Turkey: Significant Changes To Turkish Capital Markets Legislation During The Second Half Of 2018

Considering certain gaps in the market, and in light of the ongoing economic imbalances, the Turkish Capital Markets Board ("CMB") continues to update capital markets legislation day by day. This article will focus on some of the significant changes that have been introduced to Turkish capital markets legislation during the second half of 2018, which are as follows:

Regulation on the Activity, Working and Auditing Principles of the Data Storage Institution

According to Article 87 of the Capital Markets Law, the CMB may require capital market transactions to be notified to a duly authorized data storage institution for the surveillance of systemic risks and for ensuring financial stability. In this respect, on September 19, 2018, the CMB introduced the Regulation on the Activity, Working and Auditing Principles of the Data Storage Institution as a secondary legislation.

The regulation mainly focuses on the following: (i) requirements to be fulfilled in order to act as a data storage institution, (ii) duties and obligations thereof, (iii) membership principles of the data storage institution, (iv) data sharing rules, (v) access to the information kept by the data storage institution, and (vi) auditing process of the data storage institution.

In accordance with Article 6 of the regulation, the core duties of the data storage institution can be listed as follows:

  • Registering and maintaining the duly reported capital market transactions within the boundaries of Turkey and in the electronic environment,
  • Checking inconsistencies with respect to the reporting conveyed by the members (e.g., legal entities that are parties to the transactions, intermediary investment institutions etc.) and taking all necessary actions before the members and the CMB in case of discrepancies,
  • Keeping the records confidential,
  • Disclosing certain data to the public,
  • Sharing the relevant information with approved third parties (e.g., the Central Bank of Turkey, the Banking Regulation and Supervisory Agency, etc.),
  • Other relevant duties and operations, as determined and instructed by the CMB.

It is also worth mentioning that the CMB has already chosen the Central Registry Agency ("Merkezi Kayıt Kuruluşu" or "MKK") as the designated data storage institution.

Communiqué on the Principles of Reporting to the Data Storage Institution (IV-87.1)

Further to the Regulation on the Activity, Working and Auditing Principles of the Data Storage Institution, the CMB has also introduced the Communiqué on the Principles of Reporting to the Data Storage Institution (IV-87.1) ("Communiqué No. IV-87.1") on October 27, 2018.

The purpose of this Communiqué is to set out the procedures and principles of reporting to the data storage institution. The Communiqué also explicitly stipulates liable parties, transfers of liability, and sets forth the details and content of other reporting-related matters.

It should be noted that the details of derivative agreements that are executed on stock exchanges, other organized marketplaces and over-the-counter markets must be reported to the data storage institution in accordance with Article 5 of the Communiqué. The underlying rationale of the foregoing rule is to bring transparency to the derivatives market. Nevertheless, it should be mentioned that the CMB is entitled to exclude certain derivatives from the reporting liability at its sole discretion.

Changes to the Istanbul Settlement and Custody Bank Central Counterparty Regulation and the Istanbul Settlement and Custody Bank Central Clearing and Settlement Regulation

Article 19 of the Istanbul Settlement and Custody Bank Central Counterparty Regulation lists the collateral types of counterparties that can be submitted to the Istanbul Settlement and Custody Bank during central counterparty transactions.

Pursuant to paragraph (ğ), which has been newly added to Article 19, the scope of the type of acceptable collaterals has been expanded. In this context, mortgage-backed securities, mortgage-covered securities, asset- backed securities and asset-covered securities are also newly designated as allowed collateral types.

Article 38 of the Istanbul Settlement and Custody Bank Central Clearing and Settlement Regulation is related to permissible collateral types for settlement transactions. In simple terms, Article 38 of the Istanbul Settlement and Custody Bank Central Clearing and Settlement Regulation has been amended in parallel with Article 19 of the Istanbul Settlement and Custody Bank Central Counterparty Regulation.

Within this scope, paragraph (l) has been added to Article 38, and accordingly, the scope of the permitted collaterals has been expanded by way of including mortgage-backed securities, mortgage-covered securities, asset- backed securities and asset-covered securities among the types of acceptable collaterals.

Communiqué on Joint-Stock Companies Whose Majority Shares Are Held by Cooperatives and Cooperative Associations (II-16.2)

Another novelty introduced by the CMB on September 19,2018, is the Communiqué on Joint-Stock Companies Whose Majority Shares Are Held by Cooperatives and

Cooperative Associations (11-16.2) ("Communiqué No. II-16.2"). The main subject matter of the Communiqué No. II- 16.2 concerns the liabilities of joint-stock companies whose majority shares are held by cooperatives and cooperative associations and the applicable exceptions thereof.

In general, the scope of the Communiqué can be summarized as follows: (i) if a cooperative has at least five hundred (500) shareholders, or (ii) if one or more members of a cooperative association has at least five hundred (500) shareholders, and (iii) if the cooperative or cooperative association holds the majority of the shares of a joint-stock company, then the foregoing cooperative, cooperative association and joint-stock company shall be subject to the Communiqué.

Communiqué on Material Events Disclosure (III-15.1)

On November 17, 2018, the CMB amended Articles 12/4 and 23/7 of the Communiqué on Material Events Disclosure ("Communiqué No. III-15.1").

Article 12/4 of the Communiqué No. III-l 5.1 concerns the public disclosures that are required in the event of changes to the share- capital structure and management control of a company. In this regard, if the shareholding ratio of a real person or legal entity in a publicly held company reaches 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67%, 95%, or falls below these ratios, the relevant public disclosure of these events shall be made available to the general public by the Central Registry Agency. However, in accordance with the amendment, if the relevant real persons and legal entities reach or fall below the foregoing shareholding ratios indirectly, by being subject to voting rights or with the relevant persons acting in concert, such real persons/legal entities or the persons acting in concert shall themselves be liable for making the public disclosure.

The amended version of Article 23/7 now stipulates that developments and changes regarding the content of former public disclosures shall be updated and disclosed to the public. In this respect, the public disclosure liabilities of the relevant parties, which obliged them to make public disclosures at certain intervals (i.e., every 60 days), even if there were no new developments and/or changes with regard to the former public disclosures, have now been eliminated.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2019. A link to the full Legal Insight Quarterly may be found here"

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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