An emergency meeting was scheduled when the situation began to threaten the order at the Istanbul Stock Exchange, which initially rose significantly and then fell by 14 percent with the day’s decline last week, with deals initiated by a few big players in the stock market in the public and private sectors. Banks ruled out few real sector stocks 1.5 months ago. Brokerage firms and state institutions held a summit in the Association of Intermediate Institutions of Capital Markets.
The Istanbul Stock Exchange, which last week closed 9 percent, recovered in the morning hours, while sales started again in the afternoon. He stated that the daily loss was 5.3 percent and that İşbank’s suspension of the MIR system was also effective in developments that required the operation of circuit breakers at the Istanbul Stock Exchange.
Because of the unusual transactions that took place on bank shares for a period of time, public banks that had a multi-day cap on the stock market, which rose by 59 percent in 1.5 months, and the fact that this time the process was reflected in a few shares and sales continued Al Qaeda yesterday, an emergency summit was held.
According to the information received, the meeting was moved to the Capital Markets Board (SPK) building in Istanbul late at night. Here, officials from intermediary and other institutions met with the Deputy Minister of Treasury and Finance Murad Zaman.
What happened to the exchange process?
1- While high inflation, which is the pandemic’s gift to the whole world, has made itself felt in Turkey more than in other countries, the management of the economy decided to lower interest rates rather than raise them. While this situation punishes those who have Turkish lira deposits by melting their money against inflation, it has also caused high volatility in the foreign currency. However, many measures taken by the Department of Economy and the Central Bank, especially the currency-protected deposit, were able to maintain the high exchange rate, which may mean a crisis in the economy, at the level of 18 liras at the moment. Agreements to increase the reserves of various countries, especially Russia, also strengthen this group. On the other hand, it is not hard to speculate that if the management of the economy cannot curb the appreciation of the exchange rate as the elections approach, it will do everything in its power to prevent inflation from creating even greater problems. If there is no interest, there is only one option left: the stock market. The Minister of Treasury and Finance Noureddine Nabati also expressed this situation. He made a statement that the citizen will earn by investing in the stock exchange.
Autonomous feeding system started to establish
2- The large players in the stock market, based on the above facts, have created a self-sufficient system even if they do not have big money in their hands. It is also said that they received support from the state, especially the Wealth Fund, during the creation of this system, but let’s just say that this information is being circulated only in the form of rumors. The banking sector, which is characterized by very low prices (up to a third of the book value in some banks), was chosen due to the exit of foreign investors from the Istanbul Stock Exchange. In other words, the shares purchased were not expensive but cheap. So how was the system created? Let’s explain it in parts.
A- Investors, including major players in the stock exchange, started trading in shares of public and private banks and a few real sector companies in the VIOP futures market. In this market, you deposit the amount between 10 and 15 Turkish liras as a cash collateral, not the full equivalent of the share you buy in the futures contract. If the stock price falls in the stock market, the coverage is complete, and if the stock price goes up, there is an increase in coverage. When the stock increases by 1 in the stock market, you earn 10 liras in VIOP.
B- On the other hand, players buy the same shares in the Istanbul Stock Exchange (spot market) with their money. Of course, this is not enough, the partner is also given a share. Thus, the price of the shares rises in the spot market. As the stock price rises, other investors are joining the movement.
C- With the rise in stock prices in Istanbul Stock Exchange, 10 to 1 in VIOP is earned and the deposited collateral becomes more. So there is an excess of collateral. Investors with these increased guarantees invest this amount in the same shares in the spot market in the stock market. As a result of this transaction, the volume of loans granted by brokerage firms to this investor also increases. More credit also means buying more shares and a higher share price. The ascent continues in such a system that we feed each other.
13 Is there a cap arrow?
With the last operation, the public bank’s share reached 13 ceilings with this system. There were also similar rises in other stocks. This raised the banking index by 150 percent and the stock market by 59 percent. So what happened last week?
3- The biggest support for the players was that they took most of the shares that were bought and sold in the market with this system. In other words, there is no longer a seller in the face of rising stocks. For this reason, with the rise in the share price, the ceilings continued in the forfeited shares with the excess collateral obtained from VIOP.
Does the game drop? What will happen next?
What disrupted the system in place was the sale of Akbank shares, which amount to about 150 million TL, by the Akbank Employees Fund. Investors who witnessed this institutional sell-off were already waiting for a return due to the rapid rally, panic and sales began. Investors who previously lined up to buy shares are now lining up to sell the same shares.
4- This allowed the machine to run in the opposite direction this time. In other words, the excess collateral that was formed earlier during the rise in the stock price turned into a deficit this time. Brokerage firms have asked investors to close the collateral gap in VIOP. Investors who invested their dividends from VIOP in stocks in the spot market, i.e. who did not have enough cash, had to sell their shares in the stock market. Or the brokerage houses started filling their margins by selling the shares of these investors. In the next period, investors will find cash or their shares will be sold, depending on the day and time of the guarantee.
Can a one-way replacement policy be avoided?
So what is to be expected next? The biggest fear is the spread of the movement, which is limited to a limited number of shares, especially banking. In other words, other investors panicked from these dips or big investors who need the cash to sell in other stocks. Another important issue is the commitment to complete these guarantees on bank shares by September 30th. By September 30, investors will either find cash to buy and exchange these shares, or sell their holdings and close the deal. The third possibility is that the investors will put these shares up for sale in order not to incur a loss and not to get back the loans they made. In this process, it is feared that both the individuals and the intermediary institutions will be in a difficult situation. To put it more clearly, the possibility of some investors going bankrupt and some intermediary institutions incurring huge losses due to these moves is expressed.
However, it is important how the situation will be reflected in other stocks in the stock market. As we wrote above, the risk of investors panicking due to continued popular movement in some stocks and the fact that large investors in need of liquidity are forced to sell their other stocks remains the biggest problem for us. However, due to the low interest rate, the policy of maintaining the stability of the exchange rate and the cheapness of the prices of stock exchange companies, the number of people who expect the next good situation in the stock market is high. On the other hand, and based on the statements of the Nabati Minister, it is necessary to consider the necessity of providing a means for the investor who loses interest and foreign exchange. So to speak, the question of whether the management of the economy will easily abandon the stock market, which appears as the only means of protection against inflation, will determine the next process.
The fact that the Capital Markets Board (CMB) remained a spectator of what finally happened provoked a great reaction. The CMB, which has requested an explanation from the company regarding rises of 2-3 percent in some stocks, did not request any information from the banks while the moves were taking place.