Author Name: Ibrahim Turhan, Chairman & CEO, Borsa Istanbul
1. Could you give us a bit of background about your exchange?
Borsa İstanbul is the fully integrated operator of capital markets in Turkey and provides a fair, transparent and efficient environment for the trading of a wide variety of securities including equities, ETFs, warrants, government and corporate bonds, repo and reverse-repo agreements, derivatives, selected commodities and Sukuk. We are also the only provider of post-trade services, namely, central clearing, settlement, custody, and registration in Turkey.
With the enactment of new Capital Market Law (CML) in December 2012, Borsa İstanbul became a joint stock company and separate exchanges of Turkey at which trading of various asset classes take place merged under the umbrella of Borsa İstanbul. New markets were established and investments in technological infrastructure of Borsa Istanbul have also been on the top of our agenda.
Shares of 420 companies are quoted on our equity platform, for a market capitalization of USD 259 billion as of May 19, 2014. At the end of 2013, the daily average traded values for equity and fixed income markets reached USD 1.7 bn and USD 14.5 bn respectively, that makes Borsa İstanbul the 6th largest among emerging equity markets in terms of trading volume and the 4th largest bond market in the world based on electronic order book.
2. How active are foreign investors in your exchange? How accessible is your market?
Foreign investors have contributed to the development of Borsa Istanbul significantly and are quite active in our Exchange. They hold around 64% of free-float and their participation in public offerings of Turkish companies is at high levels as well. Increase in foreign ownership in free-float from 43% in 2002 to 64% today shows both the strong interest from foreign investors and the facilitated accessibility of Turkish market.
Recently, we have stepped our efforts to upgrade our technological infrastructure and signed a strategic partnership agreement with Nasdaq OMX. Borsa Istanbul will obtain state of an art technology employed by the leading exchanges of the world and become a multi-asset, multi-currency platform. The market technology to be in the service of all investors will also be integrated into all post-trade functions, with customary key features such as connectivity and risk management. Our electronic trading platforms will be able to accommodate increasing volumes of orders, and latency will be minimized to a large extent.
Post-trade front is another area where we take important steps. In order to strengthen vertical integration in Turkish Capital Markets we increased our share in Takasbank, Turkish clearing house, above 60% levels during the last year. Takasbank already provides CCP services for derivatives market and will extend this function to equity and fixed income markets in the near future, too. In addition, recently we are in talks with some global players of clearing, settlement and custody business so that international clearing and settlement of Turkish securities will be enabled and they can be traded around the clock. We work on different projects with some global foreign exchanges as well. Our negotiations with NYSE Liffe and LSE Group are going on to make the derivatives based on BIST products tradable on NYSE Liffe and LSE Group platforms. Moreover, connectivity projects with other exchanges will make it easier for foreign investors to access into Turkish markets.
These efforts will not just boost confidence of foreign investors on our Exchange but also enhance Borsa Istanbul's capacity to serve its customers.
3. What new projects/products are you currently working on?
Broadening existing product mix and initiation of new business areas are important elements of Borsa İstanbul's strategic roadmap. Accordingly, currency options on dollar started trading in May on Borsa İstanbul platform. Borsa Istanbul will also establish a venture-capital platform where early-stage companies will meet potential institutional investors such as venture capitals, angel investors and private equity funds. Such a move will not just make it easier for start-up firms to access capital but also will boost the number of IPOs as investment firms in those start- ups might prefer to turn their investments into cash through public offerings.
The upcoming Turkey Energy Exchange is another line of business for Borsa Istanbul. We will become a shareholder and the platform operator of energy trading in Turkey. Energy derivatives including electricity and natural gas contracts will be traded in Borsa İstanbul's trading system.
Having completed the partnership agreement with Nasdaq OMX regarding technology transfer, Borsa Istanbul has now initiated talks with well-known global players of financial sector for strategic partnership. Among candidates are asset management companies, stock exchanges, private equity firms, big-scale funds and international institutions.
4. What are the challenges you see in your market today and in the future?
We think that the biggest challenge today in our market, as it is the case for most of emerging markets around the globe, is to increase the level of participation by investors and issuers in capital markets. As of end of 2013, the ratio of market capitalization to GDP is a mere 29% in Turkey. Considering the size of Turkish economy and its potential, Turkish capital markets can show a much better performance. Borsa İstanbul ranks 3rd among WFE members in terms of turnover velocity and this on its own demonstrates that our market has a vast liquidity to support higher levels of market capitalization on our trading platforms. Actually, we believe that market capitalization to GDP ratio of 70% is easily achievable in Turkey. On investor front, the number of equity investors is around 1.1 million and domestic investor base holds 36% of the free float. We have stepped up our efforts to enlarge our investor base as well. We expand our product range, work on the upgrade of technological infrastructure and aim to increase the number of IPOs through organized events, on-site visits and media campaigns in order to attract more issuers and investors to our platforms.
Another challenge we as all exchanges face today is the heightening competition in the industry. The business environment is constantly evolving. Multilateral trading facilities (MTFs) lead conventional exchanges in terms of trading volumes. Exchanges have become like technology companies today and they earn significant amounts from their technology solutions compared to what they do from trading. We see a wave of consolidation in exchange business in different parts of the world. It is obvious that a much more competitive future lies ahead of us. That is the most important reason for the transformation process which takes place in our market today.
5. How do you assess your exchange`s position at a time of increased globalization?
Globalization has not just changed our daily lives but also transformed the way we do business. Capital markets are no exception in this context and we witness a great transformation in the exchange business. We believe that, at the heart of capital markets, exchanges should be one step ahead and play a proactive role to adapt to this new business environment driven by increased globalization. IMF foresees that by 2018, the share of emerging markets in global output to increase to 55% from only 37% in 2000. Accordingly, an increased capital flow to developing markets is expected to materialize as new economic powerhouses rise globally.
Borsa Istanbul is one of the most well-established and liquid exchanges in emerging economies. However, we are aware that we should work harder to remain competitive and reach our goals. That is why we initiated a transformation in Turkish capital markets. Consolidation of local exchanges, demutualization process, upgrade of technological infrastructure, and establishment of connections with international exchanges are all initiatives by Borsa Istanbul to make the most from the opportunities lying ahead in front of emerging markets including Turkey. Furthermore, İstanbul by itself is a natural candidate to become the financial hub of the region and the projects recently carried out under the framework of İstanbul International Financial Center Project to reestablish physical and legal infrastructure within the financial sector will contribute to the realization of the objectives prescribed by this project. Borsa İstanbul, as the main actor of this Project, formulates its strategies in accordance with the goal of making Istanbul a regional financial hub.