In the recent period, Turkey's stock exchange Borsa Istanbul has adopted a strategy to develop deep and liquid capital markets to enable Turkish financial institutions to efficiently hedge risks, a goal in line with the country's new economic program. Borsa Istanbul's recently appointed General Manager Hakan Atilla announced Wednesday that new foreign exchange contracts at the Derivatives Market – futures and contracts market – will be introduced in addition to a new interest rate swap mechanism that will enable banks to manage interest rate risks efficiently.
This year, particularly in March close to local elections, the Turkish lira was hit hard by high volatility due to abnormal trading conditions in offshore markets. Since then, Borsa Istanbul has cooperated with Turkish banks to expand the share of the Turkish lira in trading options and introduced new instruments including Turkish Lira Overnight Reference Interest Rate (TLREF) – which can be dubbed the Turkish lira version of the LIBOR (London Inter-Bank Offered Rate).
TLREF Turkish Lira Overnight Reference Rate has been created in order to meet the need of a Turkish Lira short-term reference rate that can be used as an underlying or a benchmark in financial products, debt instruments and different types of financial contracts. As the trading capacity of the TLREF expands, long-term Turkish lira loans can also be extended to borrowers and consequently diminish the total exchange rate risk of the real sector.
In his speech at the "Bonds, Loans & Sukuk Turkey 2019" conference on Wednesday, Mehmet Hakan Atilla, general manager of Borsa Istanbul A.Ş., stressed that Borsa Istanbul is a national value and a strong brand that they are proud of.
Atilla highlighted that Borsa Istanbul is the largest stock exchange in the region with more than 400 publicly traded companies and a company value approaching TL 1 trillion and one of the leading liquid trading platforms in the world in terms of turnover rate.
Pointing out that Borsa Istanbul is a value chain that provides integrated service to the capital market from the pre-transaction risk management through the synergy of Takas Istanbul and Central Registry Agency, to centralized settlement, recording and custody, Atilla added that it is also a production technology company that provides effective solutions to the needs of the digital age with its BISTECH infrastructure.
Atilla added, "2019 has been a very fruitful year for our stock exchange. In line with the objectives of the New Economy Program (NEP), we have been able to provide many new products to our financial markets while at the same time increasing liquidity and providing depth."
"The FX Swap market, which we opened last year, reached a volume exceeding $2 billion per day. The repo market we consolidated after the central bank's required reserve regulation now oversees transactions exceeding TL 70 billion. With the increasing volume at our futures and contracts market, new share and interest futures contracts, and flexible contracts with maturity and usage price determined by the investor were created. With the announcements we will make in the coming days, we will also provide our members with information on new foreign exchange contracts and evening sessions at the derivatives market."
Deeper capital markets
Atilla explained that in addition to the initiatives in the field of organized market products, they took actions for the financial architecture and banking sector. The general manager stated that they built the TL Reference Interest Rate TLREF on the solid ground provided by the repo market. "As the world was preparing for the post-LIBOR period, we went in with this transformation and took important steps to ensure that our country had a risk-free variable interest infrastructure and to increase the weight of our national currency in the financial system," he noted. "We will soon reveal a new interest rate swap product that will enable our banks to manage interest rate risk more effectively in a short period."
Atilla said that they covered a significant distance to ensure that the Government Domestic Debt Securities (DİBS) is kept abroad and used by foreign investors as collateral in money markets.