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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. PAGE 80
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 ISTANBUL STOCK EXCHANGE OFFICIAL 6 MONTH STATISTICS US$ millions # Shares millions Total Volume Average Daily Volume Total Volume Average Daily Volume Stocks Jan-06 20,884.9 1,228.5 6,824.3 401.4 Feb-06 25,458.3 1,272.9 8,349.1 417.5 Mar-06 27,628.8 1,201.3 11,448.0 497.7 Apr-06 21,192.7 1,059.6 7,263.2 363.2 May-06 22,846.5 1,038.5 9,185.6 417.5 Jun-06 19,667.8 894.0 9,675.9 439.8 TOTAL 137,679.0 1,115.8 52,746.1 422.9 Bonds Jan-06 22,524.4 1,251.4 0.03 0.002 Feb-06 28,880.6 1,444.0 0.05 0.002 Mar-06 34,477.6 1,499.0 0.06 0.003 Apr-06 26,034.0 1,301.7 0.04 0.002 May-06 25,522.6 1,160.1 0.05 0.002 Jun-06 17,410.1 791.4 0.04 0.002 TOTAL 154,849.5 1,241.3 0.26 0.002 Other Jan-06 103,756.2 5,764.2 0.04 0.002 Feb-06 120,877.1 6,043.9 0.04 0.002 Mar-06 160,366.0 6,972.4 0.05 0.002 Apr-06 159,538.4 7,976.9 0.05 0.002 May-06 170,682.5 7,758.3 0.05 0.003 Jun-06 170,008.5 7,727.7 0.06 0.003 TOTAL 885,228.6 7,040.6 0.29 0.002 Market Capitalization (US$ millions) Index MONTHLY STOCK VOLUME VS INDEX (US$ millions) Stocks Index MONTHLY MARKET CAPITALIZATION (US$ millions) Jan-06 184,053.0 1,967.2 Feb-06 199,367.1 2,096.3 Mar-06 177,180.1 1,862.4 Apr-06 185,922.6 1,942.4 May-06 138,895.8 1,423.4 Jun-06 128,268.4 1,315.2 CONTACT INFORMATION 30,000 25,000 20,000 15,000 10,000 5,000 0 2,500 200,000 180,000 2,000 160,000 140,000 1,500 120,000 100,000 1,000 80,000 60,000 500 40,000 20,000 0 0 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun Contact Name Mr. Eren Kiliclioglu E-mail dis@imkb.gov.tr Website www.ise.org PAGE 81
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