Borsa Istanbul has ambitious expansion plan beyond equities

Perched on a ridge overlooking the Bosphorus, the headquarters of the Borsa Istanbul reinforces the age-old adage of the city as being a bridge between Europe and Asia.

That is precisely the perception of itself that Borsa Istanbul seeks to cultivate, with plans to turn the fast-growing exchange into a leading regional trading platform, linked to other exchanges, and trading everything from financial products to metals, precious stones, gas and electricity.

Key to expansion are plans for partnerships and a flotation, plus agreements allowing the trading of other exchanges’ products through it, and vice versa.

It’s an ambitious programme for an exchange founded in 1985, but which had until recently achieved little more than organic growth.

It was Turkey’s new capital market law of 2012 that set the stage for change.

That resulted in the existing Istanbul Stock exchange merging with Istanbul’s gold and precious metals exchange — the third largest in the world — to create a self-regulating joint stock company Borsa Istanbul.

By 2014 the exchange was trading an annual $400m in equities, and with corporate debt issues rising from almost nothing five years earlier to a total of $30bn. This made it the seventh-largest emerging market equity exchange and the fifth largest bond market in the world based on electronic orders.

It also holds equity stakes in four other regional exchanges; the Kyrgyz Stock Exchange, the Montenegro stock exchange and the Baku and Sarajevo stock exchanges in Azerbaijan and Bosnia Herzegovina, respectively.

“Our aim is to establish a network to bring investors from different parts of the world — we want to be a bridge between these countries and between big investors from the world,” says Tuncay Dinc, Borsa Istanbul chief executive. He explains that exchanges linking with Borsa Istanbul will benefit from its higher liquidity, strong regulatory framework and international visibility.

Key to this strategy are partnerships to enhance the exchange’s product range and operations, and turn the exchange into a truly global operation.

In all, 42.6 per cent of the equity in Borsa Istanbul has been allocated for strategic partnerships, with another 42.75 per cent to be sold in public offerings.

Already concluded is the purchase by Nasdaq OMX of 5 per cent in Borsa Istanbul, whose markets will be traded on the same Nasdaq Genium INET platform.

An agreement has been reached for the European Bank of Reconstruction and Development (EBRD) to take a 10 per cent stake in the exchange.

“Borsa Istanbul is at the heart of Turkey’s ambition to become a financial centre for the wider region,” says Noel Edison, director for insurance and financial services at EBRD, explaining that as a shareholder it can boost the exchange’s liquidity and help with preparations for the IPO.

Approval for the EBRD’s purchase looks set to be delayed until after Turkey goes to the polls in November, after which Borsa Istanbul will apply for parliamentary approval for the IPO. With strong cross party support for the development of the exchange, any delays look likely to be procedural rather than political.

According to Mr Dinc talks are already under way with one other international exchange and two private equity groups, which could be concluded before next year’s IPO.

Other non-equity agreements have already been concluded. This year Borsa Istanbul concluded a tie-up with the London Metals Exchange (LME) giving it a stake in LME’s LCH.Clearnet clearing house and allowing the sale of LME traded steel billets in Turkey.

Similarly a deal with the London Stock Exchange saw the trading of Borsa Istanbul equity index products start last month on the LSE derivatives market.

Further international co-operation is planned with Dubai Multi Commodities Centre slated to allow its members to trade on Borsa Istanbul and vice versa.

Arguably the most far-reaching step taken by Borsa Istanbul is being confirmed as 30 per cent stakeholder Turkey’s new EPIAS energy market, for which it is also platform operator. It took over from Turkey’s power trading platform in September and plans involve spot and derivatives markets for power.

Mr Dinc points out that 30 per cent of global gas reserves are in the east and south-east of Turkey. He says this gives EPIAS the chance to become a regional gas trading hub.