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

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.

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

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  1. 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

  2. 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)

  3. Trends in Stock Exchanges’ Industry Demutualization • OM Group • Euronext Mergers and Acquisitions NASDAQ- OM NYSE-Euronext Consolidation Exchanges vs Dark Liquidity Pools Fragmentation • * MiFID *ECN

  4. Emerging Markets vs Developed Markets Market Capitalization Traded Value Emerging markets Source: WFE

  5. Strong Potential for Growthin 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 exchanges intensifies Source: Credit Suisse

  6. 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 theexchanges operating in the same region • Organizing joint training and staff exchange program

  7. 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%)

  8. ALBANIA AZERBAIJAN (2) ARMENIA BAHRAIN BELARUS BOSNIAHERZEGOVINA (2) FEAS - FEDERATION OF EURO-ASIAN STOCK EXCHANGES 29 Countries32 Member Exchanges 8 Affiliate Members • TURKMENISTAN • TURKEY • UKRAINE • UNITED ARAB EMIRATES • UZBEKISTAN • BULGARIA • CROATIA • EGYPT • GEORGIA • IRAN • IRAQ MEMBER EXCHANGES • OMAN • PAKISTAN (2) • PALESTINE • ROMANIA • SERBIA • MONTENEGRO • JORDAN • KAZAKHSTAN • KYRGYZ REPUBLIC • MACEDONIA • MOLDOVA • MONGOLIA

  9. FEAS Region Statistics

  10. 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 • Helpsto promote the listing ofhome 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”

  11. 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

  12. 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

  13. 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

  14. Investment Opportunities in Turkey

  15. 132 Members (Total) 91 Brokerage Houses 12 Inv. & Develop. Banks 29 Commercial Banks 132 Members (Total) 91 Brokerage Houses 12 Inv. & Develop. Banks 29 Commercial Banks Clearing settlement: T+3,....,T+15 Clearing settlement T,... ,T+90 Stock Market Price Margins:10% per session 104 Members (Total) 104 Brokerage Houses Clearingsettlement T+2 ISE Settlement & Custody Bank (Takasbank) Central Registry Agency

  16. ISE’s Market Performance

  17. ISE Markets Total Trading Volume(Billion USD) 6 times Turkey’s GDP

  18. ISE Stock Market Trading Volume (Million USD) 425 million stocks per day

  19. Scale of ISE Companies(as of August 29, 2008)

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

  21. Market Capitalization 2008/7 (Billion USD) Source: WFE

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

  23. Number of Listed Companies 2008/7 Source: WFE

  24. Foreign Participation in the IPOs Source: ISE Foreign participation in IPOs is about 66% on average in the last 3 years

  25. Foreign Participation in the ISE Stock Market(as of % of free float market capitalization) Source: CRA

  26. 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

  27. Comparison of ISE-100 with MSCI Indices (2005/8=100 USD based) Source: Bloomberg, Morgan Stanley

  28. ISE National 100 Index vs. ISE Corporate Governance Index The firms having a CG rating at the ISE-100 index has a total weight of 11.74 % in the ISE-100 index

  29. P/E Ratios Source: Bloomberg

  30. 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

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