Emerging markets pursue IPOs

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1 Federation of Euro-Asian Stock Exchanges September 2011 Emerging markets pursue IPOs IPOs can jumpstart a nation s securities market The European Regulation of IPOs and MiFID Indolent Growth; Promising Future IPOs Middle East and Africa Country Focus: Kazakhstan

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3 Federation of Euro-Asian Stock Exchanges / September In this issue... 1 FEAS Perspective Mustafa Baltaci, Secretary General 4 IPOs Can Jumpstart a Nation s Securities Market Hannes A. Takacs, CAPMEX 9 Five Tips on Successful IPO Preparation Karen Zakaryan and Eugenia Evoyan, NASDAQ OMX Armenia 10 Sound Regulation is Conducive to IPOs Ekin Fikirkoca, Association of Capital Market Intermediary Institutions of Turkey 14 The European Regulation of IPOs and MiFID Judith Hardt, FESE 16 Oman Values Primary Market for More IPOs Muscat Securities Market 18 Indolent Growth; Promising Future IPOs Middle East and Africa The Egyptian Exchange 20 Awareness is Key to Unlock IPO Potential Alev Dumanli, Istanbul Stock Exchange 22 Iran s Experience in Initial Public Offering Abolfazl Shahrabadi and Maryam Ebrahimi, Tehran Stock Exchange 23 V Formation on the Belgrade Stock Exchange Marija Babic and Vesna Ilic Ljusic, Belgrade Stock Exchange 26 Country Focus: Kazakhstan 26 Marchenko: KASE is Keen on Attracting New Listings 29 Kazakhstan Banks on Securities Market 32 FEAS Region Statistics FEDERATION OF EURO-ASIAN STOCK EXCHANGES (FEAS) I.M.K.B Building, Emirgan Istanbul, Turkey Tel: (90 212) Fax: (90 212) secretariat@feas.org Web address: Contacts Mr. Mustafa Baltaci, Secretary General Ms. Ege Adalioglu, Deputy Secretary General Mrs. Susan Gogus, Deputy Secretary General Ms. Aydan Bal, Coordinator - aydanb@feas.org

4 2 Federation of Euro-Asian Stock Exchanges / September 2011 Your gateway to the markets of tomorrow... The Federation of Euro-Asian Stock Exchanges (FEAS) was established with its head quarters in Istanbul on 16 May 1995 with 12 founding members, and it has grown to 34 members and 13 affiliate members in 30 countries as a not-for-profit organization. Membership in the Federation is open to exchanges in Europe and Asia as affiliate membership is available for post trade institutions and dealer associations in the same region. FEAS Organizational Structure is formed by General Assembly, Executive Committee, Working Committee and the FEAS Secretariat. The mission of FEAS is to help create fair, efficient and transparent market environments among FEAS members and in their operating regions. FEAS aims to minimize barriers to trade through the adoption of best practices for listing, trading and settlement. Federation also supports promoting linkages among members for cross-border trading. MEMBERS Abu Dhabi Securities Exchange Amman Stock Exchange Bahrain Bourse Baku Interbank Currency Exchange Baku Stock Exchange Banja Luka Stock Exchange Belarusian Currency and Stock Exchange Belgrade Stock Exchange Bucharest Stock Exchange Bulgarian Stock Exchange Damascus Securities Exchange Egyptian Exchange Georgian Stock Exchange Iraq Stock Exchange Istanbul Gold Exchange Istanbul Stock Exchange Karachi Stock Exchange Kazakhstan Stock Exchange Kyrgyz Stock Exchange Lahore Stock Exchange Macedonian Stock Exchange Moldova Stock Exchange Mongolian Stock Exchange Montenegro Stock Exchange Muscat Securities Market NASDAQ OMX Armenia Palestine Exchange Sarajevo Stock Exchange State Commodity & Raw Materials Exchange of Turkmenistan Tehran Stock Exchange Tirana Stock Exchange Toshkent Republican Stock Exchange Ukrainian Stock Exchange Zagreb Stock Exchange AFFILIATE MEMBERS Association of Certified Capital Market Professionals (ACCMP), Jordan Central Registry Agency Inc. Central Securities Depository of Iran Macedonian Central Securities Depository Misr for Clearing, Settlement & Central Depository MSM Brokers Association, Oman National Depository Center of Azerbaijan Securities and Exchange Brokers Association of Iran (SEBA) Securities Depository Center (SDC) of Jordan Takasbank - ISE Settlement and Custody Bank, Inc. Tehran Securities Exchange Technology Management Company (TSETMC) The Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) The South Asian Federation of Exchanges (SAFE)

5 Federation of Euro-Asian Stock Exchanges / September FEAS Perspective We have identified the main theme for the September 2011 issue as initial public offering (IPO) which is a relevant concern of our member exchanges as it is their key area for growth. In this issue, IPOs are investigated through different angles with the contributions of articles and hands on experience of the Belgrade Stock Exchange, Egyptian Exchange, FEAS will hold its 17th General Assembly in Almaty, Kazakhstan on September 28 and 29 with a back-toback OECD conference on Eurasia capital markets. We are thankful to our Kazakh friends for hosting the events and we have included a special section on Kazakhstan to better equip our members on the hosting country s markets and overall economy. Mustafa Baltaci Secretary General, FEAS We have identified the main theme for the September 2011 Dear Friends, issue as initial public offering (IPO) which is a relevant concern of our member exchanges as it is their key area for growth. INTERFEAS has been published quarterly for almost two years now. In the previous issues, we have for the most part, focused on trading statistics, macroeconomic data, telling pictorals and charts, and the latest developments of the members of FEAS. It is our goal that the FEAS publications inter alia the annual book have a significant outreach of readers which helps in promoting regional markets and exchanges while in turn raising awareness. Further inspired by the outpouring of positive feedback, we have diligently worked to revise the layout of the INTERFEAS magazine in order to ensure it provides as much input for members as possible while also pertaining to the recent trends and discussions. It should be noted that each subsequent issue will be based on a specified theme; and these themes will be explored by means of articles, news items and interviews by the exchanges, post-trade institutions, academics, regulators and consultants. Nasdaq OMX Armenia, Istanbul Stock Exchange, Muscat Securities Market and Tehran Stock Exchange. The articles endeavor to explore the way in which IPOs are approached, the opportunities they provide, and likely problems the involved parties may encounter within the process in local markets. A leading expert, Mr. Hannes A. Takac, Managing Partner of CAPMEX, has also contributed in the magazine with a thought provoking essay. We are grateful for his contribution whose content is a reflection of his yearslong consultancy experience in public offerings. The Federation of European Stock Exchanges (FESE) also kindly contributed to INTERFEAS with a valuable and timely article which explores the implication of the Markets in Financial Instruments Directive (MIFID) on IPOs. Mr. Marchenko, the Governor of Central Bank of Kazakhstan, has given us a timely interview delineating the Kazakh government s stance for boosting the financial markets. Last but not least, we would like to give our sponsors a special note of appreciation. Finans Asset Management, Is Investment, Nasdaq OMX and Bloomberg have added value for making this publication possible. Allow us to thank you again for your support and interest as we hope you will find the new INTERFEAS Magazine enjoyable and useful. Sincerely, Mustafa Baltaci Secretary General

6 4 Federation of Euro-Asian Stock Exchanges / September 2011 IPOs Can Jumpstart a Nation s Securities Market Hannes A. Takacs Managing Partner of CAPMEX Figure 1: Potential reasons for an initial public offering Equity capital, regardless of how it is raised - either through the stock market or venture capital/private equity - is indispensable whenever a company with the typical combination of internal and external financing, operating in a more or less creditoriented financing culture reaches its growth limits. A growing number of companies, also in countries of transition, will be forced by the changing competitive environment to pursue growth strategies that can only be achieved through access to equity capital. The same applies to the exploitation of the growth potential of technology companies that need to take advantage of windows of innovation and market opportunities that exist for only a limited period of time. May it be to raise capital for expansion and growth, to strengthen the capital base, to increase liquidity for shareholders, to finance research and development, to improve the company s image or to create an acquisition currency, which may be used for M&A deals or even to compensate employees through stock option plans, the reasons why a company decides to conduct an IPO are manifold. It is the core function of a stock exchange to provide on one hand a reliable and transparent market place for cost efficient access to capital for companies and, on the other hand, a well-regulated and safe environment for securities investments by institutional and private investors. Emerging markets dominate IPO landscape According to a recent survey conducted by the consulting firm Ernst & Young, 672 companies went public all over the world in the first half of 2011, which is an increase of 11 percent as compared to the first half of Also the issuing volume increased by 11 percent up to USD 111bn. The majority of initial public offerings took place in emerging markets. In the second quarter of 2011, 67% of all IPOs were conducted in developing countries, as well as six out of the ten largest IPOs. The current IPO numbers clearly show the tremendous growth potential of countries in transition and the opportunities they offer to companies and investors. This is especially true for the FEAS member countries, but to utilise the potential and succeed, full government support is needed in addition to a well-designed capital market development strategy.

7 Federation of Euro-Asian Stock Exchanges / September The vicious circle faced by many small- and medium-sized exchanges to attract IPOs and investors Intensified competition with international exchanges for listings and investors represents a major threat for the future development of most of the smaller exchanges. Intensified competition with international exchanges for listings and investors represents a major threat for the future development of most of the smaller exchanges. Many of them are currently facing a vicious circle! Small- and medium-sized exchanges have only a limited number of listed stocks, with low market capitalisation as well as trade velocity. Initial public offerings of larger domestic companies tend to be conducted at major financial centres instead of home markets. Sometimes this is based on a fragmented or underdeveloped local market infrastructure and the trend of domestic companies and investors to seek out global liquidity in wellestablished international securities markets. In many cases, missing governmental support leads to a further deterioration of the local securities markets. Furthermore, a lack of transparency, missing corporate governance codes and investor protection schemes, small market size, limited research coverage, investment restrictions and legal constraints lead to only a limited interest in domestic stocks by international investors. Based on limited access of international investors and lack of a sufficient number of local institutional as well as retail investors, small- and medium-sized exchanges experience a further decrease in market liquidity. In some cases, the acquisition of locally listed companies by global enterprises or strategic investors leads to de-listings at the local exchanges resulting in reduced attractivity for investors. All of these factors perpetuate the course of the vicious circle. Support by Policy Makers is essential to create an attractive market environment for IPOs Figure 2: Vicious Circle Typical Problems faced by Emerging Market Exchanges A comparison of business locations with different development standards shows that the dynamics of the development of companies in locations with strong capital market structures is much more advanced. In most of the emerging countries, and also in the global competition context, the quality of the financing environment for companies is crucial for the development of a business location. Capital market policy is therefore a central element of economic growth, poverty reduction, employment, dynamic business development, and location policy. Based on the international and regional competitive environment, it is essential that the policy makers give the domestic capital market a high priority within their development agenda, especially when it comes to IPOs of state-owned enterprises. CAPMEX The Capital Market Experts

8 6 Federation of Euro-Asian Stock Exchanges / September 2011 IPOs of state-owned enterprises contribute to economic growth Not surprisingly, the relationship between share issue privatisation and capital market development in general has also been subject to intensive academic research. One of the studies that deal with share issue privatization and stock market liquidity in particular is the Bortolotti et al (2002) (1) study. In principle, market development can be measured by both capitalization and liquidity. In their paper, Bortolotti et al (2002) focus on the latter, since liquidity is directly linked to growth and efficiency. Empirical studies have shown that the stock market liquidity can therefore be rationalised in terms of social welfare and economic growth. Consequently, a large scale privatisation program based on share issue privatisation generates important positive externalities on the liquidity of private companies as well. IPOs of state-owned enterprises can jumpstart a nation s securities market The IPOs of state-owned companies contribute significantly to securities market development and especially to exchange liquidity. This is mainly based on: In summary, as also seen in numerous international examples, share issue privatisation can jumpstart stock market development and trigger gains in economic growth. Additionally, positive spill-over effects on market liquidity and retail demand for followup IPOs by private companies were experienced after the going public of state-owned enterprises in their home markets. For creating a competitive and attractive environment for IPOs full government support is essential. (1) Bortolotti et al (2002): Bernardo Bortolotti, Frank De Jong, Giovanna Nicodano and Ibolya Schindele: Privatization and stock market liquidity, The Fondazione Eni Enrico Mattei Note di Lavoro Series The IPOs of state-owned companies contribute significantly to securities market development and especially to exchange liquidity. initial level of stock market liquidity is a predictor of economic growth and capital accumulation, while initial capitalization is not. Furthermore, market liquidity rather than its size provides incentives for information acquisition by financial analysts. Their private signals are in turn aggregated and partially mirrored in stock prices. This positively affects corporate performance and growth because it makes it possible to design stock-based managerial incentive schemes. Improved risk sharing associated with greater investor participation foster larger, more liquid markets. In summary, the academic literature tells us that a privatization policy aimed at fostering Improved diversification opportunities for investors Increased participation of uninformed retail investors Elimination of information barriers to investments Improved corporate governance and transparency standards Increased liquidity of private companies as positive spill-over effect Attraction of international investor to local market Motivates international participants to become remote members even of smaller to medium-sized exchanges

9 Federation of Euro-Asian Stock Exchanges / September Egypt, Kazakhstan Exchanges to be Added to Dow Jones Feas Index Universe LONDON (9 September, 2011) Dow Jones Indexes, a leading global index provider, today announced that the Egyptian Exchange (EGX) and the Kazakhstan Stock Exchange (KASE) will be added to the Dow Jones FEAS Index universe, effective after the close of trading on September 16, The Dow Jones FEAS Indexes measure the performance of companies across the Euro-Asian region. There are three indexes in the family: a composite and two regional sub-indexes. With the addition of Egypt (77) and Kazakhstan (7), 84 new component stocks will be added to the index, making for a total of 472 component stocks. The Dow Jones FEAS Composite Index includes component stocks of 16 of the 34 member states of the Federation of Euro-Asian Stock Exchanges. The exchanges include Abu Dhabi (UAE), Almaty (Kazakhstan), Amman (Jordan), Banja Luka (Bosnia and Herzegovina), Belgrade (Serbia), Bucharest (Romania), Cairo (Egypt), Nablus (Palestine), Istanbul (Turkey), Karachi (Pakistan), Manama (Kingdom of Bahrain), Muscat (Oman), Sarajevo (Bosnia and Herzegovina), Skopje (Republic of Macedonia), Sofia (Bulgaria) and Zagreb (Croatia). The Dow Jones FEAS Middle East/ Caucasus Index includes stocks from six FEAS member exchanges: Abu Dhabi, Amman, Cairo, Gaza, Manama and Muscat. The Dow Jones FEAS South East Europe Index measures the performance of companies listed on eight FEAS member exchanges: Banja Luka, Belgrade, Bucharest, Istanbul, Sarajevo, Skopje, Sofia and Zagreb. The Dow Jones FEAS Indexes are designed to cover 95% of the free-float market capitalization of each country in its respective index. In addition to float-adjusted market capitalization, components are selected based on readily available prices. The indexes are calculated and disseminated in Euro and U.S. dollars, and weighted by float-adjusted market capitalization. The Dow Jones FEAS Indexes are rebalanced quarterly, including an update of outstanding shares and float factors. For more information on the Dow Jones FEAS Indexes, please visit Journalists may questions regarding this press release to media@djindexes.com or contact: Dow Jones Indexes Barbara Mahe, London FEAS Susan Gogus, Deputy Secretary General secretariat@feas.org About Dow Jones Indexes Dow Jones Indexes ( is a leading full-service index provider that develops, maintains and licenses indexes for use as benchmarks and as the basis of investment products. Best-known for the Dow Jones Industrial Average, Dow Jones Indexes offers more than 130,000 equity indexes as well as fixed-income and alternative indexes, including measures of hedge funds, commodities and real estate. Dow Jones Indexes employs clear, unbiased and systematic methodologies that are fully integrated within index families. Dow Jones Indexes is part of a joint venture company owned 90 percent by CME Group Inc. ( and 10 percent by Dow Jones & Company, Inc. (www. dowjones.com), a News Corporation company (NASDAQ: NWS, NWSA; ASX: NWS, NWSLV; Dow Jones, Dow Jones Indexes, Dow Jones FEAS Indexes and all other index names listed above are service marks of Dow Jones Trademark Holdings LLC ( Dow Jones ), and have been licensed for use by CME Group Index Services LLC ( CME Indexes ). Investment products based on the Dow Jones FEAS Indexes are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes or their respective affiliates and none of Dow Jones, CME Indexes and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the Dow Jones FEAS Indexes does not in any way reflect an opinion of Dow Jones, CME Indexes or any of their respective affiliates on the investment merits of such company. None of Dow Jones, CME Indexes or any of their respective affiliates is providing investment advice in connection with these indexes. About FEAS FEAS is an organization composed of 34 stock & commodity exchanges of the region and 13 affiliate clearing and settlement depositories. FEAS was established on 16 May 1995, the mission of FEAS is to create fair, efficient and transparent market environments, with little or no barriers to trade, between the FEAS members and their operating regions. Harmonization of rules and regulations and adoption of new technology, for trading and settlement, by member securities markets, will facilitate the objectives of FEAS by promoting the development of the member markets and providing cross border trading opportunities for securities issued within FEAS member countries. FEAS s permanent secretariat is located in Istanbul, Turkey.

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11 Federation of Euro-Asian Stock Exchanges / September Five Tips on Successful IPO Preparation investors and the public. Floating your IPO then becomes a much easier process. 4. Get ready to rock Karen Zakaryan, Acting Chief Executive Officer, NASDAQ OMX Armenia There are many options to facilitate the growth and development of a company, and one is to publicly list on a stock exchange. Being listed is certainly not suitable for all firms, but the fact that most large successful companies world-wide are publicly listed is a fact that speaks for itself. Going public is at once a source of pride, an opportunity for business growth, and a serious legal responsibility. All things considered, the IPO process is a major undertaking for any entrepreneur. Below we offer five powerful tips to provide insight into how to prepare for an IPO and gain the most from the process of becoming a publicly listed company. 1. Manage your expectations Probably too often stock capital is associated with free capital, since the immediate costs are not obvious as with traditional debt instruments and banks loans. Stock capital, however, is not free; it s simply of a different nature, and there are associated costs. The most difficult step is making the decision to go public and starting the process. NASDAQ OMX Armenia has expertise on all aspects of the IPO process in Armenia and can help walk companies through this process with free consulting services. Later on, attracting new funds through capital markets becomes much easier, provided that the company shows good business conduct. So manage Eugenia Evoyan, Head of Marketing & Communications at NASDAQ OMX Armenia your expectations and consider the longer term, when the opportunities to attract lower cost funding through the capital markets will increase exponentially. 2. Aim high Have ambitious goals for your company. Capital markets like forward-looking companies with ambitious strategic development plans, such as ideas for expansion or consideration of future strategic acquisitions or mergers. Ambitious goals attract long term capital and investors. Investors want to invest in tomorrow, not yesterday. 3. Build your history TODAY Whether you plan to go public next year or in five years, start building your image with potential investors today. Investors want to know who you are as a company and your vision for the future. Introduce your company to the market with a less complicated procedure, such as issuing corporate bonds. This will give you a taste of the market and help establish investor trust. You will gain visibility and establish a proven history with Publicly listed companies operate under the all-seeing eye of the mass media, investors, regulators, the stock exchange and the public. Similar to celebrities, CEOs of such companies lead active road shows, especially during the IPO process, and are often followed by the media, frequently giving interviews and comments. Work with your Public Relations department and Investor Relations firm to develop a solid communications plan, and get ready to rock! 5. Live as a listed company What does it take to live as a listed company? Living publicly requires transparent operations, regular disclosure of information including financial statements, establishing accepted corporate governance procedures and a permanent investor relations department, as well as regular public communication on the status of your company. Some compare it to getting married. Your company will never be the same again. It s a new, more focused, level of operations. There will be an adjustment period. But the capital The most difficult step is making the decision to go public and starting the process. markets become your primary funding source. So you won t have to regularly pursue other short-term funding going forward.

12 10 Federation of Euro-Asian Stock Exchanges / September 2011 Sound Regulation is Conducive to IPOs Ekin Fikirkoca Director / Research & Statistics Association of Capital Market Intermediary Institutions of Turkey Legal Definition In Turkey, according to the Capital Markets Law (CML), public companies are defined as joint stock corporations whose shares are offered to the public or which are considered to have been offered to the public. In the Turkish legislation, if the number of shareholders of a company exceeds 250, the shares of that company are considered to have been offered to the public. Regulatory Amendments The regulation regarding public offerings was amended in 2010 with the view of harmonising with the European Union (EU) acquis and facilitating the IPO process. Within the context of this revision, the main amendment was the removal of the minimum free float requirement. Prior regulation required a minimum free-float rate ranging from 5% to 15% according to the company s size as a pre-condition to apply for an IPO. After the new legislation was passed, companies are able to apply for an IPO regardless of their estimated free-float. However, the market in which they will be listed depends on their actual free-float. In addition, the underwriting obligation for intermediary institutions was lifted. Further, additional regulations were enacted on the offerings to qualified investors and equities to be listed on the Emerging Companies Market (see below. Foreign Listings A new regulation on the listing of foreign securities came into force in The new legislation introduced the opportunity for foreign companies to go public in Turkey. Prior to that, only depository receipts of foreign companies could be offered to the public. A new regulation on the listing of foreign securities came into force in The new legislation introduced the opportunity for foreign companies to go public in Turkey. According to the new regulation, foreign securities which are listed on at least one stock exchange of the origin country, and non-listed equities, which do not have a history of rejection for a listing application are eligible for public offering in Turkey. Public disclosure requirements are similar to those for domestic corporations. Registration of Equities Shares to be offered to the public are required to be registered with the Capital Markets Board (CMB). For on-site examination, CMB experts visit the companies head office and production facilities. Public Offering Procedures There are two prerequisites for companies who want to go public: the capital of the company must be fully paid-in and the shares should be freely transferable. Companies prepare the last three years audited financial statements in line with the capital market legislation. Additionally, detailed information about the company is presented in the prospectus, while circulars summarize the general features of the public offering. Offering Methods The shares are sold to investors in one of two ways: book building and sale on the exchange. Companies, whose shares will be traded on the Emerging Companies Market (ECM) for the first time, must use sale on the exchange method. Allocations The relevant regulation classifies investors into three groups: individual, institutional and qualified. In public offerings, it is possible to define allocations for different investor groups. However, it is mandatory to allocate at least 10% of the offering to domestic individuals and 10% to domestic institutional investors. The limit for domestic investors allocation was recently reduced from 30%-50%. These limits are not applicable for the sales on the stock exchange.

13 Federation of Euro-Asian Stock Exchanges / September Listing and Trading After the above mentioned steps are completed, the company is ready to apply to the ISE for listing. After examination by ISE experts, the ISE s listing decision and the relevant information, including the prospectus, etc. are made public. The equities then start trading on the next business day after the announcement. Markets of the ISE There are two markets for equities on the Istanbul Stock Exchange, the Stock Market (SM) and the Emerging Companies Market (ECM). The Stock Market of ISE is divided into two sub-markets: National and Second National. The National Market is the main market of the ISE where the stocks of companies that satisfy stricter requirements are traded. Companies must fulfil the requirements of one of the three groups described in the table. The Second National Market is designed for companies which fail to meet the listing criteria of the National Market. Since 2008, shares of companies that have more than 250 shareholders can be traded on the Second National Market of the ISE without going through the usual public offering procedures. Equities of the companies registered by the CMB, but who fail to meet the ISE Stock Market listing requirements are traded on the recently established Emerging Companies Market (ECM), designed for small and medium sized companies. Size of the IPO Market The Istanbul Stock Exchange was established in 1986 and 80 companies were listed in that year. The number of listed companies did not change much until 1990, following a big rally it reached 110. During , the annual average number of IPOs was 23. However, due to the economic crisis of 2001, the number of IPOs remained limited until The market revived slightly in 2004 with 12 IPOs amounting to $ 483 Foreign investors are generally interested in large offerings which tend to have better liquidity. million. During the period, although the number of public offerings remained limited, the IPO volumes increased significantly, mainly due to the process of privatisation of state owned companies. Note that the share of foreign investors participation in IPOs is significant in those years, around 60-70%. Foreign investors are generally interested in large offerings which tend to have better liquidity. In 2008 and 2009, with the global crisis, a significant contraction was observed. ISE Listing Criteria Operating Term Stock Market National Market Group 1 Group 2 Group 3 Minimum three calendar years since establishment Market value of publicly offered equities (TL mn.) Minimum Free Float - 5% 25% Shareholders' Equity (TL mn.) Profits before tax must have been earned in Source: ISE At least one of the last two years At least one of the last two years Second National Market Last year s operations should not be suspended for more - than three months Emerging Companies Market 5.5 and 11% 11.0 and 5% Excluding firms that meet Stock Market requirements Last two years - -

14 12 Federation of Euro-Asian Stock Exchanges / September 2011 ISE Equity Market Foreign Investors IPO Share Domestic Investors IPO Share No. of Listed Companies 1,2 Market Cap. (mn. $) 1,2 No. of IPOs 2 IPO Size (mn. $) % 91% % 63% % 100% % 62% ,744 74% 26% % 47% ,298 68% 32% ,877 61% 39% % 100% ,142 46% 54% 2011/ % 51% Source: ISE 1: Including investment trusts and ETFs. 2: Including Emerging Companies Market The IPO market in Turkey was a bit volatile until the last couple of years. However, this situation has started to change. IPO Awareness Campaign The weak performance of the IPO market during the global crisis, led to a national campaign to promote public offerings. A cooperation protocol was signed between the Istanbul Stock Exchange (ISE), the Union of Chambers and Commodity Exchanges of Turkey (TOBB), the Capital Markets Board (CMB) and the Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) in August As the negative effect of the global crisis faded out and in line with a favourable domestic macroeconomic environment, the IPO awareness campaign was initiated in Various seminars were held in large Turkish cities, where executives of private companies were informed about the benefits of becoming public. Within the context of this campaign, several documents were prepared and distributed by different institutions and a website was launched. As a result, 22 IPOs amounting to US$ 2 billion took place in This figure includes the listing of the first foreign company on the ISE. This positive trend continues in 2011, as 18 companies went public in the first half of the year. Final Remarks The IPO market in Turkey was a bit volatile until the last couple of years. However, this situation has started to change, thanks to; a more stable macroeconomic environment despite the global crisis, amendments in the regulatory framework to facilitate the IPO processes, allowing foreign listings; and, a successful IPO Awareness Campaign. The recent IPO volumes and new listing applications prove that the combination of the above factors led to very successful results for the Turkish market.

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16 14 Federation of Euro-Asian Stock Exchanges / September 2011 The European Regulation of IPOs and MiFID What is FESE? The Federation of European Securities Exchanges (FESE) represents 46 European exchanges active in equities, bonds, derivatives and commodities. FESE has 21 full members from 30 countries, as well as 7 Observer Members from European emerging markets. At the end of 2010, FESE members had up to 9,050 companies listed on their markets (of which 8% are foreign companies), all of them contributing towards European integration and growth and providing broad and liquid access to Europe s capital markets. Many FESE members also organise specialised markets that allow small and medium sized companies across Europe to access the capital markets; 1,035 such companies were listed in these specialised markets/ segments in equity and bonds; thereby increasing choice for investors and issuers. Full FESE Membership is open to any public regulated market within the European Union (EU), the European Economic Area (EEA) and Switzerland, as well as EU membership candidates. In addition, the Federation offers Observer member status to any leading market operator not in a position to apply for full membership (for example from countries not yet in formal negotiations to join the EU). Introduction: MiFID and its Review In Europe, stock exchange and investment firm business is regulated mostly by the Market in Financial Instruments Directive (MiFID). MiFID was the result of long negotiations between different marketplaces and interests. The goal of this Directive was to ensure that an integrated EU market could provide the best services and protection to investors. To do this, MiFID placed emphasis on competition and the marketplace as the main policy tools. It was assumed that if there is enough competition in the market, the investor will be able to choose the best service. However, in light of the ongoing financial crisis that has struck not only the Euro zone but also global markets, it is Judith Hardt Secretary General, FESE indeed appropriate that MiFID is being reviewed. This will happen with the publication of a formal new proposal for legislation in mid-october 2011, with negotiations expected to continue through MiFID determines the main characteristics of the environment in which a company that has become public (via admission to trading, IPO or both) operates. There is consensus that there is an urgent need for transparency and tighter regulation to ensure that the lower costs of trading on exchanges achieved by MiFID are passed on to the end user and that the capital markets remain transparent, safe and efficient for all users. The MiFID Review is a response to a growing unlevel playing field in European markets and the increase in unregulated dark over-the-counter (OTC) trading, which has been attributed with exacerbating the stability of the market place in these fragile times. In terms of competition between trading venues, the MiFID Review will examine the true nature of the competition between exchanges and investment firms, and will hopefully aim to reduce any unfair advantages afforded to new start-up trading platforms. What does MiFID say about IPOs? While the principal purpose of MiFID is to regulate all secondary trading of financial instruments (ie securities and derivatives), it has a significant effect on the initial raising of capital by determining what happens after the primary market activity is finished. In other words, MiFID determines the main characteristics of the environment in which a company that has become public (via admission to trading, IPO or both) operates. Admission to trading on a Regulated Market (RM) is the main quality label and safety standard of Europe, and therefore triggers many of the EU rules applicable to issuers, their underwriters and the brokers, such as the obligation for the issuer to do a prospectus and to do continuous disclosure, for the broker to send transaction reports to the supervisors at the end of the day, and for all trading venues to publish real-time transparency (for shares, possibly to be extended to non-equities). In addition, a certain set of rules apply to all instruments, irrespective of whether admitted to trading or not, such as the rules for brokers conduct of business and the exchanges operation (e.g. access rules). In this framework, Multilateral Trading Facilities (MTFs) play an important role. MTFs can be either listing or only trading. The listing MTFs (or primary market MTFs) tend to be operated by exchanges; they are specialist

17 Federation of Euro-Asian Stock Exchanges / September markets operating for SMEs that allow smaller, growing companies a platform to raise necessary capital through initial public offerings. Since these companies are not admitted to trading on any RM, they are exempt from the EU s prospectus or market abuse rules (instead being supervised nationally). By contrast, the secondary market MTFs, which are operated either by investment firms or by exchanges, offer pan-european trading in the blue chip shares that have already been admitted to trading on a RM in Europe. Hence the issuer and trading transparency requirements are the same as any share admitted to trading on a RM. Taken as a whole, this framework meets many of the expectations of companies and investors, but 4 years after implementation, some cracks have emerged. The most common problems cited (see below) are a lack of transparency for the investors and supervisors, weakened price formation process, unfair competition from unregulated trading venues run by investment firms. In short, there are several regulatory gaps that need to be filled. What is likely to change? The MiFID Review a process that will keep the main legislation but amend potentially important aspects of the legislation is expected to introduce a number of significant changes to European capital markets. In its consultations on the subject, the European Commission has acknowledged that there have been complaints from investors about the insufficiency of transparency in European capital markets. While FESE member exchanges have accepted (and thrived as a result of) much greater competition since 2007 and lowered their fees, some of these fee reductions have not been passed on to investors. Moreover, investment firms are operating many new trading venues without following the MiFID obligations (generally because of weak or inconsistent enforcement of the rules). As a result, many investors complain of increasing opacity in share trading and the emergence of dark trading that is hindering efficient price formation. It will be a major challenge of the MiFID Review to ensure that 1) bond and derivative markets (which are already mostly OTC) become transparent, and 2) the downward slide of transparency in equity markets is stopped. One potential significant change that has been included in the European Commission s MiFID Review consultation is the possible introduction of a new, exclusive SME market. The purpose of this new definition would be to provide SMEs a tailor-made venue at which they could conduct IPOs and subsequent issuance of shares. This definition is intended to create an SME quality label aimed at attracting investors. FESE thinks that such a label is unnecessary and that it could fracture the already fragmented trading landscape. Instead, we propose keeping the companies choice of being admitted to trading either on the mature RMs or the growth market MTFs. In any event, the European Commission s proposal so far does little to address the many other concerns that issuers (small or large) have and which they hope will be addressed in the MiFID Review. Following the creation of pan-european trading by the original MiFID Directive, there have been growing concerns by issuers about not knowing where their shares are actually traded. The increasingly fragmented marketplace, brought about by increased competition, has made it much more difficult to track the actual venue where the shares are traded. Price formation is also suffering, making a public listing potentially less attractive. This has caused concerns for issuers who wish to know who has purchased their shares and where they have done so. Some issuers are asking to regain control over where their issues are traded. FESE supports such proposals. What other developments to watch out for The MiFID Review is not the only vital piece of legislation in the pipeline for European legislators. For example, there are several SME finance initiatives being considered as part of what is called the EU Single Market Act (legislation aimed at solidifying cross-border business). The purpose is to ensure that SMEs have easier and more reliable access to capital. Coupled with this, there is also a review of the MAD, which could extend some parts of the legislation to primary market MTFs. The European Commission aims at releasing their proposal on this Directive alongside the MiFID Review in order to ensure a coherent review between both texts. Other important issues to be considered will be the implementation of the changes to the Prospectus Directive and the Transparency Directive, both affecting IPOs directly. As FESE, we will be paying close attention to all these Directives as they unfold. All these will have an important bearing on how European capital markets emerge from the current financial crisis. For more information on any of these initiatives or on FESE, please contact hardt@fese.eu or inel@fese.eu.

18 16 Federation of Euro-Asian Stock Exchanges / September 2011 Oman Values Primary Market for More IPOs Continuous and balanced economic development requires developing exchange markets that work as channels, through which, national savings and domestic and foreign investments from various sectors can flow and contribute to the expansion and diversification of the national economy. This also increases the contribution of the private sector in the process of economic development and reduces the immigration of domestic funds abroad. All of these factors, can also attract the foreign investments which is an active element in the success of privatization policies. The economic developments during the last two decades demonstrated that most countries in the world have adopted international conventions which remove the obstacles for investment so that all economies may in turn become significantly interdependent. This in turn, also indicates that the governments of these countries have been doing their best so that their countries may benefit from the domestic and foreign investment which will become the prime movers of their economies. The development of securities markets can be viewed from two interconnected angles: First: The technological and professional tools used in the performance of these markets in their daily activities to control their operations and help all related Economic development requires exchange markets that work as channels, through which, national savings and domestic and foreign investments can flow and contribute to the expansion and diversification of the national economy. parties in obtaining the necessary information to take the investment and administrative decisions easily and clearly. This aspect is apparent in the MSM performance. Second: The presence of a trading base of a large number of listed joint-stock companies distributed as in various sectors and displaying adequate liquidity large volumes. Both of these issues require an active primary market that contributes to the strengthening of the secondary market through continuously providing this market with new joint-stock companies with large capital bases. These companies would subsequently push the horizontal and vertical extension of the secondary market. The development of the primary market is significantly important for the development of economy in any country that adopts economic freedom because such development is important for various reasons, notably: a. The development of the primary market is an indicator of the development, growth, and balance of various economic sectors. The establishment and listing of a new company expresses the development of economic performance of this sector in which it operates. b. Increasing productivity levels of the national economy through funding the investment opportunities that would help raise production levels and consequently operation and employment levels would helpd in the realization of better incomes at the individual and national levels. c. The development of the primary market is important to reduce the consumer pressures in the national economy. Offering new companies for listing encourages individuals and corporate sector to have more investments and this reduces consumption, particularly the luxury type.

19 Federation of Euro-Asian Stock Exchanges / September d. Expansion in the establishment of new joint-stock companies improves competition in addition to improving the quality of commodities and services produced by the very same companies all across the sector. This in turn would then improve the national economy both domestically and internationally. e. The development of the primary market contributes significantly to the support and stability of the secondary market because the expansion of the trading base contributes to the reduction in market fluctuation and avoidance of its negative effects. f. The expansion of the primary issuance market significantly reduces speculation and corresponding negative effects on the market due to the expansion of investment options. g. The expansion of the primary issuance market contributes to the reduction of market hazards that investors may encounter due to the expansion of the overall investment options base of the investors (i.e. the variation of investment alternatives upon taking the investment decision). h. Increase in the total number of individuals and institutions holding investment portfolios and their overall profitability. i. The development of the primary market and expansion of the total company base contributes to the growth of institutional investment and this is thenreflected in the increased stability of the secondary market. j. The expansion of the primary issuance market contributes to increasing investment awareness of the public due to the increasing number of investors in the market as a whole. IPOs in Oman The primary market in the Sultanate of Oman has been developed through the growing number of IPO s since the founding of Muscat Securities Market in The number of IPO s over this period since the establishment of the MSM totals 76. This figure is significantly below the desired objective, this limited growth is due in part to the prevalent obstacles in the MSM primary market growth. To name a few obstacles; 1. Poor orientation programs available for the Family Businesses turned Listed Public Joint Stock Companies. Although, the legislation governing the transformation of family business has recently been amended, which introduced the reduction in the percentage required transformation family businesses in to public companies (from 40% to 25%) proper implementation of the amendment has yet to begin. 2. The conservative Lending Policy adopted by the Oman Development Bank, stands as a hurdle to the growth Small & Medium Enterprises (SME s). It is believed that if this policy is further developed it can be transformed into Public Shareholding Companies, in the future. 3. Absence of New Venture Capital Funds which in the case of their presence may play an active role in the contribution of the formation of many promising projects and opportunities in Medium Enterprise which may later be transformed into Public Joint Stock Companies. 4. The stagnant role played by the Oman Chamber of Commerce and Industry in encouraging local entrepreneurs to establish Public Joint Stock Companies. 5. The strict privatisation regulations implemented for local and foreign investments are a hurdle to the transformation of many possible prospects into Public Shareholding Companies.

20 18 Federation of Euro-Asian Stock Exchanges / September 2011 Indolent Growth; Promising Future IPOs Middle East and Africa The Global IPO market was affected negatively by the interruption of the global financial crisis in 2008 as the market turmoil triggered by the credit crunch sent worldwide Initial Public Offering (IPO) markets plummeting by over 60% in both deal numbers and capital raised compared to This compelled a number of businesses to withdraw or postpone their IPO plans. Recuperating, after the devastation of the global capital markets and the banking systems, 2009 IPO markets witnessed a 25% decline in the number of IPO deals and 18% increase in the amount of capital raised during the year. Moving to a more stable global macroeconomic environment, the IPO market continues to revive with the number of IPO deals and fund raised surging outstandingly by 141% and 152%, respectively, in 2010, approaching the pre-financial crisis levels. Nonetheless, it s important to emphasize that the revival of the global IPO market is uneven. Middle East and Africa IPO Market In 2008, the Middle East and Africa region experienced 77 IPOs raising approximately US$16 billion. The IPO value and the number of deals recorded a decline of 20% and 60%, respectively, as opposed to The first half of 2009, marked a dormant IPO market; that has quickly reversed by the second half of the year revitalizing the global IPO market. Nonetheless, this thirst for recovery has not been reflected on the Middle East and Africa region IPO market. In fact, the region IPO market lapsed with its value and number of deals in 2009, retreating by 85% and 71%, respectively. Year 2010, resembles the start of a phase in the region with the number of deals recording 118% increase and the capital raised surging by 106%. The Middle East IPO markets recorded 35 IPO deals worth US$3.3 billion, which is 59% higher compared to 2009 in terms of capital raised. Meanwhile, Africa witnessed a tremendous jump in 2010, surging by 406% in total proceeds, with 13 IPOs worth US$1.6 million. The Egyptian Exchange International Relations Research & Markets Development Global IPOs by number of deals and capital raised Middle East & Africa IPOs by number of deals and capital raised Egypt IPOs by number of deals and capital raised Capital Raised Number of Deals 190 Capital Raised Number of Deals 1,520 1,552 1,796 2,014 1, $131 $180 $267 $ $ $113 $ $2 50 $8 $10 $20 $16 22 $2 48 $5 $1,326 $ $888 $ $ Source: Global IPO Trends 2011, ERNST & YOUNG Source: Global IPO Trends 2011, ERNST & YOUNG Source: The Egyptian Exchange

21 Federation of Euro-Asian Stock Exchanges / September The Egyptian Market 1997 reminiscent IPOs in the Egyptian market, witnessing 3 major IPOs of public companies; SIDPEC, AMOC, Telecom Egypt, worth more than LE 7.6 billion. This came in line with the Ministry of Investment commitment to activate the privatization program through the stock exchange at that time. Following the 3 major IPOs of public companies that took place in 2005, year 2006 has only witnessed 2 offerings worth almost LE 1.9 billion, followed by 2 offerings in 2007, with a cumulative amount of LE 4.9 billion. Despite the global financial crisis that hit all markets, the Egyptian Exchange witnessed 4 IPOs in 2008, with a cumulative amount of LE 4.2 billion. Being part of the Middle East and Africa, Egypt was in its turn affected by the lapse in the IPO market witnessed by the region, with virtually no IPO recorded for the year This primarily attributed to the aftershocks of the credit crunch, whereby investors appetite for risk became minimal. In 2010, however, Egypt contributed to the upsurge in the IPO deals, witnessing 3 IPOs with a total value exceeding LE 2.2 billion. The Juhayna Food Industries IPO was awarded the best African IPO by Africa Investor; the leading international investment research and communications group.

22 20 Federation of Euro-Asian Stock Exchanges / September 2011 Awareness is Key to Unlock IPO Potential Alev Dumanli Asistant Director, Listing Istanbul Stock Exchange The function of the Capital markets is to facilitate fund raising opportunities for businesses which aspire to invest for sustainable growth in a highly competitive environment. Within this framework, Public offerings play a pivotal role in ensuring those businesses gain both international competitive advantage as well as global recognition. Similar to the trend around the word, family businesses make up a large majority of the economic activities in Turkey. Once such companies reach a certain size, they are no longer mere family businesses but become the heart and soul of the national economy. These businesses in turn become an essential constituent of the national wealth and a valuable engine of employment. Therefore, it is very important to convert these constituents of national wealth into sustainable companies that will be able to outlast current generations. The Istanbul Stock Exchange (ISE) emphasizes the importance of establishing a strong corporate culture and fostering growth; further it is the opinion of the ISE that both of these goals are best realized through institutionalization. In spite of the fact that capital markets offer a wide range of opportunities for companies, including lowcost funding, institutionalization, international and local visibility, liquidity for shareholders, and credibility; many leading Turkish companies do not have access to trading on the Istanbul Stock Exchange (ISE). The ISE initiated the Initial Public Offering (IPO) Campaign in cooperation with the Capital Markets Board of Turkey (CMB), the Union of Chambers and Commodity The ISE has already started to harvest the fruits of the Initial Public Offering Campaign which has now been underway for more than two years. Exchanges of Turkey (TOBB) and the Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) on August 7, The Campaign is aimed at ensuring that companies have access to the opportunities offered by the capital markets, raise the funds they need for growth, and ensure sustainability by going public. Through the IPO Campaign the ISE aimed to attract the largest 1,000 Turkish companies to the Istanbul Stock Exchange (ISE) as well as to increase the awareness of the capital markets among the Small and Medium Enterprises (SMEs) by establishing a special market segmentation. Also, The ISE would like to increase the number of companies listed on the ISE from its current standing of 364 to over 1,000 by The year 2023 holds special significance because it will be the centennial anniversary of the Turkish Republic. The first all-embracing occasion in which public offerings were encouraged in Turkey was the IPO Istanbul Summit held in Istanbul on May 6-7, The Summit brought together over 2000 top level executives from 514 leading Turkish companies that are not yet traded on the Istanbul Stock Exchange. Throughout the Summit, the ISE convened all the parties involved in initial public offerings in an exhibitionlike environment, where they had the opportunity for face-to-face meetings and networking. Brokerage companies authorized for public offerings, independent audit firms, law firms, private equity funds, domestic and international institutional investors, consultancy firms and sectoral associations were invited to actively take part in the Summit by opening stands, organizing workshops and holding one-to-one meetings with companies, and thereby directly informing the executives of companies which have the potential to go public about their services. 82 speakers delivered keynote speeches and 3 panels and 8 workshops were held during the summit. Speakers talked about issues such as: the benefits and costs of IPO new opportunities offered by the ISE for small and medium sized companies institutionalization and growth through IPO for family businesses roadmap for IPO in various panels.

23 Federation of Euro-Asian Stock Exchanges / September The second Initial Public Offering Campaign was held in Bursa, on November 23-24, The Summit was attended by 618 individuals, 111 companies (4 already trading on the ISE), 19 brokerage houses, 18 audit and financial consultancy firms. Aside from the IPO Summits in Istanbul and Bursa, the ISE organized Public Offering Seminars in cooperation with chambers of industry and commerce in various cities. Companies which are thought to exhibit a high potential to benefit from actively participating the the capital market are shortlisted to be contacted at regular intervals. A promotional film emphasizing sustainability was prepared for nonpublic companies focusing on the benefits of going public. Within the context of the Initial Public Offering Campaign, the ISE launched the website ipoturkeysummit.com. The site includes; Public Offering Campaign Promotional Film Procedures on public offerings and trading on the ISE Information on the authorized intermediaries and audit firms Information, pictures and video recordings related to Public Offering Seminars in various cities. With the amendments made in the ISE Listing Regulation, profitability and minimum capital requirements as well as the criteria for listing according to free float market capitalization and free float ratio of the company were divided into three groups. Accordingly, the companies are eligible to be listed on the ISE provided that they meet the criteria under one of these groups. This new system has made the listing criteria more flexible. The ISE provided a 25% discount in initial listing fees. Further, companies were able to start trading on the National and Second National Markets with a minimum free-float rate of 25% and free-float market capitalization of TL 100 million. These companies were also given a 25% discount in the initial listing fees which was valid until December 31, The reason behind implementing discounts was to encourage the public offerings so that the minimum free-float rate of 25% could be achieved in line with the European Union standards. Further this tactic was employed to support the achievement of the target of Increasing the number of public offerings and the free-float rate. The ISE has already started to harvest the fruits of the Initial Public Offering Campaign which has now been underway for more than two years. The average number of initial public offerings, between the years was 23 and decreased to 9 between the years and was registered as 22 in During the first 8 months of 2011, 22 companies went public, with 5 applications currently under review. The best performance was achieved in terms of public offerings as a result of the increase in interest in the capital markets following the Initial Public Offering Summit, which was held on May 6-7, The dynamism brought to the market by the IPO Campaign has influenced foreign companies as well; the first foreign company s share was traded on the ISE in December The Company s shares are also traded in Vienna Stock Exchange and they have TL 134 milion source through their IPO in Turkey. ISE expects to continue the promotion and awareness activities as related to initial public offerings in cooperation with the Capital Markets Board of Turkey (CMB), the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and the Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) in various cities with the participation of the chambers of industry and commerce, which we hope will create the synergy to accelerate the development of Turkish capital markets.

24 22 Federation of Euro-Asian Stock Exchanges / September 2011 Iran s Experience in Initial Public Offering Abolfazl Shahrabadi International Director, Tehran Stock Exchange Maryam Ebrahimi Legal Director, Tehran Stock Exchange Background In this article we point out the experience of the Initial Public Offering in Iran. First, we study the IPO regulations and then review the results of the last five years IPOs. Regulations governing the IPO in Tehran Stock Exchange Selling the shares of a company to the public after the admission of that company in the Exchange is called an IPO, (paragraph 46 of the regulation of transactions in company stock). Companies that want to offer shares to the public through the TSE must be registered as a public company at the SEO and then be consequently listed at the TSE. Listing of securities on the TSE is under the administration of the After the admission of any public company s shares, the name of the accepted company is recorded in the Exchange board and then the shares become tradable through brokers. The main shareholders of the company are required to offer the shares in the Exchange at least 5 days and up to six months after the admission date (Article 34 of the Tehran Stock Exchange Securities by the instructions). If the shares are not offered during this period, the admission of the company will be canceled and as a result, such company will be subject to a new admission process. The initial offering is subject to full disclosure of information in accordance with the regulations. The initial Public Offering is a series of activities related to selling shares to the public and in order to create a public market for that stock. The actual process of the IPO is done in a variety of ways. Before the enactment of the Securities Market Act 2005 in Iran (the so-called market law), before the public offering of shares, one was not required to obtain authorization from the Securities and Exchange Organization (SEO). The permission of the company s registration agency (CRA) was enough in order to create a public offering. The CRA would not carry out any substantial investigation, and a review of published documents would suffice. After the approval of the new market law, regulations governing the process of public offering changed and a new process was created that eventually led to obtaining a mandatory permit from the SEO. After the approval of the new market law, regulations governing the process of public offering changed and a new process was created that eventually led to obtaining a mandatory permit from the SEO. TSE Admission Board. The Admission Board is comprised of five members and a secretary: The chairman of the SEO or a member of the board(chairman) The chairman of the TSE or a member of the board An expert as proposed by the Brokers Association An expert as appointed by the board of the SEO An expert as appointed by the board of the TSE TSE s CEO is the secretary of the Admission Board. But, what are the specific rules about the IPO process? In response to this question, it should be acknowledged that currently the only rules governing the operations and activities of the IPO process are based on paragraph 4-4 of the directive of the SEO for demutualizing the Tehran Stock Exchange, which includes limited rules about the IPO. Hence, at the time of writing this paper, the TSE s proposed instructions on the IPO in the Tehran Stock Exchange is in the final stages of approval at the SEO.

25 Federation of Euro-Asian Stock Exchanges / September Recent studies indicate that two methods are most commonly used in the actual IPO process: the competitive prices and fixed prices. Adoption of each of these two methods is based on the proposal of the seller s broker and the agreement of the TSE. The competitive method that is based on auction mechanism is conducted in a trading session or OTC, it is prescribed that at least twenty percent of the company s shares should be offered over 6 months after the IPO. It is advised that the supply of securities is preferably done by an investment bank. According to these regulations, an IPO is considered successful when at least 60% of the advertised number of shares was sold in the first day of In the new proposed directive, the use of the book building method for selling shares to investors in the IPO is considered. Initial selling of shares to investors, using of single-price auction method is conducted without any price fluctuation limit. After discovering the price, the price fluctuation limit will be performed; the closing price will be calculated according to the weighted average of daily trading price. An IPO is considered successful when at least 60% of the advertised number of shares was sold in the first day of IPO; otherwise the sale of shares will be postponed to another session. and the offering price is determined according to the demands for the offered shares on the trading session. In order to commence the launching of an IPO, the seller s broker as the shareholder s agent announces the preparation for the IPO with a letter of offer to the TSE. In this letter, the number of shares, the proposed date of offer and the profile of the seller are provided. On the actual offering day any person other than the persons named in the letter of offering have no right to offer that share. This Information is released on the TSE s website at least two days before the actual IPO date. It should be noted that, at least 5 percent of the total shares of the company should be offered. The CEO of the TSE may determine the shares to be released immediately or gradually. However, based on the instruction for offering shares in the TSE and the OTC market adopted by the Exchange regarding the offering of public companies through Exchange IPO; otherwise the sale of shares will be postponed to another session. In order to ensure fairness and provide equal access to the offered shares in an IPO, the Exchange could establish limits for each station, trading or transaction code. In case of any violation of these restrictions, all allocated quotas will be cancelled. However, in some cases with the agreement of the CEO (this authority has been handed over to the market operation manager) only over quota purchases are canceled. Although the fluctuation limit for trading price in the Exchange is positive / negative four percent, there is not any limit for an IPO, which is the base for price discovery. On the actual IPO day, the closing share price equals the average weighted price of the IPO trading for that day and will be considered the base for the price fluctuation on the following day. In another new proposed directive, the role of IPO manager is expected to be performed by a brokerage company or an investment bank. The IPO manager is required to prepare a report with the confirmation of the issuer at least 10 days before the offer, including items such as the profile of IPO manager, underwriter s group, low price and the price range, number of offered shares, start and end date of book building and major shareholders. The TSE, after agreement for an IPO, delivers this information in an IPO announcement and releases it at least two working days before the start of the book building. The prospectus should be disclosed before Initial public offering. According to this directive a successful IPO is deemed as so, when at least 80 percent of the offered shares to be purchased by persons other than the IPO manager and underwriter s group are sold. It appears that the implementation of this directive results in the positive development of public offering and price discovery.

26 24 Federation of Euro-Asian Stock Exchanges / September 2011 Initial Public Offerings results over the past ten years Over the Past ten years, 27 companies were listed on the Tehran Stock Exchange, the yearly average of about 5 companies created a smooth trend. The two tables below show the IPO trend over the past ten years. Year # Listing Company Sector IPO Date Paid in Capital (billion IRR) First day of IPO Million shares IPO share Price (IRR) Capitalization -end of Dec 2010 (billion IRR) 1 Iran Khodro Investment Development Co Motor Vehicles And Auto Parts 2006/12/23 1, ,383 2,173 2 Iran National Copper Industries Co Basic Metals 2007/2/4 5, ,704 54,388 3 Esfahan's Mobarakeh Steel Co Basic Metals 2007/3/10 15, ,900 40,511 4 Iran Aluminum Co Basic Metals 2007/6/ ,000 1,586 5 Dashtestan Cement Ind. Co Cement, Lime & Plaster 2007/7/ , Khouzestan Steel Co Basic Metals 2007/8/7 2, ,350 15,693 7 Iran Power Plant Projects Managements Co.(MAPNA) Technical & Engineering Services 2007/8/26 7, ,352 28,135 8 Sina Bank Monetary Intermediation 2007/9/25 1, ,213 9,480 9 Khorasan Steel Complex Co Basic Metals 2007/10/30 1, ,815 14, Neyriz Cement Co Cement, Lime & Plaster 2007/11/ , Omid Investment Co Diversified Industrials (Holdings) 2008/1/6 4, ,700 18, Fanavaran Petrochemical Co Chemicals & Chemicals -products 2008/2/ ,750 7, Islamic Republic of Iran Shipping Lines Co Transportation and Storage 2008/4/19 5, ,500 12, Esfahan Oil Refining Co Refined Petroleum Products & Nuclear Fuel 2008/6/30 4, ,800 17, Kordestan Cement Co Cement, Lime & Plaster 2008/7/ ,007 1, Iran Telecommunications Co Post and telecommunications 2008/8/10 45,874 2,230 1, , Mellat Bank Monetary Intermediation 2009/2/19 13, ,050 29, Tejarat Bank Monetary Intermediation 2009/4/18 10, ,204 24, Saderat Bank Monetary Intermediation 2009/6/9 16, ,001 23, North Drilling Co Oil & Gas Extraction and related services except 2009/7/22 2, ,400 6,063 Surveying 21 Alborz Insurance Co Insurance & Pension funding Except Compulsory Social 2009/10/ ,293 2,526 Security 22 Fars-e-Nou Cement Co Cement, Lime & Plaster 2009/10/ , Asia Insurance Co Insurance & Pension funding Except Compulsory Social 2009/12/ ,486 1,994 Security 24 Dana Insurance C Insurance & Pension funding Except Compulsory Social 2010/8/ ,104 1,383 Security 25 Post Bank Monetary Intermediation 2010/11/ ,302 3, Tabriz Oil Refining Co Refined Petroleum Products & Nuclear Fuel 2010/11/13 1, ,402 4, Parsian Insurance co Insurance & Pension funding Except Compulsory Social Security 2010/11/30 1, ,304 3,946

27 Federation of Euro-Asian Stock Exchanges / September V Formation on the Belgrade Stock Exchange Marija Babic Internal Controller Belgrade Stock Exchange This fresh liquidity poured into the market and led to a recovery in the trading, it reversed the downward trend and almost immediately figures improved dramatically. From the inclusion of this company to trading until year end 2010 the average turnover on the Regulated Market increased by % and the average number of trades by increased by a staggering 17,379% in comparison to the period prior to inclusion of these new shares in According to an announcement of the Government of the Republic of Serbia, another company is expected to come on to the market. The largest Serbian telecommunication company which is also operating in the ex-yu region, Telekom Srbija a.d. Beograd should make its debut on the market in October Given the previous experience with the shares of NIS and Airport, it can be expected that this company will also contribute to the upward trend and along Following 2007 with an average daily turnover of USD 10.1 million and an average daily number of trades of 1,138, in 2008 with an average daily turnover of USD 4.8 million and an average daily number of trades of 436, and 2009 with an average daily turnover of USD 2.2 million and an average daily number of trades of 270, came 2010 with an average daily turnover of USD thousands and average daily number of trades of 2,853. The turning point to the evident downward trend came at the end of the 3rd quarter in On August 30th shares of the petroleum company NIS a.d. Novi Sad came to trading as the first real blue chip company traded on the Prime Market of the Belgrade Stock Exchange. Prior to floating its shares on the exchange 51% of the company NIS a.d. Novi Sad was bought by the Gasprom neft. The Republic of Serbia kept an ownership stake of 29.9%, while the rest of 19.1% of the company s shares was distributed to the 4.82 million Serbian citizens in accordance to the privatization law. On the Regulated Market in 2011 average share turnover has more than trippled while the average number of trades is nearly 7 times bigger. The market capitalization of the Market in 2011 is up by 77,37% as compared to end year In February 2011 another blue chip company came to the Prime Market in the course of privatization of large public companies. Airport Nikola Tesla listed its shares and started trading on the exchange, as well, contributing to the upward trend that has continued in Just for the record, these two companies alone have over 9.6 million of shareholders fit and ready to place an order. Thanks to this market activity the average daily share turnover was boosted to USD 1.7 million in 2011 while average daily number of trades hit the figure of 18,352. The inflow of orders coming from this new pool of 4.8 million shareholders has rallied and on some trading days exceeds 100,000 orders. On the Regulated Market in 2011 average share turnover has more than trippled while the average number of trades is nearly 7 times bigger. The Market capitalization of the Regulated Market in 2011 is up by 77,37% as compared to end year with the positive impulses from the political and economic conditions will accelerate the recovery of the Serbian capital market and restore the precrisis levels. Vesna Ilic Ljusic Associate Specialist, Analysis Department Belgrade Stock Exchange

28 26 Country Focus: Kazakhstan Marchenko: KASE is Keen on Attracting New Listings Federation of Euro-Asian Stock Exchanges / September 2011 Q - What is your vision of further development of capital market based on the current conditions of Kazakhstan s financial market? A - Development of the Kazakhstani capital market is one of the major objectives of the government of the Republic of Kazakhstan. We recognize the importance of developed capital market and its impact on overall economic growth of the country and on ensuring financial stability, improving financial sector sustainability and encouraging investment inflows. For Kazakhstan, a country with dominant natural resources industry, capital market can serve as a tool for economic diversification, wealth distribution, diversification of ownership, corporate governance enhancement, as well as establishing strong transparency provision mechanisms. We focus our efforts on increasing trustworthiness of the capital market which requires further development of clear and understandable rules, safe and sustainable infrastructure and Grigory Marchenko Chairman of the Central Bank of the Republic of Kazakhstan transparent market to increase attractiveness of Kazakhstani capital market and ensure investor protection. The main policy documents that contain the key areas of Kazakhstani securities market development in the medium term are Kazakhstan Stock Exchange Development strategy and Road Map for Development of Accumulation Pension System and Securities Market of Kazakhstan. These documents describe measures aimed at expanding the number of liquid and safe financial instruments, increasing attractiveness of domestic stock market for issuers and investors, enhancing Internet-trading system and remote access to trading on Kazakhstan Stock Exchange (KASE), as well as further improvement of the clearing and settlement system. One of the major government measures aimed at development of the capital market is the upcoming People s IPO, i.e. placement of state-owned companies shares on domestic stock market for purchase by the Kazakhstani population. Among companies considered for IPOs are national conglomerates with a proven track record of progress and stability. Moreover, given that the last IPO took place in 2006, People s IPO is an attractive investment opportunity for the retail investors, as well as pension funds. Today, the major problem encountered by the pension funds of the Republic of Kazakhstan with the approximate size of investment capital of around 15 bln USD is lack of securities in which pension funds can invest. We hope that People s IPO will launch the market and with a more active and attractive market we will see more companies that would list on Kazakhstan Stock Exchange. In general, implementation of these measures will promote further strengthening of confidence of the population and investors in Kazakhstan s stock market. Increased transparency and liquidity of securities market will attract both foreign and domestic investors. In addition to already announced by the Kazakhstani government listings of the SOEs, KASE is keen on attracting new listings and ensuring a substantial IPO pipeline. Generally, as indicated in KASE Development Strategy the exchange is aimed at facilitating successful implementation of the government strategy aimed at ensuring sustainable and balanced growth of the economy through diversification and enhancement of its competitiveness, creating favorable investment environment, increasing investments to the economy through the capital market, and successful entry of Kazakhstani blue chips to the national stock market. Therefore, the stock exchange in Kazakhstan, and I am sure in many other countries of the FEAS region and beyond, is one of the key players in the capital market development process. Moreover, aside from the fact that the stock exchange plays an important policy role in defining listing and compliance standards for companies that wish to go public, the performance of a national stock exchange often taken as a proxy for the health of a nation s economy. Thus, improvement of KASE performance and enhancement of its self-regulatory functions is another important policy goal focused at strengthening key partners and uniting our efforts in favor of the capital market development.

29 Federation of Euro-Asian Stock Exchanges / September Country Focus: Kazakhstan Q - How Kazakhstan s capital market can be more attractive for foreign investors in current conditions and in future prospective? A - Creating conformable and predictable environment for foreign investors to operate in the Kazakhstani capital market is an ongoing active process. Currently, there are no major obstacles for trading securities at Kazakhstan Stock Exchange. There are a number of large banks and securities firms that are members of Kazakhstan Stock Exchange and investors can easily trade through them. We are also considering a possibility of remote access for the securities market members and discussing with our market participants the potential of DMA access. There are no limitations on currency exchange or repatriation of capital while tax rates are close to zero. At the same time, we realize that the stock market in any emerging economy should comply with certain criteria to become more attractive for foreign investors. First of all, the market has to comply with investors requirements concerning volumes of transactions, as well as liquidity and number of traded instruments. Secondly, it should provide easy access to investors, free of high costs and unnecessary red tape/ administrative barriers. The market should provide protection of the investors rights and ensure robust market surveillance and transparency for both investors and issuers. Finally, it should operate on a reliable technical and efficient organizational infrastructure, as well as provide easy access, understandable rules and predictable processes. I would like to emphasize that Kazakhstani capital market has a significant growth potential. A number of large foreign banks have their offices in Almaty and we are also considering providing remote access for major international players. In addition, we are working on improvement of market infrastructure and internal regulations to ensure its compliance with international standards. In the nearest future Kazakhstan Stock Exchange plans to enhance its settlement system and introduce all necessary risk management mechanisms. After the upcoming People s IPO the stock exchange will have additional attractive instruments to offer foreign investors for trading in the secondary market. Finally, we also understand the importance of IPO road-shows and international information campaigns. The Committee for the Regional Financial Center Development under the National Bank and KASE are keen on working in close contact with international players interested in investing in Kazakhstani securities. Q - What kind of steps can be made in order to attract foreign participants to Kazakhstani market? A - As already earlier discussed, attraction of foreign investors to Kazakhstani capital market and increasing the volume of foreign investments in Kazakhstani securities is one of the priority policy objectives aimed at development of the financial sector. Thus, in the framework of improving financial market infrastructure, we focus our efforts on implementing measures aimed at ensuring investors confidence in the capital market of the Republic of Kazakhstan. In addition to earlier mentioned endeavors, we are introducing regulatory changes aimed at increasing market transparency and preventing market manipulation. We believe that adequate information, solid rules and robust market surveillance, will enable us to continue delivering sufficient market supervision bringing it to full compliance with best international practice. In the framework of these efforts we are also keen on improving information In the framework of improving financial market infrastructure, we focus our efforts on implementing measures aimed at ensuring investors confidence in the capital market of the Republic of Kazakhstan. disclosure process and strengthening rules enforcement measures and mechanisms. The Road Map for Development of Accumulation Pension System and Securities Market of the Republic of Kazakhstan describes criteria for direct admission of foreign members to KASE and establishes mechanisms for investors rights protection, in particular, those categories of investors that invest on KASE through remote members. We are also working on upgrading of the existing trading and post-trading systems aimed at creation of technical framework for introduction of new instruments and ensuring easy and efficient access to the market. We

30 28 Country Focus: Kazakhstan Federation of Euro-Asian Stock Exchanges / September 2011 are committed to development of our market s IT-infrastructure both in a short-term and in a long-term prospective to ensure compliance with local and international investors requirements. Q - What is the policy of the National Bank concerning enhancement of financial literacy of Kazakhstani population previously conducted by RFCA before its functions were transferred to the National Bank? RFCA has accomplished a number of projects devoted to financial literacy within the context of Investment Culture and Financial Literacy Improvement Program. One of the major achievements is establishment of the Financial Academy in Almaty which offers educational programs to financial market professional and regular citizens. Among other projects: educational centers were established in the regional capitals and large cities. Information about these centers was distributed among population with the help of municipalities; toll-free hotline was launched to provide consultations on financial market operations; fingramota.kz website was created to provide Kazakhstani population with basic knowledge in the area of different financial instruments, personal budget management, independent risk assessment, financial opportunities and financial strategy for individuals; variety of educational publications were printed and distributed in schools, universities, libraries and RFCA educational centers. This is not an exhaustive list of projects devoted to improvement of financial literacy. The National Bank together with newly established Committee on Development of the Regional Financial Centre of Almaty City (CDRFCA) and Committee for control and supervision of financial organizations will continue working on further promotion of financial literacy among Kazakhstani population. We are planning to conduct an assessment of the current needs of the population in the area of capital markets investment risks and opportunities. This issue becomes especially relevant in light of the upcoming People s IPO, as ensuring smooth We continue conducting information campaigns and educational programs aimed at raising public awareness and knowledge about the financial markets. and successful People s IPO process is one of our first priorities. It is essential that the government program on People s IPOs reaches its goal of liquidity improvement on Kazakhstani capital market and allowing Kazakhstani citizens to benefit from the opportunities that capital market has to offer. In turn, the IPO process will allow citizens to apply their knowledge in practice, as Chekhov said Knowledge is of no value unless you put it into practice. Thus, we continue conducting information campaigns and educational programs aimed at raising public awareness and knowledge about the financial markets. In particular, we are focusing on the regional centers of the Republic of Kazakhstan providing local citizens with information about investment opportunities and ensuring their awareness of potential market risks. Grigory Marchenko Was born in December, 26, 1959 in Almaty. In 1984, he was graduated with honors from the Moscow State Institute of the International relations by specialty the International economic relations. Since January 2005 to January 2009 worked as Chairman of board of joint-stock company Halyk bank of Kazakhstan. Since January 2009 appointed as the Governor of the National Bank of the Republic of Kazakhstan. Awards, honorary titles: Order Parasat (2001) Jubilee medal 10 years of Constitution of the Kazakhstan (2006) Order The First President of the Republic of Kazakhstan (2008) The best manager of the central bank (2003, magazine Euromoney ) The best financier of year ( the Choice of 2000 of the Republic of Kazakhstan, the Choice of 2005 of the Republic of Kazakhstan ) The honorable consul of the Republic of Singapore in the Republic of Kazakhstan. The honorable consul of the Kingdom of Spain in Almaty.

31 Federation of Euro-Asian Stock Exchanges / September Country Focus: Kazakhstan Kazakhstan Banks on Securities Market Since the beginning of the history of sovereign Kazakhstan the country s economy was primarily represented by large mining and energy companies, due to abundant natural resources such as gas, oil, coal, uranium and others. However, over the recent years the government has been focusing on diversification of the economy and taking measures to promote development of the capital market. The current infrastructure of Kazakhstani financial sector allows attracting foreign investments even in the conditions of the global financial turmoil. Furthermore, from 2006 the government is cherishing the idea of developing Kazakhstani capital market to a regional financial hub, encouraging SOEs go for IPO, as well as introducing best practices of corporate governance and capital market operation. Key Economic Indicators KAZAKHSTAN STOCK EXCHANGE PROFILE Kazakhstan Stock Exchange (KASE) was founded in 1993 and remains the only stock exchange in the country. KASE is a commercial joint stock company, and as of August 01, 2011 has 62 shareholders. The Regional Financial Center of Almaty (RFCA) holds the majority share of 13.7%. Other shareholders include banks, pension funds, brokerage companies and other financial institutions and individuals. KASE provides trading infrastructure for almost all types of financial instruments that circulate on the organized financial market of Kazakhstan. Currency sector accounts for 54,8 % of the total trade volume, repo transaction sector 39,4 %, government securities about 3,7 %, equity and corporate bonds sectors each amount to approximately 2,0 %. KASE has several indices which measure the performance of equity, fixed income, and money markets. KASE Index is a real-time index that tracks performance of the most liquid shares on KASE. It is available on Bloomberg [KZKAK:IND] and Thomson Reuters [.KASE]. The indices of KASE_B* index series track prices and yields on corporate debt market while index TONIA indicates average yield of overnight repo transactions and index TWINA, indicates average yield of the week repo transactions. KASE also calculates KazPrime and KIBOR indicators which represent interbank money market interest rates. Index KazPrime is available on Bloomberg [KAZPRIME Index] and ThomsonReuters [KAZPRIME1]. KASE operates and maintains its inhouse developed electronic trading platform that allows Internet trading and remote access operations with necessary encryption and information security in place H 2011 Real GDP Growth GDP per capita (USD) 6, , , , ,182.6* Consumer Price Index Budget Balance (% of GDP) Current-Account Balance (% of GDP) Gross International Reserves (bn USD) Exchange USD/KZT rate (average) * KASE estimation. Sources: The National Bank of Kazakhstan ( The Agency of Statistics of the Republic of Kazakhstan ( International Monetary Fund. Kazakhstan Stock Exchange at a Glance Value traded, m USD Average daily value traded, m USD Average daily number of deals KASE market sector 1H H 2010 % 1H H 2010 % 1H H 2010 % Foreign Currencies 53, , Government securities: 3, , primary market 1, , secondary market 1, , Shares Corporate Bonds 1, Repo transactions 38, , IFO bonds < < Total

32 30 Country Focus: Kazakhstan Federation of Euro-Asian Stock Exchanges / September 2011 Top 5 Blue Chips on KASE (by market capitalization, m USD) Company As of Eurasian Natural Resources Corporation Plc* ( 16, , KAZAKHMYS Plc* ( 11, , KazMunaiGas EP JSC ( 7, , Halyk Savings Bank of Kazakhstan JSC ( 2, , Kazkommertsbank JSC ( 2, , Total 40, , * - non-resident companies with assets located in Kazakhstan Blue Chips Top 5 blue chips companies contribute more than 75 % to a total equity market capitalization (as of August 01, 2011 total equity market capitalization was 54.5 bn USD). Depositary receipts of all top 5 companies are also listed on London Stock Exchange. KASE IN 2011 Preparation for the People s IPO program and modernization of trading system: Within the framework of People s IPO project KASE actively interacts with foreign and local consultants and contributes to development of the overall program for listing of the National Welfare Fund Samruk-Kazyna subsidiaries on KASE. In addition, KASE is modernizing its IT-system and continues raising awareness of the population through the mass media. Marketing activities and development of the investor base: KASE plans to extend its investor base and further improve its services. KASE introduced remote trading software with FIX-gateway to allow investors to trade shares on KASE remotely. In addition, among measures aimed at attracting private retail investors and enhancing there knowledge of the financial market operations, KASE is planning to launch free-of-charge educational projects. FUTURE PROSPECTS Based on KASE Development Strategy the stock exchange is planning a myriad of projects aimed at development of Kazakhstani capital market, including remote access for international investors, improved-market making institute, as well as more enhanced clearing system and settlement system. Kazakhstan to start people s IPO in Q2 or Q President Nursultan Nazarbayev, in power for two decades, promised at the start of this year to hold a people s IPO to give hundreds of thousands of ordinary Kazakhstani citizens the opportunity to own shares in major companies and boost the country s dormant stock market. Kazakhstan s flagship carrier Air Astana, national grid company KEGOC and state oil transportation firm KazTransOil are among those assets which are most prepared for floating, Kelimbetov told a government meeting. Current demand (for state-held shares) from citizens is estimated at between $100 million and $200 million. But this potential demand can significantly grow, Kelimbetov said. (August 23, Reuters) Kazakhstan to see five years of largescale privatization, minister says Kazakhstan will undergo a significant period of large-scale privatization in the coming years, the Kazakh minister for economic development said on Thursday. I am deeply convinced that the main slogan of economic policies in Kazakhstan for the next five years will be large-scale privatization, the Kazakhstan Today (KT) news agency reported Economic Development and Trade Minister Kairat Kelimbetov as saying. The main thing is that privatization will mean important changes in the country, he said. There will be many changes in legislation. Tariffs will be long-term, transparent, predictable and understandable for consumers. (August 04, Central Asia-Caucasus Institute Analyst) viewstory.aspx?id=4577 Kazakhstan Readying Companies For People s IPOs Kazakh President Nursultan Nazarbayev Friday told his government to prepare state-owned power generator Samruk- Energy, electricity grid operator KEGOC and national postal service Kazpost for initial public offerings by the end of this year that will be aimed at local investors. Nazarbayev also said companies including state oil and gas company KazMunaiGas, national rail monopoly Kazakhstan Temir Zholy and state nuclear fuel company Kazatomprom will likely be listed on the Kazakh exchange in 2012 or The people s IPOs will give hundreds of thousands of ordinary Kazakhs the chance to own shares of the largest companies and will serve as an instrument for investment and savings, Nazarbayev said. (February 11, Fox Business)

33

34 32 Federation of Euro-Asian Stock Exchanges / September 2011 FEAS Region Statistics

35 Federation of Euro-Asian Stock Exchanges / September Statistical Comparison 2007 thru YTD 2011 / FEAS Region Category Statistics YTD 2011 % over YTD # Companies Traded 9,498 11,298 10,261 10,504 10, % 1.2% -8.1% 9.3% Market Capitalization (US$ Millions) 1,065, , , , , % 14.7% 55.0% -18.5% Total Volume (US$ Millions-Stocks) 615, , , , , % -35.5% -44.8% -49.6% Total Volume (# Shares Millions-Stocks) 444, , , , , % -29.4% 0.3% 2.0% Average Daily Volume (US$ Millions-Stocks) 2, , , , , % 27.4% 7.9% -1.2% Average Daily Volume (# Shares Millions-Stocks) 2, , , , , % 14.9% 59.2% 53.7% Total Volume (US$ Millions-Bonds) 478, , , , , % -42.3% -57.9% -60.1% Total Volume (# Shares Millions-Bonds) 314, , , , , % 209.9% 83.1% 29.4% Average Daily Volume (US$ Millions-Bonds) 1, , , , , % 14.0% -17.4% -21.4% Average Daily Volume (# Millions-Bonds) 1, , % 542.9% 279.8% 169.5% Total Volume (US$ Millions-Other) 2,102, ,284, ,075, ,715, ,117, % -46.1% -51.1% -46.8% Total Volume (# Millions-Other) 4, , , , , % -80.3% -59.9% -59.8% Average Daily Volume (US$ Millions-Other) 8, , , , , % 6.6% -3.9% 5.2% Average Daily Volume (# Millions-Other) % -56.6% -14.0% -13.1% YTD Market Capitalization (US$ millions) YTD , ,

36 34 Federation of Euro-Asian Stock Exchanges / September 2011 Dow Jones Feas Indices Dow Jones FEAS Composite Index Performance (in US$) ,000 6, ,000 4,000 3,000 2,000 1, /14/10 8/14/10 9/14/10 10/14/10 11/14/10 12/14/10 1/14/11 2/14/11 3/14/11 4/14/11 5/14/11 6/14/11 7/14/11 Dow Jones FEAS Composite Dow Jones Global Dow Jones Emerging DJ FEAS South East Europe Index Performance (in US$) ,000 6,000 5,000 4,000 3,000 2,000 1, /14/10 8/14/10 9/14/10 10/14/10 11/14/10 12/14/10 1/14/11 2/14/11 3/14/11 4/14/11 5/14/11 6/14/11 7/14/11 Dow Jones FEAS South East Europe Dow Jones Global Dow Jones Emerging DJ FEAS Middles East & Caucuses Index Performance (in US$) ,000 6, ,000 4,000 3,000 2,000 1, /14/10 8/14/10 9/14/10 10/14/10 11/14/10 12/14/10 1/14/11 2/14/11 3/14/11 4/14/11 5/14/11 6/14/11 7/14/11 Dow Jones FEAS Middle East Caucus Dow Jones Global Dow Jones Emerging The Dow Jones FEAS IndexesSM are calculated, distributed and marketed by Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC, pursuant to an agreement with the Federation of Euro-Asian Stock Exchanges. FEAS is a service mark of the Federation of Euro- Asian Stock Exchanges. Dow Jones, Dow Jones Indexes and Dow Jones FEAS IndexesSM are service marks of Dow Jones Trademark Holdings, LLC. CME is a trademark of Chicago Mercantile Exchange Inc. All content of the Dow Jones FEAS Indexes CME Group Index Services LLC 2011.

37 Federation of Euro-Asian Stock Exchanges / September Annualized Return on Index (June) KSE Index/Kyrgyz Top-20/Mongolia Tehran SE/Iran BIRS/Banja Luka Iraq/Iraq 50.8 Belex15/Serbia CROBEX/Zagreb KSE 100/Karachi BET/Romania TASIX/Uzbekistan BSE/Bulgaria SASX/Sarajevo B.I./Macedonia Kazakhstan ADX/Abu Dhabi ISE 100/Istanbul LSE 25/Lahore Muscat Securities Market/Oman Al Quds/Palestine Bahrain Amman SE/Jordan Egyptian Exchange/Egypt DSE Weighted Index/Syria Belarusian Currency & SE/Belarus Indices are adjusted for currency fluctuations. (Formula: 1+(return)=((1+%chg. index)/(1+%chg. currency

38 36 Federation of Euro-Asian Stock Exchanges / September 2011 Monthly Stock Volume vs Market Capitalization 950,000 70, ,000 60, ,000 50,000 40, ,000 30, ,000 20, ,000 10, ,000 0 Market Capitalization Volume (US$ Millions) Jul-2010 Aug-2010 Sep-2010 Oct-2010 Nov-2010 Dec-2010 Jan-2011 Feb-2011 Mar-2011 Apr-2011 May-2011 Jun-2011 Istanbul Gold Exchange Statistics Gold Transactions - Istanbul Gold Exchange Volume (USD) Daily Volume (USD) Volume (kg) Daily Volume (kg) Jan-11 35,604,942 1,695,473 38,688 1, Feb-11 29,410,464 1,470,523 29,476 1, Mar-11 36,101,404 1,569,626 31,241 1, Apr-11 45,235,015 2,154,048 32,273 1, May-11 52,045,008 2,478,334 31,488 1, Jun-11 42,705,456 1,941,157 37,343 1, Silver Transactions - Istanbul Gold Exchange Volume (USD) Daily Volume (USD) Volume (kg) Daily Volume (kg) Jan ,896,187 40,899,818 19, Feb ,106,757 18,355,338 8, Mar ,332,368 21,318,799 10, Apr ,584,274 17,551,632 7, May ,498,890 18,880,900 8, Jun ,201,619 34,872,801 15,

39 Federation of Euro-Asian Stock Exchanges / September YTD Traded Companies 12,000 10,000 80,000 8,849 10,318 9,794 7,300 7,319 7,653 8,003 8,348 8,232 9,498 11,298 10,261 10,504 10,131 60,000 5,074 6,210 40,000 4,075 20, YTD YTD Volume by Type 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Stocks Bonds Other YTD 2011

40 38 Federation of Euro-Asian Stock Exchanges / September 2011 Average Daily Trading Volume-Stocks YTD 2011 vs YTD 2010 Members over US$ 19 (US$ millions) Members from US$ (US$ millions) YTD 2011 YTD 2010 YTD 2011 YTD 2010 Istanbul Egyptian Tehran Karachi Abu Dhabi Amman , ,085.9 Bucharest Muscat Kazakhstan Zagreb Bulgarian Iraq Belgrade Palestine Members from US$ (US$ millions) Members under US$ 0.35 (US$ millions) YTD 2011 YTD 2010 YTD 2011 YTD 2010 Sarajevo Lahore Bahrain Damascus Baku Montenegro Mongolian Banja Luka Macedonian Belarusian Kyrgyz Moldovan Ukrainian Georgian Nasdaq OMX Armenia

41 Federation of Euro-Asian Stock Exchanges / September Average Daily Trading Volume-Bonds YTD 2011 vs YTD 2010 Members over US$ 1,000 (US$ millions) Members from US$ (US$ millions) YTD 2011 YTD 2010 YTD 2011 YTD 2010 Istanbul 1, ,308.9 Kazakhstan Belarusian Egyptian Baku Ukrainian Zagreb Members from US$ (US$ millions) Members under US$ 0.07 (US$ millions) YTD 2011 YTD 2010 YTD 2011 YTD 2010 Banja Luka Bucharest Mongolian Karachi Macedonian Abu Dhabi Bulgarian Belgrade Muscat Nasdaq OMX Armenia

42 40 Federation of Euro-Asian Stock Exchanges / September 2011 Average Daily Trading Volume-Other YTD 2011 vs YTD 2010 Members over US$ 650 (US$ millions) Members from US$ (US$ millions) YTD 2011 YTD 2010 YTD 2011 YTD 2010 Istanbul Belarusian Kazakhstan Baku Nasdaq OMX Armenia Egyptian Members under US$ 0.5 (US$ millions) YTD 2011 YTD 2010 Bucharest Macedonian Tehran Banja Luka

43 Federation of Euro-Asian Stock Exchanges / September Stocks Member Stock Exchange Volume ($) (Millions) Month Same Period Year Volume (#) (Millions) Month Same Period Year Avg. Daily Volume ($) (Millions) Month Same Period Year YTD 2011 Avg. Daily Volume (#) (Millions) Month Same Period Year YTD 2011 Abu Dhabi Securities Exchange , Amman SE Baku Interbank Currency Exchange (1) 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Bahrain SE #N/A Baku SE Banja Luka SE , Belarusian Currency & SE (2) Belgrade SE Bucharest SE , Bulgarian SE Damascus Securities Exchange Egyptian Exchange 2, , Georgian SE Iraq SE , , Istanbul SE 31, , , Karachi SE , Kazakhstan Kyrgyz SE Lahore SE Macedonian SE (3) Moldovan SE Mongolian SE Montenegro SE Muscat Securities Market NASDAQ OMX Armenia (4) , , , , , , , , , Palestine Exchange Sarajevo SE (5) Tehran SE 1, , Tirana SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Toshkent Republican SE 0.0 #N/A #N/A #N/A #N/A Ukrainian SE Zagreb SE TOTAL 39, , , , In total trades of Baku Interbank Currency Exchange on US dollar in June, 2011 has taken part 15 banks. For the given month were carried out 40 trading sessions and were made 45 deals. The total amount of trades in currency section of Baku Interbank Currency Exchange in last month has made million AZN, and in a dollar equivalent of million. It is necessary to note, that average USD/AZN rate has made in June AZN for 1 USD. 2. * Other instruments refer to currency and futures market (only turnover), and OTC market registration totals (purchase and sale of bonds and stocks of open JSC) in a dollar equivalent ** Number of companies includes number of Issuers of both stocks and bonds. 3. Turnover include only turnover in BEST (without block transactions) 4. Since the Central Bank of Armenia does not disclose information on the buy exchange rate of AMD to the USD, official exchange rates were used in calculations. Value traded for Bonds and Stocks include values of the trades concluded through manual trades mechanism. Bonds includes trading statistics of Corporate and Government Bonds markets. Other includes trading statistics of FX market, Credit Resources market and Repo agreements statistics. Starting from 2011 Market capitalization calculation includes only stocks traded through continuous two-way auction. 5. The Sarajevo SE is now publishing the data of its SASX (primary) index rather than the BIFX index (secondary). 6. The SC&RM Exchange is trading commodities only at this time. 7. % change calculations on indices do not take into account currency fluctuations on this table. See Charts - Adjusted Return on Index. 8. Currency depreciation against the dollar is represented as a positive number, appreciation as negative. 9. Companies are those available for trading via both listed and unlisted or registered markets. *Statistics provided herein are as reported by the Members and are not audited by the FEAS Secretariat.

44 42 Federation of Euro-Asian Stock Exchanges / September 2011 Federation of Euro-Asian Stock Exchanges / September Stocks Member Stock Exchange Market Cap. ($) Millions) Month Same Period Year Y/E 2010 Index Month (8) Same Period Year (8) Y/E 2010 Exchange (8) Rate Month (9) Same Period Year (9) Y/E 2010 (9) Comp. Listed/ Unlisted (10) Month Same Period Year Y/E 2010 Abu Dhabi Securities Exchange 78, , Amman SE 27, , Baku Interbank Currency Exchange 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Bahrain SE 19, , Baku SE #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A Banja Luka SE 2, Belarusian Currency & SE 0.0 #N/A #N/A #N/A , , Belgrade SE 10, , Bucharest SE 39, , Bulgarian SE 8, Damascus Securities Exchange 2, , Egyptian Exchange 66, , #N/A #N/A Georgian SE #N/A #N/A Iraq SE 4, , Istanbul SE 291, , Karachi SE 38, , Kazakhstan SE 55, , Kyrgyz SE Lahore SE 36, , Macedonian SE 2, , Moldovan SE 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A , Mongolian SE 1, , , Montenegro SE 4, , , , Muscat Securities Market 26, , NASDAQ OMX Armenia #N/A #N/A #N/A Palestine Exchange 2, Sarajevo SE 5, , Tehran SE 105, , , Tirana SE 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A Toshkent Republican SE 0.0 #N/A #N/A #N/A ,713.8 #N/A #N/A Ukrainian SE 5, , #N/A #N/A #N/A Zagreb SE 30, , TOTAL 865, ,

45 43 Federation of Euro-Asian Stock Exchanges / September 2011 Federation of Euro-Asian Stock Exchanges / September Bonds Member Stock Exchange Volume ($) (Millions) Month Same Period Year Volume (#) (Millions) Month Same Period Year Avg. Daily Volume ($) (Millions) Month Same Period Year YTD 2011 Avg. Daily Volume (#) (Millions) Month Same Period Year YTD 2011 Abu Dhabi Securities Exchange Amman SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Baku Interbank Currency Exchange 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Bahrain SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Baku SE Banja Luka SE , Belarusian Currency & SE Belgrade SE Bucharest SE , Bulgarian SE , , , , Damascus Securities Exchange 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Egyptian Exchange Georgian SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Iraq SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Istanbul SE 21, Karachi SE , , , , Kazakhstan SE , , Kyrgyz SE , Lahore SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Macedonian SE Moldovan SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.00 #N/A #N/A #N/A 0.00 #N/A #N/A #N/A Mongolian SE 28.5 #N/A #N/A 0.36 #N/A #N/A 1.4 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Montenegro SE Muscat Securities Market NASDAQ OMX Armenia Palestine Exchange 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Sarajevo SE Tehran SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Tirana SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Toshkent Republican SE 0.0 #N/A #N/A 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Ukrainian SE 0.0 #N/A #N/A #N/A , #N/A Zagreb SE TOTAL 24, , , , SC&RM Exchange is trading commodities only at this time. 2. The TSE is trading debt instruments only at this time, but there is no volume to-date. *Statistics provided herein are as reported by the Members and are not audited by the FEAS Secretariat.

46 44 Federation of Euro-Asian Stock Exchanges / September 2011 Others Member Stock Exchange Volume ($) (Millions) Month Same Period Year Volume (#) (Millions) Month Same Period Year Avg. Daily Volume ($) (Millions) Month Same Period Year YTD 2011 Avg. Daily Volume (#) (Millions) Month Same Period Year YTD 2011 Abu Dhabi Securities Exchange 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Amman SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Baku Interbank Currency Exchange Bahrain SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Baku SE , , , Banja Luka SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Belarusian Currency & SE 1, , , , , ,890.1 Belgrade SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Bucharest SE , , , , ,359.9 Bulgarian SE Damascus Securities Exchange 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Egyptian Exchange (1) Georgian SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Iraq SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Istanbul SE 141, , Karachi SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Kazakhstan SE 15, #N/A #N/A #N/A #N/A #N/A Kyrgyz SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Lahore SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Macedonian SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Moldovan SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Mongolian SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Montenegro SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Muscat Securities Market (2) 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A NASDAQ OMX Armenia (3) Palestine Exchange 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Sarajevo SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Tehran SE 4.7 #N/A #N/A 0.0 #N/A #N/A 0.2 #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Tirana SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Toshkent Republican SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A Ukrainian SE 0.0 #N/A #N/A #N/A #N/A #N/A Zagreb SE 0.0 #N/A #N/A 0.0 #N/A #N/A #N/A #N/A #N/A #N/A 0.0 #N/A #N/A #N/A TOTAL 160, #N/A Egyptian Exchange other volume this month stands for OTC and funds. 2. MSM carries out OTC transactions for closely held companies, which primarily transfers ownership between family members. 3. Other instruments include FX and repo agreements with corporate bonds. Since the Central Bank of Armenia does not disclose information on buy exchange rate, official exchange rates were used in calculations. *Statistics provided herein are as reported by the Members and are not audited by the FEAS Secretariat.

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