Turkey issues new market manipulation regulation

Turkish regulator BDDK has reversed a days-old ban on Citibank, UBS and BNP Paribas’s foreign exchange activities, after issuing a new regulation against market manipulation which free speech advocates warn might have a chilling effect on financial reporting.

The Banking Regulation and Supervision Agency (BDDK) said on 11 May it was reversing the lira trading ban it had imposed on the three banks only four days earlier, on 7 May.

The ban against Citibank, UBS and BNP Paribas came as Turkey’s currency hit a record low against the dollar, sparking accusations carried in state-run media that the banks were engaged in market manipulation. The Turkish lira fell by 1% against the US dollar to only 7.25 TL versus the dollar the day the ban was issued.

In the 7 May statement the BDDK said the three foreign banks had bought foreign currency from Turkish banks without fulfilling their Turkish lira liabilities in time.  

A day later the BDDK rescinded the ban, saying the three banks had now “fulfilled their obligations in a reasonable timeframe”. But the BDDK has said “investigations are continuing” on whether the banks’ transactions constitute exchange rate manipulation.

Citi and BNP Paribas declined to comment on the matter, while UBS has not responded to enquiries.

The BDDK issued its short-lived ban against the three banks on the same day it issued a new regulation against market manipulation practices in its official gazette, which the BDDK said was based on the European Union’s 2014 market abuse regulation. The regulation took effect immediately.

The new regulation identifies 10 behaviours now classed as market manipulation – including the spread of “false or misleading information or rumours” in the media about the supply, demand or price of financial instruments.

The behaviours include disseminating information that would “damage the financial system and lead to systemic risks due to the loss of trust in the financial system” or which keep the price of a financial instrument at an “abnormal or artificial level”.

It imposes a fine of at least twice the benefit the bank derived from the impugned transaction, up to 5% of the bank’s interest, profit share income, fees and commissions for its most recent year-end statements.

The Committee to Protect Journalists, a New York-based NGO, has criticised the new regulation as potentially prompting financial journalists to self-censor.

“The ambiguity in Turkey’s new banking regulation, along with the arbitrary nature of deciding what reports may be harmful to the country’s banking system, threaten independent reporting on the country’s economy,” said the CPJ’s Europe and Central Asia programme coordinator Gulnoza Said.

“Turkish authorities should revise the regulations and ensure that journalists covering matters of economics and finance can do so freely and without fear of retaliation,” she said.

But the BDDK’s chairman Mehmet Ali Akben denied that the new regulation was aimed at preventing financial markets commentary in the media in an interview with state media agency Anadolu on 10 May.

“Our institution does not have a restrictive or obstructive aim against news and analysis based on financial markets and assets. Claims in this direction are deceptive and groundless,” he said.

Muhsin Keskin, partner at Baker McKenzie associate firm Esin Attorney Partnership, said the NGO concerns were “totally false, as the new regulation only applies to banks, not journalists or any other third parties”.

The BDDK issued the new regulation under an amendment to Turkey’s banking law passed in February, which contained market abuse and manipulation provisions for the first time.

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