PERFECT HARMONY

Turkey 2014 | FINANCE | INTERVIEW

TBY talks to Vahdettin Ertaş, Chairman of the Capital Markets Board (CMB), on the Capital Markets Law and the state of investor confidence.

Vahdettin Ertaş
BIOGRAPHY
Dr. Vahdettin Ertaş is the Chairman of the Capital Markets Board of Turkey (CMB). He also serves as the Chairman of the Board of Directors of the Investor Compensation Centre and the COMCEC Capital Markets Regulatory Forum. Most recently, he was appointed as a member of the Supervisory Board of Child and Youth Finance International. He graduated from the Ankara University Faculty of Political Sciences in 1987 with a degree in Management. He went on to earn a Master’s degree in 1991 from Hacettepe University, and from the Lancaster University in 1996. He received his PhD in Management from the same institution in 2012.

What are the most important aspects and regulatory changes from the new Capital Markets Law?

The previous capital markets law dates back to 1982, meaning the new capital markets law brings us up to date with all the changes we have seen both in the global and local capital markets over the last 30 years. The new law also harmonizes our regulations almost 100% with those of the EU. Furthermore, during the preparation of the new law we took into account the lessons learnt from the 2008 global financial crisis. Another reason is that while the last decade saw huge growth in the Turkish banking sector, the capital markets had lagged quite a way behind. This new law adjusts our capital markets to the times, as it were.

The law has been in effect since early 2013. What changes have you seen in terms of asset management in Turkey?

The new law brings about a fresh regime that is fully aligned with EU regulations. Immediately after the new law came into force, we commenced work on the enactment of sub-regulations. All of the secondary regulations that will lay the groundwork will be in effect as of July 1, 2014. Regarding the institutional investors and the collective investment schemes, the three most crucial regulations are those that set the rules for the investment funds, the portfolio management companies, and the depositories. As for the mutual funds, assets under management (AUM), as of September 2, 2013, are approximately $15.6 billion. Generally speaking, money market funds have been dominating the Turkish mutual funds industry. However, due to the recent limitations we imposed on the total expense ratios of mutual funds, there has been a decline in the proportion of money market funds' portfolio size since 2012. With their growing number in the market, hedge funds are becoming an attractive investment alternative.

How do you evaluate the state of investor confidence in Turkey?

Six of the past 10 years were spent in the midst of a global financial crisis; yet, not a single bank or company in Turkey required government intervention or subsidies to stay in business. This has also had a positive effect on foreign investor confidence in the Turkish economy. Whether it be FDI or portfolio investments, I don't think you will find a single foreign investor who was unhappy with their investments in Turkey over the past decade. Our government's approach to investor protection is similar to their attitude toward protecting Turkish citizens' rights. With respect to international investor confidence in our markets, there is draft legislation on international arbitration currently being considered in parliament. In addition to this, we are working on courts that will solely be dedicated to capital markets issues and financial disputes, aiming to shorten the time period of judicial processes.

What are your expectations for 2014 and beyond in terms of increased savings?

In the first 10 months of 2013, 1 million people joined the new private pension scheme, and we expect public interest to sustain the momentum. By 2023, our target is to reach 10 million participants. We aim to have a GDP of $2.5 trillion by 2023 and the AUM in pension schemes to comprise 5% to 10% of GDP, thus between $125 billion and $250 billion. We believe these mid- to long-term targets are reasonable and attainable when our current status is compared with other emerging market economies.