Doing Business in Türkiye: Capital markets

Regulatory framework

The Capital Markets Board has been the main regulatory and supervisory authority in charge of the Turkish securities and derivatives markets since 1982. Its mission is to maintain safe, fair, transparent and efficient capital markets, to protect the rights and interests of investors and to facilitate the public’s participation in economic development in an efficient manner. To that end, it supervises and regulates, among other things, public companies, banks and other financial intermediaries, mutual funds, investment corporations, investment consulting firms, real estate appraisal companies and rating firms.

The Capital Markets Board is entitled to apply sanctions against parties that violate securities laws. Possible sanctions include monetary penalties, license revocation, trading bans and imprisonment for certain crimes, such as insider trading and market manipulation, related to capital markets activity.

The Capital Markets Law is the principal piece of capital markets legislation that governs the structure of the Capital Markets Board, all organized markets, capital market institutions, initial public offerings and capital market instruments. While many provisions of the Capital Markets Law are modelled after European Union practices, the law also includes practices from non-European jurisdictions such as the United States.

Joint stock companies which offer their shares to the public or have more than 500 shareholders are, with certain exceptions, subject to the Capital Markets Law. In addition, securities issued by state economic enterprises, including those within the scope of the privatization program, municipalities and related institutions, are subject to the disclosure requirements.

Securities offering

The procedures for the offering and issuance of securities vary depending on the issuer and type of security being issued. Particular steps are required before an issuer may register shares with the Capital Markets Board. In general, unless there is a specific exemption such as an offering only to qualified investors, the Capital Markets Board requires disclosure of certain information to the public through the filing of a prospectus (izahname). In addition to the prospectus, other significant documents to be prepared for an offering include financial statements and related independent auditors’ reports. Audited financial statements, prepared in line with the Turkish Accounting Standards and Turkish Financial Reporting Standards, for the prior three fiscal years and the latest interim financial statements, if available, must be filed.

An offering prospectus filed for Capital Markets Board approval must include all information reasonably necessary to enable a prospective investor to assess the merits of the issuer and the proposed investment. The information in the prospectus must be presented in a manner that is easy for investors to comprehend and analyze. The type and scope of information required to be disclosed to the public under Capital Markets Board regulations may be different from disclosure requirements in other jurisdictions such as the United States or the United Kingdom. If the information is found to be insufficient or inaccurate by providing a formal explanation the Capital Markets Board may refrain from approving the prospectus. Upon approval of the prospectus, it must be published in the Trade Registry Gazette as well as in line with the principles of the Capital Markets Board.

The issuer is responsible for losses resulting from inaccurate, misleading or incomplete information in a prospectus. In the event the issuer is unable to compensate for such losses, the public offeror, the lead intermediary institution, the guarantor (if any) and members of the board of directors of the issuer are responsible to the extent of their fault and to the extent the losses can be attributed to them. In addition, persons and entities, such as independent audit, ratings and appraisal firms, who prepare reports included in a prospectus are also responsible for any inaccurate, misleading or incomplete information.

Issuers are also required to apply to Borsa Istanbul for approval to list their securities.

In order to issue securities without a public offering, any company subject to the Capital Markets Law must prepare an “issue document.” The form and content of the offering document is set out and approved by the Capital Markets Board. This requirement applies even in private placements of securities to qualified investors. The issue document contains brief and clear information about the capital market instruments involved in the issuance and the terms of sale. Securities issued to qualified investors may be listed on the exchange with the sole purpose of trading among qualified investors in line with relevant regulations of the exchange.

Trading of securities

Borsa Istanbul, the sole stock exchange in Türkiye, combines in a single institution the previously existing Istanbul Stock Exchange, Istanbul Gold Exchange and the Turkish Derivatives Exchange. There are currently four main markets on Borsa Istanbul: (i) the Equity Market, (ii) the Debt Securities Market, (iii) the Derivatives Market and (iv) the Precious Metals and Diamonds Market.

The main markets consist of several sub-markets. For example, the Equities Markets consist of BIST Star, BIST Main and BIST Sub-Market. Among other criteria, companies with market capitalization of free floating shares of at least ₺300m may be quoted in BIST Star, while companies with market capitalization of free floating shares of at least ₺75m may be quoted on BIST Main, and companies with market capitalization of free floating shares of at least ₺40m may be quoted in the BIST Sub-Market. After quotation, listed companies are evaluated at least bi-annually and, if deemed necessary, they may need to leave one sub-market and move to another.

Financial instruments currently traded on Borsa Istanbul markets include equities, exchange traded funds, government bonds and bills, corporate bonds and bills, covered bonds, money market instruments (repo/reverse repo), asset-backed securities, futures and options, real estate certificates and lease certificates. Lease certificates modeled on Sukuk bonds may be issued based on revenues to be generated from an ownership, management, sale and purchase, partnership or service contract.

The Central Registry Agency is responsible for the electronic dematerialization and registration of capital markets instruments, safeguarding the confidentiality of securities records and the operation of the Public Disclosure Platform.

Since 2005, shares traded on Borsa Istanbul and physically held by the Settlement and Custody Bank have been dematerialized in their entirety and are now held through the Central Securities Depository. Newly-issued shares are no longer printed but rather are entered into the book-entry system of the Central Securities Depository.

Please see also the “Environmental, Social and Governance (ESG)” section for the Guidelines on Green / Sustainable Debt Instruments and Green / Sustainable Lease Certificates published by the Capital Markets Board.

Disclosure requirements

Public companies must prepare and disclose financial statements and reports as well as certain other information which may affect the value of shares or investors’ decision to invest in such shares in line with Capital Markets Board requirements. In addition, issuers of capital market instruments may also be subject to certain disclosure requirements. Such disclosures are made on an electronic system, the Public Disclosure Platform (www.kap.gov.tr), which uses Internet and electronic signature technologies. The system is operated by the Central Securities Depository and enables all users to access both current and past notifications of listed companies and to obtain current announcements and up-to-date general information about listed companies. The following categories of information must be disclosed to the public:

Inside information

Public companies must disclose “inside information” which is defined as information that: (i) is related to a specific event, (ii) may be considered significant or important by an investor in making an investment decision, (iii) is related to events not disclosed to the public, (iv) would provide holders of such information with an advantage over others in the sale and purchase of the company’s securities and (v) may influence the value of the relevant securities or the investment decisions of the company’s investors.

The Capital Markets Board also requires public companies to provide to the Capital Markets Board and to Borsa Istanbul a list of persons who have access to inside information. The list must be kept up-to-date.

Under certain circumstances, public companies may refrain from disclosing inside information but may incur liability for their non-disclosure of such information. Public companies may decide to postpone disclosure of inside information in order to protect their legitimate interests, provided that: (i) postponing disclosure is not misleading, (ii) the company is able to keep any related inside information confidential and (iii) there is written approval of the board of directors or an officer authorized by the board of directors. If the relevant information is leaked or the reasons for postponing disclosure are no longer applicable, the inside information must be disclosed immediately.

Ongoing disclosure of specific events

The Capital Markets Board requires publicly held companies to disclose on an ongoing basis certain information including:

1. Changes in the shareholding or management structure of the company resulting from any direct or indirect acquisition of 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 33 percent, 50 percent, 67 percent or 95 percent or more of the issued share capital or voting rights of the company;
2. Acquisition or disposal by the company itself of shares with voting or dividend rights;
3. Changes in rights attached to different groups of shares;
4. Changes in the conditions of issuance, such as terms or interest rates, of any capital market instrument which may affect the rights of those who purchased the instrument;
5. Information on the general assembly of shareholders before and after the assembly, as well as how to exercise voting rights in the general assembly of shareholders;
6. Information on the distribution of dividends, issuance of new shares, exercise of pre-emption rights and cancellation and conversion of shares.

Financial statements

The Capital Markets Board requires publicly held companies to disclose financial statements prepared in line with the Turkish Accounting Standards and Turkish Financial Reporting Standards on a quarterly and annual basis.

Corporate governance requirements

The Capital Markets Board has rules governing the independence of the directors of publicly traded companies. These rules divide Turkish publicly traded companies, except those traded on Borsa Istanbul’s Emerging Companies Market or the Watchlist Companies Market, into three categories and, depending upon which category a company falls within, impose corporate governance standards which are either “mandatory” or “optional”.

The three categories are based upon total market capitalization and total value of floating shares, calculated as quarterly averages, as follows:

• First Group: Average market capitalization over ₺3bn and average value of floating shares over ₺750m
• Second Group: Average market capitalization over ₺1bn and average value of floating shares over ₺250
• Third Group: All other publicly traded companies

Regardless of category, each company is required to disclose in its annual report whether or not it followed the corporate governance standards applicable to it, even with respect to the “optional” rules referenced below, in the past year. If it did not comply, it must set forth the reasons for not doing so, list any conflicts of interest arising as a result of not following such rules and state any future plans the company has to modify its governance structure in order to comply with the applicable rules.

Along with each company’s self-assessment in its annual report, Borsa Istanbul has a “BIST Corporate Governance Index”, which has been published since 2007 and offers further information on corporate governance of publicly listed companies. The index measures the price and return performances of companies which hold a corporate governance rating of a minimum of 7 over 10 as a whole and of 6.5 for each main section under assessment.

The board of directors for all categories of companies must be composed of at least five directors. A majority of the board must consist of non-executive directors, among whom there must be independent directors who are able to perform their duties without being under any influence. As a general rule, the number of independent directors must not be less than one-third of the total number of directors and in any event, may not be less than two.

Certain actions, such as acquiring or selling a “material” part of the assets of the company or entering into related party transactions, unless taken directly by shareholder vote, require the affirmative vote of the majority of the independent directors. In addition to the “mandatory” independence requirements listed above, there is an “optional” standard to the effect that each publicly traded company should aim to have at least 25 percent of its board comprised of female directors. Please see also the “Environmental, Social and Corporate Governance (ESG)” section for new regulations relating to ESG principles applicable to publicly traded companies.

Crowdfunding

On October 27, 2021, the Communiqué on Crowdfunding, which regulates the terms and conditions of raising capital in return for equity or debt through Capital Markets Board accredited crowdfunding platforms, entered into force. According to “The State of Turkish FinTech Ecosystem Report,” prepared by the Finance Office of Presidency of the Republic of Türkiye, eight equity-based crowdfunding platforms have been approved as of the end of 2022.

Crowdfunding platforms, which must be licensed by the Capital Markets Board to start operations, act as an intermediary between investors and entrepreneurs (girişimci) or start-up companies (girişim şirketi).

Establishment criteria for crowdfunding platforms are set out in the Communiqué. Among others, crowdfunding platforms must:

• Be incorporated in the form of a joint stock company (anonim şirket) with a minimum share capital of ₺1m which shall be paid in full;
• Register all shares representing the capital of the platform;
• Have a board of directors consisting of at least three members;
• Have internal audit and risk management systems in place; and
• Enter into an agreement with the Central Registry Agency, the central securities depository and an authorized escrow agent, which may be the Settlement and Custody Bank or other banks and intermediaries authorized by the Capital Markets Board as portfolio custodians to handle the operational side of crowdfunding activities.

Eligibility criteria for shareholders and directors, rules for share transfers, corporate governance and the scope of activities of the platforms include, among others, the following:

• Crowdfunding platforms may not raise capital for non-resident persons or entities.
• No crowdfunding activity may be undertaken for the purposes of acquiring real estate, rights in real estate or development of real estate projects.
• Changes in the shareholding structure as well as some changes to voting rights thresholds are subject to the approval of the Capital Markets Board.
• At least one board director must be an “angel investor” licensed by the Ministry of Finance.

Use of crowdfunding platforms is limited to resident entrepreneurs looking to raise capital for projects and start-up companies, which are incorporated as joint stock companies and are developing new technology or technological products and/or undertaking production activities. Technological activities and production activities are broadly defined to cover any highly competitive product or service with a potential to create high added-value and employment.

Publicly held corporations or companies controlled by other legal entities may not apply to crowdfunding platforms.

Capital markets activities

The Capital Markets Law also regulates the activities of capital markets participants including investment firms, collective investment schemes, independent audit firms, appraisal firms and credit rating agencies, portfolio management companies, mortgage finance institutions, housing finance and asset finance funds and asset leasing companies. Such regulated activities are subject to obtaining a license from the Capital Markets Board based on various eligibility criteria set forth in detail in the regulations.