Turkey: Regulation Regarding The Formation, Operation And Control Principles Of The Central Registry Agency

Article 81 of the Capital Markets Law No. 6362 ("Capital Markets Law") indicates that the foundation, operation, membership and audit principals of the Central Registry Agency ("CRA" or "Agency") shall be determined by a Regulation of the Capital Markets Board ("CMB" or "Board"). The Regulation Regarding the Formation, Operation and Audit Principles of the Central Registry ("Regulation") was prepared within this scope and became effective with publication in the Official Gazette dated 07.08.2014 and numbered 29081.

Duty and Powers of CRA

As per Article 5 of the Regulation, the CRA is a joint stock company endowed with legal entity status and established to execute the registry of capital market instruments, pursue electronically these instruments and the rights thereof, execute the global custody of these instruments and fulfill other duties determined by the Board.

As per Article 9, the essential duties of the CRA are: registration of capital market instruments, providing services on the usage of the rights arising thereof, conserving the privacy of the registry and fulfilling the operation of the system safely. Hence, the CRA pursues the consistency of the registration of its members; in the event of incoherency or contradiction related to the system, the Agency provides the required corrections and notifies the case to the CMB immediately. Data collection and data use in a safe way are under the CRA's responsibility. Therefore, the Agency houses an electronic data bank and provides the communication of investors safely. It lends assistance to members about the system of arbitration in case disputes arise related to the operation of system.

Operating Principles and Conditions

As per Article 10, for the fulfillment of aforesaid duties, the CRA must have the sufficient organization and technical equipment in conformity with the Regulation. Moreover, the Agency must take precautions related to the protection of its substantial assets. After establishing the necessary information systems and technological infrastructure, the CRA shall make regulations related to the reliability, integrity and consistency of these systems. If necessary, the CMB is also competent to make arrangements and applications.

The CRA executes these transactions in accordance with certain principles. According to the indicated principles, as per Article 11, the CRA shall establish the necessary infrastructure and equipment area and shall take precautions pertaining to the compliance of its members to the regulations. It supports the movements of the stock exchange to avoid market abuse and treat the implementation of the activities fairly. The Agency provides information flow among members, market participants and the CMB. It must have adequate resources to conduct this electronic data system in a permanent way. The CRA must treat members fairly when it comes to non-judicial punishments and charging. Moreover, for transparency, it shall regularly declare its' financial statements, fees and organizational structure via its website.

Organization of the CRA

CRA's competent bodies are general assembly and board of directors. As per Article 6 of the Regulation, Borsa Istanbul A.Ş., as well as other stock markets, the Istanbul Settlement and Custody Bank and the Turkish Capital Markets Association shall be founding partners.

As per Article 12, CRA's general assembly consists of shareholders. General assembly may be convened as ordinary or extraordinary. Board representative may attend the general assembly but does not have right to vote.

As per Article 13, board of directors of the Agency may consist of at least 7 members and at most 11 members. The general manager is a permanent member of the board of directors. One of the members of board of directors shall be appointed by the Capital Markets Board as a board representative, and in order to assure the Agency's activity of electronic registration institution, one of the board of directors members shall be appointed by the Ministry of Customs and Trade among the General Directorate of Domestic Trade employees. The chairman of the board of directors represents the Capital Markets Board.

Membership

As per Article 20, exporters, investment foundations, central custody foundations and other foundations recommended by the CRA and accepted by the Board shall be CRA members. The CRA may impose conditions, such as membership of a stock exchange or any other organized markets. The Central Bank of the Republic of Turkey may be the privileged member upon request. Therefore, membership obligations, non-judicial punishments, cancellation or temporary suspension of membership and other provisions related to supervision are inapplicable for the Central Bank of the Republic of Turkey.

Article 21 stipulates the requirements to be granted membership. Technical equipment and security systems that meet the requirements as determined by the CRA, liability insurance in case the CRA board of directors finds it necessary, a sufficient number of qualified employees and payment of a membership fee are required for the application. Apart from these, investment foundations must be competent to provide custody service pursuant to investment transactions and exporters must export capital market instruments or make an application to the Board for the purpose of exporting. The CRA accepts the membership of these foundations when the required provisions are met. As per Article 23, a foundation must inform the CRA by written notification to renounce its membership. Membership expires by way of board of directors' resolution. Data and information kept by the related members shall be transferred to the other members, according to the methods determined by CRA board of directors. As per Article 24, in the event of contradiction with the Regulation provisions, suspension or cancellation of membership is possible.

Members' Liability and Measures to Be Taken

The Regulation determines liabilities and measures for the CRA's members. Pursuant to Article 25, members shall be liable for all transactions at the CRA. Members' liability cannot be abrogated or restricted through agreement provisions concluded between Members and clients. All members shall act in accordance with the rules of good faith and correctness. In order to guarantee the pecuniary and legal liability, they shall take out the general and special insurances set forth by the CRA and take other measures. Furthermore, they must notify the CRA immediately on the day of realization as to any changes concerning partnership, management structure, and financial state. As per Article 29 of the Regulation, in case there are erroneous entries, the CRA and its members shall also be liable. In this case, the CRA and its members shall be liable for the damages of rights holders, in proportion to their faults. Liability cannot be mitigated or abrogated with the agreements concluded between CRA and its members. The board of directors may also decide that members shall take out liability insurance for the indemnification of damages as stated in Article 29.

Conclusion

The Regulation sets forth the foundation, operation, membership and audit principals, incomes and dividend distribution principles of the Agency. The CRA's current activities and requirements related to its duties and authorizations, which are determined by the Capital Markets Law, are considered within the related Regulation.

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.