Ibrahim Turhan, the chief executive officer of Borsa Istanbul, said the Nasdaq OMX Group Inc. is considering buying a stake in the bourse as part of a partnership that will be announced as early as next month.
“It is a large-scale and very comprehensive partnership,” Turhan said in an interview at the exchange’s headquarters yesterday. “This partnership may include an equity stake,” he said, declining to comment on the size of the sale. Nasdaq’s CEO Robert Greifeld is expected to sign the deal in Istanbul Dec. 11, Turhan said.
Turkey’s Prime Minister Recep Tayyip Erdogan, now in his 11th year in power, has given Turhan and other officials a mandate to deepen the capital markets in Istanbul, a city of 15 million people. The local bourse completed its merger with the Turkish Derivatives Exchange, known as TurkDex, on Aug. 5, and the Istanbul Gold Exchange on April 3.
Greifeld is seeking to diversify the New York-based exchange to offset a decline in stock trading. He said on a conference call on Oct. 23 that he would also evaluate a purchase of NYSE Euronext’s European equities business should it become available for sale.
The Nasdaq deal would provide the Borsa Istanbul with the technology to become a regional platform for other exchanges and facilitate trading, Turhan said. The Turkish exchange will encourage dual listings in Istanbul, he said.
“It will be the largest and most important bourse or exchange between central Europe and central Asia,” Sandy Frucher, the vice chairman of Nasdaq said by phone yesterday. “They, and hopefully with us, will be creating a very, very important financial center.”
Istanbul’s bourse has a market capitalization of $280 billion, according to information provided by the exchange, with about 600 million shares traded on Nov. 4, according to data compiled by Bloomberg. The $272 billion government debt market is about twice the size of Russia’s and local companies have sold $44 billion in debt in 2013, 20 percent more than in the same period last year.
Nasdaq is the second-largest U.S. stock exchange operator and reported third-quarter profit of $113 million on Oct. 23.
“We are trying to build a financial supermarket where on the shelves, all products should be available,” said Turhan, a former deputy governor of the Turkish central bank, who was appointed chief of the exchange on Jan. 1, 2012.
The Borsa Istanbul National 100 Index advanced 0.9 percent at 4:20 p.m. in Istanbul today, climbing for the first time in six days. The measure has tumbled 19 percent from its May 22 record. It gained 53 percent last year, the second-best performance in the world after Venezuela’s stock market index.
The Turkish exchange is also seeking regional expansion and is in talks with exchanges in eastern European countries from Albania to Croatia. Borsa Istanbul already has an agreement with the Bishkek in Kyrghzstan and Baku in Azerbaijan, Turhan said.
“When I took the position, the market was heavily dependent on two instruments: cash equity and the government bond market,” Turhan said. “Now it is a complete market,” he said, and will be expanded to include instruments including electricity and commodities trading contracts.
Turkish officials are in contact with the European Energy Exchange, a subsidiary of Deutsche Boerse AG, for expanding energy trading capacities. Timing of the roll-out for electricity trading will depend on the Energy Ministry and Turkish energy markets regulator, he said.
Negotiations with the Ministry of Agriculture to boost liquidity in the commodities exchange are also continuing, he said. Turkey will focus on building capacity in trading iron and steel, of which Turkey is the world’s sixth-biggest producer and fourth-biggest exporter, he said.
“My goal is to create an environment where a steel producer will be able to hedge itself against electricity price volatility,” he said. “The company will only need to focus on its own business,” he said.
Talks with Euroclear Bank SA, the world’s biggest bond settlement system, are in technical stages with the Finance Ministry, and a deal is possible within six months of the completion of that stage, Turhan said. An agreement could increase the stock of securities available in Turkey by “at least 40 to 50 percent,” he said.
“There are still a good number of investors, especially institutional investors, who don’t have direct access to Turkey,” he said.