With volumes jumping by half during a recession-hit 2009 – after more than doubling for the previous three years – the Turkish Derivatives Exchange has made a solid start. But as Tom Osborn discovers, the exchange has much bigger plans.

“We hope to be one of the top derivatives exchanges around the world,” says Yaman Basaran, deputy CEO of the Turkish Derivatives
Exchange, when asked where he sees his exchange in a few years’ time. Ambitious maybe – but there’s no harm in aiming high.

Volume has been muted this year, but the first year’s tally of 1.77m contracts in 2005 grew to 79.4m in gloom-laden 2009.

“We’re just getting established. It’s a very new exchange, but we have a liquid index contract. We have the potential for stock options and interest rate futures,” Basaran adds. And while its volumes – of which about three quarters come from ISE 30 Index Futures – place it in the middle ranks of Europe’s exchange league table, TurkDex is starting to talk the talk.

Its Turkish lira forex contracts – mainly against the dollar, but also the euro – boast average daily trading volumes of more than $1.5bn.

Turkey’s Ministry of Finance has recently announced an easing of tax for institutional investors trading on the bourse. “We hope it’ll give our contracts a real boost,” says Basaran.

Making friends with the big boys in Chicago is high on the priority list. The Chicago Board Options Exchange is designing a training programme to prepare TurkDex for options trading surveillance – something Gokhan Ugan, director of market oversight, hopes will bring the pair closer together. A delegation will travel to the CBOE in September.

Risky business

The lira/dollar futures in particular – one of Europe’s most liquid FX contracts – are of growing importance to the country’s banking sector, says Ugan. Turkey’s banks have enjoyed a period of relative stability over the past eight or nine years, he adds, following legislation in the early noughties, aimed at steadying the sector.

The devaluation of the lira on January 1, 2005 – when six noughts were lopped off the currency – led to a sharp rise in its international profile. Euroclear, previously unable to cope with clearing multi-trillion lira bonds, was now happy to accept them, leading to a spate of Eurobond issuance in the currency.

TurkDex is regulated by Turkey’s Capital Markets Board, though internal risk controls are something Ugan takes very seriously. “When I came to TurkDex, there was no surveillance system. That was my first job!” laughs the former Istanbul Stock Exchange official.

Since 2009, the bourse has had real time surveillance. At the start of this year, it gave members a directive, asking for vigilance against market abuse. “We need their help, otherwise we have nothing,” says Ugan. “If you want to protect against mosquitoes, you start with your windows and doors.”

Global cotton-picking hub

So can the bourse and its seaport home finally live up to the legacy of the Ottoman Empire, when Izmir (Smyrna) was Europe’s most important hub for cotton trading?

Basaran hopes so: “Commodities, for Turkey, are very important.” He believes the bourse’s future is tied to them.

Some of TurkDex’s offerings are not working, he admits. Although Turkey is the world’s fourth largest gold buyer, volumes in its Gold Futures have been slow to take off.

Aegean Standard 1 Cotton Futures have also stalled, with trades dwindling from the low hundreds in 2005 to none last year.

Basaran is unabashed. “I expect very significant progress,” he insists. “It’s very important, not only for the textile industry but also for the region of southern Europe. Maybe Central Asia too. They have some important producers, like Uzbekistan.

“We are aiming to have success in cotton as soon as possible,” he says, adding that the bourse’s main problem at the moment is one of standardisation. The Izmir Commodity Exchange – the cotton spot trading bourse that owns 17% of TurkDex – is aiding that process. Its network of licensed warehouses is also important.

Turkey was the world’s eighth largest cotton producer in 2009, pushing out 1.7m bales. Its nearest regional rival was Uzbekistan, fifth with 4.4m bales, and second only to the US by exports (find out how the Uzbek Commodity Exchange views the cotton market next month).

“We must try to be a very important hub going forward,” Basaran stresses. “The attraction of Turkey is growing. I don’t want to compete with others, but we will if necessary. But we would rather cooperate. For example, on an energy contract, why not go with others? Sometimes we need local knowledge, sometimes international.”

“We want to be in the top 10 at least,” he concludes. “I believe that’s not a dream.”