Turkey: Should We Stop Commentaries Now?

The new Capital Markets Law (the “n-CML”) was published in the Official Gazette and came in effect in the end of 2012. As it was the replacement of former Capital Markets Law (the “f-CML”) entirely, rather than revision of certain provisions, there is no doubt the n-CML will also bring many discussions for clarification of what it changes now in Turkish market.

Further to certain queries which ELO received from its clients, particularly from Banks and Brokerage Firms, we understand that interpretation of Article 107/2 of n-CML caused serious concerns with respect to its legal effects on commentary and reporting activities of financial institutions in Turkish market.

As a reference to this issue, the f-CML provided through its Article 47/A-3 that, “real entities, authorized persons of those legal entities and those acting together with them who give, disseminate, provide commentaries of incorrect, false, groundless information and news which may affect the value of capital market instruments” should be subject to certain penalties, consisting of prisonment for 2-5 years and fines.

The n-CML regulates the same action in its Article 107/2 and provides that “those who give information, disseminate rumours, provide news or commentaries or prepare or circulate reports consisting of incorrect, false or deceiving information with an intention to influence prices or values of capital market instruments or decisions of investors” should be subject to certain penalties, consisting of prisonment for 2-5 years and fines.

Regarding legal and operational affects of the referred new provision in the n-CML, please note the followings:

  1. - The new provision (Article 107/2) of the n-CML neither defines a new type of crime nor makes substantial revisions in the former definition of the crime which is “provision of false information to market in order to affect the market prices of securities”. Accordingly, the new provision, with certain clarifications in the wording and minor changes in the scope of the crime as defined below, is not in the form of a new approach of CMB.
  2. - The new wording referring to “preparation or circulation of reports” does not bring a new treatment with respect to ordinary commentary activities of financial institutions in Turkish market. As noted above, the crime provided herein is “provision of information, news or commentaries which is false or misleading in order to affect the market prices of securities”, rather than provision of commentaries. In this respect, with reference to reports or commentaries as in the n-CML or without any references to the same as in the f-CML, provision of misleading or false information for affecting the prices shall be characterised as a “crime” regardless from the means used for circulating such information (news, articles, reports, commentaries, interviews, etc). The reference in the n-CML to “reports” clearly defines the reporting activities of financial institutions as a tool for circulation of such false and misleading information so that financial reports cannot be treated out of this scope, which is actually only a clarification from legal point of view.
  3. - It should be noted that, the wording of the f-CML covered “false and deceiving information, news and commentaries which may have an effect on the prices of the securities”. In this definition, in case the relevant person provides false or deceiving news or information which may effect on the prices, the crime is completed. In other words, the affect of such news or information on prices was not the key issue here, and thus, any news or information given to the market may be characterised under this provision provided that it is false or deceiving. However, the n-CML clarifies the crime in a smarter way saying that the provision of information or news, even it is false or deceiving, shall not be characterised under this provision unless “clear intention to effect the market prices” exists. Accordingly, in the f-CML, a person providing commentaries in the market would be subject to Article 47/A-3 of f-CML in case any false or deceiving information existed in its commentaries; but the same person will not be subject to Article 107/2 even in case any false or deceiving information exists in his commentaries in case no intention to make affects on market prices exists.
  4. - Article 38/c of the n-CML refers to the “investment research, financial analysis and investment advisory services generally with respect to operations on capital market instruments” as secondary activities of investment institutions which may be conducted without obtaining any licenses. Accordingly, commentaries of financial institutions on market conditions, securities and expectations, including investment advices, shall be treated under this clear definition, and this provision of the n-CML clearlr recognices commentary activities of financial institutions rather than any negative approaches in this regard.
  5. Based on the foregoing, we believe Article 107-2 of the n-CML does not bring any additional legal risks or results any changes in previously defined crime and thus, this new provision shall not adversely affect the on-going commentary activities of financial institutions. Provision of these commentaries to market without having specific intentions to affect market prices of certain securities is permitted and recognised as an ordinary activity of financial institutions under the n-CML.

    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.

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