The Republic of Turkey Prime Ministry Undersecretariat of the Treasury has introduced amendments to both the Decree on the Protection of the Value of Turkish Currency No. 32 ("Decree") and the communiqué regarding the same (the communiqué No. 2008-32/34) ("Communiqué"), which were published in the Official Gazette of January 25, 2018. The amendment, which we aim to discuss hereby, is one of the amendments made to the Communiqué, namely the addition of a second paragraph into the text of Article 9 thereof.

As per the newly added second paragraph of Article 9 of the Communiqué, persons residing in Turkey shall freely engage in leveraged transactions and  purchase and sale of  derivatives, which are classified as being subject to the same provisions as the  leveraged transactions. Such purchase and sale transactions shall only be made through intermediaries that are accredited by the Capital Markets Board of Turkey ("CMB"). Readers who are familiar with this subject will undoubtedly notice that the effect of this provision is similar to that of Article 6(8) of the Decree. That article also stipulates that the purchase and sale of all types of derivatives from/to parties abroad shall be made through intermediaries that are accredited by the CMB. The introduction of a new provision within the Communiqué only raised more questions among practitioners regarding the stance of the Decree and the relevant legislation with respect to the regulations of the CMB.

Article 26 of the CMB's Communiqué on the Principles Regarding Investment Services and Activities and Ancillary Services, published in the Official Gazette of July 11, 2013, stipulates certain conditions that must be fulfilled in order for activities to be excluded from the scope of the rules concerning derivative transactions. Accordingly, the purchase and sale of derivatives by and between real and/or legal persons without an intermediary, which cannot be deemed as a commercial or professional activity, shall fall out of the scope of derivative transactions.

The coexistence of the aforementioned provisions raises vexing questions, especially with respect to the activities of group companies, which engage in inter-company transactions, whose subjects can include derivatives. Consider a scenario in which neither of the group companies is a financial entity, and where engaging in such transactions does not constitute the main line of business for either company. In this case, engaging in the transactions mentioned above shall, in principle, be deemed to fall out of the scope of the Decree, and thus shall not, in principle, require an intermediary due to the CMB's relevant regulation, as per which such transactions can be interpreted as having been exempted from the rules concerning derivatives transactions. Accordingly, the activities of intergroup companies, which engage in such transactions solely to mitigate their risk exposures, and not as one of their main lines of business, shall be deemed to fall out of the scope of derivative transactions. Thus, we conclude that such transactions would not necessarily have to be carried out through intermediaries that are accredited by the CMB.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2018. A link to the full Legal Insight Quarterly may be found here.

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