C1T6L1 · Revised 2026-10-26

Decision and objectives

Practical task: Map a fictional BYF from index to retail order

Objectives: Read a BYF benchmark and replication policy; Trace authorized-participant creation and redemption; Distinguish exchange trading from primary unit exchange.

Required prior knowledge: C1T5L5. Classification: domestic. Revision: 2026-10-26. All fictional names, prices, rates, fees, calendars and tax schedules below are hypothetical unless explicitly identified as a dated document observation.

A domestic borsa yatırım fonu (BYF), or exchange-traded fund, combines a portfolio vehicle with exchange trading. The retail investor normally trades units with another market participant rather than submitting an ordinary daily redemption to the fund. A separate creation/redemption mechanism connects units with the portfolio. Understanding those two markets explains why price can stay near value without always equaling it.

Mechanics

The fund's replication policy describes how it aims to follow its benchmark: permitted direct holdings, sampling or other disclosed methods. Read the actual documents; not every index fund holds every constituent in the same amount. An authorized participant, under an agreement and applicable rules, can create or redeem specified blocks using the stated basket or cash. Retail unit trading occurs on the exchange through an authorized intermediary.

The authorized participant's rights do not imply that every retail holder can deliver any small number of units for individual underlying shares at no cost. Minimum blocks, fees, settlement, taxes and operational constraints matter. A market maker provides quotes under applicable arrangements, but an obligation to quote is not an unconditional promise of unlimited size at NAV.

Price and return drivers

Net asset value per unit represents portfolio value less liabilities per unit. An arbitrage incentive can arise when exchange price differs sufficiently from basket-equivalent value after costs. A premium can encourage creation and sale; a discount can encourage purchase and redemption. This is a mechanism, not a theorem that prices must converge immediately. Funding, basket liquidity, short availability, exchange hours and creation restrictions can prevent implementation.

Worked case

Hypothetical creation block contains 10,000 BYF units backed by a published basket worth TRY 1,000,000 net of the stated balancing cash. Per-unit basket value is TRY 100. The exchange bid is TRY 101 for the full block. A permitted participant could theoretically create at a supplied all-in basket/creation cost of TRY 1,004,000 and sell units for TRY 1,010,000, leaving TRY 6,000 before any costs omitted from the supplied boundary.

The retail learner buying 100 units at an ask of TRY 101.20 cannot assume access to that block mechanism. The immediate purchase cash is TRY 10,120 before commission. Benchmark replication tells the investor what exposure is intended; the order book tells the investor what must actually be paid.

Adverse case

Suppose only 1,000 units can be sold at TRY 101 and the remaining block would execute at TRY 99. Gross proceeds are 1,000 ×101 +9,000 ×99 = TRY 992,000, below the supplied TRY 1,004,000 creation cost by TRY 12,000. The apparent premium in the best quote was not available for the whole size. If the basket market is closed, its last valuation may also be stale, and the apparent opportunity may reflect information rather than a free profit.

Practical use

Domestic BYFs trade through the equity-market account route described by Borsa Istanbul; inspect current listing, fund documents and intermediary permissions. Verify the relevant creation/redemption policy in the prospectus and the participant's agreement if using the primary route. Retail costs include spread, brokerage, custody if charged, embedded expenses and investor tax. Cash becomes withdrawable under the actual settlement calendar, which must be checked before a payment. This draft applies no current tax rate, live depth or universal settlement day.

Decision boundaries

A BYF can fit transparent exchange exposure when order-book liquidity and total cost are acceptable. It fails an assumption that a displayed NAV is an executable price for any quantity. Decline an apparent arbitrage if access, shorting, basket execution or funding is unavailable. For a small investor, comparing the all-in retail route with an ordinary fund or direct holdings may be more useful than attempting a primary-market trade.

Practice and references

Exercise: hypothetical creation block is 5,000 units, basket value TRY 400,000 and additional creation/execution cost TRY 1,500. A firm exchange bid of TRY 80.50 is available for all units. Answer: theoretical sale proceeds TRY 402,500; net before other explicitly excluded costs = TRY 1,000. If only half executes at TRY 80.50 and half at TRY 79.50, proceeds are TRY 400,000 and result is −TRY 1,500. Identify which access and timing assumptions would need proof before treating either result as executable.

Takeaway: the creation mechanism links price to assets, while retail execution still depends on quotes and size.

Reference guide: domestic-byf; net-asset-value; premium-discount; byf; replication; authorized-participant. Next: C1T6L2. Topic test.

Sources: SPK Communique III-52.2 — Articles 3–4 definitions; creation/redemption and index tracking sections; date 2013-11-27; checked 2026-10-26; Borsa Istanbul Equity Market Products — BYFs; real-estate certificates; commodity certificates / ALTIN.S1; date not stated; retrieved 2026-10-26; checked 2026-10-26. Source records: sources.json. Check the cited rule dates and confirm current dealing terms before any transaction.

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