CAPITAL MARKETS BOARD OF TURKEY ANNUAL REPORT

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3 CAPITAL MARKETS BOARD OF TURKEY ANNUAL REPORT CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT 1

4 Contents TABLES GRAPHICS ABBREVIATIONS MESSAGE FROM THE CHAIRMAN 1. CAPITAL MARKETS BOARD OF TURKEY 1.1. MISSION, VISION, DUTIES AND AUTHORITIES 1.2. DECISION MAKING BODY AND ORGANIZATION Executive Board Organization 1.3. BUDGET 1.4. STAFF 2. OVERVIEW OF TURKISH ECONOMY IN : STRUCTURAL TRANSFORMATION YEAR IN CAPITAL MARKETS: SECONDARY REGULATIONS AND IMPACT ASSESSMENT 3.1. SECONDARY REGULATIONS BASED ON CAPITAL MARKET LAW NO SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING CAPITAL MARKETS INSTRUMENTS AND THEIR ISSUES CMB s Vision on Capital Markets Instruments Implemeted Secondary Regulations Purpose and Legal Grounds Secondary Regulations and Innovations concerning Capital Markets Instruments and Their Issues 3.3. SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING PUBLICLY HELD CORPORATIONS CMB s Vision on Publicly Held Corporations Implemeted Secondary Regulations Purpose and Legal Grounds Secondary Regulations and Innovations concerning Publicly Held Corporations 3.4. SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING PUBLIC DISCLOSURE CMB s Vision on Public Disclosure Implemeted Secondary Regulations Purpose and Legal Grounds Secondary Regulations and Innovations concerning Public Disclosure 3.5. SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING INVESTMENT SERVICES AND ACTIVITIES AND INVESTMENT FIRMS CMB s Vision on Investment Services and Activities and Investment Firms Implemeted Secondary Regulations Purpose and Legal Grounds Secondary Regulations and Innovations concerning Investment Services and Activities and Investment Firms 3.6. SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING CLEARING AND CUSTODY LEGISLATION AND OPERATIONS AND CENTRAL COUNTERPARTY IMPLEMENTATION CMB s Vision on Clearing and Custody Operations Implemeted Secondary Regulations Purpose and Legal Grounds Secondary Regulations and Innovations concerning Central Clearing and Custody Institutions 3.7. SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING EXCHANGE REGULATIONS AND OPERATIONS vi vii vii x ii CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

5 CMB s Vision on Exchanges Implemeted Secondary Regulations Purpose and Legal Grounds Secondary Regulations and Innovations concerning Exchanges and Market Operators 3.8. SECONDARY REGULATIONS AND STRUCTURAL CHANGES REGARDING COLLECTIVE INVESTMENT SCHEMES CMB s Vision on Collective Investment Schemes Implemeted Secondary Regulations Purpose and Legal Grounds Innovations Introduced and Structural Changes Regarding Investment Companies Innovations Introduced and Structural Changes Regarding Investment Funds Innovations Introduced and Structural Changes Regarding Portfolio Management and Custody 3.9. INNOVATIONS BROUGHT BY THE STATUTE OF THE CAPITAL MARKETS ASSOCIATION OF TURKEY CMB s Vision on the Capital Markets Association of Turkey Implemeted Secondary Regulations Purpose and Legal Grounds Innovations and Structural Changes Introduced by Capital Markets Association of Turkey Statute 3.1. SECONDARY REGULATIONS AND STRUCTURAL CHANGES WITHIN THE SCOPE OF FIGHT AGAINST CAPITAL MARKETS CRIMES CMB s Vision on the Fight against Capital Markets Crimes Implemeted Secondary Regulation Purpose and Legal Grounds Innovations Introduced by the Regulation on Trading Profits Earned by Executives of the Issuers Innovations concerning the Measures to be Implemented in Investigations of Insider Trading and Manipulation Innovations concerning Obligation of Notification regarding Insider Trading and Manipulation Crimes Innovations on Prevention of Market Abuse Actions CMB S PERFORMANCE OBJECTIVES AND EVALUATION OF THEIR IMPLEMENTATION Performance Objectives on Secondary Regulations and Evaluation of the Results Achieved Performance Objectives on Defining Principles and Procedures of Investment Services and Evaluation of the Results Achieved Performance Objectives on Special Fund and Investor Compensation Center and Evaluation of the Results Achieved Performance Objectives on the Effective Date of the Statutes of the Capital Markets Association of Turkey and the Association of Appraisal Experts of Turkey and Evaluation of the Results Achieved Performance Objectives on Collective Investment Schemes and Evaluation of the Results Achieved Performance Objectives on the Establishment of Borsa Istanbul and Evaluation of the Results Achieved Performance Objectives within the Framework of 213 Enforcement Plan and Evaluation of the Results Achieved EXECUTIVE BOARD RESOLUTIONS IN ONGOING SECONDARY REGULATION WORKS Ongoing Works on Public Disclosure Ongoing Works on Collective Investment Schemes Ongoing Works on Enforcement Ongoing Works on Intermediary Activities, Secondary Markets and Capital Market Institutions Ongoing Works on Licensing STRATEGIC PLAN CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT iii

6 Contents 4. ACTIVITIES OF THE CMB IN APPLICATIONS FOR SECURITIES ISSUES 4.2. AUTHORIZATION AND APPROVALS Authorization of Investment Firms Authorization of Collective Investment Schemes Approvals concerning Publicly-Held Corporations Authorization of Independent Audit Firms Authorization of Rating Agencies Authorization of Appraisal Firms Establishment of Asset Lease Companies/Asset Finance Funds 4.3. SUPERVISION Supervision of Publicly-Held Corporations Supervision of Collective Investment Schemes Supervision, Surveillance and Audit of Investment Firms Supervision of Independent Audit Firms Supervision of Rating Agencies Supervision of Appraisal Firms Market Supervision 4.4. ENFORCEMENT 4.5. LAWSUITS, WRITTEN APPLICATIONS TO THE PUBLIC PROSECUTORS AND ADMINISTRATIVE MEASURES Lawsuits against the Acts of the CMB Lawsuits commenced by the CMB 4.6. JOINT ACTIVITIES CARRIED OUT WITH OTHER INSTITUTIONS Financial Stability Committee Istanbul Financial Center Project th Development Plan and Primary Transformation Programs Systemic Risk Evaluation Group Financial Sector Commission Union of Chambers and Commodity Exchanges of Turkey Capital Markets Council Coordination Council for the Improvement of Investment Environment Financial Stability Board 4.7. ACTIVITIES FOR EU HARMONISATION Legislation Harmonization Works and Coordination with Other Institutions Activities to Benefit from the EU Funds 4.8. INTERNATIONAL RELATIONS International Organization of Securities Commissions (IOSCO) Organization for Economic Cooperation and Development (OECD) Assignment of CMB Personnel in the International Organizations and Foreign Institutions as Secondee World Trade Organization ( WTO ) and the General Agreement on Trade in Services ( GATS ) and Trade Agreements Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation (COMCEC) Islamic Financial Services Board (IFSB) Islamic Development Bank (IDB) iv CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

7 International Forum of Independent Audit Regulators (IFIAR) Bilateral Relations and Signed Memoranda of Understanding-MoU International Programs Organized by the CMB Other International Activities 4.9. LICENSING ACTIVITIES 4.1. INVESTOR APPLICATIONS INFORMATION SOURCES FINANCIAL EDUCATION AND PROMOTION ACTIVITIES INFORMATION SYSTEMS AND TECHNOLOGICAL INFRASTRUCTURE WORKS Application Development Works Official Website System and Network Works Information Safety Management System Information System Analysis 5. TURKISH CAPITAL MARKETS IN CAPITAL MARKETS INDICATORS IN OUTSTANDING SECURITIES 5.3. APPROVED PROSPECTUSES/ISSUE DOCUMENTS OF CAPITAL MARKET INSTRUMENTS 5.4. INVESTMENT FIRMS 5.5. COLLECTIVE INVESTMENT SCHEMES Investment Funds Investment Companies 5.6. PORTFOLIO MANAGEMENT COMPANIES 5.7. DEVELOPMENTS IN THE EQUITY MARKET Equity Market and BIST 1 Index Emerging Companies Market 5.8. DEVELOPMENTS REGARDING DEBT SECURITIES MARKET AND MARKET VOLUME 5.9. DEVELOPMENTS REGARDING FUTURES AND OPTIONS MARKET 5.1. DEVELOPMENTS REGARDING PRECIOUS METALS AND DIAMONDS MARKET DEVELOPMENTS REGARDING LEVERAGED (FOREX) TRANSACTIONS 6. EXCHANGES, CENTRAL CLEARING INSTITUTIONS, CENTRAL DEPOSITORY INSTITUTIONS AND ASSOCIATIONS 6.1. BORSA ISTANBUL INC TAKASBANK - ISTANBUL SETTLEMENT AND CUSTODY BANK INC CENTRAL REGISTRY AGENCY INC CAPITAL MARKETS ASSOCIATION OF TURKEY 6.5. ASSOCIATION OF APPRAISAL EXPERTS OF TURKEY 6.6. INVESTOR COMPENSATION CENTER CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT v

8 Index of Tables TABLE 1.1. REVENUES AND EXPENDITURES OF THE CMB IN 213 TABLE 1.2. CMB STAFF STATISTICS TABLE 3.1. NEW BY-LAWS BASED ON THE CML NO TABLE 3.2. NEW COMMUNIQUES BASED ON THE CML NO TABLE 3.3. NEW BY-LAWS AND STATUTES THOSE WORKS INITIATED IN 213 AND PUBLISHED IN THE OFFICIAL GAZETTE IN 214 TABLE 3.4. NEW COMMUNIQUÉS THOSE WORKS INITIATED IN 213 AND PUBLISHED IN THE OFFICIAL GAZETTE IN 214 TABLE PERFORMANCE OBJECTIVES AND IMPLEMENTATION RESULTS TABLE 3.6.EXECUTIVE BOARD RESOLUTIONS IN 213 TABLE 4.1. APPLICATIONS FOR SECURITIES ISSUES AND RESULTS TABLE 4.2. ACTIVITIES SUBJECT TO THE PERMISSION OF CMB AND INSTITUTIONS AUTHORIZED TABLE 4.3. APPLICATIONS OF INVESTMENT FIRMS TABLE 4.4. APPLICATIONS OF COLLECTIVE INVESTMENT SCHEMES TABLE 4.5. APPLICATIONS OF PUBLICLY HELD CORPORATIONS TABLE 4.6. TYPES OF ON SITE INSPECTION OF INVESTMENT FIRMS BY YEARS TABLE 4.7. SUBJECTS OF ENFORCEMENT ACTIVITIES TABLE 4.8. SANCTIONS IMPLEMENTED AS A RESULT OF ENFORCEMENT ACTIVITIES TABLE 4.9. LEGAL GROUNDS AND AMOUNTS OF ADMINISTRATIVE FINES TABLE 4.1. ADMINISTRATIVE CASES AGAINST THE ACTS OF THE CMB TABLE ADJUDICATED ADMINISTRATIVE CASES TABLE CIVIL CASES AGAINST THE CMB TABLE WRITTEN APPLICATIONS BY THE BOARD TO THE PUBLIC PROSECUTOR AND THE CASES WHICH HAVE BEEN COMMENCED TABLE ADJUDICATED CASES WHICH HAVE BEEN COMMENCED AS A RESULT OF THE WRITTEN APPLICATIONS OF THE CMB TO THE PUBLIC PROSECUTOR TABLE CIVIL CASES COMMENCED BY THE CMB TABLE BILATERAL MEMORANDA OF UNDERSTANDING SIGNED BY THE CMB TABLE COUNTRIES THAT SIGNED MEMORANDUM OF UNDERSTANDING IN 213 TABLE NUMBER OF LICENCES DESERVED (22-213) TABLE INFORMATION REQUESTS TO CMB TABLE 4.2. TRAINING SEMINARS FOR UNIVERSITY STUDENTS TABLE 5.1. CAPITAL MARKETS INDICATORS IN 213 TABLE 5.2. INFORMATION ON SECURITIES UNDER THE CENTRAL DEMATERIALIZED SYSTEM TABLE 5.3. OUTSTANDING SECURITIES (212 AND 213) TABLE 5.4. OUTSTANDING SECURITIES (BY NOMINAL VALUES, ) TABLE 5.5. ISSUES OF CAPITAL MARKET INSTRUMENTS BASED ON APPROVED PROPECTUS/ISSUE DOCUMENT (TL THOUSAND) TABLE 5.6. ISSUES OF CAPITAL MARKET INSTRUMENTS BASED ON APPROVED PROPECTUS/ISSUE DOCUMENT ( $ THOUSAND ) TABLE 5.7. LICENCES OF INVESTMENT FIRMS TABLE 5.8. TOTAL PORTFOLIO COMPOSITION OF INVESTMENT FUNDS (%) TABLE 5.9. NUMBER OF BORSA ISTANBUL TRADED CORPORATIONS TABLE 5.1. MAIN INDICATORS REGARDING BORSA ISTANBUL TRADED CORPORATIONS TABLE DATA ON BORSA ISTANBUL EMERGING COMPANIES MARKET TABLE BORSA ISTANBUL DEBT SECURITIES MARKET TRADING VOLUME TABLE VOB AND VIOP TRADING VOLUMES TABLE TRADING VOLUME AND AMOUNT OF ISTANBUL GOLD EXCHANGE AND BORSA ISTANBUL PRECIOUS METALS AND DIAMONDS MARKET TABLE NUMBER OF INTERMEDIARIES HAVING LEVERAGED (FOREX) TRADING LICENSE TABLE ANNUAL DATA ON LEVERAGED (FOREX) TRADING vi CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

9 Index of Graphics GRAPH 5.1 SHARE OF PRIVATE SECTOR SECURITIES IN THE NET VALUE OF TOTAL SECURITIES OUTSTANDING 113 GRAPH 5.2. DISTRIBUTION OF INVESTMENT FUND TYPES GRAPH 5.3. DISTRIBUTION OF PENSION FUND TYPES GRAPH 5.4. BIST 1 INDEX AND TRADING VOLUME (24-213) GRAPH 5.5. BIST 1 INDEX AND TRADING VOLUME (213 MONTHLY BASIS) GRAPH 5.6. MARKET CAPITALIZATION OF BORSA ISTANBUL (US $ BILLION) GRAPH 5.7. FOREIGN INVESTORS CUSTODY BALANCE GRAPH 5.8. FOREIGN INVESTORS TRADING VOLUME IN BORSA ISTANBUL EQUITY MARKET GRAPH 5.9. DAILY AVERAGE TRADING VOLUME OF DEBT SECURITIES ON BORSA ISTANBUL AND OFF THE EXCHANGE Abbreviations ABS : Asset Backed Securities ACS : Asset Covered Securities ALC : Asset Lease Companies BIST : Borsa Istanbul A.Ş.. CBRT : Central Bank of the Republic of Turkey CCI : Central Clearing Institutions CDS : Central Dematerialized System CMAT : Capital Markets Association of Turkey CMB : Capital Markets Board of Turkey CML : Capital Markets Law No COMCEC : Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation CRA : Central Registry Agency Inc. ECM : Borsa Istanbul Emerging Companies Market E-GEM : Electronic General Meeting System EMC : Emerging Markets Committee ESMA : European Securities and Markets Authority EU : European Union FED : Central Banking System of the USA FSB : Financial Stability Board GATS : General Agreement on Trade in Services GDDI : Government Domestic Debt Instruments GDP : Gross Domestic Product IGE : Istanbul Gold Exchange IMF : International Monetary Fund IOSCO : International Organization of Securities Commissions KGK : Public Oversight, Accounting and Auditing Standards Authority MASAK : Financial Crimes Investigation Board of Turkey MIFID : Markets in Financial Instruments Directive OECD : Organization for Economic Co-operation and Development PDP : Public Disclosure Platform RCS : Registered Capital System TAIEX : EU Technical Assistance and Information Exchange TAKASBANK : Istanbul Settlement and Custody Bank Inc. TCC : Turkish Commercial Code No. 612 TDUB : Association of Appraisal Experts of Turkey TKYD : Turkish Institutional Investment Managers Association TSPAKB : Association of Capital Market Intermediaries of Turkey TUIK : Turkish Statistical Institute UNIDROIT : International Institute for the Unification of Private Law USA : United States of America UT : Undersecretariat of Treasury of Turkey VIOP : Borsa Istanbul Derivatives Market VOB : Futures and Options Exchange Inc. WTO : World Trade Organization CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT vii

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12 Message from the Chairman CMB has the VISION of being a leading, respected and dynamic institution in both the national and international arenas. To achieve this, our MISSION is to perform objective and accountable regulation and supervision in the capital markets, with easily understandable rules, in line with international standards and developments and responding to changing market needs, to ensure fairness, transparency and efficiency. Dear Esteemed Stakeholders of Capital Markets, 213 was a hectic year for the CMB and stakeholders of capital markets and new capital markets regulations were discussed and made. The new Capital Markets Law No entered in force on the last day of new secondary regulations within the scope of the Law as well as studies in an effort to form the legal infrastructure compatible with the EU Directives were completed. At this current point, capital markets regulations are one of the most recent and most developed regulations which are capable of fulfilling present and potential needs and of being an example in the international arena. New Capital Markets Law and new secondary regulations are the last stage of legal and technical regulations including Commercial Law, Code of Obligations, and Law on Financial Leasing, Factoring and Financing Compa- x CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

13 nies, regulations regarding Individual Participation Capital and Angel Investors as well as Private Pension System incentives which are all prepared in effort to reconstruct our financial system and to make Istanbul an international financial center. Our country and Istanbul which ranked 72nd three years ago in the Global Financial Centers Index achieved to rank 44th in 213 also due to the contribution of the efforts to harmonize legal infrastructure of our financial system with the international norms. 213 was a year of renewal in both legal and institutional infrastructure. Istanbul Stock Exchange, Istanbul Gold Exchange and Futures and Options Exchange have merged under the roof of Borsa Istanbul. With this merger, Borsa Istanbul has gained an infrastructure allowing purchase and sale of all kinds of financial instruments under one roof and to operate within the framework of a financial supermarket idea. Borsa Istanbul s structure allowing both spot and future transactions of capital markets instruments, precious metals, energy products and commodities will increase the depth of the markets as well as fulfilling the demands of different types of investors. Important steps were taken in 213 to restructure the intermediation sector. In that regard, many regulations aimed at reconstruction of our financial intermediation sector, which was made up of numerous small scaled intermediary institutions, under the scope of new Law, forming a sector consisting of financially strong investment firms with well-established corporate and technical infrastructure and capable of adding value to the sector were accomplished during this year. These comprehensive regulations regarding intermediation sector will come into effect in 214 and a one-year period was given for transition into that new structure. Regulations concerning the collective investment schemes were amended and became compatible with the EU regulations. Important steps were taken in an effort to increase the competition in the portfolio management sector and making our country a portfolio management center. With the purpose of making our country as a global center of non-interest finance products, a new lease certificate regulation in line with international standards was introduced and implemented. Issue ceiling amount of leasing certificates whose prospectuses/issue documents were approved by the CMB reached TL 2.9 billion in 213 under the new regulations in this field. When all private sector debt instruments issues including lease certificates were taken into consideration, its seen that the CMB approved issue limits of private sector institutions in the nominal amount of TL 156 billion in 213 and sale of debt instruments in the nominal amount of TL 77.8 billion of this limit was completed in this year. Stocks of 18 companies were initially offered to public and started being traded on Borsa Istanbul in 213. Those offerings provided the companies with approximately TL 1.4 billion. Stock return performances of the companies which were offered initially to the public showed a successful progress when compared to the figures of previous years. Although, Borsa Istanbul National Index showed 11.7% negative performance, stocks offered to public showed average of 6.4% and IPO index showed 44.8% performance in the same period. Private Pension System plays an important role in increasing the savings. Important regulations on incentives for both supply and demand side of the system were made in order to contribute the progress of Private Pension System in 213. There has been an important increase in the number of participants and in the amount of funds under this system as a result of incentives and regulations implemented by the CMB in 213.Number of people who recently participated in the system increased by more than 1 million in 213 and total number of participants in the system rose to 4.1 million by the end of the year. Total size of the funds under the system which was TL 2 billion by the end of the 212 reached TL 24.8 billion as of the end of has been the year of transition and transformation for our capital markets. Priority agenda item of the CMB in 214 will be to make certain that recently published regulations are understood and implemented by the capital market stakeholders, and to monitor compliance. In addition to this, as the CMB, we will review our workflow process and work in order to provide more qualified service to all of our stakeholders in 214. In that regard, we will continue to work in an effort to be prompt in authorization, approval and enforcement processes with high standards and to provide simultaneous growth of all markets. I wish this 213 Annual Report which was prepared in order to provide information about the activities of the CMB to our stakeholders would be useful and I would like to use this opportunity to thank my colleagues who participated in the preparation of this report. Dr. Vahdettin ERTAŞ Chairman CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT xi

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16 1. Capital Markets Board of Turkey The CMB has been established for carrying out the tasks and exercising authorities granted with the Capital Markets Law (CML) and the related regulations, to maintain secure, transparent, efficient, fair, and competitive capital markets, and to protect rights and interests of investors. The CMB is a statutory public legal entity with administrative and financial autonomy and exercises its authorities 1.1. Mission, Vision, Duties and Authorities independently under its own responsibility. The CMB is related with the Minister assigned by the Prime Minister. The headquarters of the CMB is in İstanbul. However, the headquarters of the CMB shall remain in Ankara until the processing and operations for moving of the CMB s headquarters to Istanbul have been completed. The MISSION of CMB is to regulate and supervise the capital markets for the secure, fair, transparent and efficient functioning of the capital markets within the framework of objectivity and accountability, conducting supervision and making clear and comprehensible approach that is in conformity with international norms and developments which meets varying market needs. The VISION of the CMB is to be a leading dynamic and respected institution in national and international arena. The main duties and authorities of the CMB as specified in the CML are as follows; Carrying out the tasks and activities for fulfilling the duties and implementations imposed by the CML and ensuring the foreseen results; Taking general and special decisions in order to ensure timely, adequate and accurate public disclosure; Determining the conditions and operating principles concerning independent auditing, rating, appraisal and information systems auditing activities of institutions and corporations within the scope of the CML and declaring those who meet these conditions in the form of lists; Exchanging information and cooperating in any manner with other financial regulatory and supervisory institutions in order to ensure financial stability and fulfil the requirements of national or international legislation; Cooperating in any manner in relation to capital markets and signing bilateral or multilateral memoranda of understanding in accordance with the principles of reciprocity and the protection of professional confidentiality, with corresponding foreign institutions that are authorised to regulate and supervise capital markets, in order to exchange information, meet requests for document, inspecting the headquarters, branch offices or subsidiaries or affiliates located in Turkey of institutions performing activities in the capital markets of foreign countries as well as in the bodies from which they outsource within the framework of a written contract and to take the necessary administrative measures, share the expenditures related to the activities to be carried out in this context; To ensure the development of the capital market, regulating the principles and procedures concerning new capital market institutions and instruments and supervising them; Determining the principles regarding those who would be employed in publicly held corporations, the professional education of managers and other employees of capital market institutions, awarding of certificates which certify their professional competence and professional license, establishing headquarters or companies for these purposes and determining the principles and procedures of their activities; Determining the principles and procedures which are to be abided by those who provide investment advisory to capital market investors and savers; Determining the operation and working principles of the Public Disclosure Platform as well as the principles and procedures concerning the notifications and applications to be made to the CMB in the scope of the CML; Determining the principles and procedures concerning the operation of information systems belonging to capital market institutions, publicly-held corporations, exchanges and self-regulatory organisations and their supervision in the framework of the CML; Assigning that national or international scientific researches on capital markets be made by persons or by working groups consisting of national or foreign academicians or practitioners, for the purpose of forming a basis for the existing and future regulation preferences; 2 CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

17 Participating to the works conducted by international institutions, financial, economic and professional organizations where the CMB is a member as well as the works carried out by international institutions where Turkey is directly a member, developing common projects with those institutions and contributing to their projects; and Becoming a member of international institutions, financial, economic and professional organizations concerning the field of activity of the CMB Decision Making Body and Organization Executive Board The Executive Board (the Board s Decision Making Body), which consists of the Chairman and members of the Board, is empowered to discuss and finalize the draft bylaws and communiqués concerning the CMB and the field that the CMB is tasked with regulating and supervising as well as the files of application and the examination and audit reports prepared by the CMB staff, and also has administrative duties and authorities, apart from those mentioned in the CML and other legislation. The Executive Board has seven members. Commissioners appointed by the Council of Ministers. The Council appoints one of the Members as Chairman. The Board shall appoint one of the members as Acting Chairman and one of them as Deputy Chairman upon the proposal of the Board Chairman. Birol KÜLE, Himmet KARADAĞ, Nurullah GENÇ, Vahdettin ERTAŞ, Bekir Sıtkı ŞAFAK, Murat KOÇ, Bülent GÖKREM, (From left to right) CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT 3

18 The Executive Board Dr. Vahdettin ERTAŞ Chairman Bekir Sıtkı ŞAFAK Acting Chairman Prof. Dr. Nurullah GENÇ Deputy Chairman Bülent GÖKREM Board Member Birol KÜLE Board Member Himmet KARADAĞ Board Member Murat KOÇ Board Member 4 CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

19 Organization The CMB consists of the Chairman and the Board Members (Executive Board) and service units organized as Departments which are responsible to the Chairman. The Chairman is the Chief Executive Officer of the organization and the Executive Board. The Executive Vice Presidents are authorized and responsible for cooperation and coordination among the Departments. The Departments are: Department of Enforcement, Department of Corporate Finance, Department of Intermediary Activities, Department of Institutional Investors, Department of Market Oversight and Enforcement, Department of Research, Department of Accounting Standards, Department of Data Processing, Statistics and Information, Department of Legal Consultancy, Department of Institutional Communication, Department of Strategy Development, Department of Administrative and Financial Affairs. CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

20 Capital Markets Board of Turkey - Organization Chart Secretarial Bureau for the Chairman Department of Enforcement Department of Intermediary Activities Department of Market Oversight and Enforcement Department of Corporate Finance Department of Institutional Investors Department of Research 6 CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

21 Secreterial Bureau for the Board EXECUTIVE VICE PRESIDENTS Department of Accounting Standarts Department of Legal Consultancy Department of Institutional Communications Istanbul Representative Department of Data Proccesing Statistics and Information Department of Administrative and Financal Affairs Department of Strategy Development CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT 7

22 1.3. Budget In 213 Fiscal Year, CMB s budget was approved as TL , its expenses were TL and incomes were TL during the year. Detailed information regarding 213 expense and income predictions and realizations are shown in the below table. Table 1.1. Revenues and Expenditures of the CMB in Revenues Type of the Revenue Predicted (TL) Realized (TL) Capital Markets Instrument Registry Fees Income from Lodgment Other Real Estate Rental Income Income from Exchanges Interest Income Donations and Aids from Institutions and Persons Other Miscellaneous Income TOTAL Expenditures Type of the Expenditure Budget Allocation Realized Staff Expenses Social Security Contributions Goods and Services Procurement Current Transfers Capital Expenditures TOTAL Travel Allowance and Expenses Budget Allocation Realized Domestic Travel Allowance and Expenses Foreign Travel Allowance and Expenses TOTAL Source: CMB The CMB can be considered as a self-financing entity since all the expenditures accrued were paid by a particular fund which has been established for this purpose. Issuers or public offerers will transfer,3% of issue value of capital market instrument to this account;,5% of net asset values of investment funds and public offerers will be deposited to this account at the last working day of the quarterly periods. Maximum 1% of all incomes - excluding interest incomes- of stock markets organized 1.4. Staff Rights and obligations of CMB s staff personnel having permanent positions in the CMB on are determined by the Regulation on the Personnel of Capital Markets Board of Turkey which was published Official Gazette on , No Pursuant to the CML No. 6362, staff who started working at the CMB after are subject to the Public Servants Law No The CMB s services are carried out by the professional and supervised by the Board and otherwise organized stock markets, central settlement institutions, global custody institutions and central registry agency is recorded as income at the budget of the Board. Although, CML states that in case when the CMB fails to cover its expenses with its income, it can meet the budget deficit from Treasury grants, the CMB did not receive any grant from Treasury since staff, who join the CMB by passing a special entrance examination and become expert after passing proficiency examination, and administrative staff. In 213, 23 personnel left the service due to reasons such as retirement, transfer, resignation and expiration of duty term and 2 professional staff are appointed and 3 professional staff are transferred while 8 administrative staff are appointed and 1 administrative staff is trans- 8 CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

23 ferred to the CMB during the same period. By the end of 213, total of 584 staff; 7 of them being in the executive board, 46 at the top management, 295 of them being professional staff and junior professional staff, 51 of them being IT staff and 185 administrative staff have been working in the Board (Table 1.2.). Table 1.2. CMB Staff Statistics Number and Distribution of Personnel Chairman and Board Members 7 Top Management 46 Consultants 2 Executive Vice Presidents 4 Heads of Departments 12 Deputy Heads of Departments 13 Advisors 15 Professional Staff 295 Chief Experts 9 Experts 118 Chief Legal Experts 18 Legal Experts 18 Assistant Experts 48 Assistant Legal Experts 3 IT Staff 51 Administrative Staff 185 TOTAL 584 Information on Education Level of the Staff(*) Primary and Secondary Education 83 Graduate Degree 228 Master s Degree 328 Doctorate 3 Associate Professor 1 Professor 1 (*) The total of this part is different from the number of staff as some of the staff has more than one academic degree. Demographic Information Number of Female Staff 226 Number of Male Staff 358 Number of Staff Speaking Foreign Language 373 Average Term of Office 13 Average Age 39 Number of Staff in Ankara 458 Number of Staff in İstanbul 126 In 213, 1 professional staff were sent abroad for training. The total number of professional staff who received training from abroad reached 18 with the staff who were sent abroad for training in previous years. 352 of CMB s staff speak English, 9 speak both English and German, 4 speak both English and French, 2 speak both English and Spanish, 1 speaks both English and Italian, 2 speak German and 2 speak French. In total, 372 of our staff speak foreign languages. 2 of CMB s staff have been serving as secondee at the international organizations that CMB has a membership and 6 are on temporary duty at the various public institutions. CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT 9

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26 2. Overview of Turkish Economy in 213 As a result of policies aiming at controlling the credit increase rate, the growth rate which witnessed a 2.2% decrease in 212, showed an increase again in 213 by 4.%. Current deficit to gross domestic product ratio which was 6% by the end of 212 rose to 7.9% in 213. In the field of public finance, budget deficit to national income ratio was 1.18%. Horizontal trend which dominated the exchange rates in 212, continued in the first half of 213. However, after FED Chairman Ben Bernanke s announcement regarding the end of Quantitative Easing Policy in May, upward trends seen in currency rates and Turkish Lira lost around 2% of its value against the US Dollar in 213. In parallel to the economic recovery when compared with previous year and rise in the currency rate in the second half of the year, there was an increase in the inflation and consumer price inflation which was 6.16% in 212, rose to 7.4% in 213. Tax adjustments for tobacco products and rise in the unprocessed food and energy prices played a role in the increase of the inflation rate. Unemployment rate which was decreased to 9.2% by.6 points, rose to 9.7% in 213. In 213, central budget income of Turkey was TL billion while the central budget expenses were TL 47.9 billion. The central budget income in 213 increased by 17.1% and central budget expenses in the same time interval rose by 12.7% when compared to the figures of 212; thus central budget deficit which was TL 29.4 billion in 212 decreased to 18.4 billion in 213. Primary surplus which was TL 19 billion by the end of 212 rose to 31.5 billion at 213-end. Public debt to gross domestic product ratio which was 36.2% in 212 realised as 36% in 213. In 213, foreign trade deficit increased by 18.7% and rose to $ 99.8 billion. Turkey s exports in 213 was $ billion with.4% decrease while the export was $251.6 billion with 6.4% increase. Exports to imports ratio which was 64.5% in 212 declined to the level of 6.3% in 213. Net registered capital flow excluding reserves in capital and finance accounts rose to $ 61.2 billion in 213 from the level of 212 which was $ 47.4 billion. Net direct domestic investments by foreign investors decreased by 3.8% during the same time interval when compared to the previous year and calculated as $ 12.7 billion. During the mentioned period, net direct investments abroad by domestic investors declined to $ 3.1 billion with a 24.4% decrease; hence net capital flow in 213 rose $ 9.6 billion representing a 5.4% decrease when compared to 212 figures. New capital flow from portfolio investment which was $ 4.8 billion in total in 212 decreased to $ 23.8 billion representing 41.6% decline in 213. Share of private sector securities in the total outstanding securities in Turkey during 22 and 212 period witnessed a continuous increase except 29 when the effects of global financial crisis reached a peak. In terms of market values, it is seen that share of private sector securities in the total net value of outstanding securities declined to 39.44% in 213 while it was 41.44% in CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

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30 3. 213: Structural Transformation Year in Capital Markets: Secondary Regulations and Impact Assessment 3.1. Secondary Regulations Based on Capital Market Law No 6362 After CML No was published in the Official Gazette dated 3 December 212 and No.28513, works regarding secondary regulations on structural changes within the framework of CML have been initiated and 1 new bylaws and 27 new communiqués based on Law No were published in 213. In addition to these, there are 3 new by-laws and 15 new communiques whose preparations were initiated in 213 and completed and published in the Official Gazette in the first four months of As mentioned in this chapter, new regulations which recently came into effect paved the way for the legal infrastructure for structural transformation and transition in Turkish capital markets in the following main issues: Capital market instruments and their issuance, Significant transactions of publicly held corporations, proxy voting, proxy solicitation, mergers and demerger, Public disclosure through disclosure of financial statements, independent audit and material events, Investment services, activities and firms, Clearing and central counterparty implementation, Exchange and markets, Collective investment schemes, Capital market crimes and their prevention. Within this framework, secondary regulations which were published in 213 are listed below in chronological order: Table 3.1. New By-Laws Based on CML No Name BY-LAWS General By-law on the Establishment and Operation Principles of Central Clearing Institutions By-law on the Investor Compensation Center Istanbul Settlement and Custody Bank Inc. Central Clearing Regulation By-law on the Foundation, Operation and Supervision Principles of Exchanges and Market Operators By-law on the Annulment of Regulation Concerning the Foundation and Organs of the Stock Exchanges By-law on Istanbul Settlement and Custody Bank Inc. Central Counterparty By-law on the Annulment of Regulation Concerning Membership in the Stock Exchange and Listing By-law Concerning the Amendment of Regulation on Investor Compensation Center Special Fund By-law By-law on Special Fund Asset Management Official Gazette Date No ¹Number of total by-laws reaches 67 when by-laws concerning internal regulations of the CMB and related institutions are considered. 16 CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

31 Table 3.2. New Communiqués Based on CML No Name COMMUNIQUÉS Communiqué on Principles of Real Estate Investment Companies (III-48.1) Communiqué on Lease Certificates (III-61.1) Communiqué on Debt Securities (II-31.1) Communiqué on Principles of Financial Reporting in Capital Markets (II-14.1) Communiqué on Shares (VII-128.1) Communiqué on Prospectus and Issue Document (II-5.1) Communiqué on Sale of Capital Market Instruments (II-5.2) Communiqué on Portfolio Management Companies and Activities of Such Companies (III-55.1) Communiqué On Portfolio Depositary Service and Providers of Such Service (III-56.1) Communiqué on Real Estate Certificates (VII-128.2) Communiqué on Investment Funds (III-52.1) Communiqué on Principles of Investment Services and Activities and Ancillary Services (III-37.1) Communiqué on Principles of Investment Companies (III48.2) Communiqué on Warrants and Investment Firms Certificates (VII-128.3) Communiqué on Principles of Venture Capital Investment Companies (III-48.3) Communiqué on Foreign Capital Market Instruments and Depot Certificates and Foreign Investment Fund Units (VII-128.4) Communiqué on Principles of Exchange Investment Funds (III-52.2) Communiqué on Payment of Net Trading Earnings by Executives of Issuers to Issuers (VI-13.1) Communiqué on Principles Regarding Establishment and Activities of Investment Firms (III-39-1) Communiqué on Principles of Performance Presentation and Performance-Based Remuneration for Individual Portfolios and Collective Investment Schemes, and of Grading and Ranking Activities of Collective Investment Schemes (VII-128.5) Communiqué on Voting by Proxy and Proxy Solicitation (II-3.1) Communiqué on Common Principles Regarding Significant Transactions and Retirement Right (II-23.1) Communiqué on Authorized Capital System (II-18.1) Communiqué on Public Disclosure Platform (VII-128.6) Official Gazette Date No Continuation of Table 3.2. continues on the next page CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT 17

32 Name Communiqué on Merger And Demerger (II-23.2) COMMUNIQUÉS Communiqué on the Exclusion of Companies From the Scope of Law and Obligation for Companies to List Their Shares for Trading on the Exchange (II-16.1) Communiqué on Principles Regarding Financial Reporting of Investment Funds (II-14.2) Official Gazette Date No (repeated) (repeated) Table 3.3. New By-laws and Statues Those Works Initiated in 213 and Published in the Official Gazette in Name BY-LAWS AND STATUTES By-law Regarding the Principles and Procedures of Investor Compensations and Gradual Liquidation Statute of Association of Appraisal Experts of Turkey Statute of Turkish Capital Markets Association Official Gazette Date No Table 3.4. New Communiqués Those Works Initiated In 213 and Published in the Official Gazette in Name COMMUNIQUÉS Communiqué on Principles of Venture Capital Investment Funds (III-52.4) Communiqué on Squeeze Out and Sell Out Rights (II-27.1) Communiqué on Buy-Backed Shares (II-22.1) Communiqué on Corporate Governance (II-17.1) Communiqué on Principles of Real Estate Investment Companies (III-52.3) Communiqué on Asset or Mortgage Based Securities (III-58.1) Communiqué on Collateralized Securities (III-59.1) Communiqué on Market Abuse (VI-14.1) Communiqué on Obligation of Notification Regarding Insider Trading and Manipulation Crimes (V-12.1) Communiqué on Measures Implemented During the Investigation of Information Abuse and Market Fraud (V-11.1) Communiqué on the Amendment of Communiqué on Principles of Real Estate Investment Companies (III-48.1.a) Communiqué on Material Events (II-15.1) Communiqué on Material Events Concerning Corporations Whose Shares Are Not Traded on Exchange (II-15.2) Communiqué on Take Over Bids (II-26.1) Communiqué on Dividends (II-19.1) Official Gazette Date No CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT

33 3.2. Secondary Regulations and Structural Changes Regarding Capital Markets Instruments and Their Issues CMB s Vision on Capital Markets Instruments CMB s vision is to organize capital market instruments to fulfill the fund needs of issuers and provide opportunity to collect more funding from the capital markets by also considering the protection of rights and interests of investors in order to increase the competitiveness of Turkish capital market on international arena to ensure smooth operation and growth of capital markets Implemented Secondary Regulations Registration of capital market instruments according to the former Law No was replaced with the approval of prospectus by the CMB system in parallel to the EU regulations. Validity period of prospectus concept was mentioned in Turkish legislation for the first time and convenience is provided by decreasing additional cost incurring due to approval of prospectus and issue document prior to every issuance, repetition of registry and notice processes and requirement of preparing different prospectus for every single instrument. The new system provides CMB the opportunity to permit companies whose market price or book value of share is below the nominal value of the company to issue shares with a price below the nominal value in order to take steps for the prevention of deeper financial problems of exchange traded companies whose shares are traded below the nominal value. It is regulated that to determine the limit regarding the issue of debt securities for the publicly held corporations is under CMB s authority and for the issuers other than the publicly held corporations it is under the related Ministry s authority. In addition to companies meeting certain criteria, partial or full exemption from the obligation is permitted for issues concerning their qualities such as size, investor, provided warranties, being traded on the exchange and sales method Purpose and Legal Grounds In line with the progress of global finance market structure and Turkish capital market which is a part of this structure and especially economic stability experienced in the last decade in Turkey and healthier structure of financial markets in accordance with these developments; necessity of forming a new legislation infrastructure allowing competitiveness with the world in an effort to provide the mentioned progress to have permanent effect, high standards and especially which are suitable to the new conditions, has emerged. Within this framework, regulations concerning the capital market instruments and their issue were amended. Amendments brought by CML No regarding capital market instruments and their issuance and related secondary regulations aim to offer a wide variety of capital market instruments and different options for investment, to improve investment environment, and to establish a stable and transparent regulation infrastructure, defining responsibility principles and providing safe environment for investors Secondary Regulations and Innovations concerning Capital Markets Instruments and Their Issuance Innovations Concerning Lease Certificates Asset Leasing Companies (ALC) are the joint stock corporations established for exclusively issuing lease certificates. In addition to lease certificates based on ownership set out in the previous regulations, lease certificates are also classified as based on fiduciary ownership, trading, partnership and engineering, procurement and construction, and type of lease certificate which was mentioned in the previous regulations was amended under the title of lease certificate based on ownership. Lease certificates based on management agreements are the certificates issued with the purpose of transfer- CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT 19

34 ring incomes obtained as a result of the operations carried out for the benefit of ALC including leasing assets or rights belonging to the originator, within the scope of agreement provisions. Lease certificates based on purchase and sale are based on the principle of profit sharing of purchased asset as well as sale to the fund user and share of the purchase price by investors. Lease certificates based on partnership are based on; i) the principle of ALC has only one investor and share of profit obtained by a joint venture managed by the investor. ii) the principle of sharing the profit which is obtained by a joint venture participated by the ALC and other shareholders. Lease certificate based on engineering, procurement and construction is based on the principle of sharing the profit obtained by the lease or sell of the work established by the ALC. The new communiqué provisions allow to issue mixed lease certificates by using all lease certificate types together. Innovations Concerning Lease Certificates Based on Ownership There are no regulations concerning the issue amount of lease certificates. It is foreseen that the issue amount of lease certificates based on ownership cannot be more than 9% of fair value mentioned in the valuation report which is required to be prepared in case the transfer of asset or right to the ALC or transfer of them by ALC to the originator or third persons. In addition, type of assets that will be transferred to the ALC are extended that would include all kinds of assets and rights. Convenience Concerning the Issue of Lease Certificates CMB provides the opportunity to ALC to sell the lease certificates in tenors and carry out simultaneous multiple issues within the issue ceiling. Valuation Obligation of Assets and Rights During the issue of lease certificates based on ownership, partnership and engineering, procurement and construction appraisal obligation was introduced in order to protect the rights of investors. Within this framework, an appraisal report is mandatory; a) In the issues of ownership-based lease certificates, when the assets or rights are transferred to ALC, and when they are retransferred from ALC to originator or to third parties. b) In the issues of partnership- based lease certificates: 1) At the stage of determination of project value being the subject of joint venture; and 2) If and when partners of joint venture other than ALC, put assets or rights, other than cash, into joint venture. c) In the issues of EPC contract-based lease certificates: 1) In the process of determining the price of the work and 2) Prior to the time that sales contract of the work is settled Innovations Introduced by the Communiqué on Debt Securities Facilities Introduced Regarding Sales Resale of the debt securities, which could not be sold or receded from sale, under the same or amended terms has been regulated. For debt securities offered in the same tenor in different types and maturities, transfer opportunity has been provided according to the investors demand. Innovations Related to the Issue Limit For the financial statements on which issue limit is based, the obligation of general assembly approval has been revoked, and the calculation of issue limit on interim financial statements drawn out on issuer s demand or Board decision has been regulated. The opportunity to increase the issue limits of banks and financial institutions defined in the Banking Law. Nr.5411, as well as corporations defined in the Financial Leasing, Factoring and Financing Companies Law Nr.6361 according to their credit ratings, and the opportunity to provide additional issue limits on issuers demand for cross border issues have been regulated. Specifications on Foreign Exchange Rates to be taken as Basis Provisions regarding domestic and cross border issue upper limits and the foreign exchange rate to be taken as the basis for issues in foreign currency have been regulated in detail and the uncertainties on the subject matter have been resolved. Innovations Regarding the Monitoring of Issues Conducted Abroad Regulations on registered issue of debt securities abroad and the submission of data on such issuances to the Central Registry Agency Inc. (CRA) have been made. Debt securities to be issued abroad have been required to be issued on dematerialization basis via CRA in electronic 2 CAPITAL MARKETS BOARD OF TURKEY 213 ANNUAL REPORT