Turkey: Highlights From The Recent Amendments To The Capital Markets Legislation

Last Updated: 1 October 2004
Article by Kayra Üçer and Serkan Gul

Throughout late 2003 and early 2004, the Turkish Capital Markets Board (the "CMB") promulgated a number of new regulatory acts.

Below are the highlights from the new regulatory acts of the CMB.

Public Offering

Communiqué on Sale and Registration of Shares with the Capital Markets Board, Serial I No. 261 has been amended by the Communiqué Series I, No. 322.

According to the Communiqué as amended, in case of an initial public offering or a secondary public offering through the book building method, if the demand exceeds the number of shares offered to sale, offerors would be entitled to sell additional shares, provided that the relevant announcement is published in the prospectus. However, the total amount of the additional shares cannot be more than 15% of the shares offered to public prior to the issuance of such additional shares.

In addition, upon offering of the shares to public, the Communiqué authorizes the broker companies that are listed in the prospectus and involved in the public offering, to purchase the offered shares from the Istanbul Stock Exchange ("ISE") in order to establish price stability, provided that the relevant announcements are published in the prospectus.

Broker companies are entitled to realize such purchases only for a period of 30 (thirty) days starting from the date of trading of the shares in the ISE. Broker companies can initiate such purchase if and when the trading price of the shares is below the public offering price and they cannot sell those shares below the public offering price within the 30-day period.

Cumulative Voting

The Law on Capital Markets No. 24993 authorizes the CMB to issue regulations regarding the cumulative voting system in order to establish a balance between the majority shareholders and the minority shareholders of publicly held companies, and to secure the rights of the minority shareholders by enabling them to be represented in the board of directors and statutory auditors.

The Communiqué Related to the Cumulative Voting Principles to be Applied at General Assembly Meetings of Undertakings Series IV No. 294, which was prepared to implement this principle and granted a discretion for the applications of cumulative voting in publicly held companies, has recently been amended through Communiqué Series IV No. 315

According to the Communiqué, publicly held companies willing to apply the cumulative voting principle at their general assembly meetings must amend their articles of association to that effect. Companies whose shares are not traded in the ISE but the number of whose shareholders has continuously been over 500 for the past 2 years ("Undertaking") are required to implement the cumulative voting system and thus amend their articles of association accordingly at their first ordinary general assembly meeting to be convened.

Furthermore, the Communiqué, as amended, indicates that if a vacancy occurs in the board of directors or statutory auditors due to any reasons other than dismissal, all the board members should be elected at the same general assembly.

Currently, the Communiqué requires the application of the cumulative voting principle only in Undertakings, since unlike the shareholders of publicly held companies whose shares are being traded in the ISE, the minority shareholders of Undertakings that are not satisfied with the management policies do not have the flexibility to sell their shares whenever they wish to do so.


Turkish legislation does not provide clear guidance regarding the procedures to be followed for the delisting of a public company. Additionally, although the Capital Markets Law permits delisting of publicly held companies subject to certain conditions, in practice, the CMB is reluctant to accept the delisting demands of companies.

However, very recently the CMB approved the delisting request of a company and there is a pending procedure for the preparation of a legislation to clarify the details of this matter.

Distribution of Profit

Pursuant to the resolution dated 30 December 2003 of the CMB, publicly held companies are required to distribute at least 20% of the distributable profit from the activities held during 2003.

The CMB's resolution states that mandatory dividend distribution can be made (i) in cash; (ii) by distributing bonus shares to be issued through increase of the company's share capital in an amount not less than 20% of the distributable profit; or (iii) by distributing a certain amount of cash and a certain amount of bonus shares.

The CMB bases this decision on (i) Article 15 of the Capital Markets Law, which states that "the ratio for the first dividend to be stated in the articles of association of listed companies cannot be less than the ratio determined and announced by the CMB", and (ii) Article 5 of the Communiqué on the Principles of Distribution of Dividends in Listed Joint Stock Corporations, which empowers the CMB to oblige publicly held companies to distribute in cash the first dividend to be set aside from the profits of the preceding year.

Prior to the issuance of this decision, the decision regarding distribution of profit was left to the discretion of the general assembly of shareholders.

Credit Rating Activities and Agencies

In December 2003, the Communiqué Related to the Rating Activities and Rating Corporations6 has been amended by the Communiqué Series VIII No. 407

The Communiqué, as amended, enables credit rating agencies to evaluate the compatibility of the public companies activities with corporate governance principles. However, public companies are not obliged to have their activities rated from a corporate governance point of view. Nevertheless, the CMB may require public companies to have their activities rated.

According to the Communiqué, credit rating agencies are no longer required to obtain the CMB’s permission prior to their establishment. However, they should be included in the list to be prepared by the CMB in order to carry out rating activities.

In addition, credit rating agencies are not required to obtain the CMB’s approval before amending their articles of association, provided that such amendments are notified to the CMB within five business days.

Furthermore, pursuant to the Communiqué, credit rating agencies are required to have a share capital of at least 200 billion Turkish Liras8. The Communiqué indicates that credit rating agencies must amend their organizations and activities in a manner to fulfill these requirements within two years following the announcement of this Communiqué. Therefore, credit rating agencies whose share capital are less than 200 billion would be obliged to increase their share capital accordingly.


According to the Communiqué on the Principles of the Distribution of Dividends in Listed Joint Stock Corporations, publicly held companies are required to inform their shareholders of any previous year donations at the relevant ordinary general assembly meetings. Previously, publicly held companies used to fulfill this obligation in different ways, i.e. by including it as a general assembly meeting agenda item or by inserting such information in the annual activity report.

In order to ensure consistency, the CMB issued a declaration requiring public companies to inform their shareholders of previous year donations by including an item in their general assembly meeting agenda. Accordingly, all public companies are required to insert such an item in their general assembly meeting agenda, if they have made any donations in the previous year.

International Financial Reporting Standards

The Communiqué on Accounting Standards Series XI No. 25, which is also one of Turkey’s undertakings under the Letter of Intent dated 30 July 2002 to the IMF has been issued in order to comply with the European Union directives requiring all listed corporations to prepare their consolidated financial tables in accordance with the International Financial Reporting Standards ("IFRS") until 1 January 2005, at the latest.

The Communiqué will enter into force on 1 January 2005. However, corporations are entitled to apply the provisions of this Communiqué and prepare their financials according to IFRS rules starting from their annual or interim accounting year-end as of 31 December 2003.

According to the Communiqué, corporations are required to prepare balance sheets, income, cash flow and equity charts together with their footnotes. The corporations’ mid-year (6 months) and annual financial statements would be fully prepared, whereas the quarterly financial statements would be in summary form. Additionally, mid-year financials would be subject to a limited audit, whereas annual financials would be subject to permanent audit.


1. Published in the Official Gazette on 15 November 1998

2. Published in the Official Gazette on 17 December 2003

3. Published in the Official Gazette on 30 July 1981

4. Published in the Official Gazette on 18 February 2003

5. Published in the Official Gazette on 21 December 2003

6. Published in the Official Gazette on 6 March 1997

7. Published in the Official Gazette on 4 December 2003

8. Approximately USD 130,000 as of the publishing date.

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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