Istanbul Stock Exchange will remove more than a quarter from the main index as regulators address liquidity crisis

The Turkish stock exchange, Borsa Istanbul will replace over a quarter the constituents of BIST-100, its benchmark index. This move was announced on Tuesday as regulators sought to contain a liquid crisis caused by a sale-off of investment funds.

The stock exchange has not given a reason why index constituents will be removed. This is the largest reshuffle in six years since it announced new rules for market structure.

Last week, authorities intervened to?stabilize the market after a liquidity crisis at investment funds caused a sharp drop in the benchmark index. They also demanded the liquidation some investment funds. In an investigation that was launched after certain funds failed to meet redemption requests, authorities have detained several people.

The benchmark index fell 0.23% on Tuesday at 1011 GMT, stabilising this week after a drop of about 8% the previous week.

This month, regulators also updated their calculation of free-float rate which excluded some fund holdings.

The exchange announced that Destek Finans, a financial services company, and Katilimevim, a financing firm, will no longer be included in the BIST 100, but Anadolu Grubu?Holding, a conglomerate, and TAB Gida, a fast-food retailer, will return to the BIST 100 after previously being removed.

Esenboga Elektrik and Isiklar Enerji Yapi holding, who joined the BIST 100 in the previous quarter's reshuffle will also be removed.

TR Anadolu Metal and Destek Finans both leave the BIST-30.

BIST-30 companies will be exempted from the new limits on concentration. To remove a stock, it would require the company to spend money in order to reduce their holdings.

HEALTHIER PRICES

Onurcan Bal is an investment advisor at Gedik Yatirim. He said that the changes announced by Borsa Istanbul include adjustments to the shares of companies such as Isiklar Energy Izdemir Energy Kiler Holding Odine Teknoloji. These companies had been under pressure recently and recorded floor-priced trading.

Bal said that investors will see a healthier price in the future when they look at the indexes and market. The indices will serve as the main benchmarks.

Cemal Demirtas said that the changes to the index would lead to a healthy market functioning and restore investor confidence.

He expects further measures to be taken soon to ensure the smooth functioning of the Borsa Istanbul and the Fund Market.

FUND INVESTIGATION

The Capital Markets Board mandated Isbank last week to supervise the liquidation on the TEFAS electronic trading platform of 131 funds managed by seven investment management companies including Tera Portfoy, Pusula Portfoy, and Hedef Portfoy.

These funds have large positions in companies such as Destek Finans, which are being removed from indexes.

MARKET SEGMENT CRITERIA CHANGED

Borsa Istanbul?added new criteria for companies that wish to be included in the BIST-30 or BIST-100 indexes.

The Star Market is the only place where shares included in BIST-30 or BIST-100 can be traded. According to a Monday amended directive, the Star Market's assessment of companies will also take into account the volatility?of their share price and the size their equity. Companies that want to list on the Star Market are assessed based on their volatility. The threshold is set at 10%.

The Star Market also requires that companies listed there have equity values above the median equity value for all companies assessed.

Bal, at Gedik Yatirim, said that the "changes" could mean that stocks with excessive volatility or sharp price fluctuations may not meet Star Market criteria. They also might be unable to qualify for inclusion in major benchmark indexes.

From this perspective, the regulation does not just change the classification of market segments. This could indirectly affect the structure of important benchmark indices like the BIST-30?, BIST-50?and BIST 100?, which are crucial in representing the "broader market", said Bal.

Bal stated that the Star Market is the most important segment of Borsa Istanbul’s equity market, in terms of trading volumes and market size.

Bal stated that "Taking excessive volatility in prices into consideration when determining which firms qualify for the segment could be seen as a positive change, as it can support a more balanced price formation, and make the Star Market an improved benchmark for investors."

(source: Reuters)