VIOP - FUTURES & OPTIONS MARKET. London April, 2013

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1 1

2 - FUTURES & OPTIONS MARKET London April, 2013

3 Agenda Section 1 Section 2 Section 3 Section 4 Section 5 Borsa İstanbul Futures and Options Market...15 Product Specifications...19 Market Rules and Risk Management...32 Borsa İstanbul TURKDEX Merger 37 3

4 Section 1 Borsa İstanbul 4

5 Why Borsa İstanbul? Resilient and growing financial sector High liquidity in the cash market, number one in turnover velocity among FESE members in January 2013 First organized options market for Turkish equity underlyings & indices Huge potential in derivatives, as seen in TURKDEX s tremendous growth Low cost base Forthcoming derivatives products, i.e Currency Options, Interest Rate Options, Energy & Commodity Derivatives 5

6 Markets of Borsa İstanbul Markets of Borsa İstanbul EQUITY MARKET EMERGING COMPANIES MARKET (11 Companies) DEBT SECURITIES MARKET FOREIGN SECURITIES MARKET () FUTURES AND OPTIONS MARKET National Market (233 companies) Spot Market Eurobonds Market BIST30 SingleStock Futures & Options Second National Market (77 companies) Repo/Reverse Repo Market Index Options (BIST30) Watch List Companies Market (13 companies) Wholesale Market Precious Metals and Stones Market Institutional Products Market Repo Market for Specified Securities Interbank Repo/Reverse Repo Market Energy & Commodity Markets ETFs Market (17 Funds) ITs, REITs; Venture Capital (49 companies) Warrant & Certificates Market (240 warrants, 92 certificates) 6

7 Borsa İstanbul: Market Status Borsa İstanbul: Market Status Average Daily Equity Market Traded Value (USD Billions) Market Capitalization (USD Billions)* Equity Market Traded Value (USD Billions) Shanghai SE Shenzhen SE Korea Exchange BM&FBOVESPA Taiwan SE Corp. National Stock Exchange India Saudi Stock Exchange - Tadawul Borsa Istanbul MICEX / RTS Johannesburg SE The Stock Exchange of Thailand Mexican Exchange Bursa Malaysia BSE India GreTai Securities Market Indonesia SE Warsaw SE Tel Aviv SE ,000 1,500 2,000 2,500 3,000 8 th highest equity market turnover among the emerging markets Source: Borsa İstanbul, *As of April 5th, 2013 Source: World Federation of Exchanges, as of December 31th,

8 Borsa İstanbul: A Highly A Highly Appreciated Appreciated Investment Investment Platform Platform Percentage of Foreign Investors in Free Float Market Capitalization Share Turnover Velocity** Shenzhen SE GreTai Securities Market Shanghai SE Japan Exchange Group - Tokyo Borsa İstanbul Thailand Stock Exchange 70 Korea Exchange Saudi Stock Exchange - Tadawul Deutsche Börse Taiwan SE Corp. BME Spanish Exchanges TMX Group BM&FBOVESPA Australian SE NYSE Euronext (Europe) /4* Source: Borsa İstanbul, *As of April 1 st, 2012 NASDAQ OMX Nordic Exchange London SE Group SIX Swiss Exchange Singapore Exchange 00% 50% 100% 150% 200% 250% 300% 5 th highest turnover velocity in the world as of March 2013 Source: World Federation of Exchanges ** As of March31 st,

9 Borsa İstanbul: A Well-Established A Well-Established Debt Securities Debt Securities Market Market Borsa İstanbul has the world s 4 th largest bonds market on electronic order book Source: Borsa İstanbul *includes repo/reverse repo market. **As of October

10 Borsa İstanbul: High IPO Potential Borsa İstanbul: High IPO Potential Number of IPOs* 10 new companies in emerging companies market with a total of 26 IPOs and one SPO during Number of listed companies reached to Funds raised through debt instrument issuances amount to USD 23,6 billions in Remarkable increase in the issuance of debt instruments: 263 new issuances in 2012 Source: Borsa İstanbul, *Figure for 2002 to 2009 is annual average With more IPOs, our intention is to reach at least 50-60% market capitalization/gdp ratio 10

11 Roadmap of Borsa İstanbul Roadmap of Borsa İstanbul A More Efficient Pre/Post-Trade System Closer Linkages with Regional Exchanges IPO and New Products Integration with Turkdex, Gold Exchange Demutualization Vertical / Horizontal Consolidation Trading Platform with a State of Art Technology A Diversified Pool of Products - New Capital Markets Law 11

12 New Organizational Infrastructure Infrastructure under Borsa under İstanbul Borsa İstanbul 12

13 New Regulatory Framework New Regulatory Framework The new Capital Markets Law legislated at the end of 2012 is intended to meet the requirements of İstanbul International Financial Center Project sustain more transparent, effective, reliable, competitive environment for capital market in Turkey increase number and types of institutional investors such as asset management companies together with increasing retail investor base achieve coherence with EU capital market regulations enhance corporate governance improve operational efficiency 13

14 New Regulatory Framework New Regulatory Framework The Law includes remarkable changes on; Financial Instruments and Issuers Financial Reporting, Independent Audit, Rating, and Valuation Capital Market Activities, Intermediaries, and Self-Regulatory Organizations Institutional Investors Surveillance and Precautionary Measures Market Crimes and Sanctions 14

15 Section 2 - Futures and Options Market 15

16 - Futures and Options Market At a Glance CMB gave authority to Borsa İstanbul for SSOs and SSFs. Launch of - Options and Futures Market (SSOs,SSFs) with 10 underlyings Launch of Borsa İstanbul Launch of BIST30 Options TURKDEX Borsa İstanbul Merger As of 9th of April, 583 contracts with 11 different underlyings (10 equities and 1 index) are available for trading. Code AKBNK.E EREGL.E GARAN.E ISCTR.E SAHOL.E Code TCELL.E THYAO.E TUPRS.E VAKBN.E YKBNK.E Code XU030 16

17 Members Member Code Member Name Member Code Member Name ACA ACAR YATIRIM MENKUL DEĞERLER A.Ş. HSY HSBC YATIRIM MENKUL DEĞERLER A.Ş. ADY ANADOLU YATIRIM MENKUL KIYMETLER A.Ş. IYF İNFO YATIRIM A.Ş. AKM AK YATIRIM MENKUL DEĞERLER A.Ş IYM İŞ YATIRIM MENKUL DEĞERLER A.Ş AMK ALTERNATİF YATIRIM A.Ş. KRE KARE YATIRIM MENKUL DEĞERLER A.Ş. AOL ATA ONLINE MENKUL KIYMETLER A.Ş. MRS MARBAŞ MENKUL DEĞERLER A.Ş. ATA ATA YATIRIM MENKUL KIYMETLER A.Ş. MSA MEKSA YATIRIM MENKUL DEĞERLER A.Ş. BGC BGC PARTNERS MENKUL DEĞERLER A.Ş. OMD OSMANLI MENKUL DEĞERLER A.Ş. CAM CAMİŞ MENKUL DEĞERLER A.Ş. OYA OYAK YATIRIM MENKUL DEĞERLER A.Ş. DET DELTA MENKUL DEĞERLER A.Ş. PIT PİRAMİT MENKUL KIYMETLER A.Ş. DSI DEUTSCHE SECURITIES MENKUL DEĞERLER A.Ş. SKY ŞEKER YATIRIM MENKUL DEĞERLER A.Ş. DZY DENİZ YATIRIM MENKUL KIYMETLER A.Ş. SNK SANKO MENKUL DEĞERLER A.Ş. EFG BURGAN YATIRIM MENKUL DEĞERLER A.Ş. STJ STRATEJİ MENKUL DEĞERLER A.Ş. EKN EKİNCİLER YATIRIM MENKUL DEĞERLER A.Ş. UNS ÜNLÜ MENKUL DEĞERLER A.Ş. EKS EKSPRES YATIRIM VE MENKUL DEĞERLER A.Ş. TAC TACİRLER YATIRIM MENKUL DEĞERLER A.Ş. FNY FİNANS YATIRIM MENKUL DEĞERLER A.Ş. TBY TEB YATIRIM MENKUL DEĞERLER A.Ş. GDK GEDİK YATIRIM MENKUL DEĞERLER A.Ş. TKS TAKSİM YATIRIM A.Ş. GLB GLOBAL MENKUL DEĞERLER A.Ş. TLM TEKSTİL YATIRIM MENKUL DEĞERLER A.Ş. GLT GALATA YATIRIM A.Ş. TRA TERA MENKUL DEĞERLER A.Ş. GRM GARANTİ YATIRIM MENKUL KIYMETLER A.Ş. YAT YATIRIM FİNANSMAN MENKUL DEĞERLER A.Ş. PHC PHILLIP CAPITAL MENKUL DEĞERLER A.Ş. YKR YAPI KREDİ YATIRIM MENKUL DEĞERLER A.Ş. HLY HALK YATIRIM MENKUL DEĞERLER A.Ş. CSM CREDIT SUISSE There are currently 42 members. 17

18 Underlying Securities Equity Options and Futures UNDERLYING SECURITIES MARKET CAP USD bln (as of April 2, 2013) WEIGHT IN BIST30 INDEX (%) BLOOMBERG TICKER INDUSTRY 1 BIST30 Index XU030 Index 2 Garanti Bank GARAN TI Banking 3 Akbank AKBNK TI Banking 4 Is Bank ISCTR TI Banking 5 Turkcell TCELL TI Telecoms 6 Yapı ve Kredi Bankasi YKBNK TI Banking 7 Sabancı Holding SAHOL TI Multi-Sector Holdings 8 Vakıflar Bankasi VAKBN TI Banking 9 Tupras TUPRS TI Oil & Gas Refining 10 Turk Hava Yollari THYAO TI Airlines 11 Eregli EREGL TI Steel 18

19 Section 3 Product Specifications 19

20 BIST30 Options Product Name Underlying Security Exercise Style Contract Size Price Quotation and Tick Size Contract Months Settlement Settlement Period Last Trading Day and Expiry Day BIST30 Options BIST30 Price Index European-style; an option is exercised automatically on the Last Trading Day. Underlying security is the 1/1000 of the index values. Contract size for the index options is 100 underlying securities. Prices are offered for the premium value of one underlying security. TRY0.01 per underlying security = TRY1.00 per contract. The two nearest calendar months and the following quarterly month of the March, June, September and December cycle. Cash settlement T+1 (first day following the expiry date) Last business day of the contract month. Trading Hours 09:15-17:45, non-trading period 12:30-14:00 (London 07:15-15:45) Max Trade Size Margins 2,500 contracts (14.4m USD) Initial Margin: Set by the SPAN portfolio margining method. Maintenance Margin: 75% of the required collateral. 20

21 BIST30 Options Daily Settlement Price Final Settlement Price Exercise Price Intervals Position Limits Vendor Code Established by Takasbank. - Weighted average price of all trades performed within the last 10 minutes before the closing of the trading session, - If number of trades performed within the last 10 minutes before the closing of the trading session is less than 10, the weighted average of the last 10 trades before the closing will be set as the settlement price. Closing index values on the Last Tading Day. Strike price tick is 2 (2,000 index points). Option contracts with different strike prices are created within the ±10% limit of the last closing value of BIST30 Index. For each maturity, at least five different strike prices; two in the money, one at the money and two out of the money options. Different strike price option contracts are opened automatically with the changes in the BIST30 index value. As for the client level position limit, the gross open position in the same side of the market (Long Call+Short Put or Short Call+Long Put) for each client across all index option contracts, should not exceed 50,000 contracts. If 50,000 contract limit is exceeded, the client level position limit will be 20% of the total open position on contracts of the same underlying. Market wide position limit is not applied to the index options. Reuters: 0#XU030*.IS 21

22 Strike Price Level Example Assume the closing value of BIST30 index as of April 4th is 105,815.32, this corresponds to the underlying price of Upper limit for the strike price range is * ( 1 + %10) = Lower limit for the strike price range is * ( 1 - %10) = The strike prices levels in the following table will be formed in the system. One at the money (106), two out of the money ( ) and two in the money ( ) strike priced option contracts will be immediately opened for trading. Strike Prices

23 Profit/Loss Example for BIST30 Options Assume that the investor bought 10 option contracts of O_XU030E0613C90.000S0 (Strike Price 90, Maturity June 2013, Call option on BIST30) on April 5, 2013 for a premium of 3.74 TRY for one underlying. Trade Date April 5, 2013 Friday BIST30 Index Value 90, Underlying Price Strike Price 90 Maturity Date Number of contracts traded Price paid for one underlying (premium value of the option) Contract size June 28, 2013 Friday 10 contracts 3.74 TRY 100 underlying Total Position Size 90,642 TRY (10 x 100 x ) Total Premium (TRY) 3,740 TRY (3.74 x 10 x 100) 23

24 Profit/Loss Example for BIST30 Options Two different scenarios on the maturity date On the maturity date BIST30 closing value is 94, BIST30 Index Value 94, Underlying Index Price 94, / Final Settlement Price- EDSP (TRY) = (rounded) 4.88 TRY Profit/Loss (TRY) 4.88 x 10 x 100 4,880 TRY On the maturity date BIST30 closing value is 89, BIST30 Index Value 89, Underlying Index Price 89, / Final Settlement Price- EDSP (TRY) Profit/Loss (TRY) TRY 0 TRY 24

25 Single Stock Futures (SSFs) Underlying Securities Contract Size Tick Size Expiry Months Settlement Delivery Day BIST30 stocks 100 shares per contract TRY0.01 per underlying security = TRY1.00 per contract The two nearest calendar months and the following quarterly month of the March, June, September and December cycle. Physical delivery T+3 (3 business days after the Last Trading Day) Trading Hours 09:15-17:40, non-trading period between 12:30-14:00 (London 07:15-15:40) Daily Settlement Price Final Settlement Price Last Trading Day Daily Price Limit Vendor Code Established by Takasbank. - Weighted average price of all trades performed within the last 10 minutes before the closing of the trading session, - If number of trades performed within the last 10 minutes before the closing of the trading session is less than 10, the weighted average of the last 10 trades before the closing will be set as the settlement price. The closing price in the closing session of the underlying security in the cash market on the Last Trading Day. Last business day of the contract month. The daily price limit is set as +/-20% of the base price (previous daily settlement price). Reuters: 0#ISTFUT Bloomberg: SFUT TI 25

26 Single Stock Options (SSOs) Underlying Securities Exercise Style BIST30 stocks American Contract Size 100 shares per contract 1 Tick Size Exercise Day Expiry Months Settlement Prices are offered for the premium value of one underlying security. TRY0.01 per underlying security = TRY1.00 per contract Exercise by 17:45 on any business day. The two nearest calendar months and the following quarterly month of the March, June, September and December cycle. Physical delivery Delivery Day T+3 2 (Three business days following the day of exercise Last Trading Day) Trading Hours 09:15-17:40, non-trading period between12:30-14:00 (London 07:15-15:40) Expiry Day & Last Trading Day Daily Price Limit Last business day of the contract month. None Clearing House Vendor Code Takasbank Reuters: 0#ISTOPT Bloomberg: XXXXX TI Equity OMON 1. Due to corporate action contract adjustments some stock option series may have a non-standard contract size. 2. Option premium is payable in full by the buyer on the business day following a transaction. 26

27 Single Stock Options (SSOs) Exercise Price Intervals Daily Settlement Price Margins Set by the strike price increment table. Option contracts with different strike prices are created within the ±20% limit of the spot price. For each maturity, at least three different strike prices; one in the money, one at the money and one out of the money options. Different strike price option contracts are opened automatically with the changes in the underlying stock value. Established by Takasbank. - Weighted average price of all trades performed within the last 10 minutes before the closing of the trading session, - If number of trades performed within the last 10 minutes before the closing of the trading session is less than 10, the weighted average of the last 10 trades before the closing will be set as the settlement price. Initial Margin 1 : Set by the SPAN portfolio margining method. Maintenance Margin: 75% of the required collateral 1. Physical delivery collateral is requested only in case of exercise. 27

28 Strike Price Intervals for Stock Options The interval between the exercise prices is set according to the fixed scale below: Strike Price Intervals (TRY) Strike Price Increments (TRY) , , and above

29 Trading Hours 9:15am (07:15am London Time) 12:30 14:00 (10:30am London Time) (12:00 London Time) 17:40 (15:40 London Time) 17:45 (15:45 London Time) 17:55 (15:55 London Time) Single Stock Futures and Options NonTrading Period Normal Session Session Break Normal Session Settlement Price Calculation BIST30 Options NonTrading Period Normal Session Session Break Normal Session Settlement Price Calculation American Options exercise by 17:45 on any business day. 29

30 Settlement Process Single Stock Futures & Options and BIST30 Options Last Trading Day (T) T+1 T+2 T+3 Settlement Day Exercise deadline 17:45 (Index Options are automatically exercised) Cash settlement for Index Options Deadline for physical delivery at 16:30 Cash Equity Markets Trade Day T+1 Trading ceases at 17:40 T+2 Settlement Day Deadline for default at 16:30 Times are shown in local time (GMT+2:00) 30

31 Exchange Fees Competitive Exchange Fee Structure Exchange Fees for SSFs % (4/100,000) of the notional value Exchange Fees for SSOs and SIOs % (8/100,000) of the premium value, minimum 0.03 TRY for each option trade. 31

32 Section 4 Market Rules and Risk Management 32

33 Position Limits for SSFs & SSOs Market Wide Position Limit: If aggregate open interest in the futures and options on individual equities exceed the number of free float shares, from next day onwards the client/ trading members should trade only to decrease their positions through offsetting positions till the normal trading in the market is resumed. The normal trading in the market is resumed only after the aggregate open interest comes down to 95% or below of the market wide position limit. Client Level Position Limit: The gross open position in the same side of the market (Long Call+Short Put+Long Futures or Short Call+Long Put+Short Futures) for each client, across all derivative contracts on a stock, should not exceed 5% of the number of the free float shares. 33

34 Initial Margin & Leverage Required collateral & leverage ratios for SSFs (as of April 2,2013) UNDERLYING SECURITY INITIAL COLLATERAL (TRY) UNDERLYING PRICE (TRY) CONTRACT SIZE (TRY) COLLATERAL RATIO (%) LEVERAGE BIST , ,581 AKBNK EREGL GARAN ISCTR SAHOL TCELL THYAO TUPRS VAKBN YKBNK BIST30 Index value as of April 2th,

35 SPAN - Post Trade Risk Management Real-time post trade margining is in force via SPAN (Portfolio based margining) SPAN, assesses the maximum risk and the required collateral which covers the risk of a portfolio. 1. Risk measurement: Maximum loss of portfolio in one day is estimated. 2. Required premium: Liquidation values of long and short positions in a portfolio. SPAN calculates the maximum likely loss that could be suffered by the portfolio based on different price and volatility scenarios. There are 16 scenarios in the original algorithm. Each scenario is comprised of a different market simulation with price and volatiliy moves of 1/3,2/3,3/3 ratio and the extreme move of multiplier 3. Pre-order risk management is used for risky accounts. 35

36 Risk Management SPAN Algorithm Example For example, for a portfolio composed of one long position in F_GARAN0611S0, one long position in O_GARANA0611C5.00S0, and one short position in O_GARANA0911C5.00S0, 13th scenario is the worst with the total risk of 811 TRY ( ). CONTRACTS F_GARAN0611S0 O_GARANA0611C5.00S0 O_GARANA0911C5.00S0 POSITIONS SCENARIOS TOTAL RISK 1 Underlying price unchanged; Vol up Underlying price unchanged; Vol down Underlying price up 1/3 range; Vol up Underlying price up 1/3 range; Vol down Underlying price down 1/3 range; Vol up Underlying price down 1/3 range; Vol down Underlying price up 2/3 range; Vol up Underlying price up 2/3 range; Vol down Underlying price down 2/3 range; Vol up Underlying price down 2/3 range; Vol down Underlying price up 3/3 range; Vol up Underlying price up 3/3 range; Vol down Underlying price down 3/3 range; Vol up Underlying price down 3/3 range; Vol down Underlying price up extreme move Underlying price down extreme move MAXIMUM RİSK

37 Section 5 Borsa İstanbul TURKDEX Merger 37

38 Borsa İstanbul TURKDEX Merger Futures & Options Market is planned to be the ONLY derivative trading platform in Turkey under the Borsa İstanbul on 5th of August, Borsa İstanbul and TURKDEX officially will merge on the 3rd of May

39 Borsa İstanbul TURKDEX Merger Spot Market Derivatives Market Derivatives Market Equities Debt Securities Single Stock Futures Single Stock Options 5th August Stock Index Futures Currency Futures Stock Index Options Commodity Futures Forthcoming Products IR Futures Currency Options CFDs Energy Derivatives Commodity Derivatives 39

40 Merger Timeline April May June July August Stage 1: Registration of BIST (03/04/2013) Stage 2: Deadline for the share exchange (03/05/2013) Stage 3: Trading system update process Stage 3: Opening of the test system Stage 4: Start of trading at (05/08/2013) 40

41 Borsa İstanbul TURKDEX Merger According to sub-paragraph b, paragraph 6, article 138 of the Capital Market Law no. 6362, the shareholders of Turkish Derivatives Exchange (TURKDEX) will be entitled to purchase Borsa İstanbul A.Ş. shares equal to the product of their share multiplied by 0.05, within one month following the registration of the Articles of Association of Borsa İstanbul A.Ş. ( ) The merger stipulates the migration of the futures contracts currently traded on TURKDEX to Borsa İstanbul Futures & Options Market (), thereby all futures and options contracts will be traded on a single platform. Following the transition, all futures and options contracts market data will be provided through a single channel to data vendors. Transfer of the positions and collaterals from the accounts at TURKDEX to the accounts at system will be completed in accordance with the principles declared by Takasbank. 41

42 Borsa İstanbul TURKDEX Merger Following the merger, portfolio based margining will be used instead of contract based margining used at TURKDEX. Portfolio based margining will be handled by Takasbank using SPAN algorithm. The parameter file which is the basis for SPAN algorithm is announced by Takasbank on a daily basis. All the contracts traded on TURKDEX will be transferred to Trading System on August 5, 2013, and starting from this date, the transferred contracts will start trading in accordance with the market rules of Futures & Options Market. Some of the TURKDEX contracts with a low open interest or low traded volume may not be transferred to the Market and closed to trading. Contract codes of TURKDEX contracts which will migrate to Futures & Option Markets will be converted to the existing contract code format of. 42

43 Borsa İstanbul TURKDEX Merger Following the transition period, order transmission for the contracts to be traded on the market will be made on API instead of VOB API, and also the trading front end known as VOBKE screens will be replaced with screens. Risk management will be carried out in line with the procedure currently applied by, with no collateral checks at the time of trade, and post-trade collateral check by Takasbank. In order to control market risks, risk control may be applied at order entry in some special cases. Position limits of the contracts traded on TURKDEX are being reviewed in coordination with Takasbank. Guarantee Fund amounts calculated for will be recalculated during the transfer of positions and collaterals for the accounts opened at TURKDEX, and there will be only one Guarantee Fund with Takasbank. 43

44 Borsa İstanbul TURKDEX Merger Following the merger, only brokerage houses will be authorized to trade single stock and index futures and options. Banks will not be authorized to trade in those contracts directly, but only as agencies of brokerage houses. However, banks may keep depository accounts for such contracts and/or act as clearing members. On the other hand, with the exception of single stock and index futures/options, banks will be allowed to trade contracts and may provide intermediary services for client orders. Member representatives authorized to trade on TURKDEX are required to participate in a one-day practical training program organized by Borsa İstanbul in order to be able to trade at. All members will be informed about the changes regarding the post-session bulletins and reports prior to the merger. 44

45 Contact Us Çetin Ali Dönmez Executive Vice President Muammer Çakır Head - Futures and Options Market Tel: [email protected] Fatih Alali Assistant Specialist - Futures and Options Market Tel: [email protected] [email protected] 45

46 Disclaimer Authorization of Use This document is for informational purposes only. The information contained herein may not otherwise be copied, performed, distributed, rented, reproduced, sublicensed, altered, stored for subsequent use, etc., in whole or in part, in any manner without Borsa İstanbul's prior written consent. All images of Borsa İstanbul are Registered Service Marks and may not be used for commercial purposes without its prior written consent. Please note that all products and services are subject to change without notice. Disclaimer Borsa İstanbul does not make any representations, warranties or guarantees, whether express or implied, regarding the accuracy or completeness of this information. The information issued by Borsa İstanbul with the express condition, to which everyone using it accepts, that no obligation, responsibility or liability shall be incurred by Borsa İstanbul for any loss or damage whatsoever, whether incidental, special, indirect or consequential, in connection with, caused by, or arising from any use of, or reliance on, this information. Because of the possibility of human and technical error as well as other factors, Borsa İstanbul is not responsible for any errors or omissions, either its own or its information providers. 46