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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006
ISTANBUL STOCK EXCHANGE
Osman Birsen
Chairman & CEO
The ISE-National 100 Index, the main stock
market index of the Istanbul Stock Exchange,
appreciated by 59% in YTL terms and by 61%
in US$ terms in 2005, compared to end-2004.
Following the general elections in 2002, which
resulted in a strong one-party government,
Turkey completed an IMF-backed economic
stabilization program in February 2005, after
meeting all of the targets set in the 3-year IMF
stand-by arrangement. The program
produced positive effects on the economic
indicators in general, and on inflation figures
in particular. With the help of the program,
Turkey managed to combine disinflation with
economic growth. The positive results of the
program are also reflected in the international
credit rating agencies’ increasing credit
ratings for Turkey. The IMF Executive Board
approved a new 3-year stand-by agreement
for the years 2005-2008 in May 2005, thanks
to the sustained positive economic
environment and the recent developments on
key legislation pertaining to social security,
banking sector and tax administration. On the
European Union accession side, having met
the political criteria in terms of both legislation
and implementation, the European Union
opened accession negotiations with Turkey on
3 October 2005. Turkey also signed the
extended Customs Union Protocol in July
2005.
Turkish GDP and GNP grew by 7% and 7.3%,
respectively, in the third quarter of 2005.
Including the third quarter data, year on year
GDP and GNP growth rates reached 5.5%.
The year-on-year consumer price index and
producer price index were registered as
7.72% and 2.66% as of end-year 2005,
respectively.
In line with these developments in the macroeconomic
field, the ISE-National 100 Index,
the main stock market index of the Istanbul
Stock Exchange (ISE), appreciated by 59% in
YTL terms and by 61% in US$ terms in 2005,
compared to end-2004. The average daily
trading volume in the ISE Stock Market, on the
other hand, increased by 27% in YTL terms,
reaching YTL 837 million and by 34% in US$
terms, reaching US$ 794 million compared to
the previous year.
There were 9 initial public offerings in 2005,
while the ISE market capitalization, which
stood at US$ 98 billion in 2004, rose to
US$ 163 billion at end-2005.
On the other hand, the average daily trading
volume of the ISE Bonds and Bills Market
registered an increase of 28% compared to
2004, reaching US$ 6.9 billion at end-2005.
The net equity investment in Turkey by
foreign portfolio investors was registered
at US$ 3.817 million as of end-2005,
representing 67% of the free floating shares
in the ISE Stock Market.
HISTORY AND DEVELOPMENT
In 1981, the Capital Market Law was enacted
and one year later, the Capital Markets Board
(CMB) 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
in 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 June 2006, 102 brokerage
firms have been provided with remote access
to the stock market trading systems.
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. In terms of foreign portfolio
investments on the ISE, foreign investors hold
around 66% of the publicly-held stocks in their
portfolios.
The ISE currently owns 26.24% 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.
The ISE decided to implement the following
changes in its organizational structure which
became effective upon being published at the
Official Gazette in February 2006:
• Renaming of the “International Market
Department” as “Foreign Securities Market
Department”,
• Establishment of a “Risk Management”
department in order to centrally calculate,
monitor and manage the risks resulting from
the markets,
• Dismissal of the “Derivatives Market”
department due to the fact that the currency
future trading and the ISE index future trading
had been transferred to the TurkDEX earlier in
2005.
The ISE hosted the 2nd Working Committee
Meeting of the World Federation of Exchanges
(WFE) in June 2006.
FUTURE OUTLOOK
• The first phase of the work towards creating
a new software system within the framework of
the Central Surveillance Project jointly carried
out by the CMB and the ISE, which will allow
real time surveillance to be carried out
electronically and more efficiently, is
completed and now in operation, while the
work regarding the second phase still
continues.
• The Disclosure Automation Project, which
will enable traded companies to directly
disclose information using Internet
technologies and digital certificates, is still
underway.
• Within the framework of the project (Islamic
Stock Exchanges Forum) to promote
cooperation among stock exchanges of the
Organization of Islamic Conference (OIC)
member countries, the ISE, in close
cooperation with the relevant institutions of
OIC, held a meeting with 11 stock exchanges
in March 2005. At the meeting, two working
committees were established namely; a
Technical Committee and an Information
Technology (IT) Committee, to work on the
possible areas of cooperation. Technical
Committee is aimed to work on issues such as
creation of indices, Islamic Depository
Receipts (IDRs), cross listing opportunities,
bridging to other Islamic exchanges and
institutions, exchange of staff and training
opportunities, definition of areas of
cooperation and will carry out surveys for the
assessment of stock exchanges. On the other
hand, Information Technology Committee will
work on assessment of technological levels of
the participating stock exchanges and creation
of a “Data Center”.
• The ISE is working on a "Business Continuity
Plan" aiming at minimizing possible negative
effects and providing continuous service
quality in its operations in case of any
extraordinary situation that may effect ISE's
operations.
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