Turkey: New OTC regulations

Author: | Published: 22 Feb 2016
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In line with the global development in the over-the-counter (OTC) market, the Capital Markets Board of Turkey (CMB) has introduced more regulations covering OTC derivatives. These changes come after the CMB enacted another regulation for OTC derivatives in July 2014.

In January 2016, the CMB amended Communiqué III/37.1 on Principles regarding Investment Services, Activities and Ancillary Services (Communiqué). With this amendment, the CMB introduced new regulations on the investment firms and intermediary institutions that carry out OTC derivative transactions.

According to article 25(a) of the Communiqué, the investment firms that carry out OTC derivative transactions within the scope of execution of orders and dealing on own account activities must prepare a list of the types of OTC derivatives and underlying assets. They must publish this list on their websites and send it to the Capital Markets Association of Turkey (CMA).

Intermediary institutions authorised by the CMB to deal exclusively with the investment services and activities specified in the Capital Markets Law No. 6362 must prepare a collateralisation policy with regard to the OTC derivatives and underlying assets as set out in article 25(b) of the Communiqué. The intermediary institutions must prepare collateralisation policies within the scope of internationally accepted procedures considering the risk status of their customers, whether they have direct financial obligations to their customers, possible negative market conditions and other related strategies.

According to article 25(ç) of the Communiqué, intermediary institutions must seek collateral for any OTC derivative transactions to be carried out with their customers. OTC derivative transactions cannot be executed without receiving collateral from customers. The customers must provide at least two forms of collateral: (i) initial margin; and (ii) maintenance margin. The initial margin must be provided to initiate the transactions and the customer must keep the maintenance margin during the OTC derivative transactions.

Finally, under article 29(b), the intermediary institutions must notify the CMA of the electronic transaction platforms used for the OTC derivative transactions together with the programmes, modules and add-ins within the scope of intermediary activities . Intermediary institutions cannot use platforms, programmes, modules and add-ins that are not notified to the CMA. Furthermore, the intermediary institutions will be subject to two independent audits. The auditing firms will not give prior notice of these audits.

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