Istanbul stock exchange to remove over a quarter of main index, as regulators tackle liquidity crisis
By Mirac Dereli and Canan Sevgili
Sept 22 (Reuters) - Turkey's stock exchange, Borsa Istanbul, will replace more than a quarter of the constituents of its benchmark BIST-100 index, it said on Tuesday, a move announced as regulators seek to contain a liquidity crisis caused by a sell-off in investment funds.
The exchange did not provide a reason for removing index constituents, which will be effective from next month in the biggest reshuffle since the stock exchange announced new market structure rules six years ago.
Authorities intervened last week to shore up market stability after a liquidity crunch at investment funds triggered a sharp selloff in the benchmark stock index .XU100, including demanding the liquidation of some investment funds. They have also detained people as part of an investigation launched after some funds defaulted on redemption requests.
The benchmark index was down 0.23% at 1011 GMT on Tuesday, stabilising so far this week after plunging about 8% last week.
Regulators also this month updated how they calculate free-float rates, which left out some fund holdings.
Financial services company Destek Finans DSTKF.IS and financing firm Katilimevim KTLEV.IS will leave the BIST-100, while conglomerate Anadolu Grubu Holding AGHOL.IS and fast-food retailer TAB Gida TABGD.IS will return after being removed in the previous period, the exchange said.
Esenboga Elektrik ESEN.IS, Isiklar Enerji Yapi Holding IEYHO.IS and Odine Teknoloji ODINE.IS, which joined the BIST-100 in the previous quarterly reshuffle, will also be removed.
Destek Finans will also exit from the BIST-30, while TR Anadolu Metal TRMET.IS will join.
BIST-30 companies are exempt from the new concentration limits, and a stock's removal will require funds to reduce their holdings.
HEALTHIER PRICING
Onurcan Bal, an investment adviser at brokerage Gedik Yatirim, said the latest changes announced by Borsa Istanbul also include adjustments to shares of companies being removed such as Isiklar Energy, Izdemir Energy, Kiler Holding and Odine Teknoloji, which had recently come under pressure and recorded floor-price trading.
"For the period ahead, when investors look at the indices and the market, they will be able to see healthier pricing, with the indices serving more clearly as the main benchmarks," Bal said.
Cemal Demirtas, deputy general manager responsible for research at Ata Yatirim, said the index changes would help lead to healthy functioning of the market and restoring investor confidence.
He said he expected further steps soon to support the healthy functioning of the fund market and Borsa Istanbul.
FUND INVESTIGATION
The Capital Markets Board last week mandated Isbank and Ziraat Bank to oversee the liquidation of 131 investment funds managed by seven portfolio management companies, including Tera Portfoy TPYTI.IS, Pusula Portfoy and Hedef Portfoy, on the TEFAS electronic fund trading platform.
These funds hold large positions in stocks such as Destek Finans that are being removed from the indexes.
MARKET SEGMENT CRITERIA CHANGED
Borsa Istanbul has also added new criteria for companies seeking inclusion in the BIST-30 and BIST-100 indices.
Shares included in the BIST-30 and BIST-100 must be traded on the Star Market. Under a directive amended on Monday, companies traded on the Star Market will now also be assessed based on the volatility of their share prices and the size of their equity. Companies seeking to be listed on the Star Market will be assessed on whether they fall within the highest volatility bracket, with the threshold set at a maximum of 10%.
In addition, companies listed on the Star Market will be required to have equity above the median equity value of all companies subject to the assessment.
Bal at Gedik Yatirim said the changes mean that stocks characterized by excessive volatility and sharp price movements may fail to meet the Star Market criteria, while also limiting their ability to be included in major benchmark indices.
"From this perspective, we believe the regulation is not merely a change to the market-segment classification. It could also indirectly contribute to the structure of key benchmark indices such as the BIST-30, BIST-50 and BIST-100, which are important in terms of representing the broader market," Bal said.
Bal said the Star Market was the most important segment of Borsa Istanbul's equity market in terms of trading volume and the market size of listed companies.
"Therefore, taking excessive volatility in price movements into account when determining which companies qualify for the segment can be viewed as a positive development, as it could support more balanced price formation and make the Star Market a healthier benchmark for investors," Bal said.