WFE Focus Team , London , World Federation of Exchanges | Jan 2017

 

Himmet Karadağ gives us his perspectives on the coming year.

Looking ahead to 2017, what are the key trends you see shaping your exchange, and the market infrastructure industry more broadly?

Acknowledging the importance of providing a suite of services along the value chain, Borsa İstanbul has gone through a major transformation in recent years. Following the horizontal integration, i.e. the merger of İstanbul Stock Exchange, Turkish Derivatives Exchange and Istanbul Gold Exchange in 2013, we have come together with our post-trade institutions Takas İstanbul (CCP) and Merkezi Kayıt İstanbul (CSD) not only at the physical level in our premises, but also under the new ‘Borsa İstanbul Exchange Group’ brand. With this vertical integration, we envisage creating synergy in operations as well as margins, to better serve both the local and international investment community as the one-stop-shop for Turkish capital markets. This step is in line with global trends and regulations, as we see large exchange groups bringing together clearing, settlement, depository institutions, market data firms and technology companies under one roof.

Other aspects of our future roadmap are technology and innovation. Supported by world-class technology through a Nasdaq partnership in all our markets, we have also been focusing on extending our product and service portfolio with innovative financial instruments – especially related to Islamic finance. On the technology side, we have successfully completed the transformation of the equity market BISTECH Trading Platform in November 2015, and are currently working on the transformation of derivatives, debt instruments and precious metals & stones markets, which we plan for early-2017, late-2017 and 2018, respectively. As we have also secured resale rights, we will become an exporter of this premier technology in the region. On the innovation side, we are focusing our efforts on launching new asset-based instruments such as securities based on cash flows of large infrastructure projects (particularly Public Private Partnerships) and real estate certificates, which we believe to be the most attractive ones in the region.

Last but not least, as the backbone of Istanbul International Financial Center, Borsa İstanbul will carry its institutional structure one step further by offering its shares to the public in 2018. With its world-class technology, financial supermarket attributes, large investor base and diverse revenue streams, Borsa İstanbul will present a great investment opportunity.

What’s your viewpoint on the 2017 regulatory landscape in your jurisdiction, and indeed globally?

The regulatory framework of the Turkish capital markets was reestablished in 2012 with the new Capital Markets Law, which aimed to level the marketplace for all participants, and also enabled us to meet the standards of the global capital markets. This step has been an important pillar of the Istanbul International Financial Center.

Moreover, programmes such as the ‘25% state contribution’, which started in 2013 and the ‘automatic participation’, starting in 2017, in the individual pension system, have been significant initiatives of the Turkish government to expand the investor base and galvanise the capital markets. Going forward, we aim to enable foreign currency-based equity and debt instrument issues out of Istanbul, essential to becoming a financial centre. As Borsa İstanbul Group, we are working closely with relevant regulatory authorities not only to enable foreign currency issues but also to improve tax regulations, in order to incentivise issuers and investors.

In the global landscape, increased requirements and new rules dedicated to ensuring stability in capital markets will continue to be at the forefront for regulators. Brexit’s impact on European operations will also be reflected in regulations, and we will be closely following the effect of these developments on our markets. Another hot topic is technological improvements, and the use of technology in capital markets. At some point, regulators will need to be involved in this process. Disruptive technologies such as blockchain or distributed ledger technology will be on the agenda of the regulators in the coming period.

Do you think the role of exchanges and CCPs will evolve over the coming years, and if so, how?

Exchanges play a central role in facilitating financing, promoting investment and creating wealth, whereas CCPs are designed to reduce systemic risk. The global financial crisis of 2007-2008 raised concerns about the resilience of financial infrastructure and risk management practices globally. In this regard, the role of CCPs has been even more critical following the financial crisis. G-20 leaders and regulators want to encourage the migration of as much financial activity as possible to CCPs in order to reduce systemic risk.

With this standpoint and fully in line with EU regulations, our post trade institution Takas Istanbul is developing its operational and financial infrastructure to extend the range of its CCP services, and is working on a solid risk management framework that will extend its capacity which consists of all lines of defenses and relevant stress tests. In line with CPSS/IOSCO Principles, EU regulations and Basel III requirements, Takas Istanbul will offer clearing and settlement facilities in diverse capital market instruments in the future through effective, cost-efficient, continual and reliable services at internationally accepted standards, as well as enhanced IT infrastructure.

In a market environment characterised by systemic stability surge, I believe the role of both exchanges and CCP institutions will be enhanced over the coming years.

Find out more about Borsa İstanbul here.
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