week 6 secondary markets. fuctions of the secondary markets it provides information about the value...

WEEK 6WEEK 6

SECONDARY MARKETSSECONDARY MARKETS

Fuctions of the Secondary MarketsFuctions of the Secondary Markets

It provides information about the value of the security.It provides information about the value of the security. It provides liquidity to the investors.It provides liquidity to the investors. It provides information to the investors about the assets fair It provides information to the investors about the assets fair

values.values. It brings together many interested parties and so can reduce It brings together many interested parties and so can reduce

the cost of searching likely buyers and sellers of the asset.the cost of searching likely buyers and sellers of the asset. By accomadating many trades they keep the cost of By accomadating many trades they keep the cost of

transactions low. By this way they ancourage investors to transactions low. By this way they ancourage investors to purchase assets.purchase assets.

Trading LocationsTrading Locations

Secondary market exist throughout the world.Secondary market exist throughout the world. In US, many shares are traded on major national and In US, many shares are traded on major national and

regional stock exchanges. Additional significant regional stock exchanges. Additional significant trading in stocks take place on OTC markets. Some trading in stocks take place on OTC markets. Some bonds are traded on exchanges however most bonds are traded on exchanges however most bonds are trade on OTC markets.bonds are trade on OTC markets.

Londan International Stock Exchange is an OTC Londan International Stock Exchange is an OTC market. Assets that are traded in this market include market. Assets that are traded in this market include stocks of domestic and international firms, bonds stocks of domestic and international firms, bonds and options.and options.

Germany has 8 stock exchanges, the most important Germany has 8 stock exchanges, the most important of which is Frankfurt Stock Exchange.of which is Frankfurt Stock Exchange.

Paris Bource is the France’s main secondary market Paris Bource is the France’s main secondary market for stocks, bonds and some derivative instruments.for stocks, bonds and some derivative instruments.

Japan has 8 exchanges, the largest is Tokyo Stock Japan has 8 exchanges, the largest is Tokyo Stock Exchange and the second largest is Osaka Stock Exchange and the second largest is Osaka Stock Exchange.Exchange.

Market StructuresMarket Structures

Many secondary markets are Many secondary markets are continuous marketscontinuous markets: : prices are determined continuesly throughout the prices are determined continuesly throughout the trading day as buyers and sellers submit orders.trading day as buyers and sellers submit orders.

A contrasting market structure is the A contrasting market structure is the call marketcall market, in , in which orders are batced or grouped together for which orders are batced or grouped together for simultaneous execution at the same price. The simultaneous execution at the same price. The market maker can hold an auction for a stock.market maker can hold an auction for a stock.

Perfect MarketsPerfect Markets

In perfect market, the nr. of buyers and sellers is In perfect market, the nr. of buyers and sellers is sufficiently large and all participants are small sufficiently large and all participants are small enough relative to the market, so that no one can enough relative to the market, so that no one can influence the prices.influence the prices.

In perfect market transaction costs and taxes In perfect market transaction costs and taxes (frictions) do not effect the prices and investor’s (frictions) do not effect the prices and investor’s behavior. behavior.

Market EfficienyMarket Efficieny

Operational Efficiency: In this market Operational Efficiency: In this market investors can obtain transaction services as investors can obtain transaction services as cheap as possible.cheap as possible.

Pricing Efficiency: It refers to a market where Pricing Efficiency: It refers to a market where prices at all times fully reflect all available prices at all times fully reflect all available information that is relevant to the valuation of information that is relevant to the valuation of securities.securities.

E. Fama classified the pricing effciency of a market E. Fama classified the pricing effciency of a market into three forms: weak, semi-strong and strong.into three forms: weak, semi-strong and strong.– Weak form efficiency:Weak form efficiency: the price of the security reflects the the price of the security reflects the

part price and trading history of the security.part price and trading history of the security.– Semi-strong form efficieny:Semi-strong form efficieny: In addition to the historical In addition to the historical

price, the price of the security fully reflects all publicly price, the price of the security fully reflects all publicly available information.available information.

– Strong form efficieny:Strong form efficieny: the price reflects all information that the price reflects all information that is available and unavailable publicly. is available and unavailable publicly.

SECURITY EXCHANGES IN SECURITY EXCHANGES IN TURKEYTURKEY

ISTANBUL STOCK EXCHANGE (ISE)ISTANBUL STOCK EXCHANGE (ISE) ISTANBUL GOLD EXCHANGE (IGE)ISTANBUL GOLD EXCHANGE (IGE) TURKISH DERIVATIVES EXCHANGETURKISH DERIVATIVES EXCHANGE

Stock ExchangesStock Exchanges

Stock exchanges provide liquidity for C.S.Stock exchanges provide liquidity for C.S. Provide institutionalization of the firm by creating social Provide institutionalization of the firm by creating social

responsibility.responsibility. Increase the credibility of the issuing firms in the MMs.Increase the credibility of the issuing firms in the MMs. Provide globalization of the firm by selling their stocks in foreign Provide globalization of the firm by selling their stocks in foreign

markets or selling them to foreign investors in domestic markets or selling them to foreign investors in domestic markets. markets.

Provide reputation to the firmsProvide reputation to the firms Provide tax advantage.Provide tax advantage.

NYSE with 2600 fırms traded controlling app. 80% of NYSE with 2600 fırms traded controlling app. 80% of the value of all orgized transactions in USA.the value of all orgized transactions in USA.

In Turkey ISE was established in the late of 1985 In Turkey ISE was established in the late of 1985 and started its operations on January 3, 1986 with a and started its operations on January 3, 1986 with a few firms. Now, about 350 fırms are traded on ISE. few firms. Now, about 350 fırms are traded on ISE.

ISEISE

ISE was established as a privately budgeted, self-regulated, semi-public legal entity.

It is governed by the executive council composed of 7 members.

ISEISE

One of them is the chairman and chief executive One of them is the chairman and chief executive officer appointed by the Turkish government for a officer appointed by the Turkish government for a term of 4 years. (M. İbrahim TURHAN) term of 4 years. (M. İbrahim TURHAN)

3 of members of the council are also appointed by 3 of members of the council are also appointed by the Turkish government and the other 3 of them are the Turkish government and the other 3 of them are selected among the exchange members.selected among the exchange members.

ISEISE

Exchange members are the banks and Exchange members are the banks and brokerage houses that are autorized by the brokerage houses that are autorized by the CMB.CMB.– Investment and development banksInvestment and development banks– Commercial banksCommercial banks– Brokerage houses Brokerage houses

ISEISE

ISE markets are organized under ISE markets are organized under four main categories:four main categories:

Equity MarketEquity Market Emerging Companies MarketEmerging Companies MarketDebt Securities MarketDebt Securities Market Foreign Securities Market Foreign Securities Market

ISE EQUITY MARKET

ISE Equity Market where publicly-held companies from various ISE Equity Market where publicly-held companies from various sectors are traded offers a liquid, transparent and safe sectors are traded offers a liquid, transparent and safe investment floor for local and foreign investors.investment floor for local and foreign investors.

Equity and rights coupons of companies from various sectors, exchange traded funds and warrants are traded on ISE Equity Market.

Trades are executed automatically on the Equity Market as per "Multiple Price - Continuous Auction" principle based on price and time priority rule via the electronic trading system.

ISE EQUITY MARKET cont.ISE EQUITY MARKET cont.

Trades are executed in two trading sessions as the morning and afternoon sessions. An “Opening Session” based on the Single Price System is organized at the beginning of both sessions.

ISE members collect orders electronically from investors and transmit them to ISE over the remote network using ExAPI messaging interface (ExAPI). In addition, member representatives are able to enter buyers’ and sellers’ orders to the Electronic Trading System via trading terminals located in ISE and Member head offices.

ISE EQUITY MARKET cont.ISE EQUITY MARKET cont.

Equity Market transactions are conducted on the following markets:

National Market Collective Products Market Fund Market Second National Market Watch List Companies Market Primary Market Wholesale Market Free Trade Platform (FTP)

ISE EQUITY MARKETS cont.ISE EQUITY MARKETS cont.

National Market:National Market:

Companies that satisfy ISE listing requirements Companies that satisfy ISE listing requirements are traded on National Market.are traded on National Market.


Collective Products Market:Equities of the investment trusts, real estate investment trusts, venture capital investment trusts; exchange traded funds participation certificates and intermediary institutions' warrants are traded on the Collective Products Market.


Fund Market: ETFs and type A mutual fund participation certificates which the Executive Council of the Exchange finds eligible for trading are traded on the Fund Market.


Second National Market: Small and medium sized enterprises, companies which are temporarily or permanently delisted from National Market, and companies that fail to satisfy the applicable listing and trading requirements for National Market are traded on Second National Market.


Watchlist Companies Market: When companies are subject to monitoring and examination as a result of the occurrence of certain conditions, the equities of such companies can be traded on Watchlist Companies Market of ISE under continuous surveillance, supervision and monitoring conditions, taking also measures to inform investors in a continuously and timely manner.


Primary Market: It is the market where issuers and savers meet directly.

Wholesale Market: It allows that equity trades above a certain amount with or without pre-determined buyers are executed in an organized market on the Exchange in a reliable and transparent environment.


Free Trade Platform (FTP) A new Free Trade Platform (FTP) has been established for trading of the equities (publicly held companies those shares are not traded in ISE are to be determined by the Capital Markets Board (CMB).

FTP equities shall be traded on Single Price Method in which stock prices will be determined four times a day.

Accordingly; investors who want to sell such equities must keep these equities and investors who want to buy these equities must keep adequate cash in their accounts as of the settlement date.

FTP equities shall not be subject to margin trading and short selling. Companies traded on the FTP will not be classified into A, B, C

groups.

ORDER TYPES

Normal OrdersNormal orders which are given in terms of a trading unit are comprised of one full lot without decimals (1 piece or 1 TRY nominal) or its multiples. Normal Orders may be divided into four groups.

However, there is a price limit in all types.

Normal Orders

1. Limit Order: Price and quantity are entered with the order. If the trade is not executed in part or in whole at the moment it is entered, the unexecuted part is written among pending (passive) orders of the equity as per price and time priority ranking.

Normal Orders Cont.

2. Immediate or Cancel Orders: It is the type of order in which price and amount are specified, but which is automatically cancelled by the system if all or part of the order is not executed immediately after it has been transmitted to the system and which requires that any portion not unexecuted immediately is not recorded as pending in the order book.

Normal Orders Cont.

3. Special Limit Orders: It is the type of order where order amount is entered as "nil-0" and conveyed to the system only by quoting a price.

It is entered to match all orders up to the specified price starting from better price levels if any.

If there is no order which may be processed at the moment it is entered, it is not recorded as pending, and is automatically cancelled by the system at that instant.

Normal Orders Cont.

4. Special Limit Value Orders (SLVO): It is a type of a special limit order with a certain value limitation.

Amount is entered as “nil-0”. “Price” is entered. Maximum trading value is written as "TRY" on the order. The system takes into account the entered limit price level, and enables to execute the trade starting from the best priced orders, providing it is not in excess of the certain value. If the value entered is matched before the specified price level is achieved, the system will not permit further trades. This type of order is not recorded as pending, i.e. is matched if there is any counter-order at the moment it is entered, otherwise, it is automatically cancelled by the system.

ORDER TYPES

Special Orders These are orders which exceed the equity quantity determined by the Executive Council of the Exchange on an equity basis and executed with the approval of an ISE official when matched with another special order, and are treated as an indivisible whole. Orders which are in excess of an quantity determined separately by the Exchange for each equity can be given as Special Orders.

The amount of special orders may be up to 10% of the paid-in capital. Special orders entered in the system may be cancelled any time before they are matched. Special order transactions are not registered, but are taken into account in calculating traded value and traded volume. When a special order is entered in the system, changed, matched, or cancelled, it is notified to all member representatives with an information message.

Validity Periods of Orders

Day Order: It is the type of order which can be pending in the system only until the end of the session in which it was given. It will be cancelled if it is not traded by the end of the session. The system shall deem all orders as day orders unless otherwise specified.

Validity Periods of Orders cont.

Instant Order: This condition relating to the order means that all or part of the order is executed immediately after it is brought to the system, and any portion remaining is cancelled without being recorded as pending. Therefore, this type of order is the type of order that is valid only at the moment it is brought to the system. ICO, SLO and SLVO type orders can be referred to as instant orders.

Validity Periods of Orders cont.

Good Till Date Order: It enables the order to be kept in the system for matching until a certain date. In the current application, the maximum validity period of the order is limited to the business day in which the order is entered. A good till date order entered in the first session will also be valid in the second session. However, if it cannot be matched in the second session, it will be cancelled at the end of the day. A good till date order to be given in the second session will be valid throughout the second session, and will be cancelled at the end of the day.

PRICE MARGINS

“Base Price” is the price which constitutes a base for determining the upper and the lower price limits of an equity between which an equity can be traded during a session. The “Base Price” is calculated by rounding the "Weighted Average Price” of the previous session to the nearest price tick.

"Price Tick" is the least price variation that may occur once at a time for each equity.

The lowest and the highest prices which may be offered for an equity within the session constitute the "Price Margin/Price Range" of that equity. The price margin is automatically calculated by the System to be 10% above and below the base price in every session. The upper limit is determined by rounding to the appropriate upper price tick whereas the lower limit is determined by rounding to the lower price tick. In the rights issue coupon market, the price margin is 25%.

EQUITY MARKET LOT SIZES

For the companies listed on the ISE, the standard trading unit or the standard "lot" size is a nominal equity value of TRY 1. For rights coupons, one lot represents a rights coupon worth TRY 1.

“Maximum lot amount” which may be entered for an equity at any one time is re-determined every month for each equity to be 250, 500, 1.000, 2.500, 5.000, 10.000, 25.000, 50.000, 75.000 or 100.000 lots. For orders in excess of the maximum lot amount, order types "Immediate or Cancel", "Special Limit" and "Limit Value" orders should be used, but the size of these order types cannot exceed TRY 1.5 million.

OFF-EXCHANGE ODD LOT TRADES

Off-exchange odd lot trades are executed off-Exchange at amounts less than 1 lot which is the trading unit of the Exchange, and are also called odd-lot trades.

MARGIN TRADING, SHORT SELLING AND STOCK BORROWING - LENDING

“List of Securities Subject to Margin Trading and Short Selling” has been formed to cover all stocks and ETFs traded on ISE markets except the Watchlist Companies Market. Therefore, stocks and ETFs traded on ISE National, Collective Products and Second National Markets may be subject to margin trading and short selling transactions.

However, with regard to the principles of application of the decision of the CMB dated 23.07.2010 governing classification of the stocks traded on the markets of the İMKB under groups, A, B, and C;B and C group stocks cannot be involved in margin trading and short selling.

TRADING HOURS of the ISE EQUITY MARKET

Equity Market (National Market, Collective Products Market, Second National Market, Watchlist Companies Market, Free Trade Platform) and Emerging Companies Market

First Session: 09:30-12:30– Opening Session09:30-09:50

Second Session14:00-17:40– Opening Session14:00-14:15– Closing Session 17:-30-17:38

TRADING HOURS of the ISE EQUITY MARKET cont.

Wholesale Market, Official Auction Transactions and Primary Market :10:30-12:00

Rights Coupon Market Relevant Market's Trading Hours. Rights coupons are not traded in the opening and closing auctions

EQUITY MARKET SETTLEMENT PRINCIPLES

Settlement of securities traded is realized by the ISE Settlement and Custody Bank Inc. (Takasbank), which is the sole and exclusive central depository in Turkey.

General settlement principles are as follows: Settlement day is T+2, i.e. the second business day following

the transaction. Multilateral netting system is applied. Payments are cleared by same day funds. The principle of Delivery Versus Payment applies.

MARKET MAKER AND SINGLE PRICE

Continuous Auction with Market Maker Method: The continuous auction with market maker method is applied to the

securities listed on the Collective Products Market (CPM). Exchange traded funds, intermediary institution warrants and equities of mutual funds with a publicly offered market capitalization value below 10 million TL are required to be traded via the continuous auction with market maker method.

In the absence of a market maker, these securies are traded by applying the Single Price Method.

ISE INDICESISE INDICES

ISE 100ISE 100 ISE 50ISE 50 ISE 30ISE 30 ISE 10 BanksISE 10 Banks ISE DividendISE Dividend ISE Corporate GovernanceISE Corporate Governance ISE IPOISE IPO ISE All SharesISE All Shares ISE NationalISE National Ise IndustrialsIse Industrials City IndicesCity Indices

EMERGING COMPANIES MARKET

The securities of companies that do not fulfill the listing The securities of companies that do not fulfill the listing requirements of the Exchange, but promise a development and requirements of the Exchange, but promise a development and growth potential can be traded on the Emerging Companies growth potential can be traded on the Emerging Companies Market.Market.

“Continuous Auction with Market Maker” method is used for trading. While “Single Price” method is used for the trading boards without a market maker. Cash and security settlement of trades are completed by the İMKB Settlement and Custody Bank (Takasbank).

DEBT SECURITIES MARKET

The Debt Securities Market is the only organized market for The Debt Securities Market is the only organized market for both fixed income securities trading and repo-reverse repo both fixed income securities trading and repo-reverse repo transactions. transactions.

Trading is conducted electronically in the Debt Securities Market via the automated multiple price-continuous auction system.

Settlement and custody operations are realized by the İMKB Settlement and Custody Bank Inc. (Takasbank), a separate and independent institution founded by the İMKB and its members. The principle of delivery versus payment is applied in settlement and thus the default risk in principal is eliminated.

DEBT SECURITIES MARKET cont.

Outright Purchases and Sales MarketOutright Purchases and Sales Market assures secondary fixed income securities to be traded on an organized and transparent market and increases their liquidity.

Repo- Reverse Repo MarketThe Repo-Reverse Repo Market which is one of the leading repo markets of the world assures that fixed income securities are sold with a re-purchase promise and are bought with a re-sale promise safely in an organized market


Repo Market For Specified SecuritiesThe Market provides the opportunity to realize repo transactions on preferred securities within the organized market and then to deliver such securities to the buyer.

Interbank Repo-Reverse Repo MarketThe Interbank Repo-Reverse Repo Market was established to facilitate the repo-reverse repo transactions in organized market conditions, without having to meet the reserve requirement of the Central Bank, which is applied when a bank carries out repo transactions with a non-bank party.


Offering Market for Qualified InvestorsThe Offering Market for Qualified Investors is the market where the borrowing instruments of the issuers defined in the CMB Communiqué II/22 are issued to “qualified investors” as defined in the capital markets legislation, in accordance with the regulations of the Capital Markets Board of Turkey without preparing prospectus.

FOREIGN SECURITIES MARKET

On the Foreign Securities Market, foreign debt securities which On the Foreign Securities Market, foreign debt securities which have been issued by the Undersecretariat of Treasury of have been issued by the Undersecretariat of Treasury of Turkey and listed on the Exchange (“Eurobonds”) are traded.Turkey and listed on the Exchange (“Eurobonds”) are traded.

The trading transactions in the International Bonds Market are conducted electronically via the multiple price - continuous auction system. Orders are priced in the same currency and over 100 units in the case of Eurobonds issued in each foreign currency. On the market, future value dated transactions can be conducted up to no less than 1 business day (T+1) and no more than 15 days (T+15).

week 6 secondary markets. fuctions of the secondary markets it provides information about the value...

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