Turkey: Over-The-Counter ("OTC") Derivatives

In contrast to exchange-traded derivatives, OTC derivatives are privately negotiated derivative contracts, provided directly by dealers to end-users or to other dealers, transacted off exchanges. Although the OTC global market is large with the total outstanding nominal amount of USD 298 trillion as of 2005 according to the Bank for International Settlements, OTC derivatives remain unregulated in Turkey.

The general principles of Turkish law are applied to these derivative contracts because there is no specific legislation regulating OTC derivatives traded in Turkey. In this respect, the general principle regarding the formation of contracts, and the relevant provisions applicable to a specific type of contract that has the most common characteristic of such derivative contract determined in the Code of Obligations, will be applicable.

Accordingly, under the general principles of Turkish contract law, the validity of derivative contracts is not limited to those in written form. As long as there is mutual agreement between the parties, provided that no further objection is raised as to the validity or conditions of the contract, a verbally agreed contract will be valid. However, for private procedural law purposes, in the event of any dispute, exceeding 400 YTL can only be proved by way of showing or submitting evidence in written form. Furthermore, the governing law of OTC derivative contracts may be determined as foreign law as long as there is a foreign element to such contract.

On a different note, some CMB experts insist that an application be made to the CMB, prior to execution of an OTC derivative contract without any regulatory basis, although other experts deem these transactions within the freedom of contract principle without the necessity of filing an application.

Regulation of the OTC derivative market is a long debated issue. Some are opposed to the idea, since regulating OTC transactions would place new burdens and higher costs on the participating parties. It is argued, for example, by the Bond Market Association, that "[B]ecause of the cost and complexity in structuring individual OTC derivatives, the market is only used by sophisticated institutions whose management is familiar with the risks and rewards of these financial tools. Individual investors, who would require regulatory protection, do not use OTC derivatives".

Others believe that changes must be made in the current capital markets legislation not merely to remove any uncertainty in relation to enforceability of these derivative contracts, but mainly to facilitate the growth of the OTC derivatives market without the introduction of legal impediments to the development of such market. Changes should be introduced that are necessary to promote innovation, efficiency, competition and transparency in the OTC derivatives markets as well as to reduce systematic risk and to protect the small investor without placing burdens and higher costs on the participating parties.

In line with such global discussions, at the beginning of August 2006, the CMB made a public disclosure stating its aim to amend the relevant CMB legislation, namely the Communiqué on Principles Relating to Brokerage Activities and Brokerage Firms, Serial V No. 46; Communiqué on the Share Capital of Brokerage Firms, Serial V No. 34; and Communiqué on the Internal Auditing Systems of Brokerage Firms, Serial V No. 68, to create the legal structure to facilitate trading of OTC derivatives. The CMB stated that, in view of the developments in the financial sector and the need for legal regulation of sophisticated financial instruments such as OTC derivatives, it proposed certain amendments to the foregoing Communiqués.

The proposed amendments are still in draft form and not incorporated into the Communiqués. The proposed amendments seek to provide that (i) necessary structures for risk modeling, scaling, auditing, control and management are established in intermediary companies, which either trade or provide intermediary services for trading; (ii) stress tests for risk management are established; (iii) Over the Counter Derivatives Risk Acknowledgement Forms are read and signed by customers prior to commencement of any transactions; (iv) trading of over the counter derivatives is evaluated vis-à-vis share capital requirements; (v) the calculation for positions, the counter party risks and provisions due to trading OTC derivatives are established; and, (vi) the process for internal auditing procedures regarding trading OTC derivatives is followed, among others.

In summary, the proposed amendments are designed to ensure that brokerage firms are able to trade OTC derivatives and on a cross-border basis, provided that the risk assessment will be made in detail. The CMB also does not favor setting forth more structured rules in relation to the contracts to be provided, which may prove to be the right approach, obliterating the legal uncertainty, whilst providing enough space for this sector to grow in a less regulated environment.


1. The specifications of gold future transactions were recently announced as per the Communiqué on Gold Future Contracts, which entered into force on 1 March 2006.

2. Some of these future contracts became tradable on TurkDEX only after 2005.

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