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Capital markets law overhauled: Part II

Representatives of Turkey's Capital Markets Board foresee that the amendments on primary and secondary capital markets legislation for purposes of integration with the EU legislation will be completed by the end of 2005.

Amendments to secondary legislation

Throughout late 2003 and 2004, there have been many amendments to the capital markets secondary legislation, such as an increase in free float on the stock exchange, a definition of investor groups in public offerings, extension of the scope of public disclosure requirements to provide more information to investors, improvement in offering circular standards, acceptance of real persons as incorporators of portfolio management companies, regulation of mergers of publicly listed companies, acceptance of International Financial Reporting Standards for publicly listed companies, securities companies and portfolio management companies, and revision of the public offering and sale of shares in state-owned entities.

The Capital Markets Board (CMB) promulgated a number of new regulatory acts for governing these matters with the aim of providing a better investment environment and ensuring compliance with the acquis communautaire, which is a requirement according to the Ministry of Council's decision dated 24 June 2003 to coordinate the adoption of EU legislation.

To ensure compliance with the acquis communautaire, the CMB has amended eight communiqués.

The Communiqué on Principles Regarding Public Disclosure of Material Events Series VIII 39 was amended to improve the definition of controlled undertaking. It introduced an additional disclosure requirement related to rights attached to shares to be obtained as a result of converting convertible bonds.

The Communiqué on Principles Regarding Issuers Exemption Conditions and Deletion From Board's Registry Series IV 9 was amended to grant an exemption to issuers from publishing a prospectus in certain cases (for example, private placement, merger, or issuance of convertible bonds).

The following communiqués were amended to oblige the mandatory use of a broker company during the public offering of the securities: Communiqué on Principles Regarding the Registration of Bonds with the Board Series II 13, Communiqué on Principles Regarding Registration of Profit and Loss Sharing Certificates with the Board Series III 27, Communiqué on Principles Regarding Registration of Asset Backed Securities and Establishment and Activities of General Finance Undertakings Series III 14, Communiqué on Principles Regarding Registration of Commercial Papers with the Board Series III, 13, Communiqué on Principles Regarding Issuance of Publicly Offered Dividend Right Certificates Series III 10, and Communiqué on Principles Regarding Registration of Gold, Silver, Platinum Bonds with the Board Series III 26.

The Turkish capital markets have made rapid progress since the 1980s, transferring a significant amount of funds to the real sector. However, with the adverse effects of macroeconomic inconsistencies, the Turkish capital markets have failed to meet their potential.

To increase the demand for security instruments in the market, a platform for individual and corporate investors must be developed. Promotion of financial awareness to investors through disclosure is crucial for the direction of investments to the capital markets. For this purpose, a national campaign will be organized to provide information to the public on every aspect of the capital markets.

On the other hand, capital markets in Turkey have a fast operating and well-organized structure. Use of high technology enables speedy and safe transactions and safe record-keeping in relation to these transactions. The capital markets employees are well educated, open minded and visionary. Moreover, the legal structure of the capital markets is suitable for any integration attempts with the EU legal framework.

Implementation of the corporate governance principles, adaptation of a registration system for the security instruments, establishment of courts with expertise on capital markets and revisions in the taxation system will increase investors' faith in the market.

The amendments to the Capital Markets Law and the secondary legislation will address the loopholes in the legislation on capital markets. As a result of the integration of Turkish Capital Markets with EU legislation and practices, the needs of the market players will be better addressed.

Ayse Tumerkan

Part I of this briefing appeared in the July 2005 issue of IFLR.

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