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”

Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions