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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.