beyondbrics

Çetin Ali Dönmez is a happy man. The chief executive of TurkDex, Turkey’s derivatives exchange, has received two pieces of good news that should make his market an easier place to invest.

Late on Wednesday, US regulators allowed TurkDex’s flagship Istanbul stock exchange index futures contract – the ISE 30 – to be offered directly into the US. Aside from a few hedge funds with special exemptions, US investors were not allowed to trade Turkish derivatives on TurkDex before the decision, which was made by the Commodity Futures Trading Commission (CFTC).

This not only removes that barrier but, for Dönmez, the decision unlocks the potential for an upsurge in trading volume as traders in the world’s largest futures market scour the globe for new opportunities.

While the ISE 100 is the better known index, the ISE 30 is more liquid and more widely traded. About half of the open interest is from foreign investors, mostly from a small number of the US hedge funds.

The other piece of good news – and one which has been scarcely noticed – is a tax cut. On August 1, the Turkish government abolished the Banking and Insurance Transaction Tax, a five per cent tax on derivatives transactions, levied on local banks and brokers.

Dönmex says the tax was “a major impediment to liquidity of TurkDex futures contracts, currency futures in particular”.

The CFTC occasionally approves foreign futures exchanges for the sale and distribution of their products into the US. Mexico’s MexDer derivatives exchange got the green light in 2006.

But it has been a year since the last instance, when the watchdog approved the sale of full-and mini-sized futures contracts based on the Ibovespa Index, listed on BM&FBovespa, the Brazilian exchange.

It is also notable as the CFTC has had its hands full dealing with a huge package of legislation to reform the US financial markets.

Dönmez says the approval is “a very important step” for TurkDex. Moreover he thinks the CFTC’s seal of approval could encourage other markets to take Turkish derivatives more seriously.

“Some investors may be hesitating as to whether or not to invest in TurkDex and maybe now they will see we are recognised as a trusted exchange by the CFTC, so it may initiate other investor interest in TurkDex.”

In the meantime, TurkDex is making its own efforts: Dönmex says there are plans to launch options on the exchange next year.

Related reading:
Mark Mobius: Turkey’s compelling story, beyondbrics
Special report: investing in Turkey, FT (November 2009)