Operation of Intermediated Securities in Turkey: Best Practices and Challenges M. Kubilay DAĞLI Chief Expert E-mail: Kubilay.dagli@spk.gov.tr November 2013, İstanbul
Market Participants BORSA ISTANBUL (BIST) Istanbul Stock Exchange Istanbul Gold Exchange Turkish Derivative Exchange BIST LISTED COMPANIES PUBLICLY HELD COMPANIES CMB Capital Markets Board of Turkey INDEPENDENT AUDITING COMPANIES RATING AGENCIES INVESTMENT COMPANIES INVESTMENT FUNDS PORTFOLIO MANAGEMENT COMPANIES INTERMEDIARY INSTITUTIONS CENTRAL REGISTRY AGENCY ISTANBUL SETTLEMENT AND CUSTODY BANK CAPITAL MARKET TRAINING CENTER THE ASSOCIATION OF CAPITAL MARKET INTERMEDIARY INSTITUTIONS OF TURKEY
Capital Markets Board of Turkey Capital Markets Board (CMB) was established in 1982. Capital Markets Board is the main regulatory and supervisory authority for the securities markets and institutions in Turkey. The main powers and authorities according to the CML Regulation Public Disclosure Licensing Supervision Enforcement 3
Borsa Istanbul Istanbul Stock Exchange was established in 1985 and was transformed to joint stock company named Borsa Istanbul as of April 2013. CMB is the regulation, surveillance and supervision authority for BIST.
Markets in BIST Equity Market:Shares, rights coupons, ETFs, warrants, certificates Emerging Companies Market: Shares of SMEs. Debt Securities Market: Government bonds, corporate bonds, reporeverse repo transactions. Foreign Securities Market: Turkish eurobonds. Futures and Options Market: Single stock, equity index, precious metal, currency, commodity and power contract futures. Single stock and equity index options. Precious Metals and Diamond Market: Gold, silver, platinum.
Takasbank Istanbul Clearing and Depository Bank Incorporation (Takasbank) settles securities traded in all BIST markets. The national numbering agency for securities issued in Turkey Operates a money market and the securities lending & borrowing market. It is also the official custodian for investment and private pension funds. Takasbank provides trade repository services for FX transactions
Market Infrastructure Central Settlement central settlement institutions re-designed (CML Art. 77) By-Law on Principles Regarding the Establishment and Operation of Central Clearing Institutions (30/05/2013) By-Law on Central Clearing of Takasbank (18/07/2013), regulates technical details of the clearing issues taking into consideration of the different markets which Takasbank provides clearing services 7
Market Infrastructure - CCP central counterparty is adopted (CML Art. 78) By-law on Central Counterparty (14/08/2013), determines the procedures and principles related to the membership, members liabilities, collaterals, guarantee fund, default management, capital, internal audit and risk management systems as well as the fees in central counterparty services Takasbank started acting as a CCP in Securities Lending Market operated by itself as of 2 September 2013. Ongoing Project; CCP in listed derivatives instruments
Takasbank Settlement Principles Centralized Clearing & Settlement: All BIST traded securities must settle through Takasbank. Netting: Takasbank clears securities transactions by creating binding statements of obligation for securities and funds due, via multilateral netting among the participants. Netting reduces a large number of obligations to a small number of obligations. The aim is to reduce principal risk and minimize the need for members to maintain large balances throughout the settlement process. Rolling Settlement: Settlement of an individual transaction takes place a given number of days after the deal has been struck; e.g. T+2 for equities.
Takasbank Settlement Principles DvP: Net obligations are legally binding but settlement is not guaranteed by Takasbank. Members do not get their receivables unless they fulfill their obligations. In case of partial fulfillment of the obligation, proportional payment/transfer out of the receivable is made to the member. Book-Entry:Transfer of cash and delivery of securities to/from settlement, are realized between the Takasbank settlement pool account and members' accounts with the Takasbank system, rather than through physical delivery.
Central Registry Agency (CRA) Central Registry Agency Incorporation was established in 2001 as a private law legal entity. Established in order to execute the operations related to the dematerialisation of capital market instruments, to monitor the records of these dematerialised instruments and their associated rights in the electronic environment as of members and right holders, to provide their central custody.
Central Registry Agency (CRA) The Central Dematerialised System was put into operation in 2005 and the custody function for equities was transferred to the CRA from Takasbank. The dematerialization process is completed for equities, mutual funds, corporate bonds, bank bills, warrants, certificates, sukuk and asset backed securities.
CRA in Numbers (July 2013) Market Value of Securities under Safekeeping Number of Investors/ Number of Investors with a balance Number of Accounts/ Number of Accounts with a balance 409 Billion USD 22.520.470 3.570.731 41.893.535 4.264.915
Indicators Number of Companies Registered 607 June 2013 BIST 416 Other 191 Market Cap. of BIST Companies (Billion USD) 287 Average Daily Equity Trading Volume in BIST (Billion USD) 1,9 Intermediary Institutions 141 Banks 41 Brokerage firms 100 Number of Equity Investors (Million) 1.1 Foreign Investor Custody Ratio (Equity Market) 63,9 % Source: Borsa Istanbul
Number of Securities on Borsa Istanbul 900 800 700 600 500 400 300 200 100 129 117 33 34 74 326 38 261 44 175 43 20 50 84 263 263 271 269 0 2010 2011 2012 2013/6 Source: Borsa Istanbul Equities Certificates Warrants ETF+Inv. Trusts Other
Types of Intermediaries Brokerage Firms Derivatives Market Fixed IncomeMarket Equity Market Forex (MM, WL, IB) Banks Derivatives Market Fixed Income Market
Brokerage Firms Branch Network Type Number Branches 159 Contact Offices 72 Bank Branches 6764 TOTAL 6995
Investment Services and Activities 1. Dealing in Capital Market Instruments Repealed Law No. 2499 Instrument Based Dealing in securities Dealing in derivatives Dealing in leveraged transactions New Law No. 6362 Activity Based Reception and transmission of orders Execution of orders Dealing on own account 2. Portfolio management 3. Investment advice 4a. Underwriting on a full commitment basis 4b. Placing without firm commitment 5. Operation of multilateral trading systems and regulated markets other than exchanges 6. Safekeeping and administration of capital market instruments 18
Reception and Transmission of Orders Reception of orders from clients and conveying them to another authorised investment firm Intermediary Institutions All capital market instruments Banks All capital market instruments excluding leveraged transactions Execution of Orders Reception of orders from clients and intermediation in their execution in the exchange or over the counter Intermediary Institutions Securities including stocks All derivatives including leveraged transactions and OTCs Banks Securities excluding stocks Derivatives excluding leveraged transactions and the ones based on stocks and stock indices Dealing on Own Account Execution of client orders against the investment firms own portfolio Intermediary Institutions Securities excluding stocks All derivatives including leveraged transactions and OTCs Banks Securities excluding stocks Derivatives excluding leveraged transactions and the ones based on stocks (Including the derivatives based on stock indices) 19
Settlement and Clearing in BIST Equity Market T+0 Brokerage Firm A buy/sell order Brokerage Firm B buy/sell order Amendment Requests Transactions TAKASBANK AK2 TERMINAL Netting a)member basis b) Client basis Announce ment of transaction results Amend ed netting results Netting results (Client basis) Error Codes CRA Transfers among Investor accounts Transfer from Brokerage firms free account to blokage account (Until T+2) Amendments according to the netting results T+1 Amended records Transfer from/to Takasbank pool Claims Distribution Transfers among different Takas pools (e.g from Takasbank settlement pool to Brokerage Firm B settlement pool) T+2 Clearing & Settlement Results Equity debt closing information Clearing & Settlement results Brokerage Firm A Seller Brokerage Firm B Buyer Brokerage Firm A Seller Brokerage Firm B Buyer
Derivatives Clearing & Settlement in BIST Pre-Order Risk Management (Risky Acoounts) Members Orders 1 Trades 2 Borsa Istanbul Order Matching Creation of New Contracts for Trading Announcement of Settlement Prices Follow-up of Positions New Accounts Real time Trades Real time Risk Update 3 6 Takasbank 4 Positions are created with respect to trades Post Trade Real Time Risk Management Portfolio Based Margining (SPAN) Follow-up of Positions Position and Excercise Limits 5 Profit/Loss Calculations Connections Equity Market Debt Securities Market Prices and Interest Rates Periodically; Intraday settlement price Underlying price and interest rates Calculation of Margin Call Amounts Clearing Processes Collateral Deposit/Withdrawal Creation of New Accounts CSD Physical Delivery
Derivatives Clearing & Settlement The settlement method for single stock future and single stock option contracts is physical delivery. For single stock futures and single stock options, physical delivery is realized by exchange of dematerialized equities over the settlement or strike price of the contract respectively. The settlement method for index options and futures, currency futures, commodity futures, gold futures and energy futures is cash settlement.
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