OIC Member Stock Exchanges Forum, 2nd Meeting

Hüseyin ERKANChairman & CEO

Istanbul Stock Exchange (ISE)

October 17-19 2008, 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

1998 2006

for-profit75%

not for-profit25%

for-profit38%

not for-profit62%

4

Emerging Markets vs Developed Markets

1997

92%

8%

2002

11%

89%

2007

72%

28%

Market Capitalization

1997

13%

87%

2002

92%

8%

2007

85%

15%

Traded Value

Source: WFEEmerging 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 States57 Member States31 Stock Exchanges31 Stock Exchanges8 Observers8 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 MarketsMarket Capitalization (million USD)

Source: Worldbank

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

2000 2001 2002 2003 2004 2005 2006 2007

Mar

ket

Cap

ital

izat

ion

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

OIC

/Wo

rld

OIC World OIC/World

OIC member exchanges have increased their share OIC member exchanges have increased their share within total world market cap by 3 timeswithin total world market cap by 3 times

9

Comparison of the OIC and World MarketsMarket Capitalization /GDP

Source: Worldbank

0%

20%

40%

60%

80%

100%

120%

140%

2000 2001 2002 2003 2004 2005 2006 2007

OIC World

3 times increase for the last 7 years3 times increase for the last 7 years

10

Comparison of the OIC and World MarketsNumber of Listed Companies

Source: Worldbank

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber

of l

iste

d co

mpa

nie

s

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

OIC

/Wor

ld

OIC World OIC/World

The share of OIC is about %11 on averageThe share of OIC is about %11 on average

11

OIC Stock ExchangesMarket Capitalization (2007, billion USD)

0 100 200 300 400 500 600

Kyrgyz RepublicTunisia

BangladeshCote d'Ivoire

LebanonOman

BahrainJordan

KazakhstanIran, Islamic Rep.

PakistanMorocco

NigeriaQatar

Egypt, Arab Rep.Kuwait

IndonesiaUnited Arab

TurkeyMalaysia

Saudi Arabia

Source: Worldbank

OIC market capitalization ranges between USD 100-500 billion

12

OIC Stock ExchangesNumber of Listed Companies (2007)

1011

38404350

749090111114125

181212

245278

319329

383435

6541036

0 200 400 600 800 1000 1200

Kyrgyz RepublicLebanon

Cote d'IvoireQatar

BahrainTunisia

MoroccoKazakhstan

United Arab EmiratesSaudi Arabia

UzbekistanOman

KuwaitNigeriaJordan

BangladeshTurkey

Iran, Islamic Rep.Indonesia

Egypt, Arab Rep.PakistanMalaysia

Source: Worldbank

The number of listed companies in the OIC stock exchangesvaries within a wide range (i.e. 10 to 1000 firms)

13

Financial Sector DevelopmentConventional vs. Islamic Finance

Sukuk Market = US$ 120 billion Islamic Finance isat its infancy stage

US$ Trillion Global Islamic

Bank Assets 74.4 0.6

Debt Securities 69.2 -

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

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

Issuers Government, semi-government and

private sector

Government, semi-government and

private sector

Investors Both 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$ 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

16

Total Global Sukuk Issuance(2003-2007, Million US$)

5.717 7.21112.065

26.789

51.499

120.000

0

20.000

40.000

60.000

80.000

100.000

120.000

2003 2004 2005 2006 2007 TotalIssued

To

tal G

lob

al S

uku

k Is

suan

ce

(Mill

ion

US

$)

25.1 %

66.3 %

121.0 %

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 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

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