CAPITAL MARKETS BOARD OF TURKEY CAPITAL MARKETS AND

CAPITAL MARKETS BOARD OF TURKEY “CAPITAL MARKETS AND NEW TURKISH LIRA CONVERSION” Ali İhsan GÜNGÖR Specialist Market Surveillance and Regulation Department LONDON, 8 JULY 2004 www. spk. gov. tr

Outline • • • www. spk. gov. tr 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 2

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 3

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 4

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 5

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 6

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 7

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 500 TL and the increments must be by 100 TL • The nominal values of the shares of the 99% of the companies listed in the Istanbul Stock Exchange is 1. 000 TL • After the conversion; 1. 000 TL = 0, 1 New Kuruş or = 0, 001 New Turkish Lira • Problem ? www. spk. gov. tr 8

The Legal Issues • No, actually there is not a problem, there was just a confusion because of the one of the articles of the TRY law; “For transactions to be conducted in terms of the New Turkish Lira, the values higher than a half New Kuruş* shall be rounded off to one New Kuruş, while a half New Kuruş and the values lower than a half New Kuruş shall not be taken into account. ” • However, the purpose of this article is just to mention that in the final stage of the transactions there should be no fractions lower than 1 New Kuruş, since it is the lowest payment unit * www. spk. gov. tr Note: There is a draft for law change due to the IT considerations “values equal to or higher than a half New Kuruş” 9

The Legal Issues • The article just puts the rounding off criteria, but there is no limitation for the specification of the prices of goods, services and etc. in terms of digits • The nominal values of the shares can be denominated as 0, 1 New Kuruş and they will all have the same rights as today. • Since the minimum coin available for payment is 50. 000 TL, actually there is nothing different from today www. spk. gov. tr 10

The Legal Issues • 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 10. 000 TL. • Transition period (2009) www. spk. gov. tr 11

The Legal Issues • 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 12

The Legal Issues www. spk. gov. tr • 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. • The draft envisages for those shares which are not complement to the value of 1 New Kuruş to be converted into fraction payout certificates. • 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. 13

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 4 th of June • All in collaboration with CMB and the market • There is no need for further CMB approval www. spk. gov. tr 14

The Istanbul Stock Exchange The Equities Market • Price Dissemination - In the current system the price dissemination is for the market price of a stock of 1. 000 TL nominal value i. e. for one single share. - Price levels of the shares of the companies listed in the ISE are given below: - 2 companies - 4 companies - 32 companies - 221 companies - 26 companies www. spk. gov. tr above 1. 000 TL between 100. 000 TL - 1. 000 TL between 10. 000 TL - 100. 000 TL between 1. 000 TL - 10. 000 TL below 1. 000 TL 15

The Istanbul Stock Exchange The Equities Market • Price Dissemination - After the conversion the price will be disseminated for the 1 TRY nominal value i. e. for 1. 000 shares. - Two digits will be added to represent New Kuruş in the system. www. spk. gov. tr Current 2. 500 TL of 1. 000 TL nominal (one share) New 2, 50 TRY of 1 TRY nominal (1000 shares) 16

The Istanbul Stock Exchange The Equities Market • Price Ticks - The price tick levels have been modified according to the new dissemination methodology - No material change www. spk. gov. tr Stock Price Ranges TL 10 -2, 500 2, 525 -5, 000 5, 050 -10, 000 10, 100 -25, 000 25, 250 -50, 000 50, 500 -100, 000 101, 000 -250, 000 252, 500 -500, 000 505, 000 and above Stock Price Ranges TRY 0, 01 - 2, 50 2, 52 – 5, 00 5, 05 – 10, 00 10, 10 – 25, 00 25, 25 – 50, 00 50, 50 – 100, 00 101, 00 – 250, 00 252, 50 – 500, 00 505, 00 and above Price Ticks TL 10 25 50 100 250 500 1, 000 2, 500 5, 000 Price Ticks TRY 0, 01 0, 02 0, 05 0, 10 0, 25 0, 50 1, 00 2, 50 17 5, 00

The Istanbul Stock Exchange The Equities Market • Trading Unit Current arrangements for the equality of “ 1. 000 TL (nominal) = 1000 unit = 1 lot” will be changed in accordance with the equality “ 1 TRY 1 unit = 1 lot” Current New www. spk. gov. tr 1 lot = 1. 000 shares = 1. 000 TL nominal 1 lot = 1 share = 1 TRY nominal 18

The Istanbul Stock Exchange The Equities Market Exceptional Shares • Shares with different nominal value or very high market price - Petrokent A. Ş. - T. İş Bankası A. Ş. Founder Shares - T. İş Bankası A. Ş. A and B Type shares • Necessary arrangements have been made www. spk. gov. tr 19

The Istanbul Stock Exchange The Equities Market Last 2 Trading Day • As a precaution NO TRADING on the 30 th and 31 st December in Equities Market • To make the conversion operations easier, especially in terms of clearing and settlement www. spk. gov. tr 20

The Istanbul Stock Exchange The 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 www. spk. gov. tr • 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 21

The Istanbul Stock Exchange The 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 Small Orders Normal Orders Maximum Order Amount Government Securities 1. 000 nom. TRY 100. 000 nom. TRY 10. 000 nom. TRY Private Sector Debt Securities 1. 000 nom. TRY 100. 000 nom. TRY Repo-Reverse Repo Market 1. 000 nom. TRY 500. 000 nom. TRY 10. 000 nom. TRY 22

The Istanbul Stock Exchange The Bonds & Bills Market Collateral Requirements • Type of collaterals given to the exchange as letter of bank guarantees will be required to be changed during 2005 Open Transactions • Debt/credit balances will be converted to TRY by the date of 01. 2005 www. spk. gov. tr 23

The Istanbul Stock Exchange The Futures Market Price Dissemination • Price and quotation entries of foreign exchange futures transactions will be made up to 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 • Arrangements related to clearing membership collaterals held by Takasbank have been made www. spk. gov. tr 24

The Istanbul Stock Exchange The 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 8 th of October • To make a final general test with members on the 9 -10 th of October • To inform the CMB about the results and the problems encountered www. spk. gov. tr 25

ISE Settlement and Custody Bank Inc. (Takasbank) • Central Securities Depository of Turkey • Settlement Agency of ISE • National Numbering Agency Allocating ISINs for securities issued in Turkey www. spk. gov. tr 26

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 30 th and 31 st 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 • 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 Takasbank www. spk. gov. tr 27

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) www. spk. gov. tr • 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. 28

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 • The CMB also required the Istanbul Gold Exchange to prepare a notice to members to declare the new price dissemination, price ticks and trading units procedures. www. spk. gov. tr 29

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” www. spk. gov. tr • Explanatory statements concerning the adjustment procedures in the accounting and IT systems • Should be filled and sent in first two business days of 30 each month

Requirements from the Market Participants • • www. spk. gov. tr Coordinators Intermediary Institutions Association → Intermediary Institutions Istanbul Stock Exchange → Listed Companies Takasbank → Mutual Funds Audit Association →Audit Firms • The forms will be sent to the coordinator institutions and the coordinators will prepare evaluationary reports • Those evaluationary reports will be sent to the CMB each month in 10 business days • The CMB will take precautions where necessary 31

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 concluded with related firms for the adjustments process to New Turkish Lira - If no, explain www. spk. gov. tr 32

Requirements from the Market Participants Content of the “Summary statement forms” • Are your in-house applications including the accounting system adopted to New Turkish Lira? • Is your infrastructure for your transactions and operations outside of your firm adopted to New Turkish Lira? www. spk. gov. tr 33

Mutual Funds Price Dissemination and Calculation • Different opinions in the sector in terms of price dissemination 37, 663218 TRY or 37 TRY 66, 3218 YKr www. spk. gov. tr • Generally marketing considerations (sensivity loss) • Turkish Banking Association insists on to choose only one of them to sustain unity • The unit share prices will be calculated up to 6 digits of Kuruş • The new nominal value will be 1 Ykr (same as today’s 10. 000 TL) 34

Mutual Funds • Potential systematic losses or gains because of rounding off the decimals? No. Because there are limitations for the minimum number of unit certificates to be bought and sold for many funds depending on the unit share price of the fund. • 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. • Also, valid for today www. spk. gov. tr Since the unit share price is calculated by net asset value divided by the number of outstanding share units decimal 35 rounding is used.

The New Institutions • Turkish Futures and Options Exchange (TURKDEX) The exchange is not yet operational, but planned to be operational before 2005 • The Central Registrar The dematerialization has not been yet realized, but planned to be realized before 2005 • In terms of adjusting the IT systems and coordinating the members, both institutions are enforced to follow the same work plan and time table as the ISE and Takasbank with the written request of CMB. www. spk. gov. tr 36