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Role of Demutualization of Stock Exchange in International Finance - PowerPoint

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					      HOW CAN WE INCREASE THE
 ATTRACTIVENESS OF THE REGION AS AN
       AREA FOR INVESTMENT?



                    Hüseyin ERKAN
                    Chairman & CEO
             Istanbul Stock Exchange (ISE)


Conference on the Prospects for Capital Markets in Southeast Europe
                    Sofia, 16 September 2008
       Key Trends in Global Markets

 High volatility in the financial markets

 More strict regulatory standards
    Increasing role of governments (liquidity injection)
    Closer coordination among international institutions


 International risk surveillance
    More accurate and timely disclosure (Financial
     Stability Forum - 100 day plan of G-7 Countries)


 Sovereign Wealth Funds (Gulf & Far East Countries)

                                                        2
 Trends in Stock Exchanges’ Industry
                                      1998                                 2006
                                 for-profit                       for-profit
                                   38%                              75%
Demutualization                               not for-
                                               profit
                                                                        not for-
                                               62%
                                                                         profit
                                                                         25%

                                     •OM Group
     Mergers and Acquisitions
                                     •Euronext



                                                         NASDAQ- OM
            Consolidation
                                                         NYSE-Euronext

                                                                 Exchanges vs
                      Fragmentation                              Dark Liquidity
                                                                     Pools
                                * MiFID              *ECN
                                                                                   3
Emerging Markets vs Developed Markets

                     Market Capitalization

        1997                  2002             2007

            92%                    89%
                                               72%

       8%                    11%              28%




                          Traded Value
        1997                  2002             2007

               87%             92%
                                             85%

      13%                     8%                   15%




                                                         4
 Emerging markets                            Source: WFE
                Strong Potential for Growth
                   in Emerging Markets




                                    •Until now, emerging
                                    market exchanges enjoyed
                                    rapid growth based on the
                                    expansion of cash equities
                                    market
                                    •Increasingly, emerging
                                    markets exchanges are
                                    exploring revenue
                                    diversification opportunities
                                    as the market structure
                                    becomes more mature and
                                    competition amongst
                                                           5
                                    exchanges intensifies
Source: Credit Suisse
             Improving Alliances

 ISE and ASE are about to launch a common index

 ETFs on this index will be traded in both exchanges

 Creating fair, efficient and transparent market
  environment with little or no barriers to trade between
  the exchanges operating in the same region

 Organizing joint training and staff exchange program




                                                        6
         ISE’s International Standing


 President of the “Federation of Euro-Asian Stock
  Exchanges” (FEAS)

 Coordinator of the “OIC Member States Stock
  Exchanges Forum”

 Participation to Regional Exchanges
   Baku Stock Exchange (5.5%)
   Kyrgyz Stock Exchange (24.52%)



                                                 7
          FEAS - FEDERATION OF
       EURO-ASIAN STOCK EXCHANGES




                                                                29 Countries
                                                                32 Member
                                                                Exchanges
                                                                8 Affiliate Members


                          MEMBER EXCHANGES
   ALBANIA         BULGARIA  JORDAN               OMAN              TURKMENISTAN
   AZERBAIJAN (2) CROATIA                          PAKISTAN (2)      TURKEY
                               KAZAKHSTAN
   ARMENIA                                           PALESTINE         UKRAINE
                    EGYPT     KYRGYZ REPUBLIC
                                                  
   BAHRAIN
                    GEORGIA                         ROMANIA        UNITED ARAB
   BELARUS                    MACEDONIA
                                                      SERBIA         EMIRATES
   BOSNIA          IRAN      MOLDOVA
                                                  

    HERZEGOVINA (2) IRAQ                                                       8
                                                                         UZBEKISTAN
                               MONGOLIA            MONTENEGRO
               FEAS Region Statistics
Statistical Comparison / FEAS Region   2004      2005     2006     2007

Number of Companies Traded               8.003    8.348    9.057     9.498

Market Capitalization (US$ Millions)   377.280 638.041 690.455 1.065.337

Total Volume (US$ Millions - Stocks)   273.616 467.903 505.163     615.733

Total Volume (US$ Millions - Bonds)    314.833 429.311 380.662     478.517


Source: FEAS

                                                                          9
      How FEAS Serves to the Needs of
        Member Stock Exchanges ?
 Promotes mechanisms for reliable, transparent and
  continuous trading and settlement

 Creates greater awareness and visibility for the region’s
  stocks and investment opportunities

 Helps to promote the listing of home market investment
  grade companies in the regional markets and encourages
  them to be included in regional indexes (i.e. Dow Jones)

 Provides network and updated information to the new
  members in the region, with meetings, web applications &
  publications (with the joint work of FEAS, ISE, WFE and
  OECD)
    “Best Practices for the Development of Stock Exchanges in
     Transition Economises”
    “Alternative Sources of Finance for SMEs”
                                                            10
     How FEAS Serves to the Needs of
       Member Stock Exchanges ?

 Create linkages among:
   The regions’ intermediaries
   The regions’ data providers
   The regions’ settlement and custody institutions


 Create a centeralized training hub for FEAS members
  in order to encourage research and regulatory
  implementation via bilateral exchange program

 Promote Corporate Governance


                                                       11
              FEAS Task Forces


 MEDIA (Awareness, Information and Marketing)
 REGIONAL INDICES (Dow Jones Indexes)
 CORPORATE GOVERNANCE (Common Principles)
 AFFILIATE MEMBERS (Regional CSD Membership)
 FEAS DATA CENTER
 XBRL (Extensible Business Reporting Language)
 RESEARCH & DEVELOPMENT




                                                  12
        Turkey: Gateway to Europe, Asia
              and the Middle East
   Turkish economy has a growing potential in different sectors
       Property projects
       Telecommunication & Technology
       Infrastructure Projects (utilities, ports, highways)

   Turkey stands to be a corridor in the middle of the GCC countries,
    Europe and Asia

   Net FDI to Turkey in 2006-2007 is US$ 20 billion in each year (1/3
    of the net FDI comes through the ISE)

   The Turkish capital markets are highly liquid and appeal to foreign
    investors (high level of investor confidence)

   Enhanced market infrastructure
       Legal framework in harmony with the international standards
       Technological infrastructure is strong and competitive

                                                                      13
    Investment Opportunities in Turkey
         Investors' Preference                            What Turkey Offers




    A well-developed banking sector            46 local commercial and investment banks
                                                          4 participation banks


                                                        Free movement of funds
       Investment-friendly policies                 100 % foreign ownership allowed
                                                      Tax treaties with 86 countries


                                                       Booming property market
   Profitable investment opportunities      Development of the energy industry for the region
                                              Growing need for infrastructure development
                                              Project financing for fast growing companies
                                                    World's 5th largest bond market
A wide-range of capital market investment                ETF market is growing
              instruments                     New regulations for structured warrants and
                                                                                                14
                                                 asset backed securities are on the way
                                                   ISE MARKETS
  STOCK MARKET                               BONDS and BILLS MARKET                              FOREIGN SECURITIES MARKET

     National Market (291 listed co.s)           Outright Purchases and Sales Market                          International Bonds Market
        First Session: 9:30-12:00              Same day value date: 9:30-12:00/13:00-14:00                    9:30-12:00/13:00-17:00
      Second Session: 14:00-17:00               Other value dates: 9:30-12:00/13:00-17:00

 Second National Market (14 unlisted co.s)              Repo/Reverse Repo Market
        First Session: 9:30-12:00            Same day beginning value date: 9:30-12:00/13:00-14:00      132 Members (Total)
      Second Session: 14:00-17:00             Other beginning value dates: 9:30-12:00/13:00-17:00
                                                                                                        91 Brokerage Houses
  New Economy Market (3 unlisted co.s)                                                                  12 Inv. & Develop. Banks
       First Session: 9:30-12:00
                                               132 Members (Total)                                      29 Commercial Banks
      Second Session: 14:00-17:00
                                               91 Brokerage Houses
Watch List Companies M. (10 unlisted co.s)                                                           Clearing settlement: T+3,....,T+15
             14:00-15:00
                                               12 Inv. & Develop. Banks
                                               29 Commercial Banks
  Exchange Traded Funds M. (8 funds)           Clearing settlement T,... ,T+90



Stock Market Price Margins:  10% per
session

104 Members (Total)
104 Brokerage Houses
Clearing settlement T+2

                                              ISE Settlement & Custody Bank (Takasbank)                                           15
                                                        Central Registry Agency
       ISE’s Market Performance
                                          2007               2001
Stock Market                         (USD Billion)      (USD Billion)
Number of Intermediaries            104 intermediaries 126 intermediaries
Number of Companies Traded            319 Companies 310 Companies
Total Market Capitalization                       290                  48
Daily Average Trading Value                        1,2                0,3
Total Trading Value                             300,8               80,4

Bonds and Bills Market

Daily Average Trading Value                       9,1                2,6
Daily Average OTC Trading Value                   2,2                3,3
Total Trading Value                           2.831,1            1.517,4

Total Daily Average Trading Value               12,5                6,2
Total Markets Trading Value                  3.131,9            1.597,8
                                                                      16
ISE Markets Total Trading Volume
         (Billion USD)
3,000                  Stock Market
                       Bonds & Bills Market
2,500

2,000     6 times
1,500
        Turkey’s GDP

1,000

 500

   0
          1986
          1987
          1988
          1989
          1990
          1991
          1992
          1993
          1994
          1995
          1996
          1997
          1998
          1999
          2000
          2001
          2002
          2003
          2004
          2005
          2006
          2007
        2008/7
                                              17
                     ISE Stock Market Trading Volume
                               (Million USD)
                     350,000                      1,600

                     300,000    425 million       1,400




                                                          Daily average traded value
                                   stocks
                                                  1,200
                                  per day
Total traded value




                     250,000
                                                  1,000
                     200,000
                                                  800
                     150,000
                                                  600
                     100,000
                                                  400
                      50,000                      200
                          0                       0
                                 1986
                                 1987
                                 1988
                                 1989
                                 1990
                                 1991
                                 1992
                                 1993
                                 1994
                                 1995
                                 1996
                                 1997
                                 1998
                                 1999
                                 2000
                                 2001
                                 2002
                                 2003
                                 2004
                                 2005
                                 2006
                                 2007
                               2008/7
                                                                             18
             Scale of ISE Companies
             (as of August 29, 2008)

    Scale of ISE Companies (As of August 29, 2008)

                        No of Co's   Total Mkt Cap        As % of
                                     (Million USD)     Total Mkt Cap
A   More than US$ 1bn      38                  187.613      11,9
B   US$ 500m - 1bn         26                   18.621       8,2
C   US$ 200m - 500m        47                   15.321      14,8
D   US$ 100m - 200m        33                    4.848      10,4
E   US$ 50m - 100m         40                    2.931      12,6
F   US$ 25m - 50m          37                    1.346      11,6
G   Less tan US$ 25m       97                    1.057      30,5
    Total                  318                 231.737     100,0


                                                                  19
  Stock Market Capitalization By Sector
         (as of August 29, 2008)




Sector                                              M.Cap (USDm)     %
Financial Institutions                                     118,620   51.19
Industrials                                                 58,197   25.11
Mining                                                        205     0.09
Transportation, Communication And Storage                   28,935   12.49
Wholesale & Retail Trade, Hotels & Restaurants               9,743    4.20
Construction & Public Works                                 10,843    4.68
Technology                                                    957     0.41
Education, Health, Sports & Other Social Services            3,025    1.31
Electricity, Gas & Water                                     1,211    0.52
                                                                       20
                                                           231,737 100.00
Market Capitalization 2008/7 (Billion USD)

         China-
           Bras il
 India-Bom bay
    India N.S.E
          Korea
         S.Africa
         Taiwan
China-Shenzen
         Mexico
       Malays ia
          Turkey         Turkey; 245
           Is rael
            Chile
     Indones ia
         Poland
       Thailand
           Eygpt
      Colom bia
   Philippinnes
              Iran
            Peru
      Argentina
        Slovakia
      Berm uda
                     0     500         1,000   1,500   2,000         2,500




                                                                     21
                                                       Source: WFE
   Market Traded Value 2008/7 (Billion USD)

        China-
         Korea
        China-
        Taiwan
          Brasil
   India N.S.E
        S.Africa
India-Bom bay
         Turkey          Turkey; 165
    Indonesia
      Thailand
        Mexico
          Eygpt
          Israel
      Malaysia
        Poland
           Chile
     Colom bia
  Philippinnes
            Iran
     Argentina
           Peru
       Slovakia
     Bermuda

                   0   200     400     600   800   1,000   1,200   1,400   1,600   1,800   2,000




                                                                                             22

                                                                                   Source: WFE
     Number of Listed Companies 2008/7

 India-Bom bay
          Korea
    India N.S.E
       Malays ia
         China-
China-Shenzen
         Taiwan
           Is rael
       Thailand
         Poland
         S.Africa
           Bras il
     Indones ia
           Eygpt
         Mexico
              Iran
          Turkey         Turkey; 319
   Philippinnes
            Chile
            Peru
      Argentina
        Slovakia
      Colom bia
      Berm uda
                     0   500    1,000   1,500   2,000   2,500   3,000   3,500   4,000     4,500   5,000




                                                                                                  23

                                                                                        Source: WFE
        Foreign Participation in the IPOs
             Total Revenue     Foreign Participation   Foreign Participation
             (Million USD)        (Million USD)                (%)
   1998       383.35               280.96                      73%
   1999        90.72                 10.06                     11%
   2000      2,806.22             1,930.01                     69%
   2001         0.24                  0.02                     8%
   2002        53.95                 20.63                     38%
   2003        11.37                    -                      0%
   2004       482.58               181.61                      38%
   2005      1,743.96             1,284.05                     74%
   2006       930.50               579.36                      62%
   2007      3,298.31             2,019.57                     61%
   2008/7    1,900.00             1,150.00                     61%

                                                          Source: ISE

Foreign participation in IPOs is about 66% on average in the last 3 years
                                                                      24
Foreign Participation in the ISE Stock Market
     (as of % of free float market capitalization)

     100%
      90%
      80%                                                                               72.4% 71.34%
                          63.9%                                           66.3% 65.3%
      70%                                                         57.0%
            54.7% 54.3%
      60%                                 49.2%           52.2%
      50%                         40.9%           43.0%
      40%
      30%
      20%
      10%
      0%
            1997

                   1998

                          1999

                                  2000

                                          2001

                                                  2002

                                                          2003

                                                                  2004

                                                                          2005

                                                                                 2006

                                                                                        2007

                                                                                               2008/7
                                                                                                        25
                                                                                        Source: CRA
Istanbul attracts and appeal to Major
 International Financial Institutions

   Citigroup
   Deutsche Group
   Merrill Lynch
   Morgan Stanley
   Lehman Brothers
   Credit Suisse
   UBS
   EFG Eurobank
   Credit Agricole Cheuvreux
   Unicorn Investment Bank


                                    26
                                                             Ju
                                                               n




                                                                        0
                                                                            50
                                                                                 100
                                                                                       150
                                                                                             200
                                                                                                   250
                                                              Ju -05
                                                             Au l-0
                                                             Seg-05
                                                             Ocp-05
                                                             No t-0 5
                                                             Dev -05
                                                             Ja c-05
                                                             Fen-0 5
                                                             M b-06
                                                               a 6
                                                             Ap r-0
                                                             M r-0 6
                                                              a
                                                             Juy -06
                                                               n 6




                                    MSCI Developed
                                                              Ju -06
                                                             Au l-0
                                                             Seg-06
                                                             Ocp-06
                                                             No t-0 6




                                    MSCI ARABIAN COUNTRIES
                                                             Dev -06
                                                             Ja c-06
                                                             Fen-0 6
                                                             M b-07
                                                               a 7
                                                             Ap r-07
                                                             M r-0
                                                              a
                                                             Juy -07
                                                               n 7
                                                              Ju -07
                                                             Au l-0
                                                             Seg-07
                                                             Ocp-07
                                                             No t-0 7
                                                                                                         (2005/8=100 USD based)




                                                             Dev -07
                                                             Ja c-07
                                    MSCI Emerging
                                    ISE National-100



                                                             Fen-0 7
                                                             M b-08
                                                               a 8
                                                             Ap r-08
                                                             M r-0
                                                              a 8
                                                             Juy -0
                                                               n 8
Source: Bloomberg, Morgan Stanley




                                                              Ju -08
                                                             Au l-0
                                                                g- 8
                   27




                                                                  08
                                                                                                                              Comparison of ISE-100 with MSCI Indices
                            ISE National 100 Index vs.
                         ISE Corporate Governance Index
120




110



100




 90




 80
                                        Corporate Governance
                                        National-100
 70
      31.08.2007

                   14.09.2007

                                28.09.2007

                                             12.10.2007

                                                          26.10.2007

                                                                       09.11.2007

                                                                                    23.11.2007

                                                                                                 07.12.2007

                                                                                                              21.12.2007

                                                                                                                           04.01.2008

                                                                                                                                        18.01.2008

                                                                                                                                                     01.02.2008

                                                                                                                                                                  15.02.2008

                                                                                                                                                                               29.02.2008

                                                                                                                                                                                            14.03.2008

                                                                                                                                                                                                         28.03.2008

                                                                                                                                                                                                                      11.04.2008

                                                                                                                                                                                                                                   25.04.2008

                                                                                                                                                                                                                                                09.05.2008

                                                                                                                                                                                                                                                             23.05.2008
The firms having a CG rating at the ISE-100 index has a
total weight of 11.74 % in the ISE-100 index
                                                                                                                                                                                                                                                             28
                                       P/E Ratios

                                                          16.39
                China                                                                                                  45.6
                                                         15.99
MSCI Arabian Countries                                            18.6
                                                       14.64
                 India                                                              28.0
                                       9.35
            Argentina                                                 20.3
             Thailand                   10.25
                                          10.88                       20.1
                Korea                                      17.5
                                                12
        MSCI Emerging                                       17.4
                                     7.59
               Turkey                                       17.3
                                            11.51
           Czech Rep.                                      16.8
                                                         15.89
          MSCI World                                      16.0
                                        10.23
             Mexico                                    15.5
               Brasil                          13.27
                                                    15.1
                                        9.48
              Poland                            13.7                                                        29.08.2008
                                       8.44
              Russia                           13.5                                                         31.12.2007
                                     8.05
              Hungary                          13.2
              S.Africa                      11.6
                                             12.4
                         0.0   5.0   10.0         15.0         20.0          25.0   30.0      35.0   40.0      45.0        50.0



                                                                                                                      29
                                                                                           Source: Bloomberg
                  Future Outlook

 Road map for co-operation and common projects

 Cooperation among SEE countries’ stock exchanges
  should be supported by both the governments and the
  regulatory bodies

 Regional transformation should be carried out with an
  international perspective on legal, fiscal, social and
  regulatory framework as well as in compliance with
  MIFID




                                                     30

				
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