CAPITAL MARKETS BOARD OF TURKEY “CAPITAL MARKETS AND NEW TURKISH LIRA CONVERSION”

www.spk.gov.tr CAPITAL MARKETS BOARD OF TURKEY“CAPITAL MARKETS AND NEW TURKISH LIRA CONVERSION” OCTOBER 26, 2004

www.spk.gov.tr Outline • Capital Markets Board of Turkey • The Working Methodology of TRY Conversion • The Legal Issues • Istanbul Stock Exchange • ISE Settlement and Custody Bank Inc.(Takasbank) • Istanbul Gold Exchange • Requirements from the Market Participants • Mutual Funds • The New Institutions

www.spk.gov.tr Capital Markets Board (CMB) • Regulatory and supervisory authority in charge of the securities markets in Turkey • Legal entity • Head office located in Ankara and an office in İstanbul • Practices its authority independently and on its own responsibility

www.spk.gov.tr www.spk.gov.tr The Objective Of CMB • To regulate and control the secure, fair and orderly functioning of the capital markets • To protect the rights and benefits of the investors

www.spk.gov.tr Regulatory Framework • Three major legislations: • Capital Markets Law • Decree by Law No. 91 (stock exchanges) • Turkish Commercial Code • Additionally; • Resolution No. 32 (capital movements)

www.spk.gov.tr The Working Methodology for the New Turkish Lira Conversion • Under the general coordination of the Central Bank of Turkey, three technical sub-committees - Corporations - Accounting - Information Technology • A Supreme Committee for supervision • CMB is an active member of all of the committees • Close collaboration with Istanbul Stock Exchange, Istanbul Gold Exchange, Takasbank (ISE Settlement and Custody Bank Inc.), TURKDEX and the Central Registrar related with operations in the capital markets

www.spk.gov.tr The Legal Issues • According to the TRY Law; “All references made to Turkish Lira or Lira in laws and other legislation, administrative procedures, court decisions, legal operations, commercial papers and other documents that produce legal effects as well as means of payment and instruments of exchange shall be considered to have been made to New Turkish Lira” • So, in general there is no need for change in the regulations.

www.spk.gov.tr The Legal Issues • A special case for the nominal values (par value) of the shares of the publicly owned companies • According to the Turkish Commercial Code the nominal values of the shares of the joint stock corporations should be at least TRL 500 and the increments must be by TRL 100 • The nominal values of the shares of the 232 companies (out of 301) listed in the Istanbul Stock Exchange is TRL 1.000. • So, generally after the conversion; 1.000 TRL = 0,1 New Kuruş or = 0,001 New Turkish Lira

www.spk.gov.tr The Legal Issues • The nominal values of the shares will be denominated as 0,1 New Kuruş and they will all have the same rights as today. • However, in an environment where the minimum currency unit is 1 New Kuruş, if the nominal values of the shares are denominated as 0,1 New Kuruş, there will be operational difficulties and confusion in measurement of those shares especially for capital issues, dividends and pre-emptive rights • A Draft for an“Amendment in the Commercial Code” • Accordingly the minimum nominal value in the Law will be raised to 1 New Kuruş which is today equals to TRL 10.000.

www.spk.gov.tr The Legal Issues • Transition period (2009) • The companies will be able to increase the nominal values of their shares and call for their shareholders to complement their shares to the value of 1 New Kuruş. • For example 10 shares of 0,1 New Kuruş that a shareholder has will be converted into 1 share of 1 New Kuruş • Upto 2009 all rights of the shares that the shareholders holds are protected with the law • The board of directors of the companies are responsible for this operation

www.spk.gov.tr The Legal Issues • The shares which are not complemented to the value of 1 New Kuruş will be converted into fraction payout certificates. • Actually the impact of this change will be mostly for the small investors. • For example an investor who holds only 1 share should have to buy 9 more shares from the market, in order to get a share of nominal value of 1 New Kuruş after the conversion. • However even the impact on the small investors will be minor. Because the minimum trading unit in the ISE is 1.000 shares. So, situations that an investor has shares less than 1.000 are rare.

www.spk.gov.tr The Istanbul Stock Exchange • The TRY conversion will have impacts in the ISE markets. - The Equity Market - The Bonds and Bills Market - The Currency Futures Market • So, in that context ISE made new arrangements in accordance with the new system and announced it to the public with a notice to members on the 4th of June • All in collaboration with CMB and the market

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market • Price Dissemination - In the current system the price dissemination is for the market price of a stock of 1.000 TRL nominal value i.e. for one single share for the shares with a par value of 1.000 TRL. - Price levels of the shares of the companies listed in the ISE are given below: - 3 companiesabove 1.000.000 TL - 4 companies between 100.000 TL - 1.000.000 TL - 35 companies between 10.000 TL - 100.000 TL - 239 companies between 1.000 TL - 10.000 TL - 20 companiesbelow 1.000 TL

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market • Price Dissemination - After the conversion the price will be disseminated for the 1 TRY nominal value i.e. for 1.000 shares for the shares with a nominal value of 1.000 TRL. - Two digits will be added to represent New Kuruş in the system. Current 2.500 TL of 1.000 TL nominal (one share) New 2,50 TRY of 1 TRY nominal (1000 shares)

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market • Trading Unit Current arrangements for the equality of “1.000.000 TL (nominal) = 1000 unit = 1 lot” will be changed in accordance with the equality “1 TRY= 1 unit = 1 lot” Current 1 lot = 1.000 shares = 1.000.000 TL nominal New 1 lot = 1 share = 1 TRY nominal

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market Trading Unit • Here, ISE used the term “unit” to show that after the beginning of 2005, one unit will be the bundle of shares with a total par value of 1 New Turkish Lira for the Stock Exchange transactions. • This “unit” may contain 2000, 1000, 400, 200 etc. shares depending on the par value of the specific share. • It should be noted that, legally there is no change in the number of outstanding shares of the firm.

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market • Example

Price Ticks - The price tick levels have been modified according to the new dissemination methodology - No material change www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market Last 2 Trading Day • As a precaution NO TRADING on the last two days of December in Equities Market • To make the conversion operations easier, especially in terms of clearing and settlement

www.spk.gov.tr The Istanbul Stock ExchangeThe Equities Market Indexes • Continuity and comparability considerations • Necessary amendments will be made in the index formula and the level of all ISE indexes will be same beginning from 2005, i.e. in the first trading session of 2005 the index will begin with the closing value of the last trading day of 2004 without any change. • The investors can follow the Exchange as they were familiar with.

www.spk.gov.tr The Istanbul Stock ExchangeThe Bonds & Bills Market Price • The Turkish Treasury declared that the face value of the Turkish Government Securities will be 100 TRY in Treasury Auctions and the bids will be given up to 3 digits of New Kuruş Ex: 98,437 TRY • No material difference compared to today since the quotations are given for the face value of 100.000 TL with no digits. Ex: 98.437 TL • Parallel to this in the ISE Market, the prices will be calculated and the quotations will be given for the face value of 100 TRY and up to 3 digits of New Kuruş

www.spk.gov.tr The Istanbul Stock ExchangeThe Bonds & Bills Market Amounts of Orders and Lots • No material difference since the amounts were already high, the changes are just the drop of 6 zeros. • Minimum and maximum order entry amounts are as follows:

www.spk.gov.tr The Istanbul Stock ExchangeThe Bonds & Bills Market Last Trading Day and Open Transactions • The transactions will continue on the last trading day of 2004. • All transactions made in terms of TRL before 1st January 2005 will be converted automatically to TRY. • Debt/credit balances will be converted to TRY by the date of 01.01.2005 and the accounts will be followed with two digits of New Kuruş. • The payments of the transactions with a due date after 1st January 2005 which are concluded in 2004 will be made in terms of TRY.

www.spk.gov.tr The Istanbul Stock ExchangeThe Futures Market Price Dissemination • Price and quotation entries of foreign exchange futures transactions will be made upto 3 digits of New Kuruş Price Ticks • New price tick : 0,001 TRY Margin Requirements and Collaterals • Margin accounts will be kept and the profit and losses will be reflected up to two digits

www.spk.gov.tr The Istanbul Stock ExchangeThe IT Infrastructure The CMB as the supervisory authority required ISE; • To complete the TRY adjustment operations of the IT systems in coordination with the members until the 8th of October • To make a final general test with members on the 9-10th of October • To inform the CMB about the results and the problems encountered • The first results of these tests show that the conversion project is going as it was planned.

www.spk.gov.tr The Istanbul Stock ExchangeThe IT Infrastructure • The “Unrestricted Test” environment for the ISE Equities Market is in use since 8th September and will be open to members up to the end of December 2004. • From the beginning of October the “Scenario Test” environment has been provided to the exchange members. • Beginning from the November a whole trading day will be simulated by the members individually. • Before the end of November a general simultaneous simulation which will be compulsory for all the exchange members will be held.

www.spk.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) • Central Securities Depository of Turkey • Settlement Agency of ISE • National Numbering Agency Allocating ISINs for securities issued inTurkey • Customer Based Custodian System

www.spk.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) • Takasbank works in coordination with the ISE in order to implement required changes in the system • Since there will be no transactions in the ISE Equities Market on the 30th and 31st December, the move from 2004 to 2005 will be a static and easier process. There will be no obligations and receivables rolled from 2004 to 2005

www.spk.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) • To comply with the TRY conversion process some changes has also been made in the Takasbank system. • The accounts held in Takasbank in unit basis will be converted into nominal price basis in order to comply with the changes in ISE system. • The banks and brokerage houses will be able to hold their securities accounts with two digits of New Kuruş in their accounting systems.

www.spk.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) • Turkish Association of Securities Dealers (TASD) has been charged by the CMB to inform the banks and brokerage houses and their customers to get rid off holding accounts which will provide more than two digits after the conversion for the sake of their simplicity. • The investors will be invited to round up or down their accounts (sell their odd-lot shares or to buy new enough shares to complement their shares to one lot). • After the conversion the parts of the accounts which will have more than two digits will be followed under an omnibus account of each bank or brokerage house.

www.spk.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) • Actually since the minimum trading unit in the ISE is 1.000 shares, such odd-lot account positions are not taken by the investors with their preferences, but mainly they occurred due to the new capital issues of the existing shares in their accounts. • The monetary amount of rounding process is negligible. (The market price is around 150 billion Turkish Lira i.e. approximately USD $ 100.000. • Will not have an impact on the market. • The TASD will follow this process and will make the necessary arrangements among the sector.

www.spk.gov.tr ISE Settlement and Custody Bank Inc.(Takasbank) The Share Certificates • It has also been announced that it will not be necessary to reprint the existing TRL denominated share certificates, but after the beginning of 2005 the new share certificates arising from new capital issues should be printed in TRY denomination.

www.spk.gov.tr Istanbul Gold Exchange • Spot Market (Gold, silver, platinum) • Futures and Options Market (Futures and options contracts on gold) • Precious Metals Lending Market (Gold, silver, platinum and certificates backed by the precious metals lent) • Since some of the contracts traded in the IGE are denominated in US $ or EURO terms and the contracts denominated in TL terms are large enough, the conversion will be relatively easier and the need for changes in the trading rules will be limited.

www.spk.gov.tr Istanbul Gold Exchange • Studies according to required changes on the systems of the exchange is performed by IGE in cooperation with the exchange members • In terms of adjusting the IT systems and coordinating the members, the same work plan and time table as the ISE is also required from Istanbul Gold Exchange

www.spk.gov.tr Requirements from the Market Participants - Intermediary Institutions (Brokerage houses and banks limited with their capital market activities) - ISE Listed Companies - Mutual Funds - Audit Firms “Monthly information forms” “Summary statement forms” • Explanatory statements concerning the adjustment procedures in the accounting and IT systems • Should be filled and sent in first two business days of each month

www.spk.gov.tr Requirements from the Market Participants Coordinators • TASD→ Intermediary Institutions • Istanbul Stock Exchange → Listed Companies • Takasbank → Mutual Funds • Audit Association →Audit Firms • The forms are sent to the coordinator institutions and the coordinators prepare reports evaluating the results • Those reports are sent to the CMB each month in 10 business days • The CMB will take precautions where necessary

www.spk.gov.tr Requirements from the Market Participants Content of the “Summary statement forms” • Are there any person in charge of New Turkish Lira as Project General Coordinator or an authorized person with that task? Their names and contact information? • Is there a General Working Plan concerning the New Turkish Lira Project? • If not, target date for the development of the plan? • Do the appropriate arrangements for the outsourced software has been done with related firms for the adjustments process? If no, explain • Are your in-house applications including the accounting system adopted to New Turkish Lira?

www.spk.gov.tr Requirements from the Market Participants “Monthly information forms” • A more technical form and requests firms to state their adjustment as a percentage, for each software application they use.

www.spk.gov.tr Requirements from the Market Participants • After the examination of the reports provided by the coordinators and the forms where necessary, it is observed that the necessary work has been done for the in house software and applications, and for the outsourced ones the necessary agreements have been done with the software firms. • The ISE traded companies are required to publicly disclose their adjustment process and the results of the tests beginning from 12 October.

Mutual Funds www.spk.gov.tr Price Dissemination and Calculation • The unit share prices will be calculated and disseminated up to 6 digits of New Kuruş • Marketing considerations (sensitivity loss) Ex: 37,663218 TRY • The new nominal value will be 1 Ykr (same as today’s TRL 10.000)

Mutual Funds www.spk.gov.tr Trading Prices of the Mutual Funds • While the investors buy and sell unit shares of the funds, the unit share price will be multiplied by the number of units to be bought or sold and the resulting amount will be rounded according to the rounding criteria of the New Turkish Lira Law. • The differences arising from the rounding off the decimals will be reflected in the Funds’ accounts and the Funds will be responsible for taking all the necessary precautions in order to minimize the potential systematic losses or gains due to the rounding off of the decimals.

Mutual Funds www.spk.gov.tr Trading Prices of the Mutual Funds • This will mainly be done by assessing the minimum amount of limitations for the number of certificates to be bought and sold. Actually, since those limitations are already widely used depending on the unit share price of the fund, no systematic gains or losses are expected. • Funds with low unit share prices have special requirements for investors to buy at least 10 – 100 unit shares. So, since the monetary amount to be bought and sold for each transaction is around 100 million TL (70 $) and the rounding off effect will be negligible.

www.spk.gov.tr The New Institutions Turkish Futures and Options Exchange (TURKDEX) • The exchange was established in July 2002 as a private company. TURKDEX is not yet operational in terms of trading, but planned to become fully operational in 2005. • All the derivatives contracts will be traded in this exchange. The Central Registrar • The dematerialization has not been yet realized, but beginning from the 21 March, 2005 the dematerialization process will take place.

www.spk.gov.tr The New Institutions • In terms of adjusting the IT systems and coordinating the members, both institutions are enforced to follow the same work plan and timetable as the ISE and Takasbank with the written request of CMB.

CAPITAL MARKETS BOARD OF TURKEY “CAPITAL MARKETS AND NEW TURKISH LIRA CONVERSION”