Chairman and CEO of Istanbul Stock Exchange (ISE) Hüseyin Erkan

“Istanbul is one of the largest financial centers in the region” 

ISE Chairman touched upon every issue that is currently talked about for stock exchange investors; from “an index for each province” project to cooperation with Athens Stock Exchange, from Istanbul’s effort to become a financial center to the privatization of the ISE. 

 What kind of actions are on your agenda in order to stir the capital market? T

here are some new practices meant for small and medium size enterprises in the coming periods. For example, we try to establish “Local Investment Funds” that are composed of companies operating in investors’ own provinces in which investors want to be a sharer. Within the cooperation to be formed with chambers of commerce and industry, we will set up an index for each province on the condition that each chamber brings at least five companies. 

Could we name it “an index for each province”?

 Of course. We plan to enable investors in every Anatolian province to benefit from the growth of the capital market through investing in funds in their provinces. We have a condition at this point: There must be 5 companies from each province since it is very difficult to form an index with less than 5 companies. We have started the works toward this purpose. Currently, there are works meant for 4-5 provinces. We focus on every detail carefully. 

Are you working toward including foreign companies in the Turkish stock exchange? Will we see foreign companies at the ISE a few years later? 

This is just the requirement for becoming a regional finance center. Until only a few years ago our market had a self-contained structure moving along domestic developments. Now it is in a totally different shape. Our markets have attained a certain level of stability in recent years. When our investors are analyzed, it is seen that usually they do not prefer foreign securities. It is because, returns were much higher here comparing to those abroad. Actually, foreign securities should also be considered among alternative investment instruments. Approximately 1-1.5 years ago we opened a market named “Foreign Securities.” However, we have not received any application yet. We plan to pay more attention to this issue in the coming period. 

In this context, do you have joint plans with foreign stock exchanges? 

We have cooperation with Athens Stock Exchange; we are forming a joint index. We have come to the final stage with only the actual signing remaining. Around 15 companies from each country will be traded in this index. Exchange-traded funds (ETF) based on this index will be launched. We think of two models for this. In the first model, a single international ETF will be formed and exported abroad and will be traded as security at each country’s stock exchange. In the second one, there will be domestic ETFs that are again based on the same index and traded in both countries. In this way, regional investors will have the opportunity to buy at both stock exchanges. This is a project that whets the appetite especially of Greek institutional investors total value of whose funds are much greater than ours. Again in order to take common steps, we are having talks with Middle Eastern, Balkan and Central Asian countries. As is known, currently we chair the Federation of Euro-Asian Stock Exchanges (FEAS). We plan to set up a benchmark index also in this platform. Planned to comprise 500-600 stocks, this index will serve only as a benchmark. In later periods, however, we think of forming regional indexes containing investable shares in much smaller numbers. For instance; Balkan Index, Middle East Index or Central Asia Index and the like. We want the ETFs that will be issued on these indexes to be traded at many stock exchanges. 

Will Istanbul achieve to become a regional financial center? 

We can safely say “yes” to this question. Istanbul is already one of the largest financial centers in the region. Two other centers emerge together with us; Moscow and Dubai. All three centers have their own advantages. However, I think Istanbul harbors much greater advantages than others. Besides with using our position, we should also introduce changes to the existing regulations and provide incentives. Istanbul can thus become the financial center of the region getting ahead of Dubai and Moscow. The most important leg of this process is to expand the capital market. We are involved in all the efforts toward this purpose and the ISE will assume one of the most critical roles in this regard. 

In previous years, initiatives toward privatizing the ISE were taken. Could we learn about the current state of these works? Is such a sale in question? 

The ISE is an institution that has never utilized resources either at its inception or at its later stages. It operates like a professional institution. It has an autonomous budget of its own. Its budget is concluded at its general meeting and no one interferes with this budget. The target we think of attaining is, for the ISE to operate as a joint-stock company. However, I am in the opinion that utmost care should be taken on this road. Because, the ISE is not like any public enterprise.

 What are the obstacles to this target? 

There is a loophole of authority with respect to the privatization of the ISE. In whom does the authority reside when turning the ISE into a joint-stock company? In this situation, the authority rests neither wholly with the Turkish Privatization Administration, nor with the Capital Markets Board (CMB) or the ISE. Consequently, there is a need for an authorization bill. We have started the works toward this purpose. Within the authorization bill that is to be introduced, it will become clear who is to make these decisions. The sharing of the stocks when the ISE becomes a joint-stock company has great importance. After all these issues are clarified, privatization can be carried out. It would not be appropriate to resort to privatization considering the funds to be obtained through sale. It is where the Turkish capital market’s heart beats. During its transformation into a joint-stock company, every kind of detail should be taken into account; it should not be considered as any privatization.