A decade in the making, Turkey’s derivatives exchange aims to reduce risk in foreign currency, commodities and share trading.
Hamdi Bagci, chief executive officer of TurkDex, the fledgling Turkish Derivatives Exchange, likes to talk big. “At the end of two years, the trading volume on TurkDex will exceed that of the Istanbul Stock Exchange,” he says.
His optimism, while not shared by everyone, is founded on the expectations of renewed volatility in currency markets. He may be right.
Panicky Turkish investors rushed to buy currency futures on the 10-week-old exchange prior to the US Federal Reserve Board’s March 22 decision to raise interest rates on bank lending.
The US action reverberated across the globe with capital flight from emerging market economies.
Crisis fears
In Turkey, the value of the new Turkish lira (YTL) slid 12.1% against the dollar over a five-week period and share prices on the Istanbul bourse tumbled 16%, raising fears of a new economic crisis. Daily trading on the new TurkDex reached a mere YTL3m ($2.2m) in the week of March 14-18, less than 0.5% of the daily trading on the Istanbul stock market.
The TurkDex, located in the Aegean port city of Izmir, a major centre for commerce and foreign trade, started trading on February 4 this year. The exchange has 53 members, including several major banks and brokerage houses. Core products offered are 91-day and 365-day futures on Turkish Treasury bills (T-Bills), foreign currency futures in dollars to new Turkish lira and euros to new Turkish lira, Istanbul Stock Exchange (IMKB)-30 share futures as well as cotton and wheat.
Exchange shareholders include the Union of Chamber of Commerce, Industry, Maritime Commerce & Commodity Exchanges of Turkey (TOBB) – Turkey’s biggest business organisation – with a 25% stake; the Istanbul Stock Exchange with an 18% share and the Izmir Mercantile Exchange with a 17% interest. Other shareholders include banks Koç Bank, Akbank, Vakiflar Bankasi and Garanti Bankasi; Is Invest, the brokerage arm of Türkiye Is Bankasi – Turkey’s second biggest bank, the Industrial Development Bank of Turkey and the Association of Capital Market Intermediary Institutions of Turkey.
“The derivatives exchange has been in the making for 10 years,” Mr Bagci says. An unregulated, open derivatives market existed in the 1990s, then a more organised over-the-counter market developed after February 2001’s financial crisis, when the lira lost two thirds of its value against the US dollar in weeks, but it was “dominated by speculators,” he says.
Armed with an MA in banking and finance from the University of Maryland, Mr Bagci became chief executive officer of the exchange after serving several years with the Capital Market Board, a regulatory authority for the securities markets.
The TurkDex, he says, still lacks sophistication. “We resort to physical delivery as we don’t yet have a sophisticated warehouse system,” he adds.
As the exchange is new, Mr Bagci spends most of his time touring Turkey giving lectures on derivatives and financial risk management and speaking at conferences on futures and options to importers and exporters and traders of commodities in the big cities. An informational CD has been produced and is available to anyone who wants to learn more about TurkDex.
Foreigners wanted
Critics of the exchange say that TurkDex needs to incorporate futures on precious metals that Turkey is a major importer of, such as gold and platinum, and to expand futures in its main agricultural export commodities, such as tobacco and hazelnuts. It also needs to attract foreign investors.
“The market is still shallow, and unfortunately doesn’t include any foreign investors,” says Birgul Demirel, a derivatives manager at the brokerage house Info Menkul Degerler.
