Turkey: Securities Update In Turkey

(Only major changes amendments and enactments are taken into account.)

A few years ago, the Turkish Capital Markets Board (the “CMB”), the independent governmental authority regulating and monitoring the capital market activities in Turkey, prepared a bill amending the existing Law on Capital Markets No. 24991 (the “Capital Markets Law”), (the “Draft Law”)2 to revamp the current one with a view to bring it in line with the relevant European Union (the “EU”) legislation. Capital Markets Law is the main piece of legislation governing capital markets in Turkey.

Nevertheless, the Draft Law has not yet been submitted to the Prime Ministry for its enactment and it seems that some additional time is needed, also taking into account the elections in July 2007, and amendment plans of the Turkish Commercial Code, which is closely related to the content of the Draft Law.

Most of the board members of the CMB and heads of several departments have been replaced early this year as the term of previous officers has expired. This year will also serve to observe the potential and performance of these new officers.

Despite the constant position of the Draft Law, the CMB has made few amendments in its secondary legislation to reflect the needs of several market players in addition to its monitoring of the market.

Below are highlights from the major new regulatory acts of the CMB.

Intermediary Institutions (Brokerage Companies)

Several amendments were made to the Communiqué regarding the Principles on Intermediary Activities and Intermediary Institutions.3 The most recent amendment is made with respect to record-keeping and registration systems of intermediary institutions. The Communiqué Amending the Communiqué on Principles Regarding Record-Keeping and Documentation in Intermediary Activities Serial V, No.934 introduces more detailed provisions in connecting with the recording of orders obtained by means of electronic transmission, including orders obtained via internet or by fax. The said amending Communiqué requires intermediary companies to retain documentation and records, including internet and fax records, related to customer orders five years from the issuance date, while verbal customer orders are required to be kept for two years, starting from the end of the year in which the verbal customer order is obtained. According to the said amending Communiqué, certain provisions which require intermediary institutions to adopt recording systems in accordance with such Communiqué are to enter into force within one month following enactment of the said amending Communiqué. Also, the said amending Communiqué allows intermediary institutions to obtain orders before or during a séance by means of phone, fax, ATM records, electronic means or other similar ways without a customer’s signature. Pursuant to the general provisions, such orders are considered to be ‘verbal orders’. The said amending Communiqué requires intermediary institutions to keep a neat inventory of all voice records regarding customers’ orders by phone, the instructions regarding orders by fax and all orders by fax, with the date and time of receipt by the intermediary institutions; of the IP numbered records regarding the ordering customer and of all necessary electronic log records with the origin to determine the source of an order received by means other than the above-mentioned avenues.

Another recent amendment is made with respect to internal audit systems of the Intermediary Institutions.5 Accordingly, Intermediary Institutions which (i) are publicly held, or (ii) have ten or more branch offices, or (iii) have a license to trade foreign derivatives are required to have an independent audit report with respect to the functioning of their internal audit systems and procedures. This report should be submitted to the CMB within the first twelve weeks of each year.

Despite the fact that the applicable legislation requests the intermediary institutions to issue and execute separate framework agreements for each of the licenses they have obtained from the CMB, in the weekly Bulletin of the CMB published in the week of 25-29 June 2007 with No. 2007/26, the CMB resolved that intermediary institutions will merge relevant framework agreements under one single framework agreement. Framework agreements required to be merged into one single agreement by intermediary institutions are as follows: framework agreement for intermediation in the sale and purchase of capital market instruments, framework agreement for portfolio management, framework agreement for investment consultancy, framework agreement for purchase (repo) and re-purchase (reverse repo) transactions; framework agreement for intermediation in the sale and purchase of derivatives; framework agreements for margin trading, short selloffs and lendouts, and borrowing securities. A framework agreement for intermediation in public offerings is not listed among the agreements to be merged into one single agreement. These framework agreements will be prepared in a form where the customers may exclusively sign relevant sections in connection with the services they request from the relevant intermediary company.

Mutual Funds

Guaranteed funds and protected funds are introduced to the Turkish market by an amendment to the Communiqué regarding Principles on Mutual Funds.6 According to the amending Communiqué, the definition of guarantor is listed in the definitions section of the Communiqué as “non-resident banks and insurance companies which guarantee payment of the investment amounts subscribed by the guaranteed fund in accordance with the principles foreseen under their internal regulations and not covered by the Mutual Fund through a guarantee agreement, and bears the qualifications foreseen under this Communiqué provided that the provisions of the Banking Law 5411 regarding the banks and insurance companies are reserved.” In this manner, the formation of the guaranteed funds and protected funds will be pioneered in the Turkish derivatives instruments.

Guaranteed funds are the repayment of a particular part of, and all of the initial investment or a particular earning which exceeds the initial investment of the investor, in specific term or terms, in accordance with the internal regulations. These are undertaken based on an appropriate investment strategy and the guarantee agreement entered into by and between the Founder and the Guarantor.

Protected funds are the repayment of a particular part of, and all of the initial investment or a particular earning which exceeds the initial investment of the investor, in specific term or terms, in accordance with the internal regulations, and based on an appropriate investment strategy in accordance with the best effort principle.

According to the amending Communiqué, these funds will be subject to the provisions of Communiqué VII No. 10 with respect to the investment restrictions. On the other hand, taking into consideration that these funds have different features compared to the other funds, in the event there is no equivalent fund trading in the stock exchange with respect to the terms of the other agreements, it is permitted to become a party of reverse repo and derivative agreements outside the stock exchange, provided that specific terms will be met.

Under the amending Communiqué, where the guarantor is an entity resident in Turkey, such entity must have sufficient financial strength. If, on the other hand, the guarantor is resident abroad, it must have obtained the required rating grade for investments to be made by such guarantor, and the rating agency must be among the international rating agencies recognized by the Board for conducting rating activities in Turkey.

With respect to public disclosure, the amending Communiqué provides that prospective standards of guaranteed and protected funds will be determined and announced by the CMB. Nevertheless, other than the principles determined by the prospectus, further undertakings or commitments are not allowed in relation to the announcement, advertisement and other marketing activities of the guaranteed and protected funds with respect to protected income.

Derivative Transactions

The CMB has published a Communiqué on the Incorporation and Operation Principles of Derivative Transactions Intermediary Companies. The Communiqué sets forth principles with respect to (i) scope of activity, (ii) incorporation terms and procedures, (iii) usage of trade name, (iv) limitation of participation in other companies, (v) obligation to enter into a framework agreement with clients, (vi) internal and external audits, book keeping and disclosure principles of the derivative transactions intermediary companies.


1. Published in the Official Gazette No: 17416 on 30 July 1981.

2. (See http://www.spk.gov.tr/HaberDuyuru/haberduyuru.htm?tur=diger).

3. The Communiqué Regarding the Principles on Intermediary Activities and Intermediary Institutions (Serial V, No: 46), published in the Official Gazette No: 24163 on 7 October 2000; the Communiqué on Amending the Communiqué Regarding the Principles on Intermediary Activities and Intermediary Institutions (Serial V, No: 86), published in the Official Gazette No: 26097 on 3 March 2006.

4. Communiqué Amending the Communiqué on Principles Regarding Record Keeping and Documentation in Intermediary Activities Serial V, No.93 published in the Official Gazette No. 26566 on 28 June 2007.

5. The Communiqué Amending the Communiqué on Principles Regarding Internal Audit System to be Implemented on Intermediary Institutions (Serial V, No. 89) published in the Official Gazette No. 26470 on 22 March 2007.

6. The Communiqué Regarding the Principles on Mutual Funds (Serial VII, No: 10), published in the Official Gazette No: 22852 on 19 December 1996; the Communiqué on Amending the Communiqué Regarding the Principles on Mutual Funds (Serial VII, No: 33), published in the Official Gazette No: 26532 on 25 May 2007.

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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