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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2008FINANS ASSET MANAGEMENTExchange Traded Funds are liquid, easy to invest in and pricedcontinuously. They are also cost-efficient and transparent.Exchange Traded Funds and aRegional ApproachExchange Traded Funds (ETF) offer manyadvantages to investors. Investors can invest invarious assets with a single transaction. ETFsare liquid, easy to invest in and pricedcontinuously. Exchange Traded Funds are alsocost-efficient and transparent.Exchange Traded Funds have been developingrapidly since the beginning of the millennium.The number of exchange traded funds grewfrom 92 in 2000 to 1,171 as of end of 2007.In terms of listings, the numbers are even moreimpressive thanks to dual listings. Furthermore,total assets under management reached US$797 billion as of end of 2007, representing aten-fold increase during the same period.Rapidly growing ETFs both in number andAUM bring significant investment opportunitiesand investor activity into exchanges. As ETFsallow investors to capture the performance ofthe underlying assets and offer exposure tovarious regions, countries, sectors, assetclasses, they are heavily used by internationalinvestors as well. This paves the way forexchanges to attract investors from differentparts of the world.Increasing investor demand for variousinvestment strategies forced ETF issuers tolaunch ETFs with alternative investmentstrategies. Investment strategies offeringinternational exposure, regional diversificationand country based allocations are becomingmore popular due to increasing needs fordiversification. Along with expectations of aglobal slowdown and varying economicperformance of countries, it becomes moreimportant for investors to diversify. Indexproviders are also working on different indiceswhich use many countries and exchanges asunderlying assets.The global economic and investmentenvironment is evolving and this may createopportunities for Federation of Euro-AsianStock Exchanges members. An index basedon stocks listed on the FEAS memberexchanges would create a well-diversified andattractive investment product. Participation ofinternational investors would also increasethrough financial products based on the index.What Should the Index Look Like?A FEAS Index should include members whichcan provide continuous data. Correct dataplays a pivotal role and allows issuers todevelop financial products with highinternational standards. Companies to beincluded in the index should be selectedcarefully. A rule-based index would be moretransparent. Furthermore, a rule-basedapproach would pave the way for effectiveindex adjustments. Free float marketcapitalization and liquidity of stocks included inthe index should be sufficient enough todevelop a financial product.An Exchange Traded FundApproachAn exchange traded fund based on a FEASindex would create value for many participants.Members participating in the index will beoffering a very attractive product to investors oftheir respective markets. An ETF will also helpmembers expand the investment opportunitiesoffered through their exchanges. Members ofthe exchanges will effectively gain access to adiversified, attractive investment product andwill be able to attract more retail andinstitutional investors. Investors will be able toreach new investment products in a veryefficient and cost effective way. With a singletransaction, they will get exposure to variouscountries and companies. Fast execution willbe one of the key features of the ETF.Other Key Issues to ConsiderAn exchange traded fund based on a FEASindex will be a very easy-to-use and efficientproduct for investors. However, the project hasa significant and complicated infrastructure.Considering the fact that the ETF should belisted on various member exchanges, efficientsettlement and custody system should bedeveloped. Furthermore, access betweenmarkets in terms of trading, pricing andsettlement will result in an effective pricing forthe ETF. Effective pricing and liquidity will helpinvestors trade without any mispricing risk.Legal infrastructure should also be enacted inorder to protect investor and issuer rights andeliminate risks for the members.Advantages offered by exchange traded fundsbased on a FEAS index will attract investors. Itwill also fuel dynamism of cooperation andtrading among FEAS members.CONTACT INFORMATIONContact Name Mr. C. Ozgur Guneri E-mail ozgurg@finansportfoy.com Website www.finansportfoy.comPAGE 22