Turkey: Turkish Ministry Of Treasury And Finance Signs A Deal With Euroclear Bank For Increasing Foreign Investor Access To Local Bond Market

Turkish Ministry of Treasury and Finance announced that Turkey signed a deal with Euroclear Bank, a foreign central securities depository ("CSD"), for providing custody and settlement services to government debt securities ("GDS") issued in Turkey and being traded in the local debt markets of Turkey. This cooperation with Euroclear Bank, aims to increase the foreign investors' access to GDS and Turkish local bond market.

What is introduced with this deal with Euroclear Bank?

• Euroclear Bank will open an account with Merkezi Kayıt Kuruluşu¹ ("MKK") and provide custody and settlement services to the foreign investors holding account with itself during their GDS trades in Turkish local bond market.
• Foreign investor, even in the absence of a direct custody account with Turkish resident banks, will be able to make the settlement of Turkish Lira, Euro, USD and gold denominated local GDS traded in Turkish bond market through its existing custody account at Euroclear Bank and hold those securities under such Euroclear custody account.
• The GDS will take place in foreign fund portfolios and indices at a higher rate.
• Due to the increase of the local GDS trade by foreign investors, the borrowing costs will be reduced.
• As the foreign investors will easily access local government bond market in Turkey, the capability of GDS to be recognized as collateral in international markets will increase.

How will the operational process run?

• Euroclear Bank will open an omnibus account² at MKK in which all the securities of foreign investors will be held. With this, Euroclear Bank will not be required to open segregated accounts for each investor at MKK.
• Euroclear Bank already launched the mandatory procedures for omnibus account opening and membership at MKK. In the meantime, the technical infrastructure and testing of such between MKK and Euroclear Bank still continues and entire operational process is expected to be completed by mid-July.

Besides, MKK stated that, once the foreign investors start to benefit from this cooperation with Euroclear, they expect other foreign CSDs to approach MKK for membership and open omnibus accounts therewith for providing similar services to their investors.

Footnotes

1. Merkezi Kayıt Kuruluşu A.Ş., provides its members with registration, settlement and custody services as Central Securities Depository of Turkish capital markets.

2. The omnibus account structure, where foreign CSDs are enabled to hold the securities of their foreign investors in an omnibus account rather than segregated accounts, has become enforceable with the Amendment Communiqué (II-13.1.c) amending the Communiqué on Procedures and Principles regarding Book-Keeping of Dematerialized Capital Market Instruments (II-13.1) issued by the Capital Markets Board of Turkey ("CMB") published in the Official Gazette dated 22.06.2019 and numbered 30809. Following this, CMB announced that Turkish GDS acquired by foreign companies and foreign funds may be held in omnibus accounts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.