Debt Securities Market - World...
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Transcript of Debt Securities Market - World...
Debt Securities Market
Reşat ADIGÜZEL
Chief Specialist
March 13, 2014
March 13, 2014 3
Borsa İstanbul A.Ş.
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Legal Framework
Establishment Framework: Debt Securities Market (DSM) has been established as a government organisation based on Decree Law No: 91 (enacted on 1983) with the aim of (Article 3.1) :
- organising buy and sell activities of securities
- discovering security prices via secondary market transactions and
- publishing / registering security prices
Establishing a stock exchange is subject to the proposal of Capital Markets Board and approval of Ministry of Finance
Based on the Decree Law, Borsa İstanbul and Debt Securities Market by-laws were ruled within the Capital Markets Law legislation (No: 2499, enacted on 1981)
Current Framework: With the new Capital Markets Law (No: 6362, enacted on 2012) Borsa İstanbul became a joint-stock company in April 2013 with the 49% ownership of the Turkish Treasury. Borsa İstanbul and its members hold the remaining shares.
→ New by-laws and secondary regulations are being prepared and after the approval of the Capital Markets Law will be published soon.
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Purpose of the Foundation
Debt Securities Market started to operate in 1991 to facilitate a transparent and reliable environment for secondary market trading of debt securities and related products
Due to Borsa İstanbul’s governmental structure and high public sector borrowing requirement, DSM’s first aim was to decrease cost of funding of internal borrowing
Vision: Providing efficient and competitive trading environment based on fairness and justice principles for all market participants
Tradable Asset Classes: Both government and corporate debt securities denominated in TL and foreign currency, securitized assets and income backed debt securities, lease certificates (aka Sukuk), Central Bank liquidity bills and other securities that are approved by Borsa İstanbul Board can trade on the Debt Securities Market
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DSM – Sub-Markets
Outright Purchases and Sales Market
(June 17, 1991)
where secondary market transactions of fixed income
securities are conducted
Repo-Reverse Repo Market
(February 17, 1993)
where general collateral repo-reverse repo transactions are
conducted
Offerings Market for Qualified Investors
(May 17, 2010)
where corporate borrowing instruments are issued to
“qualified investors” as defined in the capital markets legislation
Repo Market for Specified Securities
(December 17, 2010)
where repo-reverse repo transactions with specified debt
securities are conducted
Interbank Repo-Reverse Repo Market
(January 7, 2011)
where general collateral repo-reverse repo transactions are
conducted only by the banks and only for their own portfolio
accounts
Equity Repo Market
(December 7, 2012)
where repo- reverse repo transactions are carried out with the equities that are traded on Borsa İstanbul Equity Market
(those included in BIST 30 Index)
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Market Framework
Borsa İstanbul Debt Securities Market
Treasury / Corporate Firms
Primary Market Debt Issuance Capital Markets Board
(Regulatory Authority)
Central Bank of Turkey
Central Securities Depository
Banks / Brokerage Houses
Secondary Market Transactions (DSM / OTC)
İstanbul Settlement and Custody Bank
Central Securities Depository
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Trading Framework
BİAŞ Members Banks
Brokerage Houses
BİAŞ
Debt Securities Market
İstanbul Settlement
and Custody Bank
Central
Securities
Depository
Central Bank of TR Investors
Domestic/ Foreign
Individual / Institutional
Real-time
communication
Trading Workstation
and/or API
DSM Trading System
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DSM ASTS Characteristics
Borsa İstanbul Debt Securities Market uses "Automated Securities
Trading System" (ASTS) since August 1999
ASTS is an Electronic Trading Platform with the following
characteristics:
Secure connection via IP address restrictions (each member firm
have a range of IP address defined to connect to the system)
Alternative WAN connections using two separate ISP (Türk Telekom
and Turpak)
Disaster recovery site (Fail-over site) ready to replace Production site
in 4 hours with an expected of 1 minute data loss and starting at 50%
user capacity
Alternative ways of sending orders to Trading system:
Trading Workstation : full range of functionality
API connection : faster way of sending orders especially customer orders
(Automated Programming Interface)
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DSM ASTS Characteristics
ASTS characteristics:
Order driven
Multiple price - continuous auction trading system
Auto matching process according to price/rate then time of orders
Different trading sessions are maintained by trading events (same
day trades vs forward day trades etc)
Repo deposit entry using Trader Workplaces (TW)
Margin deposit entry using TWs
Immediate screening of order/trade information and settlement
balances via TWs
Order withdraw/amend possible by members firms
Real-time risk management by continuously calculating cash
positions
Segregated surveillance module monitoring suspicious trades daily
and historically
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ASTS Network Map
DSM
Trading System Engine
Member Firms’ Offices
İstanbul Settlement
and Custody Bank
Trading
Terminal (Multiuser)
Wide Area
Network
Alternative
connection with
2 different ISP
Real-time data
communication
Real-time data
communication
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ASTS – Order Entry
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ASTS – Order Book & MBO
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ASTS – Market Watch
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ASTS – Orders&Trades
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ASTS – Cash Settlement Balance
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ASTS – Security Settlement Balance
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ASTS – Settlement Balance Aggregation
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ASTS – Repo Deposit Entry
Primary Dealer System
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Primary Dealer Sytem
As a part of increasing liquidity of debt instruments plan, Turkish
Treasury has adopted primary dealer system for government
debt securities since May 8, 2000
Turkish Treasury is the initiator of the Primary Dealer Program
that sets the rules and liabilities
Treasury determines and announces the Primary Dealer
members that are obliged to quote bid and offer prices in
benchmark securities in BİAŞ DSM Outright Purchases and
Sales Market
Primary dealership contract that is signed between assigned
primary dealer members and Treasury defines rules and
liabilities of counterparts for both primary and secondary market
transactions
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Primary Dealer Sytem
Primary dealer system is an implementation of Trukish
Treasury for government debt securities that is carried out
in Borsa İstanbul DSM Outright Purchases and Sales
Market in order to increase the liquidity in the secondary
markets
Primary Dealer system is integrated into DSM ASTS
system in terms of order book, matching and settlement
balances calculation
There is no separate order book and therefore matching
mechanism for PD orders
PD trades are included member firm’s net settlement
balance calculations
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Primary Dealer Sytem
PD bid and offer quotes are treated as regular orders that
go to normal order book of the related security and can
match with non-PD orders as well
PD quotes are conveyed to the market with PD account
code (see order entry window)
There is also an exclusive PD quote window that can be
used for mass quote order entry
There is an exclusive screen in data vendors where only
PD quotes are displayed in real-time
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Primary Dealer Rights
According to the PD contract Clause 5; the rights of primary dealers are:
a) Primary Dealer has the right to use the title of “Turkish Primary Dealer”.
b) Primary Dealer is exempt from the collateral requirement for participation in auctions.
However, in case the Primary Dealer fails to meet its obligations after an auction, it will be
subject to the same penalties applied to other auction participants.
c) The Primary Dealer has the right to submit non-competitive bids before the auctions.
The total amount to be issued via accepting non-competitive bids cannot be more than
30% of the upper limit of the auction.
d) Primary Dealer has the right to submit option bids after an auction till 14.00 p.m. on the
issue date.
e) Treasury conducts cash operations in the money market with Primary Dealers.
f) Primary Dealer has the exclusive right to participate in “TAP” sales.
g) The Primary Dealer has the exclusive right to serve as an intermediary in “public
offerings”.
h) The Primary Dealer has the exclusive right to participate in Buy-back and Switching
auctions.
i) The Primary Dealers has right to participate in the Primary Dealership Consultation
Board with two representatives.
j) The Primary Dealer has right to borrow and lend securities at the Securities Lending
Market established at the Central Bank.
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Primary Dealer Obligations I
According to the PD contract Clause 6; obligations of primary dealers are:
a) for primary market transactions;
- purchase a minimum amount of the issues programmed by the Treasury monthly (amount
calculated by Treasury)
- purchase a minimum amount of the issues programmed by the Treasury quarterly (amount
calculated by Treasury)
b) for secondary market transactions PD’s are obliged to enhance liquidity of benchmark securities.
To achieve this goal, PD member shall, on every trading day, quote bid and offer prices
continuously for benchmark securities specified by the Treasury. The quotations shall meet the
following criteria;
- The quotations shall be given on every trading day of BİAŞ, between 9:45-12:00 and 13:15 -
16:00
- The minimum size of quotations shall be 5 million TRY in nominal terms
- Bids and offers will be quoted in terms of prices for coupon-securities and the maximum
spread between bid and offer quotations will be 50 Kuruş (half of 1 TRY). For zero-coupon
securities, the quotations will be given in terms of simple-annual interest yield
Interest Rate Interval
(For Bid Quotations)
Maximum Spread Between
Bid and Offer Rates (Basis Points)
9.99 % and below 0.13
10.00 % - 19.99 0.25
20.00 % and above 0.50
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Primary Dealer Obligations II
According to the PD contract Clause 6; obligations of primary dealers are:
b) for secondary market transactions;
- If the quotation sizes descend below 5 million TRY as a result of a transaction or the
quotations are called back for any reason, the Primary Dealer will renew the quotations in 5
minutes.
- The quotations shall be submitted with the “PY” account code (to differentiate between other
accounts).
- BİAŞ DSM monitors PD quotes every day in terms of time and quantity of quotations by a
daily report.
- In the calculation of the violations of quotation obligations, the average of the violations of all
Primary Dealers in terms of number and duration are calculated separately. The Primary
Dealer violates the obligation if both of the violations of Primary Dealer are above the
average of the violations of all Primary Dealers. If the monthly average violation in terms of
number is below 1, monthly average violations in terms of number are assumed to be 1.
- Primary Dealer is responsible for submitting detailed information on technical problems
faced during quotation process in the ISE Bonds and Bills Market for benchmark securities.
The information shall be submitted in 3 (three) working days to the ISE Bonds and Bills
Market and to the Undersecretariat.
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Benchmark Securities
Benchmark securities are chosen by the Treasury by taking into account
the total issue size, the maturity and the trading volume in the secondary
markets.
Currently here are 9 benchmark securities selected by Treasury.
Primary Dealers have to select 6 benchmark securities out of 9 benchmark
securities consisting at least 4 fixed rate, 1 floating rate and 1 CPI indexed
security.
By informing the Treasury 1 week before, the primary dealer can change
the set of benchmark securities for the following 3 month period.
Benchmark securities lose their benchmark qualifications when there are
182 days remaining to their maturity. If necessary, by majority vote of
Primary Dealers and the approval of the Undersecretariat the benchmark
securities can be changed.
The Undersecretariat keeps the right to lift the quotation liability of the
Primary Dealer for a temporary period and to increase the maximum
spreads.
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Primary Dealer Order Entry
Primary dealer system is an implementation of the Treasury in the secondary markets to
increase the liquidity
This system is carried out in Outright Purchases and Sales Market of BİST Debt
Securities Market
Automated Securities Trading System (ASTS), which runs in Debt Securities Market, has
a different order entry screen for PD quotations where buy and sell quotation can be
managed with a single window
Benchmark securities are all listed in the PD order entry window with buy and sell
spreads determined by the Treasury. Although PD members can change the spread, they
cannot lower it from the default value.
PD members, define the buy price/yield and quantity (minimum of 5 million TRY in
nominal). Sell price/yield is automatically calculated regarding the spread
PD members can choose to enter all orders (HEPSİ ==> button) or selected orders
(SEÇİLEN ==> button). Moreover, they can choose to cancel all orders (HEPSİ X button) or
selected orders (SEÇİLEN X button)
Primary dealer members can only have one buy/sell quotation for a benchmark security
(orders that are entered with a PY code in the account field). Therefore; if all or selected
orders are entered, previous outstanding PD orders are automatically cancelled by ASTS
Moreover, PD buy and sell orders for a given benchmark security cannot match. If
matching conditions are met for the same PD member then latest quotation is automatically
cancelled by ASTS. However, PD quotations can match other PD quotations, other PD’s
regular orders or non-PD member’s regular orders
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Primary Dealer Order Entry Screen
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Primary Dealer Quote Screen
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Primary Dealer Benefits in DSM
Along with simple and easy-to-use PD quotation
management screen, PD members get an exchange trade
fee discount for their PD trades only
While a regular trade in DSM Outright Purchase and Sales
Market has a 0.1 / 10,000 exchange fee rate, PD trades has
a 0.075 / 10,000 exchange fee (applied on the value of the
trade)
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Primary Dealer - Trading Statistics
% Share of Traded Value
Year Primary Dealer OPS Market % of OPS
2010 12,089 574,270 2.11
2011 24,103 499,761 4.82
2012 19,612 397,905 4.93
2013 25,989 376,163 6.91
Traded Value (Million USD)
2010 - 2013 PD Trade Statistics
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Primary Dealer System – Future Agenda
Introduce market maker system system where selected
members will give two-way quotations for corporate
securities
As in government securities market maker system,
members will be liable for certain securities that are elected
as benchmark securities
Security ISIN code and member ID will be correlated in the
reference database so that two-way quotations will be
monitored continuously
Market members will have privileges regarding market
transactions and issues
Exchange Trade Fees &
Taxes
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Fee Schedule
On-Exchange Transaction Fee Outright Purchases&Sales 0.1 / 10,000
Repo-Reverse Repo 0.05 / 10,000 x Repo Duration
Primary Deal OPS Trades 0.075 / 10,000
For same day value trades after 14:00
• Outright Purchases&Sales 0.2 / 10,000
• Repo-Reverse Repo 0.1 / 10,000 x Repo Duration
Off-Exchange Registration Fee (OTC Trades) Outright Sales&Purchases 0.2 / 10,000
Repo-Reverse Repo 0.1 / 10,000 x Repo Duration
Listing Fee % 0.1 of the nominal issue amount (Min 1,000 TRY / Max 10,000 TRY)
Annual Quotation Fee ¼ of the Listing Fee
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Taxes
Outright Purchases and Sales
Interest income is subject to 10% withholding tax
Repo-Reverse Repo Transactions
Repo revenues obtained from repo transactions are subject to
15% withholding tax. This tax is paid to the Turkish Treasury by
the repo member on behalf of reverse repo side -obtainer of the
repo revenue ( value date 2 amount is the net of
principal+interest-tax )
Exceptions
Pension funds, investment trusts and exchange trading funds
are exempt from withholding taxes stated above
Market Figures
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Market Members
Brokerage
Houses Banks Total
Outright Purchases and
Sales Market 81 42 123
Repo-Reverse Repo
Market 48 40 88
Repo Market For
Specified Securities 36 27 63
Equity Repo Market 26 2 28
Foreign Securities
Market 5 13 18
As of February 28, 2014
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Outstanding Securities
* As of February 28, 2014
** Stripped securities are counted as single issue
Type Number Issue Nominal (Million USD)
Government Securities 49 181,629
Public Lease Certificates 6 5,592
Corporate Bonds 169 6,383
Bank Bills 65 8,711
Commercial Paper 14 410
Asset-Backed Securities 64 412
Corporate Lease Certificates 9 354
Structured Debt Securities 4 6
Total 380 202,711
Issue Q
92,00%
Issue #
85,52%
March 13, 2014 41
DSM - Historical Traded Value Figures
Outright Purchases
and Sales Market
Offerings Market for
Qualified Investors
Repo-Reverse
Repo Market
Interbank Repo
Market
Repo with Specified
Securities MarketEquity Repo Market Total Daily Average
Million US$ Million US$ Million US$ Million US$ Million US$ Million US$ Million US$ Million US$
1991 312 312 2.29
1992 2,406 2,406 9.58
1993 10,728 4,794 15,522 63.10
1994 8,832 23,704 32,536 128.60
1995 16,509 123,254 139,763 554.62
1996 32,737 221,405 254,142 1,008.50
1997 35,472 374,384 409,856 1,626.41
1998 68,399 372,201 440,601 1,762.40
1999 83,842 589,267 673,109 2,714.15
2000 262,941 886,732 1,149,673 4,580.37
2001 37,297 627,244 664,541 2,647.57
2002 67,256 480,725 547,982 2,165.94
2003 144,422 701,545 845,967 3,383.87
2004 262,596 1,090,476 1,353,072 5,369.33
2005 359,371 1,387,221 1,746,591 6,876.34
2006 270,183 1,770,337 2,040,520 8,129.56
2007 278,873 1,993,283 2,272,156 9,016.49
2008 239,367 2,274,077 2,513,444 10,013.72
2009 269,977 1,929,031 2,199,008 8,726.22
2010 297,710 27 2,010,217 101 2,308,055 9,232.22
2011 291,088 151 1,744,291 408,465 5,065 2,449,059 9,680.08
2012 199,791 663 2,077,008 1,530,927 5,302 3,813,692 15,073.88
2013 214,967 780 1,655,482 1,742,184 10,525 0.03 3,623,940 14,495.76
2014 02 28 20,796 162 204,320 434,916 996 0.00 661,189 15,742.60
March 13, 2014 42
DSM - Daily Average Traded Value
Daily Average - Million USD
As of February 28, 2014
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DSM vs OTC
Total Traded Value - % Share
As of February 28, 2014
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DSM vs OTC
Sub-Markets - % Share
Outright Transactions
Repo Transactions
As of February 28, 2014
55.34
39.46 40.79
45.42 44.66
60.54
59.21 54.58
0.00
20.00
40.00
60.00
80.00
100.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
DSM OTC
92.12 91.83
91.56
7.88 8.17
8.44
0.00
20.00
40.00
60.00
80.00
100.00
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
DSM OTC
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WFE – Value of Bond Trading Rankings
Source: World Federation of Exchanges http://www.world-exchanges.org/insight/reports/2013-wfe-market-highlights
March 13, 2014 46
WFE - Global Bonds Trading Rankings
2012-2007 – Billion USD
Source: World Federation of Exchanges http://www.world-exchanges.org/statistics
Value Rank Value Rank Value Rank Value Rank Value Rank Value Rank
BME Spanish Exchanges 11.132 1 17.412 1 11.030 1 8.181 1 6.839 1 5.863 1
London SE Group 4.575 2 5.394 2 4.022 2 5.120 2 6.567 2 3.603 2
NASDAQ OMX Nordic 3.031 3 2.674 4 2.620 3 2.257 3 2.924 3 2.798 3
…
Borsa İstanbul 520 7 518 8 446 8 401 7 390 5 467 5
2007Exchange
2012 2011 2010 2009 2008
What’s Behind These Figures ?
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Trading Platform
Secure and steady connection
Multi-function (from order entry to settlement balance view)
Multi-asset and currency
Real-time risk and collateral management
Portfolio, customer, funds and PD accounts to select from
Order cancellation possible at the disposal of the member (untill
order match)
Trade cancellation possible upon counterparties’ request (subject
to approval of Borsa İstanbul)
Change of account type upon request of counterparties (only from
funds to portfolio)
User management via different roles (firm manager, trader etc)
and levels of authority within a firm
Real-time order and trade information dissemination (anonymous
– no member or account id)
March 13, 2014 49
High Issue Volume
Treasury periodically (monthly/quarterly) announces its
domestic borrowing strategy stating financing program and
issue calender since 2001
Having a transparent debt management service lets the
market members as well as investors to rationalize their
needs and expectations
As of February, 2014, there are 55 outstanding government
securities with an average maturity of 5,7 years and total
issue nominal value of 185 billion USD
As of February, 2014, total number of corporate securities
is 325 with outstanding nominal value equal to 17 billion
USD and average maturity of 1,5 years
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Coordination with regulatory authorities
Coordination with Treasury, Central Bank and Capital Markets
Board, is a crucial part of secondary market success
Borsa İstanbul and regulatory authorities periodically meet to
revise the needs of the markets and take necessary acts to
improve market efficiency
Treasury is the main supplier of the debt instruments
Central Bank is a member of the market that acts as price/rate
regulatory agency. Moreover, it acts as the Treasury agency
for debt issuance and provides depository account services
for government securities
Capital Markets Board, defines the legal framework of the
market and is responsible for conducting the Capital Markets
Law. It gives licences for security trading and repo
transactions
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Cooperation with market participants
• Market is the playground for the members hence they
ought to have a word on its functioning
• Borsa İstanbul periodically meets with its members under
the framework of Membership Relations Committee
• Representatives of members attend the Committee
meetings and express their views on the working of the
market. They may also convey their suggestions/demands
for new products, ease of operation or deduction in fees
etc
• Upon the request of the members, Borsa İstanbul
considers the legal and operational workplan of the request
and conduct the project
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Presence of the Central Bank
Central Bank of Turkey is a natural member of Debt
Securities Market in order to attain it’s main role of
maintaining price stability
It plays a regulatory role for price fluctuations, mainly in
repo markets. It sets upper and lower rates and places its
orders at the boundaries
All short-term cash needs of market members are
eventually met without any unexpected price changes
(lender of the last resort)
Having Central Bank at each side of the market, generally
lets the market members to borrow/lend money between
them at the rates within the price coridor
March 13, 2014 53
Lessons learned from past crisis
• Russian and Asian financial crises, as well as Turkey’s own
financial crises of 1994 and 2001 have increased the need
of safe trading, clearing and settlement
• Crisis acted like a test for the smooth functioning of the
market and showed the deficiencies
• New rules and risk management tools are designated and
enforced
• Protection of investors’ rights as well as safe trading
environment has became primary criteria rather than
trading volume
Future agenda
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DSM Future Agenda
Considering the potential of Turkey due to its geographical
position, cultural heritage and stable growth rates there is still
way to go. DSM agenda has the following items to be
performed:
Opening ˝Committed Transactions Market of Sukuk˝ where Islamic
financial instruments are used
Introducing market maker system for corporate securities that will
enhance trading liquidity of these securities
Opening ˝Auction Market˝ where security issues can take place with
different issue methods such as single price, floating price within a range
and multi price
Opening ˝OTC Negotiated Deal Screen˝ where OTC trades will be
reported with counterparts mutually confirming trade details
Forming joint trading platforms with neighboor exchanges such as Balkan
countries, Turkic republics as well as with US, Europe and/or Far East
exchanges to enhance alternative ways of accessing trading platform and
to attrack new investors from all around the world
