Cooperation Among the OIC
Member Stock Exchanges
Hüseyin ERKAN
Chairman & CEO
Istanbul Stock Exchange (ISE)
OIC Member Stock Exchanges Forum, 2nd Meeting
October 17-19 2008, Istanbul
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)
2
Trends in Stock Exchanges’ Industry
1998
for-profit
38%
Demutualization
2006
for-profit
75%
not forprofit
62%
Mergers and Acquisitions
not forprofit
25%
•OM Group
•Euronext
NASDAQ- OM
Consolidation
NYSE-Euronext
Fragmentation
* MiFID *ECN
* NMS
* ATS
Exchanges vs
Dark Liquidity
Pools
3
Emerging Markets vs Developed Markets
Market Capitalization
2002
1997
89%
92%
8%
11%
2007
72%
28%
Traded Value
2002
1997
87%
2007
92%
85%
13%
8%
15%
4
Emerging markets
Source: WFE
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
5
OIC Member Countries
57 Member States
31 Stock Exchanges
8 Observers
6
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)
7
Comparison of the OIC and World Markets
Market Capitalization (million USD)
70,000,000
5.0%
4.5%
4.0%
50,000,000
3.5%
3.0%
40,000,000
2.5%
30,000,000
2.0%
20,000,000
1.5%
OIC/World
Market Capitalization
60,000,000
1.0%
10,000,000
0.5%
0
0.0%
2000 2001 2002 2003 2004 2005 2006 2007
OIC
World
OIC/World
OIC member exchanges have increased their share
8
within total world market cap by 3 times
Source: Worldbank
Comparison of the OIC and World Markets
Market Capitalization /GDP
140%
OIC
120%
World
100%
80%
60%
40%
20%
0%
2000
2001
2002
2003
2004
3 times increase for the last 7 years
2005
2006
2007
9
Source: Worldbank
50,000
20%
45,000
18%
40,000
16%
35,000
14%
30,000
12%
25,000
10%
20,000
8%
15,000
6%
10,000
4%
5,000
2%
0
0%
2000
2001
OIC
2002
2003
2004
2005
World
The share of OIC is about %11 on average
2006
OIC/World
Number of listed companies
Comparison of the OIC and World Markets
Number of Listed Companies
2007
OIC/World
10
Source: Worldbank
OIC Stock Exchanges
Market Capitalization (2007, billion USD)
Saudi Arabia
Malaysia
Turkey
United Arab
Indonesia
Kuwait
Egypt, Arab Rep.
Qatar
Nigeria
Morocco
Pakistan
Iran, Islamic Rep.
Kazakhstan
Jordan
Bahrain
Oman
Lebanon
Cote d'Ivoire
Bangladesh
Tunisia
Kyrgyz Republic
0
100
200
300
400
500
600
OIC market capitalization ranges between USD 100-500 billion
11
Source: Worldbank
OIC Stock Exchanges
Number of Listed Companies (2007)
1036
Malaysia
Pakistan
Egypt, Arab Rep.
Indonesia
Iran, Islamic Rep.
Turkey
Bangladesh
Jordan
Nigeria
Kuwait
Oman
Uzbekistan
Saudi Arabia
United Arab Emirates
Kazakhstan
Morocco
Tunisia
Bahrain
Qatar
Cote d'Ivoire
Lebanon
Kyrgyz Republic
654
435
383
329
319
278
245
212
181
125
114
111
90
90
74
50
43
40
38
11
10
0
200
400
600
800
1000
1200
The number of listed companies in the OIC stock exchanges
varies within a wide range (i.e. 10 to 1000 firms)
12
Source: Worldbank
Financial Sector Development
Conventional vs. Islamic Finance
US$ Trillion
Global Islamic
Bank Assets
74.4
Debt Securities
69.2
Sukuk Market
= US$ 120 billion
0.6
-
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
13
Comparison of Islamic and
Conventional Bonds
Items
Islamic
Conventional
Structure Types
Asset, equity and debt
based
Debt based only
Issuance process
Must be approved by
Sharia Board and
Securities Commission
Must be approved by
the Securities
Commission only
Government, semigovernment and
private sector
Government, semigovernment and
private sector
Both conventional and
Islamic investors
Only conventional
investors
Issuers
Investors
14
A Brief Outlook to the Islamic Financial
Services Industry

The asset size in the Islamic financial services industry reaches to
US$ 800-1000 billion by the year-end 2007
 30-35 % 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. 20-25 % of outstanding sukuk)
 Labuan International Financial Exchange, Dubai International
Financial Exchange, Hong Kong Stock Exchange, London SE
15
Total Global Sukuk Issuance
(2003-2007, Million US$)
Total Global Sukuk Issuance
(Million US$)
120.000
120.000
100.000
80.000
91.2 %
60.000
51.499
121.0 %
40.000
20.000
66.3 %
25.1 %
5.717
7.211
2003
2004
26.789
12.065
0
2005
2006
2007
Total
Issued
Source: Islamic Finance Information Service Sukuk Database
16
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
17
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
18
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)
19
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 1993-2007
18-20 % 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
20
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
21
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
22
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
23
Future Outlook
 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
24