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Turkey: Bright futures shrug off turbulence

Burgeoning equity derivatives market; Introduction of futures on individual stocks a priority

Most of Turkey’s biggest stocks are banks, so the pleasant surprises in Turkish banks’ earnings this year have fuelled a rapid recovery in fortunes on the Istanbul Stock Exchange. If profits soon take a dip, there might be a more rapid exit from the market as foreigners lose their appetite for emerging markets.

One of the most important sites of gain and loss will be, and has been, the burgeoning equity derivatives market.

Until 2005 trading in equity derivatives in Turkey was almost non-existent, but just over four years ago new contracts were introduced. Since relatively tight rules remain in place in the spot market, whereas 10-times leverage and shorting is permitted in futures, liquidity in the derivatives market has steadily grown. Trading is now almost as big as in the spot market.

About three-quarters of derivatives trading in Turkey is accounted for by one futures contract, which is based on an index of 30 of the ISE’s most-traded stocks. A contract based on an index of the 100 most-traded stocks is also available but it is much less used. The dollar-Turkish lira currency future is the next most popular product. There is also an interest-rate futures contract based on discounted Turkish treasury bills, as well as futures contracts for cotton, wheat and gold – all far less popular than the ISE 30 contract.

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