stock Market. The market capitalisation of 316
ISE traded companies registered a slight increase
to reach a level of US$ 163.8 billion at the end of
2006 compared to the previous year. Six ETFs
(Exchange Traded Fund) are traded on the ISE as
of the end of 2006.
The net equity investment in Turkey by foreign
portfolio investors in 2006 was registered at
US$ 1,143 billion; representing 65% of the freefloating
shares as of end-2006.
The ISE Bonds and Bills Market, on the other
hand, was also quite hectic; the average daily
trading volume increased by 18% in 2006 to
reach US$ 8,130 million.
The ISE starts the year 2007 with new projects
including the launch of an “opening session” for
the Stock Market. The opening session will consist
of three phases, namely; Opening (08:30-09:50),
Order Entry (09:30-09:50) and Opening Process
(09:50-10:00). The Disclosure Automation Project,
which will enable traded companies to directly
disclose information using Internet technologies
and digital certificates, is planned to be put into
use in 2007.
HISTORY AND DEVELOPMENT
In 1981, the Capital Market Law was enacted and
one year later, the Capital Markets Board was
established. In October 1983, the Parliament
approved the Regulations for the Establishment
and Operations of Securities Exchanges, which
paved the way for the establishment of the ISE,
formally inaugurated on 26 December 1985.
Currently, there are three markets operating at the
ISE; the stock market, the bonds and bills market
and the international market. The ISE provides a
fair and transparent environment for trading of a
wide variety of securities, namely, stocks,
exchange traded funds, government bonds,
t-bills, money market instruments (repo/reverse
repo), corporate bonds and foreign securities.
As of the end of 2006, 101 out of 110 members
have been provided with remote access to the
stock market trading systems. During the same
period, the number of orders sent by members via
Ex-API (Express Application Programming
Interface) terminals reached 90% of all orders, with
the number growing steadily. Trading on the bonds
and bills market is already carried out remotely.
In 1989, the foreign exchange regime was
amended to allow non-residents to invest in
Turkish securities, making the Turkish stock and
bond markets open to foreign investors without
any restrictions on the repatriation of capital and
profits.
The ISE was recognized as a “Designated
Offshore Securities Market” by the U.S. Securities
and Exchange Commission in 1993 and was
designated as an “appropriate foreign investment
market for private and institutional Japanese
investors” by the Japan Securities Dealers
Association in 1995. Likewise, the ISE has been
approved by the Austrian Ministry of Finance as a
regulated market in accordance with the
regulations of the Austrian Investment Fund Act in
2000.
As a result of all these developments, foreign
investors now account for a substantial volume of
daily trading and hold around 66% of the publiclyheld
stocks in their portfolios.
The ISE currently owns 31.52% of the ISE
Settlement and Custody Bank (Takasbank), 30% of
the Central Registry Agency and 18% of the
Turkish Derivatives Exchange (TurkDEX). On the
international level, the ISE has participations in the
Kyrgyz and Baku Stock Exchanges with stakes of
24.51% and 5.55%, respectively.
FUTURE OUTLOOK
• The ISE will launch “opening session” for the
Stock Market starting from 7 February 2007. The
opening session will consist of three phases,
namely; Opening (08:30-09:50), Order Entry
(09:30-09:50) and Opening Process (09:50-10:00).
The opening session has a special trading
algorithm which allows orders to be conveyed to
the trading system during the pre-defined time
intervals and be executed over a single auction
price which reveals the maximum amount of
trading volume from the orders. The price
calculated at the opening session establishes the
market price of the related stock.
• Within the framework of the joint and central
surveillance project by the Capital Markets Board
and the ISE, which allows real time surveillance to
be carried out electronically and more efficiently, is
near completion.
The new software will be tested by the surveillance
experts up until mid 2007.
• The Disclosure Automation Project, which will
enable traded companies to directly disclose
information using Internet technologies and digital
certificates, is being tested. With the new system,
financial statements, explanatory notes, special
situations and other information submitted by the
companies will be received electronically in line
with the information security standards and be
disclosed to the public by electronic means.
• The Istanbul Stock Exchange is coordinating the
reinforcement of cooperation among the
Organization of Islamic Conference (OIC) Member
States’ stock exchanges forum. Technical
Committee and Information Technology (IT)
Committee work on the possible areas of
cooperation.
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