"Istanbul shall first become a regional financial center, and ultimately a global financial center."1
Driving force for the conversion
In recent years, stock exchanges in both developed and emerging markets have encountered notable competition and merger activities, along with technical developments such as various operational systems and electronic network systems due to unprecedented technological advancements. During this period, many stock exchanges have opted for transformation into joint stock companies, which evoked the need for transformation in the organizational structure of the Istanbul Stock Exchange. Furthermore, the "Strategy and Action Plan for Istanbul International Financial Center", approved in 2009, also indicated that the exchanges would be given legal status that will allow them to operate with such flexibility that will enable them to respond to market dynamics and exclude them from the legislation relevant to the general public administration.
All of these developments have led the Istanbul Stock Exchange into a reorganization by way of the Capital Markets Law (the "Law"2) as a joint stock company subject to the general principles of the Turkish Commercial Code (the "TCC"3). Pursuant to the Law, Borsa Istanbul Anonim Şirketi ("Borsa Istanbul", "BIST" or the "Company") was established as a joint stock company for the purpose of serving as a securities exchange.
Goals and benefits from the new structure
The goal of the new structure was to adapt the organizational structure to be in line with the new needs and requirements in capital markets. Under the Law, the Istanbul Stock Exchange and the Istanbul Gold Exchange have been brought together under the Borsa Istanbul organization. At a later stage, the Turkish Derivatives Exchange was also brought into this structure and all exchanges are now under the same organization.
The main benefit gained by this combined structure is the establishment of a distinctive and a more efficient stock exchange that is more in line with global trends and developments. Many business and financial figures in Turkey, therefore, have judged the new structure as a notable step toward the Istanbul Financial Center becoming a regional financial hub.
The former exchange institution, the Istanbul Stock Exchange, was organized as a public corporate entity under the administrative tutelage of the Capital Market Board. Hence, its assets, as a public corporation, were public property. Upon the establishment of Borsa Istanbul as a joint stock company pursuant to the Law, all types of assets, debts, receivables, rights and obligations of the Istanbul Stock Exchange, along with those of the Istanbul Gold Exchange, were transferred to Borsa Istanbul as a whole.
Borsa Istanbul and its shareholding structure
Borsa Istanbul, formerly known as the Istanbul Stock Exchange, is the country's only exchange for equities and debt securities. It is controlled primarily by the government due to the privileged shares held by the Treasury which indirectly allows the government to appoint a certain number of Board of Directors members.
Initially, the Treasury held 49% of the stakes at the Company, whereas the Company itself held 51% of the stakes. Upon the registration and announcement of the articles of association of the Company, 4% of the capital was transferred to the existing members of the Istanbul Stock Exchange, 0.3% was transferred to the existing members of the Istanbul Gold Exchange equally and free of charge. Borsa Istanbul currently has 199 shareholders and its shareholding structure is as follows:
As per Article 138 of the Law, within 3 years after the publication of the Law, the shares remaining at the Company would devolve to the Treasury free of charge. Therefore, there is an expectation for the shares of Borsa Istanbul as a joint stock company to attract both domestic and foreign investors as the imminent date of devolvement is approaching.
As per the Law, a certain number of the shares belonging to Borsa Istanbul A.Ş. may be transferred with the approval of the Board to the related parties in consideration of the establishment of strategic partnerships and/ or to other exchanges and markets or system operators in consideration of technology, technical information and competence transfer. Within this context, Borsa Istanbul initiated a strategic partnership process with the NASDAQOMX group and concluded an agreement which includes the delivery of market technologies and advisory services to Borsa Istanbul, with NASDAQ OMX taking an equity stake of 5% in Borsa Istanbul in an undisclosed amount. Borsa Istanbul has also agreed to acquire a minority share of about 2% in NASDAQ-OMX, but the details of the share swap are yet to become public. The activity report of Borsa Istanbul for 2014 is expected to shed some light on this issue.
The main purpose and activities of Borsa Istanbul are (i) to ensure that capital markets instruments, foreign currencies, precious metals and gems, and other contracts, documents, and assets approved by the Capital Markets Board of Turkey are traded subject to free trade conditions in a facile and secure manner, in a transparent, efficient, competitive, fair and stable environment;
(ii) to create, establish and develop markets, submarkets, platforms, systems and other organized market places for the purpose of matching or facilitating the matching of the buy and sell orders for the above mentioned assets and to determine and announce the discovered prices;
(iii) to manage and/or operate the aforementioned or other exchanges or markets of other exchanges; and (iv) to carry out the other activities listed in its Articles of Association.
Examples from International Practice
After radical changes occurred in the structure of exchanges worldwide in the 1990s, many exchanges transformed into profit-oriented joint stock companies. The main purpose for this change was the competitive environment that was created as a result of extensive developments in the information and communication technologies sector.
The process of transforming the exchange into a "company" in the international arena is through the following steps:
- The first step is made by the relevant legislation or the authorized body of the exchange;
- In the second step, the shareholders of the company (of the exchange) are determined and the shares are divided between the shareholders; and
- In the third and the final step, the exchange is publicly listed to encourage more participation in the exchange.
In light of the foregoing process, Turkey is currently in the process of the first step by converting its stock exchange into a joint stock company. According to the data available on the 56 members of the World Federation of Exchanges, 22 stock exchanges are publicly listed and 18 are incorporated as private companies. The former Istanbul Stock Exchange was one of three stock exchanges which were non-profit public corporations.
As the date of devolvement is approaching, BIST anticipates that many domestic and foreign investors will initiate a bidding competition for the shares held by the Company itself, which would then lead BIST into the second step in line with the international practice, as outlined above.
The final step will be the public offering of the newly-converted joint stock company, which is expected to be carried out at either the end of 2015 or at the beginning of 2016.
1. The opening statement of the Strategy and Action Plan for Istanbul International Financial Center, as approved in 2009.
2. Law numbered 6362 published in the Official Gazette dated December 30, 2012.
3. Law numbered 6102 published in the Official Gazette dated February 14, 2012.
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