New Capital Markets Regulations in Turkey

Transcription

1 Citi Securities Services New Capital Markets Regulations in Turkey Citi Turkey, Securities Services Eryurekli Law Office 18 March 2014

2 Purpose and Scope of the Presentation A brief outline of the new capital markets regulations in Turkey. Presentation mainly focuses on the following issues: Investment Services & Ancillary Services Custody Services Central Settlement & Central Counterparty Central Securities Depository Institution Investor Compensation Center Corporate Governance Principles Squeeze-Out and Sell-Out Regulations Public Disclosure Requirements Significant Transactions of Public Companies Dividend Distribution Policy

3 Investment Services and Ancillary Services 1/2 Investment Services related to capital market instruments (CMB permission is required) Reception and transmission of orders to other investment institutions, Execution of orders in the name and for the account of the customer or in its own name and for the account of the customer, Dealing on own account, Portfolio Management Service, Investment Advisory Service, Intermediation to public offerings through underwriting, Intermediation to public offerings on a best effort basis, Operating multilateral trading systems and organized markets other than exchanges, Custody Service, Portfolio Custody Service, Other services and activities determined by CMB.

4 Investment Services and Ancillary Services 2/2 Ancillary Services related to capital market instruments (CMB notification is required) Advisory services concerning capital markets, Granting credit, conducting lending and provision of foreign exchange services, Research and Financial Analysis or general advice concerning transactions in capital market instruments, Supportive services in relation to underwriting, Intermediary services for financing through borrowing, Wealth management and financial borrowing, Other services and activities determined by CMB.

5 Custody Services With the new CML, custody service is defined as an investment service and regulated by the Capital Markets Board (CMB). Banks and eligible brokerage houses will be licensed by the CMB for providing custody services. Custody services are provided either in two ways by banks and brokerage houses: limited custody service (custody only limited with the customers) or general custody service (custody provided to customers of other investment institutions). Minimum capital requirement for each custody service shall be met. Custody of cash arising from capital market transactions is regulated under custody regulation as well. Any capital market instrument that is deposited to the custodian shall be held under segregated custody account. With the New CML and the related Communique, cash deposited by foreign custodians for the account of their own customers can be held under omnibus accounts. Annual or monthly settlement and notice requirements between the customers (other than professional customers) and the custodian regarding the capital market instruments under custody Daily settlement between the custodian and the Central Custody Institution is required Custody for the customers resident in foreign country (sub-custodian) or custody of the capital market instruments traded in a foreign country are regulated as well.

6 Central Clearing Institutions (CCI) CCIs are responsible for the settlement of securities transactions and performance of collateral obligations in Turkish Capital Markets. CCIs shall be established in the form of joint stock company. Capital Markets Board ( CMB ) may request CCIs to act as central counterparty for certain markets or for certain securities. BIST and alternative trading platforms are also entitled to submit requests to the CMB for the implementation of central counterparty mechanism for certain securities.

7 Central Counterparty Concept Central Counter Party ( CCP ) Mechanism is a new concept for Turkish Capital Markets and is established for the purpose of protecting the financial stability and decreasing the systemic risk. CCPs are obliged to keep an adequate level of capital in line with the financial risks and other risks assumed by them for the relevant securities. CCPs are obliged to establish and maintain the required information processing infrastructure and internal control, risk management and internal audit systems. Collaterals received by CCP and investor assets are required to be kept separately from the assets of the CCP. Collaterals and investor assets can be used only for clearing and settlement purposes, and can not be pledged or be attached or included in bankruptcy processes or be restricted by injunctions. CCPs establish guarantee funds to cover their losses arising from their liability to complete the settlement of the transaction and to be utilized in case the CCP member (buyer or seller) falls into default that may exceed the collateral amount.

8 Central Securities Depository Institutions The New Law defines the legal basis for central securities depository institutions ( CSDs ). CSDs shall be established in the form of joint stock company. Central Registry Agency ( CRA ) is currently acting as the central securities depository for dematerialized securities in Turkish Capital Market and has been established in the form of a joint stock company. CRA and its members, i.e. banks, brokerage firms and companies, shall be held liable to the extent of their faults for the losses and damages that may be incurred by investors due to any inaccuracy of records.

9 Takasbank as the CCI and the CCP Takasbank is currently acting as both CCI and CCP of the Turkish Capital Markets. As of March 2014, Takasbank provides CCP services for the BIST Futures and Options Market and BIST Equity Lending Market. Takasbank is expected to provide CCP services for other markets authorized by CMB in the upcoming period. Takasbank undertakes and guarantees to complete the clearing and settlement for markets and capital market instruments deemed appropriate by the Capital Markets Board through open offer, novation or another legally binding method by acting as buyer against seller and seller against buyer. Clearing and settlement transactions of securities cannot be withdrawn or cancelled for any reason whatsoever including temporary or permanent suspension of activities of brokerage firms and their liquidation. The rights and powers of CCIs on the assets received as collateral can by no means and in no case be limited or restricted. Although settlement finality practically existed in the market, the new CML provided the legal ground for the settlement finality.

10 Investor Compensation Center 1/2 Investor Protection Fund ( IPF ) is restructured as Investor Compensation Center ( ICC ). Under the former regulatory regime only stock delivery and/or cash payment obligations arising from stock trading were compensated by IPF in case of liquidation or bankruptcy of brokerage firm or a bank. Under the new regulatory regime, investors are indemnified by ICC in case it is understood that brokerage firms and banks, in connection with their capital markets activities, have failed or will, in a short period of time, not be able to perform cash payment and/or securities delivery obligations. In other words, there is no need to wait for a liquidation and bankruptcy. The scope of indemnification, which was once applicable only for stock delivery obligations and/or cash delivery obligations in connection with stock trading, is expanded to cover cash payment and/or securities delivery obligations.

11 Investor Compensation Center 2/2 Investment institutions are required to pay legally determined amount of fees (entrance, annual etc) to ICC. Maximum amount of indemnity payable to each investor is TL This amount is increased every year. Upon proposal of the CMB the indemnity amount may be increased up to five times by the Council of Ministers. ICC is a legal entity governed by public law and its assets cannot be used for purposes other than investor compensation, or be pledged as collateral, or be attached or be included in bankruptcy processes or be restricted by injunctions. The gradual liquidation or bankruptcy of the banks and/or brokerage companies will not have any ceasing effect on investor compensation. CMB may hold a decision for gradual liquidation of the related brokerage company after the compensation phase where ICC will be the entity to perform the gradual liquidation proceedings of the relevant brokerage company.

12 Corporate Governance Principles 1/2 Major Changes in Compulsory Corporate Governance Principles Chairman of the general assembly meeting ( GAM ) shall, during the meeting, pay attention to the impartial, detailed, clear and understandable declaration of the issues stated in the agenda, ensure that questions of the shareholders are answered during the course of the GAM and if not, ensure that questions are answered by the investor relations department within 15 days following the GAM, ensure that questions posed during the meeting with their answers are posted on the website of the company within 30 days following the GAM.

13 Corporate Governance Principles 2/2 Approval of Independent Members of Board of Directors Approval of the majority of independent members of Board of Directors is required for execution of the respective transaction, if the amount of a sale or purchase transaction exceeds 10% of the total assets stated in the most recent financial statements of the company or total annual revenue, or if the company decides to terminate any of its activities. Unless the approval is obtained from the majority of independent BOD members, the transaction shall be disclosed to public and following that, transaction shall be submitted to the approval of the general assembly.

14 Squeeze - Out and Sell - Out Regulations If voting rights of a shareholder or a group of shareholders acting in concert reach the threshold of 95% of all the voting rights in a public company as a result of a tender offer or any other event, this person/these persons is/are entitled to squeeze-out all the remaining shareholders. Squeeze-out process is subject to the procedural approval of CMB. In cases where a squeeze right arises, even if it is not exercised, shareholders of the relevant public company have the right to sell their shares to the shareholder/group of shareholders exceeding the squeeze-out threshold.

15 Public Disclosure Requirements 1/3 Public Disclosure of Material Events Insider Information & Continuous Information Disclosure of Insider Information Issuers are required to disclose insider information and any changes occurred. IF, persons holding directly or indirectly 10% or more shares in the total voting rights or capital of the issuer or 10% or more of the privileged shares of the voting rights that entitle them to appoint or nominate BOD member gets aware of insider information before the issuer, such persons are required to disclose insider information. IF, any change that may occur in operations, financial structure and management of the issuer s parent company or subsidiary, creates a substantial change in the operations, financial structure and management of the issuer, issuer is required to disclose such changes.

16 Public Disclosure Requirements 2/3 Disclosure of forward - looking statements is newly recognized in the CML, which means the statements giving an opinion to the investors concerning the future operations, performance and financial status and future plan and predictions of the issuer. Disclosure of forward-looking statements is not mandatory. In the event of any change of shareholding structure, disclosure shall be made to public as a continuous information by; Persons who directly or indirectly acquires or loses the control of 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95% of the capital or total voting rights of the issuer whose shares are traded on the stock exchange, The founder whose mutual funds directly or indirectly gains or loses the control of 5%, 10%, 15%, 20%, 25%, 33%, %50, 67% or 95% of the capital or total voting rights of the issuer. For non-public companies whose securities (i.e. bills & bonds, warrants) are traded on the stock exchange only 25%, 50% and 67% thresholds will be applicable for disclosure on capital and management control.

17 Public Disclosure Requirements 3/3 Trades carried out by executives or persons closely related with executives and/or partner of the issuer with respect to i) shares shall be disclosed only provided that the volume of trading exceeds TL in a calendar year, ii) capital market instruments other than shares shall be disclosed only provided that the volume of trading exceeds TL in a calendar year. Disclosure language shall be Turkish and unless determined otherwise, shall be published in a prompt manner. Disclosures made by real persons or legal entities other than issuers shall be sent to PDP operator to be transmitted to PDP by verifying the ID of the disclosing person.

18 Significant Transactions of Public Companies Significant Transactions including significancy criteria for public companies are defined in the CML. The CML, under certain conditions, grants shareholders of public companies the right of exit in case they are not happy with the Significant Transactions that these companies will execute and register their dissenting vote to general assembly minutes. Cash compensation to be paid to exiting shareholders of the listed company in connection with the exercise of right to exit shall be calculated over the average of the weighted average of the daily share prices in the stock exchange in the course of the last 30 days as of the date of the disclosure of the planned significant transaction to public.

19 Dividend Distribution Policy Public company distributes dividends to the shareholders in accordance with the policies determined under the dividend distribution policy approved by its general assembly. Dividend distribution is not mandatory but optional for public companies. With the new Capital Markets Law (CML), distribution of dividends may be initiated before the end of the accounting period.

20 Citi s Role in Regulatory Changes Citi has been working closely with the CMB in order to ensure the secondary regulations are in line with international best practices and will increase efficiency in post trade environment. Citi s market efforts are the most visible in below cases; Cash account segregation In the first draft of the Investment activities regulation, the CMB required segregated cash accounts per investor. As segregating the cash accounts per investor would be inefficient and impractical, we discussed directly with the CMB and as a result of these market efforts, the CMB exempted foreign investors from this cash segregation requirement. Account opening documentation The regulation requires a standard agreement to be used for custody account opening in investment institutions. Further to detailed meetings with the CMB team explaining securities services transactions flow, foreign investors are exempt from this regulation in respect of custody agreements and the CMB accepts our current client agreements to be used. Custody regulation requires licensing for local custodians. Citi currently meets the requirements and will acquire the relevant license in due course.

21 Q&A

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