General Overview
According to the Capital Markets Board of Turkey (CMB) all rules and regulations pertaining to the capital markets which are being adopted are in harmony with the European Union's (EU) directives and International Organization of Securities Commissions (IOSCO) principles. CMB, in line with the international norms and developments, has continued, in 2005, to make regulations and inspections aimed to provide the dependable, fair, transparent and effective operation of the capital market, which also meets the changing needs of the market with objective, simple and comprehensible approaches. (CMB 2003, p. viii; CMB 2005, p. vi)
The Turkish activities for the harmonization of its legislation are continuing in conformity with its commitments under the "Ability to Assume the Obligations of Membership" section of the National Program in sub sections "Freedom to Provide Services", "Free Movement of Capital" and "Company Law". In addition, new legislations of the EU regarding capital markets are being followed continuously and are taken into consideration while drafting legislations. In this context, a series of legislations regarding publicly held companies, institutional investors, intermediary institutions, individual investors, exchanges, other capital market institutions and markets have already been issued till now. Additionally, the work on amending the Capital Market Law (CML) to comply with the EU accession criteria and to meet changing market needs has been commenced. The draft CML has been submitted to public consultation and the works on the draft law are continuing within the framework of the opinions collected from the market participants and related parties. (CMB 2005, p. 78)
In order to benefit from EU's Pre-Accession Financial Assistance, a gap analysis and action plan were prepared with the technical assistance funded by the EU and after presenting these in the workshop, a project proposal annexed with these was prepared. The twinning project was approved unconditionally by the EU Commission in November 2005. The Twinning Project named as "Assisting Capital Markets Board of Turkey to comply fully with EU capital markets standards", which will last two years, has begun in December 2005 by the signing of the contract. The Twinning Project will be carried out with German Federal Ministry of Finance. Besides German Federal Ministry of Finance, the experts of the German Federal Financial Supervisory Authority and German Central Bank will participate in the project. The overall objective of the Twinning Project is to improve the availability of investment via capital markets through better regulation. The results expected from the project are: (1) Turkish capital market regulations in harmony with the EU legislations; (2) strengthened administrative capacity of the Board with effective supervision and enforcement system parallel with the EU and world standards and practices; (3) design of "Regulatory Impact Assessment System"; (4) training of the CMB staff; and (5) planning and implementation of the Public Awareness Program. Within the context of the project, additional technical support funded by the EU shall be provided regarding the data processing infra-structure necessary for implementation of Turkish capital market legislations in harmony with the EU accession. (CMB 2005, pp. 78-79)
However, the International Monetary Fund, in its 2006 Review of Turkey observes that despite progress made in the consolidation of supervisory functions, as of January 1, 2006, the Treasury continued to supervise insurance companies and CMB supervised brokerage and securities firms, many of which were owned by banks. Turkey however agreed that the new draft mortgage law - an important step in further deepening financial intermediation in Turkey - would be implemented gradually. This would help prevent mortgage lending from taking off too rapidly. The IMF welcomed the Banking Regulation and Supervision Authority's (BRSA) sole responsibility for supervising mortgage lending by each institution under its purview, with CMB in charge of remaining mortgage institutions only. This was consistent with the BRSA's responsibility for consolidated supervision. The mortgage law is an important step to further deepen financial intermediation in Turkey. Under the law, CMB will be in charge of supervising Housing Finance Companies and Mortgage Finance Companies owned by non-financial companies. (IMF 2006, pp. 21, 70)
The Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) was established to act as a self-regulatory organization in Turkish capital markets in March 2001, in accordance with the CML. Meanwhile, the Statute of the Association became operational through a Government Decree, dated January 8, 2001. TSPAKB is a professional organization and all intermediary institutions are required to be a member of TSPAKB. TSPAKB will set professional standards and rules of conduct for its members. It will also have the power to provide and enforce regulations for the conduct of business by the members, within the framework set by the CML. (CMB website)
The origin of an organized securities market in Turkey has its roots in the second half of the 19th century. The first securities market in the Ottoman Empire was established in 1866. Following the proclamation of the Turkish Republic on the ruins of the Ottoman Empire, a new law was enacted in 1929 to reorganize the fledgling capital markets under the new name of "Istanbul Securities and Foreign Exchange Bourse." In 1981, the "Capital Market Law" was enacted. One year later, the main regulatory body responsible for the supervision and regulation of the Turkish securities market, CMB based in Ankara, was established. A new decree was issued in October 1983 foreseeing the setting up of securities exchanges in Turkey. In October 1984, the "Regulations for the Establishment and Functions of Securities Exchanges" was published in the Official Gazette. The regulations concerning operational procedures were approved in the subsequent extraordinary meetings of the General Assembly and the Istanbul Stock Exchange (ISE) was formally inaugurated at the end of 1985. (PWC 2004, p. 72)
CMB licenses intermediary institutions and collective investment institutions, registers corporations issuing securities, and additionally supervises the clearing organization and securities and precious metal exchanges established in Turkey. As at the end of 2002, the following were operating under the supervision of CMB: 875 corporations registered with CMB for shares issues, of which 301 were actively traded on the ISE; 121 brokerage houses; 48 banks, which have license to deal in off-exchange trading and repo transactions; 242 mutual funds; 40 foreign mutual funds; 22 securities investment companies; 9 real estate investment companies; 1 venture capital investment company; 20 portfolio management companies; ISE; Istanbul Gold Exchange; Takasbank (Clearing and Settlement Bank). (CMB website)
As of 2004, ISE was the only active securities exchange in Turkey established to provide trading in equities, bonds and bills, revenue-sharing certificates, private sector bonds, foreign securities, foreign exchange future contracts and real estate certificates as well as international securities. Moreover, the Turkish Derivatives Exchange (TURKDEX) was established in 2001, the first and only privately owned derivatives exchange in Turkey. TURKDEX is expected to be operational in the near future. Although the number of companies whose shares were traded on the stock exchange was relatively small, the volume of commercial paper had increased significantly. Applications for initial public offerings had to be made by either a bank or a brokerage house, supported by financial information on a prescribed format and by a moderately detailed prospectus. Companies whose shares were traded had to submit their financial statements annually. In addition, the interim financial statements for the six months for June 30 were audited according to special guidelines defined by CMB. (PWC 2004, p. 72)
Trading volume on the ISE had reached its peak value in 2000 with 111.2 billion YTL (181.9 billion US Dollar) after recording only 9 thousand YTL (13 million US Dollar) in 1986, the first year of its operations. November 2000 and February 2001 crises led to a decrease in the trading volume, but then with considerable increases the trading volume reached to 146.6 billion YTL (100.2 billion US Dollar) in 2003, and 208.4 billion YTL (147.8 billion US Dollar) in 2004. In 2005 average daily trading volume in the ISE equities market was 1,063 million YTL (794 million US Dollar) and total trading volume was 269.9 billion YTL (201.8 billion US Dollar). This figure indicates an increase by 29.5% over the previous year in YTL terms, while in US dollar terms it amounts to an increase by 36.6%. In 2005, a total nominal value of 81.1 billion YTL equities had been traded, which amounted to nominal 319 million YTL on daily average basis. (CMB 2005, p. 27)
The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The CMB is an ordinary member of IOSCO, a member of the IOSCO Executive Committee and a signatory to the IOSCO MMoU. (IOSCO website; OSC website)
The Principles
1. The responsibilities of the regulator should be clear and objectively stated. |
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According to the 2005 Annual Report of the Capital Markets Board of Turkey (CMB), the mission of CMB is "to regulate and supervise the capital markets for the secure, fair, transparent and efficient functioning of the capital markets, within the framework of objectivity and accountability, conducting supervision and making clear and easy to understand regulations that are in conformity with international norms and developments, and that meet the requirements of a constantly changing market environment." The vision of CMB is "to be a leading and dynamic institution, which has a respected international reputation." (CMB 2005, p. 1) However, the source does not address Turkey's compliance with this principle.
The CMB website states that the legal framework of the Turkish capital markets consists of three major legislations, one of which is specifically devoted to this area, the Capital Markets Law (CML). The others are the Decree with force of Law No. 91 concerning the securities exchanges and the Turkish Commercial Code. The principles for the establishment, operation and the auditing of the stock exchanges are determined by the Decree with force of Law No. 91 enacted in 1984. The legal structure pertaining to the operation of the secondary markets is formulated by this Decree. (CMB website)
The objective of the CML is to regulate and control the secure, fair and orderly functioning of the capital markets and to protect the rights and benefits of the investors. Following the enactment of the CML in 1981, the necessary regulations have been made by the CMB in order to organize the markets and the capital market institutions. Joint stock corporations with more than 100 shareholders or which offer their shares to the public were subject to the CML. According to the amendment to the CML made in 1999, the shares of joint stock corporations having more than 250 stockholders are considered to have been offered to the public and such companies are subject to the provisions applicable to publicly held joint stock corporations. In addition to these, issuing of securities by the State Economic Enterprises (SEEs) -including those within the scope of the privatization program- municipalities and related institutions are subject to the disclosure requirements of the CMB as regulated by the amendments to the CML. (CMB website)
The Turkish Commercial Code (TCC), enacted in 1956, regulates the establishment and operation of companies and defines and regulates financial instruments in general. Thus, joint stock corporations subject to the CML are required to comply with the provisions of the TCC whenever there is no provision in the CML. (CMB website)
Apart from the above mentioned legislation, another important regulation affecting the development process of the securities markets is the Decree No. 32 about the Protection of the Value of the Turkish Currency. This Decree enacted in August 1989, aims at further liberalization of the financial system and allows not only nonresidents to invest in the Turkish securities, government bonds and Treasury Bills, but also permits the outflow of domestic capital into foreign securities etc. through financial intermediaries authorized by the CMB. (CMB website)
In addition, new legislations of the EU regarding capital markets are being followed continuously and are taken into consideration while drafting legislations. In this context, a series of legislations regarding publicly held companies, institutional investors, intermediary institutions, individual investors, exchanges, other capital market institutions and markets have already been issued till now. Additionally, the work on amending the CML to comply with the EU accession and to meet changing market needs has been commenced. The draft CML has been submitted for public consultation and the works on the draft law are continuing within the framework of the opinions collected from the market participants and related parties. (CMB 2005, p. 78)
2. The regulator should be operationally independent and accountable in the exercise of its functions and powers. |
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According to the 2005 Annual Report of the Capital Markets Board of Turkey (CMB), CMB is the sole regulatory and supervisory authority to regulate and control the secure, transparent and stable functioning of the capital markets and to protect the rights and benefits of investors with the purpose of ensuring an efficient and widespread participation by the public in the development of the economy through investing savings in the securities market in Turkey. CMB was established as a self-funding statutory public legal entity with administrative and financial autonomy empowered by the Capital Markets Law (CML) which was enacted in 1981 with the aim of implementing the duties and exercising its authority endowed by this Law. (CMB 2005, p. 1) However, the source does not address Turkey's compliance with this principle.
CML defines the legal framework for CMB operation: "The Capital Markets Board with the status of a public legal entity with administrative and financial autonomy is hereby established with the aim of implementing the duties and exercising its authority endowed by this Law. The Board shall use its authority independently under its own responsibility. Its headquarters shall be in Ankara. The Related Minister is authorized to review the annual accounts of the Board and to have transactions relating to its expenditure audited and to take such measures as deemed necessary according to audit results. A report showing the results of audit and the operations and the measures taken related thereto shall be presented to the Council of Ministers by the Related Minister along with the annual report of the Board." (CML)
The CMB website states that the CMB can be considered to be a self-financing entity since all the expenditures accrued are paid by a particular fund which is established for this purpose in compliance with the CML. A total of 0.2% of the volume of the securities registered with the CMB is paid by the issuer as registration fee, which constitutes the financial sources of the budget. With the latest amendments to the CML, 5% of the income of the exchanges established within the scope of the CML is transferred to this fund. In case the income from this fund is insufficient to meet the expenditures of the CMB, the deficit is financed by an amount allocated from the budget of the Undersecretariat of Treasury. However, such a deficit has not occurred since 1992. Upon the request of CMB, the related Minister is authorized to increase this percentage up to 10%, or to reserve a smaller percentage or not to reserve any (CML, Article 40, para.6). (CMB 2005, p. 16; CMB website)
The Organisation for Economic Co-Operation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, makes the observation that some threats to the CMB's ability to undertake regulatory measures and take and enforce decisions free from political or commercial interference exist. Although nominally independent, the CMB's independence is jeopardized by a narrowly based fee structure (i.e. its revenues are derived solely from fees paid in respect of public offerings of securities) and a lack of control over its own budget. The Ministry of Finance (MoF) recently introduced cost control measures (e.g. restrictions on the allocation of resources to staff salaries, benefits and training, work-related travel and a requirement to turn over a significant percentage of any quarterly surplus over budget to the MoF) that might be affecting the CMB's ability to fulfill its responsibilities. As job opportunities increase due to improved economic conditions, resource restrictions could make it harder for the CMB to recruit and retain top quality staff. (OECD 2006, p. 23)
3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, makes the observation that the Capital Markets Board of Turkey (CMB) has extensive standard-setting and supervisory powers. It has often used its standard-setting powers to good effect to persuade publicly held companies to improve their corporate governance practices. It also has extensive investigation powers. Some questions arise, however, about the adequacy of its enforcement powers. (OECD 2006, p. 23) However, the source does not address Turkey's compliance with this principle.
The OECD report states that some threats to CMB's ability to undertake regulatory measures and take and enforce decisions free from political or commercial interference exist. Although nominally independent, CMB's independence is jeopardized by a narrowly based fee structure (i.e. its revenues are derived solely from fees paid in respect of public offerings of securities) and a lack of control over its own budget. The Ministry of Finance (MoF) recently introduced cost control measures (e.g. restrictions on the allocation of resources to staff salaries, benefits and training, work-related travel and a requirement to turn over a significant percentage of any quarterly surplus over budget to the MoF) that might be affecting CMB's ability to fulfill its responsibilities. As job opportunities increase due to improved economic conditions, resource restrictions could make it harder for CMB to recruit and retain top quality staff. (OECD 2006, p. 23)
The CMB website states that the CMB can be considered to be a self-financing entity since all the expenditures accrued are paid by a particular fund which is established for this purpose in compliance with the CML. A total of 0.2% of the volume of the securities registered with CMB is paid by the issuer as registration fee, which constitutes the financial sources of the budget. With the latest amendments to the CML, 5% of the income of the exchanges established within the scope of the CML is transferred to this fund. In case the income from this fund is insufficient to meet the expenditures of CMB, the deficit is financed by an amount allocated from the budget of the Undersecretariat of Treasury. However, such a deficit has not occurred since 1992. Upon the request of CMB, the related Minister is authorized to increase this percentage up to 10%, or to reserve a smaller percentage or not to reserve any (CML, Article 40, para.6). (CMB 2005, p. 16; CMB website)
Further, following the enactment of CML in 1981, the necessary regulations have been made by CMB in order to organize the markets and the capital market institutions. Joint stock corporations with more than 100 shareholders or which offer their shares to the public were subject to CML. According to the amendment to CML made in 1999, the shares of joint stock corporations having more than 250 stockholders are considered to have been offered to the public and such companies are subject to the provisions applicable to publicly held joint stock corporations. The recent piece of legislation that has been enacted in December 1999, namely the Law No. 4487 brought in a set of amendments to CML. The duties and the scope of authority of CMB have been expanded through these amendments and CMB is now empowered to carry out additional responsibilities in addition to the former ones, as detailed on the CMB website (CMB website)
4. The regulator should adopt clear and consistent regulatory processes. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, states that the Capital Markets Board of Turkey (CMB) regularly publishes a significant amount of information in Turkish and English about capital market indicators, capital market institutions and its own operations. For example, in its Annual Report (available in Turkish and English), CMB provides information about capital market activities, describes the nature of its operations, provides an update on its standard-setting activities for the preceding year, describes the enforcement process and provides summary statistical data on enforcement proceedings. It also publishes brief notices (only in Turkish) in its weekly bulletin concerning any enforcement measures taken by the Executive Board. It usually publishes draft laws or amendments for comment on its website. To fulfill its responsibilities under the Law on Public Access to Official Information, it has assigned to a team within CMB responsibility for responding to complaints, requests for information and other petitions within the prescribed timelines. (OECD 2006, pp. 23-24) However, the source does not address Turkey's compliance with this principle.
The OECD notes that despite the volume of information made available by CMB, it is somewhat difficult to assess the effectiveness of its operations. For example, although CMB describes its responsibilities, summarizes the functions of its main operational units and provides data on their operations during the year in its Annual Report, it does not provide much information about the significance of its activities or how it has performed against any objectives it has set for itself. Likewise although it provides statistical data about its enforcement activities, it is difficult to assess the consistency of its decision-making because it does not publish detailed reasons for the Executive Board's decisions. Proposed amendments to the Capital Markets Law (CML), however, are expected to enhance CMB's transparency and accountability by providing for more systematic reporting by CMB about its performance against objectives. (OECD 2006, p. 24)
The CMB website states that CMB implements the duties vested by CML with due diligence. CMB, empowered by CML, is authorized in and responsible for the following areas: regulation and supervision of the securities markets and institutions within the scope of CML; determination of the operational principles of the capital markets; protection of the rights and interests of the investors. (CMB website)
5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality. |
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The 2005 Annual Report of the Capital Markets Board of Turkey (CMB) states that CMB has an executive board consisting of seven Members/Commissioners, two of whom are the chairman and the deputy chairman. CMB's headquarters is located in Ankara, and there is also a regional office in Istanbul. (CMB 2005, p. 1) However, the source does not address Turkey's compliance with this principle.
According to the CMB website, the professional staff of CMB is selected by a written exam followed by an interview among university graduates in the fields of economics, business administration, law, international relations and public administration. (CMB website)
With the amendment of the Capital Markets Law (CML), CMB is empowered to establish a center for training the staff of capital market institutions. This center will also be evaluating and certifying their professional competence. (CMB website)
The Association of the Capital Market Intermediary Institutions is a professional organization and all intermediary institutions are required to be a member of the Association. The Association will set professional standards and rules of conduct for its members. It will also have the power to provide and enforce regulations for the conduct of business by the members, within the framework set by the CML. (CMB website)
In a corporate governance publication by CMB from June 2003, it is specifically mentioned that within the scope of trade secrets, confidentiality of information relevant to customers and suppliers should be respected (CMB website)
6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets. |
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According to the Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) website, the TSPAKB was established to act as a self-regulatory organization (SRO) in Turkish capital markets in March 2001, according to the Capital Market Law (CML). Meanwhile, the Statute of TSPAKB became operational through a Government Decree, dated January 8, 2001. (TSPAKB website) However, the source does not address Turkey's compliance with this principle.
TSPAKB is a professional organization and all intermediary institutions are required to be a member of TSPAKB. TSPAKB will set professional standards and rules of conduct for its members. It will also have the power to provide and enforce regulations for the conduct of business by the members, within the framework set by the CML. (CMB website)
The Organisation for Economic Co-Operation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, states that unlike in some other countries, the authorities in Turkey do not rely to any significant extent upon non-public sector bodies such as SROs in relation to matters involving corporate governance. The Capital Markets Board of Turkey (CMB), however, is considering the appropriateness and feasibility of delegating certain of its responsibilities to existing private sector organizations and/or providing for the establishment of new SROs, e.g. for rating agencies, external auditors, institutional investors and publicly held companies. As the draft legislation does not specify a framework for the governance of such entities or address transparency issues, it is too early to provide a comprehensive assessment of the regulatory framework for overseeing these entities. With respect to the appropriateness of establishing an SRO for external auditors of CMB-regulated entities, the Secretariat concluded that such a proposal has the potential to strengthen the effectiveness of the audit oversight process and enhance the profession's capacity to carry out high quality audits in accordance with international standards. Some questions remain, however, as to whether this initiative could also contribute to harmonization of audit standards and coordination of audit oversight practices across the financial sector. (OECD 2006, p. 21-22)
7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. |
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There is no publicly available information as to Turkey's compliance with this principle.
The Statute of the Association of Capital Market Intermediary Institutions of Turkey (TSPAKB) (2001) defined TSPAKB's relations to the Capital Markets Board (CMB): "The Association shall be obliged to comply with the Law, the Statute, regulations, communiqués, resolutions of CMB and the related legislation in its resolutions and regulations. If any action contrary to the legislation in force is noticed, CMB may request the Association to cancel or modify the regulation" (TSPAKB website)
8. The regulator should have comprehensive inspection, investigation and surveillance powers. |
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According to the Capital Markets Board of Turkey (CMB) website, the responsibilities regarding inspection, investigation and surveillance powers are spread among a few of CMB's departments: The Department of Market Regulation and Surveillance is responsible for overseeing the secondary markets including the derivative markets. The Department's responsibilities are to develop necessary regulations for the secondary markets to operate efficiently and safely and also to develop surveillance systems for watching the trading in secondary markets. (CMB website) However, the source does not address Turkey's compliance with this principle.
The Department of Corporate Finance examines and evaluates the registration applications of the corporations for their security issues. One of the major responsibilities of the Department is to review the disclosure materials and to develop standard application and disclosure forms in order to provide accurate and adequate information to the public. Other responsibilities include registering the publicly held corporations and the issuers of securities, providing interpretative and advisory services to help clarify the applications of institutions and individuals and the requirements of the Capital Markets Law (CML), reviewing the quarterly and annual reports of corporations disclosed to the public and presented to the CMB. (CMB website)
The Department of Intermediary Activities is authorized and responsible for reviewing and examining the applications of the intermediary institutions for operating in the capital markets. Among the responsibilities of the Department is to regulate the relationships of the intermediary institutions with issuing corporations and investors. The Department is also responsible to supervise the compliance of intermediary institutions to capital adequacy requirements and review the financial statements of these institutions. (CMB website)
The Department of Institutional Investors is mainly undertaking the activities on the regulation and supervision of principles regarding the establishment and operation of collective investment institutions and on giving permission for them. The concept of institutional investors includes not only mutual funds and investment trusts engaging in securities trading, but also venture capital investment companies, real estate investment companies and social security funds. The regulation and supervision of the disclosure standards for collective investment institutions and portfolio management companies are also among the responsibilities of the Department. (CMB website)
9. The regulator should have comprehensive enforcement powers. |
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The Organization for Economic Cooperation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, states that the Capital Markets Board of Turkey (CMB) has extensive standard-setting, supervisory and investigation powers. Some questions arise, however, about the adequacy of its enforcement powers, especially in the area of corporate governance. The potential penal and administrative penalties that wrongdoers can incur do not seem to operate as adequate deterrents to certain types of misconduct. The probability of being sentenced to jail or incurring a substantial financial penalty pursuant to a final judgment without further possibility of an appeal is low, as are the administrative penalties applicable to breaches of CMB Communiqués. The CMB's powers to stop misconduct or harm, cure a problem caused by a breach of compulsory corporate governance standards or prevent harm in the future are relatively limited. For example, it does not have a general power to order persons to stop contravening the capital markets laws, although it can exercise such a power with respect to certain entities, such as market intermediaries. It does not have the power to prohibit an individual from serving as a board member or manager, although proposed amendments to the CML would authorize it to apply to the court for an order removing and/or replacing one or more board members. It does not have the authority to enter into settlements or enforceable undertakings with persons, although proposed amendments to the CML would provide for settlements in some circumstances. While the OECD Principles and draft Methodology do not specifically recommend that regulatory authorities possess particular enforcement powers, they do recommend that authorities have sufficient, effective enforcement powers to ensure that, in combination with other incentives for good governance and deterrents to misconduct, the outcomes advocated by the OECD Principles are achieved in the jurisdiction. Some threats to the CMB's ability to undertake regulatory measures and take and enforce decisions free from political or commercial interference also exist. (OECD 2006, p. 23) However, the source does not address Turkey's compliance with this principle.
The CMB website states that the primary function of the Department of Enforcement is the auditing of corporations, intermediary institutions, banks and other financial institutions operating in securities markets, and ensuring the conformity of their activities to the pertaining legislation. The Department is responsible for enforcing Capital Market regulations and investigating violations of the regulations. (CMB website)
According to CMB's 2005 Annual Report, one of the important sanctions for market manipulation is to prohibit the perpetrators of the market manipulation cases from trading on the stock exchanges and to remove their stocks from the CMB registration. In 2005, in addition to the above-mentioned sanctions, in 47 cases the Executive Board decided to apply Public Prosecutors' Office to implement a legal prosecution for the violation of various provisions of the CML against related legal entities and/or persons, and in 61 cases it was decided to write legal warning to the legal entities or persons to the adaptation for the CML. One of the most important administrative sanctions is the administrative pecuniary punishment. In 2005, for 5 persons and 25 legal entities administrative pecuniary punishment was applied by the CMB. Violations of CMB regulations regarding intermediary activities, the public disclosure and the standards and principles of financial statements, manipulation and short selling are the major causes of the administrative pecuniary punishments. One other task of Enforcement Department staff is to investigate some cases on behalf of Financial Crimes Investigation Board (FCIB). (CMB 2005, p. 72)
10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program. |
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There is no publicly available information as to Turkey's compliance with this principle.
11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts. |
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The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The CMB is a signatory to the IOSCO MMoU. (IOSCO website; OSC website)
Furthermore, in its 2005 Annual Report, CMB states that it has been carrying out negotiations in order to sign MoUs on cooperation and the exchange of information with foreign capital market authorities. As of 2005, Turkey's CMB had signed bilateral MoUs with the security markets regulatory authorities of UK, France, Sweden, Germany, Italy, USA, Australia, Greece, Portugal, Malta, Albania, Romania, Bulgaria, Croatia, Macedonia, Netherlands, Bosnia and Herzegovina, and Dubai International Financial Center. Further, consultations with a number of foreign counterpart authorities in relation to bilateral MoUs were also being carried out. (CMB 2005, pp. 85-86)
The Organisation for Economic Co-Operation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, states that the Turkish authorities are pursuing certain initiatives designed to result in a clearer articulation of the different authorities' respective responsibilities, reduce duplication of effort in some areas, improve cooperation and contribute to greater consistency in the interpretation and enforcement of standards. The Banking Regulation and Supervision Authority (BRSA) recently announced a proposal to establish the Financial Sector Commission (FSC), which would bring together representatives from BRSA, CMB, the General Directorate for Insurance of the Undersecretariat of Treasury (GDI), the exchanges, and other organizations on a periodic basis to discuss issues of common concern. It could provide a forum in which to develop coordinated risk-based approaches, identify and deal with regulatory gaps, discuss common concerns, share experiences and, where appropriate, develop cross-sectoral approaches to issues. (OECD 2006, p. 21)
Further, in connection with the proposed reforms to the CML, CMB hopes to include new provisions establishing a clearer framework for cooperation among the other financial sector regulators. It also plans to evaluate the feasibility of entering into memoranda of understanding (MoUs) with other domestic authorities to address matters either that cannot be covered in legislation or that relate to practical, implementing measures for enhanced cooperation. (OECD 2006, p. 21)
12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts. |
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The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The CMB is a signatory to the IOSCO MMoU. (IOSCO website; OSC website)
Furthermore, in its 2005 Annual Report, CMB states that it has been carrying out negotiations in order to sign MoUs on cooperation and the exchange of information with foreign capital market authorities. As of 2005, Turkey's CMB had signed bilateral MoUs with the security markets regulatory authorities of UK, France, Sweden, Germany, Italy, USA, Australia, Greece, Portugal, Malta, Albania, Romania, Bulgaria, Croatia, Macedonia, Netherlands, Bosnia and Herzegovina, and Dubai International Financial Center. Further, consultations with a number of foreign counterpart authorities in relation to bilateral MoUs were also being carried out. (CMB 2005, pp. 85-86)
CMB has also been carrying out negotiations in order to sign memoranda of understanding on cooperation and the exchange of information with foreign capital market authorities. As of 2005, Turkey's CMB had signed bilateral MoUs with the security markets regulatory authorities of UK, France, Sweden, Germany, Italy, USA, Australia, Greece, Portugal, Malta, Albania, Romania, Bulgaria, Croatia, Macedonia, Netherlands, Bosnia and Herzegovina, and Dubai International Financial Center. Further, consultations with a number of foreign counterpart authorities in relation to bilateral MoUs were also being carried out. (CMB 2005, pp. 85-86)
Further, although Turkey is not a member of Financial Stability Forum (FSF), the CMB Chairman attends the FSF meetings as an IOSCO representative. (CMB 2005, p. 84)
According to the Istanbul Stock Exchange (ISE) and IOSCO websites, Turkey's CMB and ISE are recognized and members in several important international organizations, including "The World Federation of Exchanges" (WFE, previously FIBV), "Federation of Euro-Asian Stock Exchanges" (FEAS), "International Securities Services Association" (ISSA), "International Securities Market Association" (ISMA), "European Capital Markets Institute" (ECMI) World Economic Forum (WEF) and "Swiss Futures and Options Association" (SFOA). The ISE is also an affiliate member of the International Organization of Securities Commissions (IOSCO), while CMB is a member of the IOSCO Presidents Committee. (ISE website; IOSCO website).
13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers. |
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The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The CMB is a signatory to the IOSCO MMoU. (IOSCO website; OSC website)
Furthermore, in its 2005 Annual Report, CMB states that it has been carrying out negotiations in order to sign MoUs on cooperation and the exchange of information with foreign capital market authorities. As of 2005, Turkey's CMB had signed bilateral MoUs with the security markets regulatory authorities of UK, France, Sweden, Germany, Italy, USA, Australia, Greece, Portugal, Malta, Albania, Romania, Bulgaria, Croatia, Macedonia, Netherlands, Bosnia and Herzegovina, and Dubai International Financial Center. Further, consultations with a number of foreign counterpart authorities in relation to bilateral MoUs were also being carried out. (CMB 2005, pp. 85-86)
14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report "Corporate Governance in Turkey: A Pilot Study (Annexes)", published in 2006, observes that not all publicly held companies in Turkey are required to prepare fully consolidated financial statements, and publicly held companies are not required to provide comprehensive MD&A-type disclosure. In addition, there is evidence to suggest that the quality and consistency of financial reporting is uneven (although there is an improving trend). A question also arises whether the Capital Markets Board of Turkey (CMB) staff have developed sufficiently comprehensive and systematic processes to enable them to identify and cause companies to correct significant disclosure deficiencies, especially during the transition period to the International Financial Reporting Standards (IFRS). The proposed amendments to the Turkish Commercial Code, 1956 (TCC) recognizing the Turkish Accounting Standards Board (TASB) as the sole standard setter for general purpose accounting standards and restricting the authority of other authorities to adopt inconsistent or conflicting accounting standards could, if enacted, resolve existing inconsistencies in financial reporting standards for different types of publicly held companies. (OECD 2006, p. 72)
Further, the CMB Principles recommend that companies disclose in their annual reports the company's position with respect to defined strategic objectives and many listed companies disclose some information about their commercial objectives in their annual reports. The CMB Principles include general recommendations encouraging companies to provide disclosure about their social responsibility policies and ethical rules. However, they do not specifically encourage companies to describe their non-commercial objectives, and few companies publish such information voluntarily. (OECD 2006, p. 72)
The capital markets laws require disclosure about the recorded owner and holdings of persons who hold substantial (but well below controlling) ownership interests in publicly held companies at least annually, as well as on a timely basis when certain ownership thresholds are crossed. CMB has the power to obtain information about beneficial owners of shares. Although the CMB Principles encourage publicly held companies to provide information about company group structures and significant cross-shareholdings, very few companies provide detailed information. The wider implementation of IFRS by all listed companies (commencing in 2005) and other companies (if proposed amendments to the TCC are enacted) is expected to improve disclosures to some extent in this area. The implementation of the joint Istanbul Stock Exchange (ISE)/CMB Public Disclosure System is expected to make it easier for investors to obtain some of the key disclosure documents.(OECD 2006, pp. 73-74)
Although the CMB Principles encourage companies to provide disclosure about board members in their annual reports, the recommended disclosure practices have not been implemented on a widespread basis. It is expected, however, that disclosures practices will improve as companies develop more experience with the CMB Principles. (OECD 2006, p. 75)
Lastly, the quality and consistency of companies' disclosures about issues regarding employees and other stakeholders in respect of the compulsory disclosure standards appears to be uneven. (OECD 2006, p. 78)
15. Holders of securities in a company should be treated in a fair and equitable manner. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report, "Corporate Governance in Turkey: A Pilot Study (Annexes)," published in 2006, observes that although the concentration of ownership and decision making-power in many Turkish companies is not inherently problematic, these conditions present opportunities for the abuse of control at minority shareholders' expense. Corporate governance principles aimed at protecting minority shareholders are the least widely implemented principles in Turkey. The Turkish Commercial Code, 1956 (TCC) confers upon shareholders certain powers to raise issues or concerns where they suspect that their rights have been abused. Although some of the remedies are relatively easy to obtain (e.g. requiring the board to include an item on a meeting agenda or postponing approval of the financial statements), other remedies might require shareholders to incur significant out-of-pocket costs or opportunity costs, relative to the value of their investment, in order to initiate an inquiry process. These costs might discourage minority shareholders from pursuing such remedies. (OECD 2006, pp. 50-51)
The Capital Markets Board of Turkey (CMB) staff, however, has some opportunities to detect and deter certain proposed transactions that could unfairly prejudice the minority in connection with regulatory approval processes that apply in respect of certain transactions, such as share issuances, tender offers and transactions that require an amendment to the company's articles to take effect. Proposed amendments to the TCC regarding relations within company groups are intended to enhance transparency with respect to intra-group relations and transactions, as well as restricting the opportunities for abuse of controlled companies' minority shareholders. (OECD 2006, pp. 51-52)
The OECD report notes that the enactment of the Foreign Direct Investment Law in 2003 helped to level the playing field for foreign and domestic investors by establishing the principle of equal treatment. Foreign investors have the same voting rights as domestic investors under the corporate governance framework. The CMB Principles encourage companies to adopt procedures, including cross-border voting procedures that facilitate the exercise by all shareholders of their voting rights. Although, in theory, foreign and domestic investors have the same voting rights, some practical obstacles exist for foreign investors. Direct electronic access to the most important meeting documents, however, mitigates to some extent these concerns. If the proposed amendments to the TCC and capital markets law facilitating electronic attendance at shareholder meetings are implemented, it could significantly improve the situation, if most companies with foreign investors adopt the regime and the implementing subordinate legislation makes it relatively easy for foreign investors to participate remotely in meetings. (OECD 2006, p. 54-55)
According to a 2000 World Bank report on Turkey, under the Capital Markets Law (CML) amendment bill of December 1999, minority rights were granted to shareholders with 5 percent of the paid-in capital. Thus, minority investors could veto the release of the management, bring court actions against the members of the board of directors and the auditors, postpone the discussions of the reported financial statements, and request the appointment of a private auditor. Although not binding, the ministry of industry and commerce assisted shareholders in ensuring that companies complied with their legal obligations. (WB 2000)
16. Accounting and auditing standards should be of a high and internationally acceptable quality. |
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The Capital Markets Board of Turkey (CMB) issued a Communiqué in November 2003 requiring that, effective January 2005, all listed companies use standards that are almost identical to International Financial Reporting Standards (IFRS) and present audited financial statements on a semi-annual basis. In addition, CMB required the adoption of inflation-adjusted accounting at the beginning of 2004. This helped to strengthen market confidence in financial transparency. (IIF 2005, p. 16)
The Capital Markets Law (CML) and CMB Communiqués provide for extensive disclosure of information. The following must be provided to CMB and the Istanbul Stock Exchange (ISE): Changes in capital structure and control; Major purchases, sales, and leasing of fixed assets; Major changes in operations and investments; Changes in the financial structure, participations, and joint ventures; Major administrative changes; Details on the acquisition or sale of assets (IIF 2005, p. 15)
Members of boards and service management as well as shareholders owning 5 percent or more of equity capital must provide information to CMB. However, information relating to pertinent trade secrets does not need to be disclosed. The CMB Principles provide additional details with respect to disclosure, and state that, for companies that are also listed on an exchange outside Turkey, information that must be disclosed under the rules of the foreign exchange must also be disclosed in Turkey. Under the CMB Communiqué, companies must have an audit committee that consists of a minimum of two non-executive directors. The audit committee must supervise the appointment and services provided by the independent external auditor. The CMB Principles go further by requiring that the audit committee be chaired by an independent member and that the majority of the committee be non-executive. It also requires that all members of the committee be capable of analyzing and interpreting financial statements and reports. (IIF 2005, pp. 15-17)
The CMB, in its 2005 Annual Report, states that the Communiqué on Principles in Relation to Accounting Standards in Capital Markets which is compatible with IFRS will be effective for all domestically listed companies, brokerage firms, portfolio management companies and their subsidiaries, associates, joint ventures (which are not excluded from consolidation) by the year 2005. Balance sheet, income statement, cash flow statement and statement of changes in equity should be prepared according to this Communiqué. However, banks and insurance firms are subject to the provisions of their special laws with respect to accounting standards. This Communiqué is applied for the first interim financial statements after Jan 1, 2005. But it can also be applied for financial statements dated December 31, 2003 or following annual or interim financial statements. Besides, companies those prepare and present financial statements in accordance with IFRS, are accepted as they are conformed to this Communiqué. Another task in the field of accounting standards is the performing of the secretarial activities of the Turkish Accounting Standards Board (TASB), which is established with respect to the CML in order to determine and issue national accounting standards compatible with international regulations. The TASB is affiliated to the Ministry of Finance (MoF). Its aim is to provide development and adoption of national accounting principles, so that financial statements will be relevant, reliable, comparable and understandable. (CMB 2005, pp. 72-73)
The Organisation for Economic Co-Operation and Development (OECD), in its report "Corporate Governance in Turkey: A Pilot Study (Annexes)", published in 2006, observes that although most listed companies are now required to prepare financial statements in accordance with IFRS-based standards issued by CMB, it did not employ an approved translation process. Some questions arise as to whether CMB's standards faithfully reflect IFRS. In addition, a significant minority of listed companies (i.e. banks) as well as many unlisted but publicly held companies currently do not have to comply with these standards. Second, although some listed and unlisted companies have been voluntarily preparing statements in accordance with IFRS for several years, CMB's IFRS-based standards came into effect only in respect of financial years beginning in 2005. It is too early to say whether there is widespread implementation of these financial reporting standards. Furthermore, although the volume and quality of listed companies' financial and non-financial reporting has improved in recent years, the quality and the level of implementation of compulsory standards is variable. Third, although the authorities monitor publicly held companies' disclosures, some questions arise as to the efficacy of their monitoring programs. For example, a supervisory gap appears to exist with respect to publicly held banks' financial statements, since the Banking Regulation and Supervision Agency (BRSA) staff focus only on prudential issues and CMB staff do not review such statements. Also, as of the end of February 2006, CMB staff had not developed a systematic review module focusing on the greatest risks associated with the transition to IFRS. Finally, although legislation provides remedies to investors, such remedies would be time consuming to pursue and costly, relative to the value of their investments. (OECD 2006, p. 83)
Further, the CMB states that due to the accounting scandals breaking out in the international financial markets, the efficiency of disclosure requirements and independent auditing has become questionable. The CMB, which is given the authority of determining the rules and principles about independent auditing with respect to the CML, uses this power in making of various regulations in order to guide the application in a correct and efficient way. The regulation in the independent auditing area which had been first made in 1987 by CMB was improved in 1996 due to recent developments. In year 2002, the regulation was updated according to the new international regulations which aimed to increase the efficiency of independent auditing. In October 2005, "The Draft Communiqué on Independence Auditing in Capital Markets", which is fully coherent to the International Standards on Auditing published by International Federation of Accountants (IFAC) and related directives of the European Union (EU), was opened to debate. By the end of 2005, last corrections and amendments were being made on the draft. The final text was to be sent to Prime Ministry in two months in order to be published in the Official Gazette. (CMB 2005, p. 73)
The OECD report observes that the proposed reforms described above are expected to strengthen the quality and effectiveness of external audits and provide greater assurance that audit professionals have sufficient expertise to carry out audits of financial statements prepared in accordance with IFRS and International Standards of Audit (ISAs). However, the audit standards that applied to the audits of publicly held companies as of the assessment date did not constitute a detailed body of auditing standards that were equivalent to, or faithfully reflect, international standards (although detailed, ISA-based standards for audits of CMB-regulated entities were issued by CMB in June 2006). Second, although CMB-licensed auditors must meet satisfy educational criteria, currently there is no requirement for such auditors to demonstrate that they have sufficient knowledge of financial reporting standards and auditing standards applicable to publicly held companies and sufficient experience with respect to audits of publicly held companies. In addition, company boards are not specifically required or encouraged to report in writing to the shareholders on the steps the audit committee has taken to be satisfied as to the proposed external auditor's independence and competence or on the actions they subsequently take to satisfy themselves that the auditor performed the external audit with due care (although shareholders are entitled to receive answers from the board to any questions they pose on this subject at the annual meeting). Some of the issues noted above, however, are transitional issues, which are expected to be resolved very soon. (OECD 2006, p. 88)
17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme. |
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According to the Capital Markets Board of Turkey (CMB) website, the CMB licenses intermediary institutions and collective investment institutions, registers corporations issuing securities, and additionally supervises the clearing organization and securities and precious metal exchanges established in Turkey. (CMB website) However, the source does not address Turkey's compliance with this principle.
Within CMB, the Department of Institutional Investors is mainly undertaking the activities on the regulation and supervision of principles regarding the establishment and operation of collective investment institutions and on giving permission for them. The concept of institutional investors includes not only mutual funds and investment trusts engaging in securities trading, but also venture capital investment companies, real estate investment companies and social security funds. The regulation and supervision of the disclosure standards for collective investment institutions and portfolio management companies are also among the responsibilities of the Department. (CMB website)
The 2005 CMB Annual Report further states that to provide more effective public disclosure and more transparent operation of the collective investment schemes, CMB's permission is required for the following processes: (1) establishment, amendments to the bylaws, changes in the founders or type of fund as well as merger and termination of mutual funds; (2) for investment trusts and real estate investment trusts, establishment, amendments to the article of association, increases in the registered capital and obtaining portfolio management licenses; and (3) for portfolio management companies, establishment, obtaining the portfolio management license and the investment consultancy license. (CMB 2005, p. 63)
18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets. |
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There is no publicly available information as to Turkey's compliance with this principle.
According to the Capital Markets Board of Turkey (CMB) website, within CMB, the Department of Institutional Investors is mainly undertaking the activities on the regulation and supervision of principles regarding the establishment and operation of collective investment institutions and on giving permission for them. The concept of institutional investors includes not only mutual funds and investment trusts engaging in securities trading, but also venture capital investment companies, real estate investment companies and social security funds. The regulation and supervision of the disclosure standards for collective investment institutions and portfolio management companies are also among the responsibilities of the Department. (CMB website)
The 2005 Annual Report of the CMB further states that the periodical tables and reports of the collective investment schemes are monitored continuously and in case of non-compliance with the regulations, necessary measures are taken and required sanctions are imposed. A system of the electronic monitoring of mutual funds' and investment trusts' portfolio structures has been developed. In 2001, the necessary technical adjustments were made to receive the information at the date of transaction (T) which was previously received at the date of clearing (T+2). With this system, the information submitted to CMB was also analyzed in 2005 and necessary measures were taken in case of non-compliance to the regulations. (CMB 2005, pp. 67-68)
19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme. |
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There is no publicly available information as to Turkey's compliance with this principle.
20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme. |
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There is no publicly available information as to Turkey's compliance with this principle.
21. Regulation should provide for minimum entry standards for market intermediaries. |
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There is no publicly available information as to Turkey's compliance with this principle.
22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake. |
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There is no publicly available information as to Turkey's compliance with this principle.
23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters. |
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There is no publicly available information as to Turkey's compliance with this principle.
24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk. |
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There is no publicly available information as to Turkey's compliance with this principle.
25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. |
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There is no publicly available information as to Turkey's compliance with this principle.
The Capital Markets Board (CMB) website states that the CMB licenses intermediary institutions and collective investment institutions, registers corporations issuing securities, and additionally supervises the clearing organization and securities and precious metal exchanges established in Turkey. (CMB website)
26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report "Corporate Governance in Turkey: A Pilot Study (Annexes)", published in 2006, observes that the Capital Markets Law (CML) prohibits insider dealing, market manipulation, and the creation of false and misleading impressions. The prohibition on insider dealing does not expressly apply to significant shareholders, although some of them could become subject to the prohibition if they are in a position to acquire material non-public information through relationships to persons included in the definition of "insider", such as board members, managers or staff of companies. The CML provides for penal liability (including fines and compulsory prison sentences) in respect of these offences. However, pecuniary penalties for insider dealing and market manipulation are low. (OECD 2006, pp. 56-57)
The OECD report further notes that to implement the European Union's (EU) Market Abuse Directive, the Capital Markets Board of Turkey (CMB) has proposed amendments to the CML intended to: (1) introduce a new, more precise definition of "inside information" conforming to the definition in the Market Abuse Directive; (2) broaden the scope of the prohibition on insider dealing so that it would no longer be necessary to prove an intent to derive a benefit or avoid a loss and so that the prohibition applied to orders to trade (and not just actual trades in capital market instruments); (3) broaden the application of the prohibition on insider trading so that it expressly applies to, among others: (a) the chair, board members, executives, internal auditors and employees of the company or of entities related to or controlling the company; (b) partners of capital markets institutions; (c) individuals who are expected to receive inside information through their work, profession or occupation; (d) authorized individuals of legal entities who are in a position to learn about inside information; and (e) any other persons who are or should be aware that the information they hold is inside information; (4) authorize the CMB to require issuers (or persons acting on their behalf) to prepare and regularly update lists of persons working for the issuer who have access to inside information; (5) require capital market intermediaries to notify the CMB if suspicious activities that appear to involve insider trading, selective disclosure, dissemination of false or misleading information or market manipulation) come to their attention; and (6) raise the minimum penalty that can be imposed by the courts for insider dealing, market manipulation to approximately € 32,000 but lower the maximum fixed penalty to approximately € 80,000), clearly specify that the compulsory prison sentences provided for in the legislation cannot be converted into financial penalties and authorize the Executive Board of CMB to impose administrative sanctions (including penalties of up to ten times the value of the transactions effected) for such contraventions. (OECD 2006, pp. 57-58)
27. Regulation should promote transparency of trading. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report "Corporate Governance in Turkey: A Pilot Study (Annexes)", published in 2006, observes that the definition of insider trading is relatively narrow. It is difficult to prove some elements, especially the intent-based elements of the criminal offences of market manipulation and insider dealing, thereby limiting the deterrent effect of such offences. The pecuniary penalties applicable to such offences where a benefit cannot be quantified or is insignificant are relatively low, weakening the dissuasive effect of the enforcement mechanisms. In addition, the obligation for insiders and persons acting jointly or in concert with them to make timely disclosure of all transactions in the company's securities is limited to purchases and sales of the company's stock. It is expected, however, that the proposed reforms to the laws defining these offences, combined with the Istanbul Stock Exchange's (ISE) and the Capital Markets Board of Turkey's (CMB) enhanced surveillance system, will improve the effectiveness of the regime. (OECD 2006, p. 58)
28. Regulation should be designed to detect and deter manipulation and other unfair trading practices. |
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The Organisation for Economic Co-Operation and Development (OECD), in its report "Corporate Governance in Turkey: A Pilot Study (Annexes)", published in 2006, observes that the definition of insider trading is relatively narrow. It is difficult to prove some elements, especially the intent-based elements of the criminal offences of market manipulation and insider dealing, thereby limiting the deterrent effect of such offences. The pecuniary penalties applicable to such offences where a benefit cannot be quantified or is insignificant are relatively low, weakening the dissuasive effect of the enforcement mechanisms. In addition, the obligation for insiders and persons acting jointly or in concert with them to make timely disclosure of all transactions in the company's securities is limited to purchases and sales of the company's stock. It is expected, however, that the proposed reforms to the laws defining these offences, combined with the Istanbul Stock Exchange's (ISE) and the Capital Markets Board of Turkey's (CMB) enhanced surveillance system, will improve the effectiveness of the regime. (OECD 2006, p. 58)
29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption. |
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There is no publicly available information as to Turkey's compliance with this principle.
30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk. |
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There is no publicly available information as to Turkey's compliance with this principle.
Turkey