Capital Markets in Turkey

In Turkish financial history, trading on securities has started in last quarter of 19th century. However, structure of Turkish capital markets under specific regulations with a modern approach was initially established through issuance of the Capital Markets Law in 1981.

I.    Regulatory Overview of the Turkish Capital Markets

The conjuncture in which financial markets globalized, the interactions among financial institutions accelerated, led the Turkish Capital Market, which is dynamic and rapidly growing, become significant in order to support our country’s development. In this regard, Turkish Capital Market provides resources to enterprises, and also provides important opportunities for domestic and foreign investors.

Thus, as a first step, the former Capital Market Law has been enacted in 1981 in Turkey and a year after, the main regulatory body, Turkish Capital Markets Board (“CMB”) was established. The former Istanbul Stock Exchange was launched in 1985 and trading started at the end of 1985 accordingly. The new Capital Market Law (the “Capital Market Law”), numbered 6362 has been published in the Official Gazette in December 30, 2012 with immediate effect through replacing the former Capital Market Law. 

II.    Capital Market Law

In principle, (i) the issuance of capital markets instruments, (ii) principles regarding public disclosures and publicly held corporations, (iii) capital market institutions and activities (investment services and activities and ancillary services), (iv) principles regarding exchanges in capital markets and the Turkish Capital Markets Association (“TCMA”), (v) principles regarding Turkish Appraisers Association, central clearing institutions, central securities depositories, and central registry agency, (vi) principles regarding other institutions and (vii) measures to be taken if required have been regulated under Turkish Capital Market Law. 

It shall be noted that receiving, transmitting and executing orders, dealing on own account, portfolio management, providing investment advice, underwriting of capital market instruments on a firm commitment basis, placing of financial instruments without a firm commitment basis, operation of multilateral trading systems and regulated markets other than exchanges, administration and custody services of capital market instruments in the name of the customer and portfolio custody services, conduct of other services and activities to be determined by the CMB have been regulated under the Capital Market Law as being investment services. Investment firms which consist of intermediary institutions, banks and other capital market institutions established to perform investment services and activities are able to conduct such investment services.

III.    Capital Market Institutions

1.    Capital Markets Board (CMB)

CMB has been established in 1982 for being the main regulatory and supervisory authority in charge in Turkish capital market. CMB has been empowered by the Capital Market Law itself. The main purpose of the CMB is to determine of the operational principles of the capital markets and to ensure the safe and effective functioning of the capital markets as well as to protect the rights and interest of the investors at the same time.

CMB regulates and supervises public companies, listed companies, investment companies, exchanges, mutual, closed-end and pension funds, leveraged transactions on foreign exchange and precious metals, Istanbul Clearing, Settlement and Custody Bank Inc. (“Takasbank”), Turkish Capital Markets Association, Central Registry Agency (“CRA”)  and other related institutions operating in the Turkish capital markets, such as independent audit firms, rating agencies, appraisal firms, asset leasing companies, market operators, and trade repositories regarding their activities in the capital market.  

2.    Turkish Capital Markets Association (TCMA)

TCMA mainly aims to contribute to the development of the capital markets and intermediation activities, to provide the effective conduct of business by its members and prevent unfair competition. In order to realize such goals, TCMA conducts the necessary activities such as to carry out research and offer educational programs, establish safety measures for preventing unfair competition among members, cooperate with relevant organizations with the objective of imposing disciplinary action, considers complaints against its members and informs the CMB etc..

Banks authorized for the capital market operations, investment firms authorized by the CMB, portfolio management companies and intermediary companies shall be member of the TCMA.

3.    Istanbul Stock Exchange (BIST) 

There were several exchanges operating in Turkey before the Capital Market Law was enacted. However, with the Capital Market Law, Borsa Istanbul A.S. (Istanbul Stock Exchange, “Borsa Istanbul”) brought together all the exchanges previously operating in the Turkish capital market under the same roof and becomes the sole exchange entity in Turkey. 

Furthermore, Borsa Istanbul, primarily consists of 4 (four) markets which are: (i) equity market, (ii) debt securities market, (iii) derivatives market, and (iv) precious metals and diamond market and provides the opportunity to domestic and international investors to invest in various products in an organized and reliable aforementioned markets. 

4.    Turkish Mercantile Exchange (TURIB)

TURIB was established in 2018 as the commodity exchange in Turkey and commenced its operations in 2019. TURIB operates the market in which electronic warehouse receipts (“ELUS”) for agricultural goods and the futures with ELUS as their underlying assets, are traded.

TURIB works with Takasbank and CRA for the clearing, settlement, central custody and dematerialized tracking of the ELUS and respective derivatives, and cooperates with provincial mercantile exchanges and markets for the development of ELUS market.

5.    Takasbank (Clearing House)

As Takasbank has central counterparty and banking licenses, it mainly provides clearing, settlement and custody, central counterparty and banking services to its members. Additionally, Takasbank is authorized to provide cash and securities settlement transactions as the central clearing and settlement institution to Borsa Istanbul equities, debt securities, foreign securities, derivatives and precious metals markets. In this regard, due to its activities, Takasbank is regulated by CMB and Central Bank of the Republic of Turkey and Banking Regulation and Supervision Authority.

6.    Central Registry Agency (CRA)

CRA was established in 2001 as the central depository for all dematerialized capital market instruments. CRA, dematerializes and registers capital market instruments and the rights attached in electronic form in relation to issuers, intermediary institutions and right holders. 

Share certificates of publicly held companies, government debt securities, investment funds, real estate certificates, warrants, corporate bonds, ELUS and exchange traded funds have been dematerialized under CRA.

7.    Other Institutions

Turkish capital markets host other participant institutions such as Investor Compensation Center who monitors and operates the insolvency of investment institutions and compensation of investors, Capital Markets Licensing Registry and Training Agency Inc. who conducts the licensing examinations and Turkish Appraisers Association.