Insider Trading And Market Manupulation Regulations Under Turkish Law
§ Regulations under Capital Market Law
Pursuant to the Turkish Capital Market Law No: 6362 of 2012 (“Capital Market Law”) Article 101, the Capital Market Board (“Board”) is authorized to take all kinds of necessary measures with regard to real persons or legal entities, as well as the authorized officers of those legal entities about whom a reasonable doubt exists concerning any of the prohibited actions described in Articles 106 and 107 of the Capital Market Law.
Articles 106 and 107 of the Capital Market Law prohibit insider trading and market manipulation, and define particular acts which qualify as insider trading and market manipulation and as such shall be strictly prohibited by law. Pursuant to Article 106 of the Capital Market Law;
a) Managers of issuers or those of their subsidiaries or their controlling shareholders,
b) Persons who possess information by way of shareholding in issuers or in their subsidiaries or their controlling shareholders,
c) Persons who acquire information whilst performing their jobs, professions or tasks,
d) Persons who obtain information by committing crimes,
e) Persons who know or ought to know that the information they have acquired is similar in nature to that described above under items a), b), c) and d),
who give any purchase or sale orders for capital market instruments or change the orders they have given or cancel them for the purposes of gaining a benefit for themselves or someone else based on the information which, i) relates directly or indirectly to capital market instruments or their issuers (ii) may affect the price and value of such capital market instrument or investment decisions of investors and (iii) have not been declared to the public yet, shall be sentenced to imprisonment from 2 years up to five years or punished with judicial fine.
Article 107 stipulate that market manipulation will be deemed to exist where one makes purchases or sales, give, cancel or change orders or engage in account activities for the purposes of creating a wrong or deceptive impression in respect of the prices of capital market instruments, changes in those prices, supplies and demands.
Any person who is determined to have engaged in market manipulation shall be sentenced to imprisonment from two years up to five years and be subjected to a judicial fine in the equivalent of five thousand days’ imprisonment up to ten thousand days’ of imprisonment. Note that, the amount of the judicial fine so imposed cannot be less than the benefit gained through committal of such crime. Additionally, those who give false, wrong or deceptive information, spread rumors, give notices, make comments, prepare or distribute reports in order to manipulate the prices of capital market instruments, their values or the decisions of investors, shall be sentenced to imprisonment for a period between two to five years and face a judicial fine in the equivalent of up to five thousand days of imprisonment.
The aforementioned measures, as listed under Article 101 on a non-exhaustive basis, include; i) temporarily or permanently prohibiting trading activities in stock exchange, ii) ordering the change of methods of clearing, iii) imposing restrictions on the transactions of margin trading, short selling, borrowing and lending, iv) imposing a guarantee obligation or changing an existing guarantee, vi) being traded in different market or markets or determining different transaction principles and vii) restricting the extent of the distribution of the market data, viii) imposing a transaction or position limit.
§ Exceptions to Market Manipulation and Insider Trading
Article 108 sets out activities which shall not qualify as insider trading or market manipulation, namely; i) application of monetary policies, policies of foreign exchange rate, public debt management or realization of transactions by the Central Bank of the Republic of Turkey or another authorized official institution or any authorized official acting on behalf of them for the purpose of providing financial stability, ii) repurchase programmes applied according to Board regulations, share acquisition programs directed to workers or allocation of other shares directed to the employees of the issuer or its subsidiary iii) the purchase and sale of capital market instruments or giving or cancelling orders for the exclusive purpose of supporting the market price of these instruments for a pre-determined period, provided that these operations are conducted in conformity with the regulations of the Board.
§ Communiqué On Measures To Be Taken For Insider Trading and Manipulation Investigations
The term “reasonable doubt” as referred to under Article 101 of the Capital Market Law is defined as any kind of doubt as to the existence of any one of the acts that qualify as insider trading or market manipulation as prescribed in the Law. This doubt should arise upon investigations carried out in capital markets by taking into account transaction patterns and transfers within accounts of those persons making the transactions or persons acting in collaboration with them, as well as historical price flactuations-trading volume analysis and actual floating rates of capital market instruments, and news, statements, notices or complaints concerning capital market instruments, and any corroborative sign. The Communiqué on Measures prescribe two sanctions for violating acts; a temporary trading ban for a term from 6 months to 2 years and a permanent ban for a term of 5 years.
Furthermore, the Communiqué on Measures grants to the Board the discretion to impose a temporary trading ban on real persons or legal entities and the officials of those legal entities which are under its investigation due to the existence of a reasonable doubt concerning their activities. Such a trading ban can be imposed for a term of 6 months, with the Board reserving its right to extend this duration for an additional 6 months. Furthermore, should the Board, upon completion of its investigation, decide to file a criminal complaint against the suspects, a temporary trading ban for a term of 2 years may be imposed.
A permanent trading ban may be imposed in the case where a person banned from trading for reasons explained in the preceding paragraph commits the offenses specified under Articles 106 and 107 of the Capital Market Law via other persons’ accounts, and the Board decides to file a criminal complaint against such person at the Public Prosecutor's Office.
The capital market instruments which cannot be bought or sold, or be subject to orders during the period of a ban are shares, exchange traded fund units, future contracts (subject to certain exceptions as specified under Article 10 of the Communiqué on Measures), options contracts (subject to certain exceptions as specified under Article 10 of the Communiqué on Measures), warrants, certificates the underlying instrument of which are indices or shares traded on the stock exchange and other publicly traded capital market instruments which may be determined by the Board. When imposing a ban, the Board is entitled to limit the scope of the restriction to certain capital market instruments.
A decision by the Board to impose a trade ban shall be notified to the Central Registry Agency Incorporation (“CRA”), which shall record the trading ban in the accounts of the relevant persons. Furthermore, the ban and the scope thereof shall be disclosed to the public by CRA via the Public Disclosure Platform.
§ Communiqué On Obligation Of Notification Regarding Insider Trading Or Manipulation Crimes
The Communiqué On Obligation Of Notification Regarding Insider Trading Or Manipulation Crimes (“Communiqué on Notification”) stipulate that licensed intermediary institutions, as well as other capital market institutions established to render investment services and activities, the establishment and operation principles of which are designated by the Board, and licensed banks (“Investment Firms”) are obligated to notify any transaction that constitutes or is likely to constitute an insider trading or market manipulation crimes to the Board in writing within five business days of becoming aware of such transaction. Any notification concerning insider trading shall be accompanied by certificates, documents, identification data, call recordings, and other evidence collected in accordance with the legislation, which indicate the inside information and periodic information related to issuer, and the trades which were made based on such information, and persons involved in those trades. For the purposes of the Communiqué on Notification, “inside information” stands for information, events and developments that may affect the value or price of capital market instruments or the investment decisions of investors, whereas “periodic information” refers to all information, which does not qualify as inside information, and is required to be disclosed as per regulations of the Board pertaining to public disclosure of material events namely, the Communiqué On Material Events Disclosure “(Communiqué on Disclosure”).Market Abuse Communiqué.
The term, market abuse is defined under Article 104 of Capital Market Law as any act or transaction which can, by nature, not be justified on reasonable economic or financial grounds, and which deteriorate the due operation of exchanges and other organized markets in security, and their openness and stability. Pursuant to the Market Abuse Communiqué, persons having inside information or periodic information are required to preserve the secrecy of such information up until the time it is disclosed to the public in compliance with the law. Sharing inside or periodic information with other persons and/or trading with capital market instruments by relying on such information is considered and treated as abusive actions.
Trades by (i) persons who possess inside information or periodic information or (ii) their spouses, children or cohabitants of the abovementioned traders at any time starting from the day that follows the end of the accounting period to which the financial statements and reports of the issuers or, of independent audit reports relate to, until the date of disclosure of those statements and reports to public in accordance with the law, shall also be considered and treated as market abuse.
As per Article 104 of the Capital Market Law, an administrative fine from twenty thousand Turkish Liras up to five hundred thousand Turkish Liras shall be imposed on those who perform the market abuse actions determined by the Board. However, in the case where a financial benefit is procured through the abovementioned actions, the amount of the administrative fine cannot be less than twice of the amount of the financial interest gained.