The new Capital Markets Law numbered 6362 (the "Capital Markets Law") has been adopted on 6 December 2012. Capital Markets Law creates a consistent practice with that of European Union and sets out the new practices for capital markets in conformity with the new Turkish Commercial Code numbered 6102. Laying out a stronger legal framework along with restructuring of the institutions, Capital Markets Law also aims to simplify the complicated structure set forth under the previous Capital Markets Law and thereby taking the fundamental step in creating the solid grounds to make Istanbul one of the eager players among the financial centers of the world.
In this context, with the purpose of meeting the requirements set forth under the Capital Markets Law, the Capital Markets Board of Turkey (the "CMB") has promulgated a great number of new communiqués, thereby cancelling the older ones, in order to establish the planned capital markets structure. Revision of the communiqués still continues and draft communiqués are being published for comments of the market players. We will be covering hereunder several major changes that Capital Markets Law introduces with respect to public offerings, trading activities and squeeze out -sell out rights.
Under the Capital Markets Law, a prospectus should be prepared and approved by the CMB for the issuance and sale of the capital market instruments with a public offering while an issuance certificate would be necessary for the issuance and sale of the same without a public offering. Differing from the previous capital markets law under which the registration of the capital market instruments was required, the Capital Markets Law introduces the concept of approval of the prospectus or the issuance certificate. In this respect the companies will no longer apply for the registration with the CMB; rather, the prospectus or the issuance certificate that they prepare will be subject to the approval of the same. The prospectus will be valid for 12 months following the approval and this is expected to maintain time and cost efficiency. In addition, the approval method will offer a more clear-cut framework for the issuers in relation to the procedures.
As regards to trading activities, the Communiqué Serial VI No.103.1 sets forth a new short swing profit rule pursuant to which, the executives of an issuer, in the event that they make a profit from their purchase and sales of the relevant capital market instruments, would repay the net profit they make from such activities to the issuer within 30 days following the realization of such profit. The person, who does not repay such profit to the issuer, would be subject to a penalty twice the amount of the profit she/he makes from such activities.
Another crucial trading activity related change is planned to be introduced with the draft Communiqué on Margin Trading, Short Sales and Lending and Borrowing of Securities ("Draft Communiqué"). The Draft Communiqué decreases the maintenance margin requirement to 35% for the short sales and provides for discretion on brokerage houses to alter such percentage in respect of a specific customer or a capital market instrument being subject to the foregoing ratio. Moreover, the Draft Communiqué stipulates that if the brokerage houses cannot reach the customer despite its efforts and diligence, then it is authorized to close down the short sales transaction without further notice by means of using the cash proceeds from short sales or sale of capital market instruments deposited as equity capital.
Another change that is worth mentioning is in relation to takeover bids and squeeze out - sell out rights introduced by the Capital Markets Law and the Communiqué on Share Purchase Offers (II- 26.1). Under the Capital Markets Law in the event that shares or voting rights entitling the control of management have been acquired in publicly-held corporations, it is mandatory to make an offer for purchase of the other shareholders' shares. Further, in the event that shares acquired as a result of a takeover bid or in a different way reach to or exceed a determined ratio of the voting rights, along with the votes of the parties acting in concert, the persons holding such amount of shares will gain the right to squeeze out the remaining minority shareholders and vice versa will also be applicable; i.e., sell out right will arise for shareholders who have become minority. Such shareholders may request that their shares be purchased at a fair price by the controlling parties within the period to be determined by the CMB.1
The Capital Markets Law and the secondary legislation promulgated thereunder are likely to provide more guidance to investors as well as the issuers with the recent changes introduced to meet the capital market needs.
1 You may also refer to our next article for details on the new tender offer rules.
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