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Monday, 23 October 2017

Changing platforms

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Grand plans have been set in motion for the Istanbul Stock Exchange.

To view the digital version of this report, please click here.

The Istanbul Stock Exchange is in the midst of great changes. The first step on its journey came with the promotion of the current chairman Ibrahim Turhan to that role at the beginning of 2012. One of his first acts was to communicate his intention to take the 100% state-owned bourse public. 

The IPO could take the form of a partial privatisation, though there could also be a primary component to raise funds for capital expenditure. Turhan is not the first ISE chairman to have expressed such ambitions; his predecessors having found talk came easier than action. The process of making the exchange IPO ready will be arduous, with the articles governing the operation of the bourse requiring substantial change, and the shareholder structure needing modification.

“There has been a strong trend in the world exchange sector towards demutualisation and privatisation in order to deal with the high competition arising from the consolidation within the sector, alternative trading platforms, and over-the-counter markets,” said Turhan. He said the ISE must follow to compete, and it had already demutualised its governance structure, via the Capital Markets Law enacted late last year, as the first step of this process. 

A planned merger with Istanbul’s gold and derivatives exchanges is the next step. The move will see the entities come under a single management structure in April, with the formal union taking effect from June.

“Enabling all asset classes to be traded at a single platform will provide significant economies of scale and the price discovery will be much more robust,” he said. Among its competitors, which increasingly trade cash and derivatives markets simultaneously, the share of derivative transactions in total revenues is growing at the expense of spot trading.

Complementary step

The ISE will also change its name to Borsa Istanbul, but insists this is more than a mere rebranding. “Turkish capital markets are going through a fundamental restructuring,” Turhan said. “Rebranding is just a complementary step aimed to reflect the depth of the change.”

The bourse will also increase its share in Takasbank, the local clearing agency, in readiness for its future flotation, ensuring it is integrating both vertically and horizontally. 

Then there is the product diversification. A multitude of new products and markets will, it hopes, drive new business and growth. Single stock futures were launched in December, with index options planned for the second quarter and FX options later this year. Its equity repo market was also launched in December, giving clients access to repo transactions on shares of companies traded on the İMKB equity market, and those included on the IMKB 30 Index, on exchange. 

Turhan also promises significant investments in technology, to ensure Borsa Istanbul has a world class offering across trading, including pre-trade risk management, matching, and post-trade activities such as clearing and settlement. 

An exchange cannot become a hub without looking out as well as in, and the ISE has been busy furthering its international ambitions. In January the exchange signed a Memorandum of Understanding with Japan Exchange Group. In autumn it launched the IBTX (Istanbul Traded Index) and IBTX Banking, in conjunction with the Vienna Stock Exchange, offering Austrian investors better access to Turkish securities.

“We are now in efforts to develop joint products and connectivity with various exchanges both from Asia and the Middle East,” said Turhan. The deals, and the others that will surely follow, will “revitalise our trading architecture, enable knowledge transfer and increase international order flow to our exchange”, said Turhan. 

“Only after completing these steps to boost the value of Borsa Istanbul we can talk about any public offering,” said Turhan, refusing to be pinned down to a date.

Watch this space. 

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