Changes to Turkey's trading infrastructure and capital markets law implemented to keep pace with international investor demand will result in an increasingly centralised and streamlined equity market, according to Philippe Carré, global head of connectivity at financial technology provider SunGard's global trading business.
September saw Turkey's ISE National 100 stock market index continue its rise. Based on the leading firms traded on the Istanbul Stock Exchange (ISE), the index rose to 61721.84 on 20 September from 53885.94 on 6 September, and is now well above the levels reached before the collapse of Lehman Brothers brought global exchanges crashing down. The value of Turkish assets was also increased by index provider Standard & Poor's decision to upgrade Turkey's local currency credit rating to investment grade, on September 20. Turkey reported GDP growth of 9.2% in Q4 2010, but the economy is expected to slow this year.
“Turkey is increasingly seen as the Eurasian tiger,” said Carré. “Economic development and political stabilisation have helped greatly in building out the country's securities markets and attracting foreign institutional investors.”
Longer-term developments, such as the efforts of the Turkish government to pursue eventual European Union membership, have also acted as an incentive to reform. While the ISE is currently seeking to modernise its trading practices in line with MiFID, other recent changes include the introduction of an amendment allowing cancellation of orders, in September 2010, which was widely seen as opening the doors to algorithmic trading in the country. French agency brokerage CA Cheuvreux introduced a range of algos in turkey in October 2010.
In July 2011, US regulator the Securities and Exchange Commission (SEC) and the Capital Markets Board of Turkey began an initiative to ease cross-border capital flows. The government has also been working to remove barriers to foreign direct investment and ownership.
Moreover, market participants have lobbied for improvements the country's post-trade infrastructure, such as the establishment of a central clearing house. At present, clearing and settlement is handled by the state-owned Takasbank, but that could soon change. “The government is pushing very hard for the creation of an integrated capital market under one roof, with a full central clearing house,” said Carré. “Within the next two or three years, I see the first steps of a clear road map being established – the consolidation of the capital markets into a single exchange and the establishment of a clearing house.”
At present, Turkish derivatives are traded on TurkDex, a specialist derivatives exchange – a venue that is also seeking to broaden its appeal to international market participants. Last year, the US Commodity Futures Trading Commission paved the way for TurkDex to offer its primary stock index derivative, founded on the ISE's ISE-30 index, to US investors. Both the ISE and TurkDex are currently advancing their platforms to exploit standards such as the FIX protocol, as well as to expand their product ranges.
Pointing out that Turkey is often seen as a gateway to neighbouring countries such as Azerbaijan, Turkmenistan and Kazakhstan, Carré suggests that companies from regional economies such as Georgia and Syria are increasingly seeking exposure to international investors via Istanbul, rather than London or New York.