Vahdettin Ertafl, Chairman, Capital Markets Board (CMB): Interview

Interview: Vahdettin Ertafl

Are there any new initiatives to further develop Turkey’s financial services sector?

VAHDETTIN ERTAFL: Our new capital markets legislation provides market infrastructure in harmony with current EU practices, especially the Markets in Financial Instruments Directive. This is important, as it integrates Turkey’s capital markets into the global financial system. The new Capital Markets Law and our new regulations have begun returning successful results. The introduction of new incentives for issuers, such as easing of CMB procedures and the lowering of registration fees, aims to make the issuance process more user-friendly.

While all market numbers progressed positively, two markets stand out. Over the course of the past two years, the issuance limit assigned by the CMB in the fixed-income market has nearly tripled, from TL78bn (€29bn) in 2012 to TL216bn (€80bn) by the end of 2014. Also, the issuance limit in the sukuk market has jumped from TL2.9bn (€1.02bn) in 2013 to TL10.8bn (€3.8bn) in 2014. Despite the structural changes that our market participants had to undergo, alongside geopolitical challenges and global financial turmoil, Borsa Istanbul was one of the top-five global performers in 2014.

We do not feel our achievements are sufficient to reach our 2023 target of making Istanbul a prominent global financial centre, so our work continues. One of the latest developments is the establishment of the Istanbul Arbitration Centre, which will start functioning in 2015. The centre will serve the needs of global investors in dispute resolution and play a crucial role as Istanbul becomes a global financial centre.

The government has introduced two transformation programmes: the Istanbul Finance Centre programme, which will enhance physical, technological and legal infrastructure, as well as intellectual capacity; and the new financial literacy action plan which aims to help increasing domestic savings. These accompany tax reforms and incentives to promote equity financing and initial public offerings. Our goal is to make Turkish capital markets a sound financial centre by 2023.

What efforts are under way to increase liquidity on the secondary market for financial products?

ERTAFL: Increasing liquidity is the key to growing capital markets in Turkey. The CMB is working in collaboration with market participants to develop more robust secondary markets for specific products. The latest development in this regard has been the establishment of the Turkey Electronic Fund Distribution Platform, a fund supermarket to ease investor access to mutual funds via a single investment account.

Improvements in trading infrastructure combined with the growing size of the fund industry should result in a boost in market liquidity. The latter trend is correlated to growth in the private pension system following reform designed to promote savings and deepen our capital markets. In 2014 the private pension system attracted 1m new members and the assets under management rose from TL25bn (€9.3bn) to TL35bn (€13bn). We expect to see the same pattern as investors become more comfortable with and aware of the new scheme. We are also working with Borsa Istanbul to develop more robust secondary markets for corporate bonds and sukuks. For example, the Islamic Development Bank’s $6bn sukuk offering was admitted to Borsa Istanbul in November 2014, so we are attracting new players to the organised market.

Do more sophisticated instruments pose challenges to securities regulators in Turkey?

ERTAFL: The use of sophisticated products is not at the desired level. Turkish firms are not very active in this space, and the ones which are tend to be large and primarily transact for hedging purposes. On the exchange trading side, Borsa Istanbul has signed a cooperation agreement with the London Stock Exchange to increase liquidity in the derivatives market. We are also working on over-the-counter regulations so more investment firms can participate in this market and we can attain greater transparency. The current challenge is to get more market participants to use these varied products.