Turkey: Recent Securities Developments

The Capital Markets Law is the primary legislation governing the Turkish capital markets. The Capital Markets Board ("CMB"), the independent governmental authority regulating and monitoring capital market activities through issuance of regulations and communiqués, prepared a bill for amending the Capital Markets Law ("Draft Law") with a view to bringing it in line with the relevant European Union ("EU") legislation. The CMB, based on its experiences over the last decade, aims to implement alternative or additional rules responding to the needs of more sophisticated market players and filling in the legal loopholes that are not sufficiently addressed by the current law. Nevertheless, taking into account the CMB’s efforts for gathering all related private and administrative parties’ views, it seems that the finalization of the Draft Law will take some time.

Throughout 2005, the major developments in the Turkish securities market were (i) opening of the futures and options exchange (‘Vadeli İşlem ve Opsiyon Borsası’), or with its acronym the "VOB" ("TurkDEX"), on 4 February 2005; (ii) establishment of the necessary legal and technical infrastructure for a corporate governance index on the Istanbul Stock Exchange ("ISE"); (iii) conveyance of the draft Real Property Financing Law to the Parliament; and (iv) establishment of the Central Registry Agency (Merkezi Kayıt Kuruluşu) ("CRA"), where shares of all publicly held listed companies should be registered electronically.

Below are some highlights from the CMB’s new regulatory acts.

The Draft Law

Based on recent developments in the local capital markets and amendments to the EU legislation, the CMB decided to amend the existing Capital Markets Law in order to ensure compliance with the EU legislation and integration with international markets by strengthening the protection available to investors, assisting market developments and minimizing legal obstacles.

The amendments proposed by the Draft Law mainly address publicly held corporations, instruments traded in capital markets, broker companies and their capital market activities, investment funds, stock markets, the fund for protection of investors and improvement of the efficiency and implementation of penalties for violation of the capital market legislation.


The establishment of a futures and options market has been on Turkey’s agenda since the 1980s. However, the preparation of the indispensable legal fundamentals materialized in 2001, and the CMB permitted the establishment of TurkDEX after being convinced that the necessary macroeconomic stability throughout the country had been achieved. Following the incorporation of TurkDEX as the first private exchange in Turkey, the main derivative transactions that may be carried out are related to wheat, cotton, gold, US Dollars, Euro, T-Bills, ISE 30 and ISE 100 indexes.

Central Registry Agency

The CRA was established in order to have shares of publicly held and listed companies registered and kept in electronic form. All accounts and shares kept by the ISE Settlement and Custody Bank (İMKB Takas ve Saklama Bankası) were transferred to the CRA and physical share certificates were cancelled. Share certificates of publicly held corporations that are not listed should also be registered with the CRA within a certain period of time. The CRA is expected to (i) decrease the risks and expenses of all market players; (ii) eliminate the expenses of physical share certificate issuance and custody; (iii) ensure reliable public information as to the ownership of shares; (iv) reduce the risk of loss and theft; and (v) ease international integration.

Corporate Governance Index

In 2005, publicly held corporations began filing a corporate governance questionnaire as well as their financial statements with the CMB. The questionnaire is part of the CMB’s plans to strengthen corporate governance in publicly held corporations. While the questionnaire aims to inform the investors about a company’s compliance with corporate governance principles, it is based on the CMB’s "comply or disclose why you do not comply" approach and, thus, still leaves it up to the company to complete. The ISE adopted the necessary decisions and prepared the required infrastructure to launch the long-awaited corporate governance index. The corporate governance index will become operable once five publicly held corporations have obtained a rating of 6/10 as a result of a corporate governance appraisal.

Profit Distribution

Pursuant to a decision adopted by the CMB on 27 January 20061, publicly held companies, apart from banks, are required to distribute a mandatory minimum dividend of at least 30% of the distributable profit resulting from activities performed during the fiscal year 2005. The CMB also hints in this resolution that it may not impose a profit distribution obligation in the future, depending on the companies’ success in applying corporate governance principles.

International Financial Reporting Standards

The Communiqué on Accounting Standards Series XI, No. 25, requires all listed corporations to prepare their consolidated financial statements in accordance with the International Financial Reporting Standards ("IFRS"). New standards have been determined within the scope of the IFRS. In order to reflect these new standards, the CMB issued the Communiqué on International Accounting Standards in the Capital Markets Series VIII, No. 45 regarding share-based payments, business combinations, insurance contracts, non-current assets held for sale and discounted operations.

Tax Related Developments

The Corporate Tax Law has gone through fundamental changes. The newly adopted law severely affects local and foreign companies generating revenue in Turkey. As one of the most interesting developments, the law includes a provision establishing a 30% withholding tax on certain payment transfers to those countries to be defined by the Council of Ministers after enactment of the new law. These countries are likely to be those countries generally known as tax havens. However, countries named by the OECD for their harmful tax competition practices are also likely to be included in the list. This change in legislation may obligate many foreign companies and funds operating in the capital markets to revise their organization for local operations.

As of 1 January 2006, the tax regime changed for capital gains in connection with the purchase and sale of securities. The tax exemption for sellers of shares purchased on the ISE and kept for a period of three months is no longer applicable as such. Depending, inter alia, on the date of the purchase of securities and the type of taxpayer, the new holding period is one year. Capital gains for securities sold prior to the expiry of the one-year holding period are subject to a new 15% withholding tax. The Ministry of Finance promulgated a Communiqué providing a tax cut on certain transactions involving American Depository Receipts, Global Depository Receipts, or depository receipt related income, a new practice in Turkey.


Through adoption of certain principle decisions, the CMB determined the derivative agreements that may be included in the portfolio of individual pension investment funds, and clarified certain practical steps with respect to the spin-off of publicly held corporations. Also in 2005, as a milestone on tender offers, the CMB adopted a decision with respect to the determination of the tender offer price in an acquisition. Accordingly, the acquiring party is required to make additional payments after the tender offer to the shareholders who sell their shares during the tender offer if certain events improving the value of the acquired company are realized (e.g. positive decisions in lawsuits, use of options, etc.).

In the first quarter of 2006, the CMB amended several communiqués such as the Communiqué Regarding Mergers, the Communiqué Regarding Registration of Share Certificates and Their Sales, the Communiqué Regarding Registration of Bonds, and the Communiqué Regarding Principles on Issuer’s Exemptions and De-Registration to reflect the necessity of independent audits with a view to carry out operations that are within the scope of these communiqués. The Communiqué Regarding Operations of Brokerage Companies has been amended to limit the participation of brokerage companies in banks, insurance companies, individual pension companies, financial lease and factoring companies and investment companies.

Taking into account the major developments in the Turkish capital markets during the latter part of 2005 and during the first quarter of 2006, the CMB is expected to have a busy year, particularly with the introduction of the new Draft Law.


1. Resolution No. 4/67 published in the CMB’s Weekly Bulletin No. 2006/3.

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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