OIC Member Stock Exchanges Forum, 2nd Meeting Hüseyin ERKAN Chairman & CEO Istanbul Stock Exchange (ISE) October , Istanbul Cooperation Among the OIC Member Stock Exchanges

2 Key Trends in Global Markets  High volatility in the financial markets  More strict regulatory standards Increasing role of governments (liquidity injection, governmental bailout plans) Closer coordination among international institutions, central banks and regulators  International risk surveillance More accurate and timely disclosure Eroding confidence in the global financial system  The financial tsunami creates a big opportunity for islamic financial products Sovereign Wealth Funds (Gulf & Far East Countries)

3 Trends in Stock Exchanges’ Industry Demutualization Mergers and Acquisitions Consolidation Fragmentation NASDAQ- OM NYSE-Euronext Exchanges vs Dark Liquidity Pools * MiFID *ECN * NMS * ATS OM Group Euronext

4 Emerging Markets vs Developed Markets Market Capitalization Traded Value Source: WFE Emerging markets

5 Importance of Regional Cooperation  Expanded marketplace for investors and issuers from within and outside the Region  More diverse offering of securities and decreased risk for portfolio investments  Fast improvements in standards of market quality and integrity, innovative products and services

6 OIC Member Countries 57 Member States 31 Stock Exchanges 8 Observers

7 OIC Member States Stock Exchanges Forum  OIC Member States Stock Exchanges Forum (the first meeting was held on March 2005 in Istanbul) Aim: To promote cooperation among the stock exchanges of the OIC Member States  Out of 57 OIC Member States, only 38 of them have functioning stock exchanges. 16 out of 38 countries are the members of Federation of Euro-Asian Stock Exchanges (FEAS)

8 Comparison of the OIC and World Markets Market Capitalization (million USD) Source: Worldbank OIC member exchanges have increased their share within total world market cap by 3 times

9 Comparison of the OIC and World Markets Market Capitalization /GDP Source: Worldbank 3 times increase for the last 7 years

10 Comparison of the OIC and World Markets Number of Listed Companies Source: Worldbank The share of OIC is about %11 on average

11 OIC Stock Exchanges Market Capitalization (2007, billion USD) Source: Worldbank OIC market capitalization ranges between USD billion

12 OIC Stock Exchanges Number of Listed Companies (2007) Source: Worldbank The number of listed companies in the OIC stock exchanges varies within a wide range (i.e. 10 to 1000 firms)

13 Financial Sector Development Conventional vs. Islamic Finance Sukuk Market = US$ 120 billion Islamic Finance is at its infancy stage The Malaysian sukuk market takes the biggest share (57 %) of the global outstanding sukuk by US$ 60 billion in the world

14 Comparison of Islamic and Conventional Bonds ItemsIslamicConventional Structure TypesAsset, equity and debt based Debt based only Issuance processMust be approved by Sharia Board and Securities Commission Must be approved by the Securities Commission only IssuersGovernment, semi- government and private sector InvestorsBoth conventional and Islamic investors Only conventional investors

15 A Brief Outlook to the Islamic Financial Services Industry  The asset size in the Islamic financial services industry reaches to US$ billion by the year-end % of the asset size is in the GCC countries  The number of Islamic financial institutions worldwide has increased to more than 300, spanning more than 75 countries both in the Muslim and non-Muslim countries  The average growth rate of the Islamic finance industry is 15% on average during the last 5-year period  The listing of Islamic financial instruments in the stock exchanges is increasing (i.e % of outstanding sukuk) Labuan International Financial Exchange, Dubai International Financial Exchange, Hong Kong Stock Exchange, London SE

16 Total Global Sukuk Issuance ( , Million US$) 25.1 % 66.3 % % 91.2 % Source: Islamic Finance Information Service Sukuk Database

17 An ETF Based on Islamic Index: ISE Experience  Various market indices created by index providers worldwide measure the global universe of investable equities that have been screened for Sharia-compliance  In 2006, Dow Jones DJIM Turkey ETF was launched  The first ETF in the world based on an Islamic market index calculated by Dow Jones  The ETF based on an index currently composed of 32 stocks traded at the ISE  The underlying assets of DJIM Turkey ETF are held at Settlement and Custody Bank Inc. that acts as creation & redemption agent

18 An ETF Based on Commodity (Gold) ISE Experience  Turkey became the sixth country to introduce a gold bullion ETF on September 2006  GOLDIST is a commodity based ETF  It gives the investors the opportunity to invest in gold traded through all ISE intermediaries investing in gold is very easy via GOLDIST, One can buy 1 gram of gold for 1 share  It tracks the international spot price of gold in USD

19 Recommendations  Creation of indices and ETFs to be issued on them  Cross listing the Sukuk and Islamic Depository Receipts to enhance the liquidity and trading in the OIC Stock Exchanges  Encouraging cooperation among the regulatory bodies and other capital market institutions (i.e. clearing, custody institutions)

20 Recommendations (continued)  Promoting the privatization through the stock exchanges in the OIC Member Countries Privatizations increased the liquidity and the number of investors at the ISE markets  624,881 new investors between  % of trading volume in the ISE-30 Index  Promoting the issuance of Sharia-complaint derivative products  Encouraging the allocation of the funds in Islamic Countries to the promising companies operating in the OIC members economies through Islamic Private Equity Funds  Propose the creation of a joint Islamic Wealth Fund to the Islamic Development Bank for the purpose of investing into the OIC Member States

21 Priority Targets (Creating Regional Indices, ETFs)  Corporate with the index providers to promote the creation of Islamic indices  Indices may be customized to meet the demands of investors, issuers and sponsors with respect to wide range of criteria (region, industry, size, corporate governance, currency unit, relative weighting, social responsibility, etc.)  Sharia-compliant ETFs may be listed in the stock exchanges of different OIC Member Countries at the same time

22 The Way Forward  A time table and road map should be prepared & pursued  A similar forum among the capital markets’ regulatory authorities may be established  The number of committees should be reduced to 1 “Working Committee” should continue to work The Committee should determine the fields of cooperations

23 The Way Forward (continued)  In the scope of the Working Committee; Two “Task Forces” should be established: for constructing Regional Customized Indices and ETFs for developing the relations among the clearing and settlement institutions for post trades as well as custody services  Index Task Force should finalize its activities no later than 2009 year end  Task Forces should provide semi-annual reports to the Working Committee  Working Committee and Task Force members should have semi annual meetings to follow up the road map plan  Cross listing of ETFs among OIC members  Establishing a web site to share data, information and best practices among OIC Member exchanges  Organizing joint training and staff exchange programs

24  Global Financial System and Stock Exchange Industry is at a turning point  New era, together with risks, may bring opportunities for OIC member countries  New players will be in the game at the upcoming years  This forum will play an important role in increasing the competitiveness of OIC members’ stock exchanges Future Outlook