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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005<br />

TurkDEX (TURKISH DERIVATIVES EXCHANGE)<br />

Hamdi Bagci<br />

CEO<br />

THE NEW ERA IN TURKISH<br />

FINANCIAL MARKETS...<br />

A MODERN MARKET ECONOMY<br />

Turkey has been changing rapidly. Over the<br />

last three years Turkey has grown by 25%<br />

and decades of high inflation have ended.<br />

The European Union (EU) accession process<br />

has accelerated economic and legal reforms.<br />

With its sound financial system and legal<br />

infrastructure compatible with the best of<br />

international standards, Turkey is a modern<br />

market economy.<br />

Turkey has vibrant a financial market. The<br />

average daily trading volume of stocks and<br />

bonds listed on the Istanbul Stock Exchange<br />

was TRY 6,909 million in 2004. During that<br />

period average daily volume of spot currency<br />

trading was US$ 2,206 million. The free<br />

movement of capital and favorable legal<br />

environment encourages domestic and<br />

international participation in Turkish financial<br />

markets. Well over half of the stock market's<br />

capitalization is held by international<br />

investors.<br />

A NEW DERIVATIVES EXCHANGE<br />

Derivatives are the instruments that have<br />

been employed for many years to facilitate<br />

transfer of risk, price discovery, and enhance<br />

liquidity by offering detailed public<br />

information. Since the mid-1980s the number<br />

of derivatives exchanges operating in both<br />

industrial and emerging-market economies<br />

has increased substantially. The derivatives<br />

market recently experienced tremendous<br />

economic growth and the will of integration<br />

into international markets motivated the<br />

establishment of a derivatives exchange in<br />

Turkey. As a result, Turkish Derivatives<br />

Exchange (TurkDEX) started operations by<br />

listing derivatives contracts on February 4,<br />

2005. TurkDEX is a self-governing, Capital<br />

Markets Board of Turkey regulated, joint<br />

stock corporation. It is headquartered in<br />

Izmir, by the Aegean Sea, which is the third<br />

biggest city in Turkey.<br />

PAGE 18<br />

The primary objective of TurkDEX is to<br />

become a global risk management center<br />

by providing derivatives tailored to meet<br />

the needs of traders, hedgers and<br />

investors.<br />

The primary objective of TurkDEX is to<br />

become a global risk management center by<br />

providing derivatives tailored to meet the<br />

needs of traders, hedgers and investors.<br />

Elements of the microstructure of TurkDEX<br />

such as the trading mechanism, the clearing<br />

arrangements, the regulatory structure, and<br />

the derivatives products to be traded, were<br />

designed to offer a fully integrated financial<br />

service both in national and international<br />

markets.<br />

TurkDEX uses an electronic-based trading<br />

system which is more attractive to<br />

businesses and investors thanks to its<br />

improved access, reduced cost, and greater<br />

transparency. By using an e-trading system,<br />

TurkDEX will be able to draw business from<br />

traders around the world. The trading system<br />

guarantees maximum accessibility and<br />

provides instant order entry and matching, in<br />

addition to equal access for all participants<br />

to satisfy their needs and expectations.<br />

TurkDEX's system operates on Wide Area<br />

Network (WAN) topology consisting of<br />

permanent data lines between TurkDEX and<br />

its members, providing them with the<br />

capability to trade remotely.<br />

TurkDEX offers investors the ability to<br />

leverage the capital they invest by buying<br />

securities on margin. In other words,<br />

investors have the opportunity to buy / sell a<br />

contract with a proportional deposit, socalled<br />

margin which is relatively lower than<br />

the contract value. In addition, spread<br />

margining, which lowers the margin rates in<br />

case of having long and short positions at<br />

the same contract with different maturity<br />

simultaneously, is available.<br />

PRODUCTS<br />

To a large extent, the success of a<br />

derivatives exchange depends on the choice<br />

of products to be traded. The main<br />

categories of products preferred as<br />

underlying asset of derivatives are<br />

commodities, interest rates, currencies,<br />

individual stocks, and stock indexes.<br />

TurkDEX carefully designed its products<br />

according to market needs. To date, seven<br />

futures contracts are traded at TurkDEX.<br />

These contracts are:<br />

• Index Futures<br />

- ISE 30 Stock Index Futures<br />

• Interest Rate Futures<br />

- 91 Day T-Bill Futures<br />

- 365 Day T-Bill Futures<br />

• Currency Futures<br />

- TRY / US$ Futures<br />

- RY / EURO Futures<br />

• Commodity Futures<br />

- Cotton Futures<br />

- Wheat Futures<br />

The derivative instruments traded on<br />

TurkDEX will increase the utilization capacity<br />

of the financial service sector by enabling<br />

brokerage houses and banks to offer new<br />

investment and hedging instruments. The<br />

systemic risk in the financial system will be<br />

lessened by allowing corporations to shift the<br />

burdens of price risk to other parties. As an<br />

innovator and customer oriented exchange,<br />

TurkDEX will design and launch new futures<br />

and options contracts as well, in order to<br />

become the “financial product superstore”<br />

of Turkey.<br />

CLEARINGHOUSE<br />

The clearinghouse of TurkDEX is Takasbank,<br />

recognized by the UK SFA as an "Approved<br />

Depository" & an "Approved Bank" and<br />

complies with the "Eligible Foreign<br />

Custodian" definition of the SEC as well.<br />

Takasbank is the central clearinghouse of<br />

Turkey since it executes the settlement and<br />

clearing of the transactions in Istanbul Stock<br />

Exchange (ISE).<br />

Takasbank marks-to-market all open<br />

positions daily to determine the necessary<br />

margins. TurkDEX also has a guarantee fund<br />

to safeguard against any non-fulfillment of<br />

obligations of members to the clearinghouse<br />

arising from exchange contract transactions.

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