Unlike spot markets, futures markets administer transactions of contracts agreed upon today for the delivery on a specified future date.
Futures contracts are the legally binding commitments to buy or sell a commodity or financial instrument which is standardized according to the quality, quantity, and delivery time.
Characteristics of Futures ContractsTrading in a regulated derivatives exchange (Turkdex) involving standardized products.
- Guarantee of Istanbul Stock Exchange Settlement and Custody Bank Inc. (Takasbank) against member defaults through a Guarantee Fund System.
- The positions can be closed with a reverse transaction on any trading day before expiry date. They do not result in the physical delivery of the underlying asset.
- Subject to daily cash settlement: Profit and losses are calculated on a daily basis, and debited or credited to the relevant accounts.
- Leverage effect
Futures Contracts listed in the Turkdex
Currency future contracts: TRY/USD and TRY/EUR
Equity Index Future contracts: ISE 30 and ISE 100 index futures
Interest rate futures contracts: T-Benchmark futures contract (Benchmark Treasury chosen by Turkdex)
Commodity futures contracts: Cotton, Wheat and Gold futures contracts
|Contract Group||Contracts||Contract Sizes||Minimum Price Fluctuation (Tick)|
|Index||ISE - 30 Index||(ISE - 30 Index value/1.000)x 100 TL ||0,025 = 2,5 TL|
|ISE - 100 Index||(ISE - 100 Index value/1.000)x 100 TL||0,025 = 2,5 TL|
|Currency||USD / TL ||1.000 USD ||0,0005 = 0,5 TL |
|EUR / TL ||1.000 EUR ||0,0005 = 0,5 TL |
|Interest Rate||T-Benchmark ||10.000 TL (nominal)||0,010 = 1 TL|
|Commodity||Aegean Standard 1 Cotton||1.000 KG (1 ton)||0,005 = 5 TL|
|Anatolian Red Hard Wheat ||5.000 KG (5 ton) ||0,0005 = 2,5 TL |
|995/1000 fineness refined gold ||100 gr. 995/1000 fineness ||0,005 = 0,5 TL |
Each futures contract can be traded with different Contract Months which are defined as the months during which a futures contract expires (the expiry date is the last trading day of the relevant contract month). Below you can find the contract months for each futures contract listed in the Turkdex:
TAKASBANK registering process and account openings
Exchange member must open an account by Takasbank on behalf of its portfolio and also on behalves of customers who are willing to operate in the Exchange.
Identity information of the account holders must be defined in the system of Takasbank. In order for the relevant accounts to be defined in the Turkdex system, they must initially be opened by Customer Name Based Custody System (MIS) in Takasbank. The relevant identity information belonging to those accounts opened in the MIS must be defined in Takasbank system within seven days in order to generate a registration number for the customer.
Unless the newly opened accounts are opened by Takasbank until 05:30 p.m. , it is not possible to use those accounts on the next trading day, which means the accounts opened later than 05:30 p.m. become available for trading on the second subsequent trading day.
Open position: When a buy or sell order for a future contract is fulfilled, this results in a new open position. The holder can cover the open position with a reverse transaction on any trading day before expiry date or can hold it until the expiry date.
Short position: Short position: Selling a future contract causes a short position in that contract, which binds the holder of the position (long party) to sell the underlying asset at the predetermined price on the expiry date.
Long position: Buying a future contract causes a long position in that contract, which binds the holder of the position (long party) to buy the underlying asset at the predetermined price on the expiry date.
Spread Position (time spread): It involves the simultaneous buying and selling of two futures contracts with the same underlying which have different contract months (maturity dates).
Position Limits: There are two kinds of position limits for the contracts listed at TURKDEX:
Position limit Threshold:The maximum number of open positions for a particular contract month which can be held by one account.
Position Limit Percentage:It is the maximum ratio of the open positions for a particular contract month that one account may take out of the number of total open positions. Once the position limit threshold is reached, then the system shall verify the position limit percentage for the relevant account. Position limits may be differentiated on the basis of members, accounts and security types.
|Day T||08:45-09:15 ||Non-Trading Period |
|09:15-17:35 ||Normal Session|
|17:45||Announcement of Settlement Prices and Margin Calls|
|17:45||Start of Clearing Period|
|Day T+1||14:30||End of Clearing Period|
It is the amount of cash collateral which has to be deposited by the investor to the Takasbank in order to take new positions or to fulfill the obligations on the outstanding open positions.
It is the amount of cash collateral or eligible securities which has to be deposited to the Takasbank to open new positions in a futures contract. Turkdex specifies the initial margin level for each contract. Initial margins can be changed by Turkdex according to the market conditions.
The minimum level of initial margins permitted to drop as a result of loss incurred at the Exchange or depreciation in the value of the non-cash collateral is called the maintenance margin. If trade margin drops to the maintenance margin level or lower, Takasbank places a margin call.
Extraordinary Cases Margin
In addition to the initial margin, an extraordinary circumstances (case) margin might be requested by the Exchange on the basis of the principles established in the Exchange Directive.
Profit and Loss Calculation
Profit/loss incurred during the trading session shall be updated in the Turkdex Exchange Operations System (TEOS) based on the temporary settlement prices every 10 minutes. Settlement prices determined at the end of each trading day are used to calculate the profit/loss. Profit/loss determined based on the settlement price established at the closing of each trading day shall be added on to or deducted from the relevant accounts.
Assets Acceptable as Trade Margin
Assets acceptable as trade margin are categorized into two groups: cash and non-cash assets. Only Turkish Lira (TL) is accepted as cash collateral to Takasbank Derivatives Trading System (TVIS). Non-cash collaterals on the other hand vary. Non-cash collaterals are shown below:
- 1. Foreign Currency (DVZ)
- US Dollar(USD)
- Currency of the European Union (EUR)
- Government Securities for Internal Borrowing (T-BILL)
- Government Bonds(DT)
- Treasury Bills (HB)
- Foreign Currency Indexed Government Bond (DTE)
- Foreign Currency Paid Government Bonds (DTY)
- Stock (HS)
- Stocks included in the ISE-30 Index
- Exchange Mutual Funds Participation Certificates (BYF)
- Mutual Funds Participation Certificates
- Dematerialized mutual fund participation certificates
If trade margin drops to the maintenance margin level or lower, Takasbank places a margin call. If the margin calls are not fulfilled by the member until the clearing period ends (until 14:30 on the next day), that member is deemed to be in default without any warning.
Accretion Accumulated On Cash Collaterals
Total cash (TL) kept in the collateral accounts accumulate accretion by Takasbank on a daily basis, and accumulated accretions shall be transferred into the relevant accounts on the subsequent day.
Default means the failure of fulfillment involved with the liabilities subject to a particular contract, such as not booking the Takasbank collateral account at the maintenance margin level within the required time for an open position. If the margin calls are not fulfilled by the member until the clearing period ends (until 14:30 on the next day), that member is deemed to be in default without any warning.
Leverage Effect: With the leverage effect, investors can buy or sell the futures contracts by investing considerably smaller amount of money than the actual size of relevant contract.
Short Selling opportunity: Turkdex enables investors to do short selling.
Asset diversification: Investors can diversify their portfolios by allocating the risk over different assets such as the contracts listed in the Turkdex.
Hedging: By using futures contracts, investors can reduce the risk of adverse price movements in an asset they have already invested in.
Cash collateral Accretion: Total cash (TL) outstanding in the collateral accounts shall accumulate accretion by Takasbank on a daily basis.
The current exchange rate is 1,44 USD/TL. Consider an investor who expects USD will significantly appreciate against TL at the end of 3-months period. This investor with having TRY 300 in his account might purchase USD 214,28 at the spot market or might buy two USD/TRY futures contracts with the maturity of December 2009 at the Turkdex (long position). One USD/TRY contact size is equal to $ 1000. The impact of the exchange rate movements on his investment (300 TRY) will be calculated out of his total position size $ 2000 which is the total size of two contracts. This is called as leverage effect. If the investor wants to buy two USD/TRY contracts on day T, the TRY 300 in his collateral account will be frozen by Takasbank. Consider that the bid price of USD/TRY contract is 1,4315 USD/TRY at the Turkdex when he performs this buying transaction. According to the daily settlement prices determined by the Turkdex, the following table shows the gains and losses realized in the investor’s position.
If the daily settlement price on the transaction day is determined as 1,43, the investor’s loss realized as (1,4300-1,4315) x 2.000 = TRY -3. According to the daily settlement price on day T+1, he has a gain of TRY 20 calculated as (1,4400-1,4300) x 2000. The losses realized on the subsequent days are calculated in the same way. As a result of loss incurred at the Exchange on day T+3, his margin account drops below the maintenance margin level which is estimated as: [0,75 (maintenance factor) x TRY 150 (initial margin) x 2 (number of contracts)]. In this situation, Takasbank will place a margin call for the investor, and he must add up his collateral account to the initial margin level (TRY 300) at least. After the investor raises his account back to the initial margin level by debiting his account with 87 TRY, he changes his initial expectation on future exchange rate and decides to cover his present position by selling two USD/TRY contracts on day T+4. After these transactions his cash outflow shifts to TRY 387, but since the position is covered, he takes back TRY 300 which is the initial amount in his collateral account. The investor has a loss of TRY 87 a result of his transactions.
According to the tax legislation dated 28.03.2007, the withholding tax is determined as %0 for the capital gains obtained until 31.12.2008 from the transactions realized in the Turkdex. With the new regulation, the capital gains obtained as of 01.01.2009 from the transactions over shares and shares index contracts are subject to %0 withholding tax for both resident and non-resident investors. However, the capital gains obtained as of 01.01.2009 from the transactions over other contracts are subject to %10 withholding tax for resident individual investors and corporate investors, but those gains are still subject to %0 withholding tax for non-resident investors.
|Withholding Taxation for Resident Investors in Turkey|
|Contracts||Individual Investors||Corporate Investors|
|Mutual Funs and ||Other|
|Shares and shares index futures contracts||%0||%0||%0|
* They must be established based on the rules and regulations of Capital Market Board of Turkey (CMB)
|Withholding Taxation for Non-resident Investors|
|Contracts||Individual Investors||Banks and similar financial institutions||Others|
|With a fixed place of business or permanent representative in Turkey||Without a fixed place of business or permanent representative in Turkey||With a fixed place of business or permanent representative in Turkey||Without a fixed place of business or permanent representative in Turkey|
Total cash (TL) kept in the collateral accounts accumulate accretion by Takasbank on a daily basis, and accumulated accretions shall be transferred into the relevant accounts on the subsequent day. (The other assets in the collateral accounts do not accumulate accretion by Takasbank). These interest accruals on cash deposits are subject to %15 withholding, and the relevant tax amount is transferred to customer’s tax account.