CMB Shakes the FX Market and Tweakes the Public Disclosure Regime

• Communiqué on Principles Regarding Investment Services and Ancillary Services (“Investment Services Communiqué”);
• Communiqué on Public Disclosure Platform No. VII-128.6 (“Public Disclosure Platform Communiqué”); and
• Public Disclosure Communiqué No. II-15.1 (“Public Disclosure Communiqué”).

The new amendments are effective as of February 10, 2017.

New Disclosure Requirements

Amendments to Investment Services Communiqué

• The leverage ratio for foreign exchange (“FX“) transactions decreased from 100:1 (in certain cases 50:1) to 10:1, applicable for all FX transactions.
• The margin requirement for FX transactions increased from TRY 20,000 to TRY 50,000 or its equivalent in a foreign currency.
• Although the amendments are effective as of February 10, 2017, brokerage firms have a 45-day transition period to align open positions with the new requirements.

Amendments to Public Disclosure Platform Communiqué

• Third party service providers can now make public disclosures on the Public Disclosure Platform (the “PDP“) on behalf of foreign entities whose securities are traded on the Borsa Istanbul, provided the necessary confidentiality requirements are met and that the parties have executed a service agreement. The Central Registry Agency (the “CRA“), the operator of the PDP, will determine the details for issuing disclosures on behalf of foreign entities.

Amendments to Public Disclosure Communiqué

• The disclosure obligation for the issuers shall commence when the CMB approves the offering circular or issuance certificate, as the case may be.
• Fund users of lease certificates (sukuk) were required to comply with all requirements under the Public Disclosure Communiqué, while non-listed companies issuing securities through private placement and companies listed in the Equity Market for Qualified Investors were out of the scope of the Public Disclosure Communiqué. The foregoing fund users, non-listed companies and companies listed in Equity Market for Qualified Investors (“Partial Obligors”) are now required to comply with the disclosure obligations under the Public Disclosure Communiqué, except for certain obligations relating to inside information and continuous information.
• The Public Disclosure Communiqué requires the companies listed in the Equity Market for Qualified Investors to make disclosures under certain provisions of the Public Disclosure Communiqué on Non-Public Companies No. II-15.2, such as in case of liquidation or application to dissolution of such companies.
• Issuers of securities other than shares through public offering will make disclosures in cases of (i) resolutions rendered on issuance limit, (ii) any tranche issuance and default on principal payments on such tranche, and (iii) any secondary market repurchase transactions (except shares) they have executed with their related parties. In addition to these, Partial Obligors are required to issue disclosures on any changes to their financial condition and/or activities that could have an adverse effect on their ability to fulfill their obligations against securities holders.
• The thresholds for the disclosure obligation of the transactions executed by persons with managerial responsibility, persons closely related to these persons and the principal shareholder (real or legal person) regarding (i) the shares representing the capital and other securities relying upon such shares and (ii) the issuers’ capital markets instruments other than the publicly offered shares, have been increased to TRY 250,000, from TRY 50,000 and TRY 100,000 respectively. In both cases, the public disclosure must be made following the transaction.
• If it deems necessary, the CMB may request issuers to publish disclosures in other languages, along with Turkish language disclosure.
• The issuers’ board of directors is now required to adopt an internal policy on disclosure obligations, which in turn will expedite in the process of public disclosure.
• The public disclosure guideline was updated to reflect the recent changes.
• Disclosures on changes in the issuers’ shareholding structure or management control can now be made until 9 a.m. rather than 8 a.m. on the third day following the changes.

Conclusion

The CMB has tightened FX transactions by decreasing the leverage ratio and increasing margins to enhance investor protection in the Turkish FX market. This has caused an unexpected shock among the FX community and will materially affect the size of the FX operations. Additionally, as part of its pursuit for more secure and investor-friendly markets, the CMB is enhancing transparency by broadening the scope of disclosure obligations.

By Muhsin Keskin, Partner, Baker McKenzie