Turkey: Membership Criterias To Istanbul Stock Exchange Changed

Last Updated: 9 September 2013
Article by Safak Herdem

MEMBERSHIP CRITERIAS TO ISTANBUL STOCK EXCHANGE CHANGED

A new regulation has been promulgated in the Official Gazette dated December 8, 2012, numbered 28491 that determine the criterias for permission to operate at Istanbul Stock Exchange ("Stock Exchange"), and the liabilities of the members. The regulation is highly functional as it is in line with the principles of corporate governance in new Turkish Commercial Law.

The Central Bank as Permanent Member

Pursuant to the article 4 of the regulation, brokerage houses, banks and other legal person authorized by the Capital Markets Board of Turkey ("CMB") to engage in brokerage should apply for membership to ISE to operate at the market, platform, or in each of these therefore the Central Bank of Turkey is accepted as permanent member.

Staff and Technological Equipment Criteria for Admission to Membership

Those who wish to become a member of a stock exchange from the date of December 8, 2012 are required to apply to Stock Exchange a copy of the notarized documents annexed to the authorization by the CMB quoted for membership in their market, market, platform, or the systems mentioned thereon.

One of the criterias of the Board of Directors ("BoD") of the Stock Exchange for admission to membership is that the required necessary staff and technological should be provided if this requirement is not met then the Stock Exchange must reject the application.

Certificate of Membership Should Be Registered At Trade Registry and Announced

Pursuant to the article 7 of the Regulation the membership certificate given by the Stock Exchange should be registered within 15 days of the date of issuance at trade registry and published on at least two countrywide newspapers.. Moreover, it also should be announced on web site of the applicant in line with the obligations of the new Turkish Commercial Law and at Public Disclosure Platform.

Notification of Changes at Member Companies to the Stock Exchange

One of the other requirements brought by the Regulation relates with the notification of the changes at member companies to the Stock Exchange. Accordingly, after issuance of their certificates, the members of the Stock Exchange are required to notify changes in financial situations, partners, or partners share capital, members of the board of directors, inspectors and senior managers and personnel authorized to sign, addresses, and with representatives of the deputy representative for each activity. For banks, this liability is limited to only units on the stock exchange activities are held.

Strict Liability Principle in Contracts between Clients and Members

Taking into consideration of the disputes arising out of the contracts between the members and clients and within the scope of liability clauses in the contracts, the new regulation imposes strict liability to the members and their staff for their works and it is not allowed to put provisions limiting the responsibility of the members and their staff.

Obligation of Security Deposit

Pursuant to the article 14 of the Regulation, the members of the Stock Exchange and those who wish to become a member are required to pay security deposit to the Central Bank of Republic of Turkey or to a public bank will be determined by the relevant minister or to the stock exchange clearing organizations, on behalf of Stock Exchange and corresponding to damage and loss they will cause by the Stock Exchange, clients or other members for each market and platform that they will operate.

The method of calculating the amount of security deposit and the procedures and principles in this regard shall be determined by BoD of the Stock Exchange and will be in force by approval of CMB.

The BoD is entitled to render a higher amount not exceeding ten times of the security deposit which is determined in accordance with related regulations by taking into account the trading volume, activities, financial status, risk factors of the member and other criterias deemed appropriate.

Suspension of Operations of Members as a Precaution

In accordance with the provisions of the Regulation, in cases where any significant failure identified during the stock market and clearing transactions or the audit or in any other way, clearing and custody transactions of members are stopped as a precautionary measure by the chairman of the Stock Exchange for five working days, and this is be reported to the CMB. The final decision about a member is given by the CMB authority. Such period shall be extended by the chairman until the decision of the CMB is provided.

Disciplinary Penalties Imposed on Exchange Members / Member Representatives

According to the regulation, Stock Exchange members and / or member representatives will be imposed disciplinary penalties in five categories that are as follows: warning, reprimand, fine, temporary and permanent removal from membership.

Acts and actions require these penalties are defined as follows:

Warning: Negligence and carelessness in fulfillment of the principles and procedures determined by the Stock Exchange, indifference to the duties and responsibilities of membership or not to fulfill them, do not comply with job order and traditions, prejudicial words to the image and reputation of the Stock Exchange, not paying necessary attention to client's and Stock Exchange's instructions, acting contrary to decency and civility in relations with clients and Stock Exchange staff.

Reprimand: defective fulfillment of the principles and procedures of the Stock Exchange, to cause misconduct or corruption of representative or other member's representative, as a result of the lack of monitoring, unfounded prejudicial to the reputation of the Stock Exchange, work disorder at Stock Exchange, unfair accusation and ill-treatment to people having business relation, failure in professional pride and confidence of the Stock Exchange, negligence in fulfillment of client instructions.

Fine: Intentional act in not fulfillment of the rules of procedures of the Stock Exchange, failure in book keeping and registries, not to allow authorized personnel of the Stock Exchange to inspect, help, intentional act in not fulfillment of client's instructions.

Temporary Removal: Personnel attack, swearing, threatening the Stock Exchange personnel, members and members' representatives publicly, insulting manner towards them in oral or written statements, to reduce a difficult situation of the stock exchange members and staff order to cover up own faults or hide Stock Exchange documents, to create artificial price and the artificial market, to trade at the market based on the prior knowledge of client.

Permanent Removal: Disclosure of information and documents defined as confidential by the General Assembly or the Board of Directors, to distort or destroy documents in order to cover own faults, even if the period specified in article 53 of the Turkish Penal Code lapsed, to be sentenced a intentional criminal offense requires five years or more imprisonment or crimes against state security, crimes against the constitutional order and its functioning, embezzlement, extortion, bribery, theft, fraud, forgery, abuse, fraudulent bankruptcy, bid rigging, rigging the fulfillment of contractual obligations, information system, the prevention, distortion, destruction, or modify data, bank or credit card misuse arising laundering proceeds of crime, smuggling, tax evasion and unjustified benefit.

Creating Artificial Price and Market

The activities prohibited in article 24 of the Regulation in this regard are as follows;

To create a series of changes in capital market instruments to trade and to mislead the market placing an order in terms of price, quantity and value with the intention of creating the impression of an active market,

To cause artificial increase or decrease in the value of the capital market instrument creating the impression of an active market either alone or together with others, with the intention of directing the other members to buy and sell a capital market instrument in series of processes.

To the intent of increase or decrease in the price or value of a capital market instrument, circulation or spreading false information to encourage buying and selling a capital market instrument creating the impression of an active market.

To disseminate false or mislead information about a capital market instrument knowingly to the intent of encourage buying or selling of another capital market instrument.

Either directly or indirectly, alone or with one or more people, to make a series of buy-sell transactions to the intent of misleading of the market by fixing or stabilizing the price or value of a capital market instrument.

To make false oral or written statements, representations, acts and conducts to create the impression of misleading to the intent of misleading the market.

Customers are transmitted by the large amounts of capital market instruments that can affect the price or value of the orders before the orders on the basis of the information themselves, or to place an order to buy or sell on behalf of others, or to cancel the order or to change the information of this nature to be treated or to share with others

Before the orders transmitted by clients by large amounts that can affect price or value of a capital markets instrument, to place, cancel or change an order to buy or sell on behalf of himself or others or to share the information of this nature with others to transmit on the basis of that order.

Istanbul Stock Exchange as an Alternative Dispute Resolution Center?

It is quite new in capital markets legislation to apply to Stock Exchange for disputes arising between clients and members.Accordingly, reserving to apply any judiciary authority, the parties (client and members) may apply Stock Exchange to resolve the disputes arising between the members and clients.

Besides that, it is statutory that a member of the stock market must apply to Stock Exchange for the disputes between other members with respect to the stock exchange transactions.

Particularly in disputes of this kind, taking into consideration of the lack of specialized courts in Turkey, the new regulation seems that it provided an important contribution to dispute settlement, however, due to the fact that whether or not and in what circumstances of the decision of Stock Exchange is final is still not clear enough, we are in the opinion of that, especially in terms of procedural law there will be many problems in practice in the future.

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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Safak Herdem
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