Turkey: Major Overhaul of Capital Markets Law Sought*

Last Updated: 22 September 2005

Article by Ayse Tumerkan

The foundations of the capital markets in Turkey were laid down during the 1980’s. However, since then the development of the capital markets in Turkey have not been entirely satisfactory for a variety of reasons. Macroeconomic and political inconsistencies, shadow economy, high domestic debts, stocks and real interest rates are some of the external factors that may obstruct the development of fully-fledged capital markets with sufficient depth in the country. In addition to these external factors, the market also suffered from more specific securities-related problems, such as lack of a corporate and individual investor platform and lack of diversity in the capital market instruments.

However, present conditions indicate that the Turkish capital markets are poised to emerge. The high-standard legal framework of the capital markets in Turkey, along with the well-operating institutional structure of the Turkish Capital Markets Board enable the Turkish capital markets to have great potential for new developments that will lead to an increase in investment. Recent developments such as the renewal of private pension funds also bolster the liquidity of the markets in Turkey. Finally, the sheer possibility of Turkey acceding to the European Union (the "EU") has triggered an influx in foreign capital.

The proposed accession of Turkey to the EU requires harmonization of domestic legislation with the EU legislation in many areas, including capital markets. Such harmonization is not only vital for Turkey’s accession to the EU, but also important for Turkish capital markets to become global in terms of economic development and fair competition grounds.

While the regulatory authorities in the Turkish capital markets are working on integration to the EU legislation, the EU legislation is leading the way to a harmonized capital market within the EU member states. It is assumed that an integrated capital market throughout the EU shall decrease the cost of capital and transaction costs, as a result growth in the market shall be achieved and unemployment reduced.

Representatives of the Capital Markets Board foresee that the amendments on primary and secondary capital markets legislation for purposes of integration with the EU legislation will be completed by yearend 2005. This article aims to provide with information on the envisaged amendments on the Turkish capital markets legislation in general and on the Law on Capital Markets No. 24991 (the "Capital Markets Law") in specific.

The Capital Markets Law is the main piece of legislation regulating capital markets in Turkey. In turn, the Capital Markets Board is the independent government authority regulating and monitoring the capital market activities through issuance of regulations and communiqués, which are in line with the Capital Markets Law.

1. Integration of Capital Markets Law with the EU Legislation

The Ministry of Council’s decision dated 24 June 2003, sets out the primary steps that are required to be taken in many areas, as well as in the capital markets, for adoption of the EU legislation.

According to the said decision of the Ministry of Council, harmonization of the capital markets legislation, especially in the area of financial services, shall be among the main objectives of the regulatory authorities. This will be followed by the strengthening of supervision powers of the regulatory bodies, resulting in structural independence..

Another crucial amendment to the Capital Markets Law shall be the abolishment of restrictions imposed on the EU-based foreign investors preventing them from investing in different Turkish industries. In this regard, public offering of foreign securities in the Turkish market and unrestraint of foreign financial service providers shall facilitate the integration of the Turkish finance sector within the EU legislation.

According to Dogan Cansizlar, the Chairman of the Capital Markets Board, the integration of the Capital Markets Law shall be achieved largely by the end of 2005. The amendments that are envisaged to be implemented into the Capital Markets Law can be summarized under seven headings: amendments relating to (i) publicly listed companies; (ii) brokerage houses and their activities in the capital markets; (iii) corporate investors; (iv) private pension funds; (v) stock exchanges and other capital markets institutions; (vi) taxation in the capital markets; and (vii) effects of penalties and measures.

a. Publicly Listed Companies

As a result of the new amendments in the Capital Markets Law, application of corporate governance principles shall become widespread among the publicly listed companies. A Corporate Governance Principles Index shall be used whereby companies will be rated according to their compliances with corporate governance principles. As a result of this, investors will be able to detect which companies are corporate governance friendly. Mergers and spin-offs in publicly held companies shall be governed in compliance with the EU legislation. Furthermore, the authority of the board of directors under the authorized share capital system to increase the capital of public companies shall be limited to a maximum of five years. The scope of public disclosure in case special events allow shall be extended and the voting rights of those that do not comply with the mandatory tender offer requirements shall be suspended by court decisions. Currently, persons who acquire 25% of the voting stock of public companies are compelled to launch a mandatory tender offer for the remaining shares outstanding. Finally, it has been stated by the Chairman that the Capital Markets Board shall be granted an authorization to regulate the purchases of treasury shares, which is currently prohibited under the capital markets legislation.

b. Brokerage Houses and Their Activities in the Capital Markets

Individuals shall be entitled to be involved in capital markets activities within a framework to be determined by the Capital Markets Board. Moreover, the activities in the capital markets shall be divided into two groups that will be classified as primary and secondary activities.

c. Corporate Investors

The anti-trust drawbacks imposed on corporate investors shall be abolished during the integration process.

d. Private Pension Funds

The restrictions imposed on the incorporators of private pension funds shall be abolished and the conditions for incorporation of pension funds shall be simplified. The principles for valuation of capital in kind, invested in real estate investment trusts shall be re-determined. Portfolio custody principles shall be set out and the restrictions regarding securities that are traded by investment funds shall be abolished.

e. Stock Exchanges and Other Capital Markets Institutions

The Istanbul Stock Exchange and Istanbul Precious Metals Exchange shall be reorganized to become suitable for the competition grounds to be established throughout the integration process. Furthermore, the terms and conditions for quotations at the Istanbul stock Exchange shall be reviewed and amended as per the terms and conditions of the EU member states. Finally, transition from physical shares to registered shares shall become effective, which will lead to electronic record keeping of the shares of joint stock companies.

f. Taxation in the Capital Markets

The tax system shall be simplified, with special focus on the taxation of foreign corporate investors. Government bonds that used to have tax advantages over corporate bonds shall become subject to same taxation principles as the corporate bonds.

g. Penalties and Measures

Measures for insider trading activities shall be harmonized with EU legislation. Public prosecutors shall only be able to examine defendants and witnesses in the presence of supervisors from the Capital Markets Board. Those who engage in capital markets activities without obtaining the required permits shall become individually subject to bankruptcy proceedings. Furthermore, it has been stated that monetary penalties shall be applicable to financial crimes. The Capital Markets Board shall be granted the authority to request from the courts the deposition of joint stock company directors whom infringe on the relevant laws and regulations and shall be entitled to request appointment of new directors from the courts. The Capital Markets Board shall further be granted the authority to fine those that fail to fulfill the public disclosure requirements imposed by the Capital Markets Law. Finally new penalties shall be incorporated with respect to joint stock companies that proceed with public offerings without fulfilling the registration requirement of the Capital Markets Board.

Amendments to Secondary Legislation:

Throughout late 2003 and 20042, there have been many amendments on the capital markets secondary legislation, such as an increase in free float on the stock exchange, defining of investor groups in public offerings, extension of the scope of public disclosure requirements so as to procure provision of more information to investors, improvement in the offering circular standards, acceptance of real persons as incorporators of portfolio management companies, regulation of mergers of publicly listed companies, acceptance of International Financial Reporting Standards for publicly listed companies, securities companies and portfolio management companies and revisions on the public offering and sale shares in state owned entities.

The CMB promulgated a number of new regulatory acts for governing the above matters with the aim of providing a better investment environment and ensuring compliance with the acquis communautaire3 which is a requirement according to the Ministry of Council’s decision dated 24 June 2003, for the coordination of the adoption of the EU legislation.

In order to ensure compliance with the acquis communautaire, the CMB has amended eight communiqués:4

Communiqué on Principles Regarding Public Disclosure of Material Events Series VIII No. 39 was amended to improve the definition of "controlled undertaking" and introduced an additional disclosure requirement related to rights attached to shares to be obtained as a result of converting the convertible bonds.

Communiqué on Principles Regarding Issuers Exemption Conditions and Deletion From Board’s Registry Series IV No. 9 was amended to grant an exemption to the issuers from publishing a prospectus in certain cases (e.g. private placement, merger, issuance of convertible bonds, etc.).

Communiqué on Principles Regarding the Registration of Bonds with the Board Series II No. 13, Communiqué on Principles Regarding Registration of Profit and Loss Sharing Certificates with the Board Series III No. 27, Communiqué on Principles Regarding Registration of Asset Backed Securities and Establishment and Activities of General Finance Undertakings Series III No. 14, Communiqué on Principles Regarding Registration of Commercial Papers with the Board Series III, No. 13, Communiqué on Principles Regarding Issuance of Publicly Offered Dividend Right Certificates Series III No. 10, Communiqué on Principles Regarding Registration of Gold, Silver, Platinum Bonds with the Board Series III No. 26 were amended to oblige the mandatory use of a broker company during the public offering of the above stated securities.

Turkish Capital Markets have displayed rapid progress since the 1980’s , procuring transfer of significant amount of funds to the real sector. However, especially with adverse effects of macroeconomic inconsistencies, the Turkish capital markets failed to meet its huge potential.

In order to increase the demand for security instruments in the market, the platform for individual and corporate investors should be developed. Provision of financial awareness to investors via disclosures is crucial for the direction of investments to the capital markets. For this purpose, a national campaign shall be organized to provide information to the public on every aspect of the capital markets.

On the other hand, capital markets in Turkey have a fast operating and well-organized structure. Use of high technology enables speedy and safe transactions and safe record keeping in relation to such transactions. The capital markets employees are well educated, open minded and visionary. Moreover, the legal structure of the capital markets is suitable for any integration attempts with the EU legal framework.

Implementation of the corporate governance principles, adaptation of a registration system for the security instruments, establishment of courts with expertise on capital markets and revisions in the taxation system shall increase the reliance of investors in the market.

The amendments to the Capital Markets Law and the secondary legislation shall address the loopholes of the current legislation on capital markets. Finally, as a result of the integration of Turkish Capital Markets with the EU legislation and practices, the needs of the market players shall be better addressed.


* While the Capital Markets Board has not yet made available to the public its draft of the amendments to the Capital Markets Law No. 2499, this article has been prepared taking into account the different comments and opinions of various market players and organizations and, of course the Capital Markets Board.

1. Published in the Official Gazette No: 17416 on 30 July 1981. (www.spk.gov.tr).

2. This article summarizes legal developments throughout 23 September 2004.

3. The entire body of the laws of the EU is known as acquis communautaire. This includes all the treaties, regulations and directives passed by the European institutions as well as judgments. (http://europa.eu.int/comm/development/body/legislation/index_en.htm ).

4. Published in the Official Gazette No: 25515 on 7 June 2004.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.