Turkey: Manipulation and misleading transactions in financial markets have been regulated
The Regulation on Manipulation and Misleading Transactions in Financial Markets ("Regulation") issued by Turkey's Banking Regulation and Supervision Agency ("BRSA") entered into force upon its publication in the Official Gazette dated 7 May 2020 and numbered 31120.
Article 76/A of the Banking Law numbered 5411 ("Law") titled "Manipulation and misleading transactions in financial markets" was introduced by Law numbered 7222 on the Amendment to the Banking Law and Some Other Laws, published in the Official Gazette dated 25 February 2020 and numbered 31050, to help promote stability in financial markets and preserve the value of the Turkish Lira at the macroeconomic level by preventing the creation of false prices including exchange rates, unnatural supply and demand, and preventing account holders from being misled. Article 76/A authorized the BRSA to determine the transactions that would fall within the abovementioned scope and stated that such transactions would be published in the Official Gazette. Accordingly, the BRSA has exhaustively listed these transactions and practices in the Regulation that entered into force on 7 May 2020.
Accordingly, the Regulation specifies the following transactions performed by deposit banks, participation banks, and development and investment banks as manipulation and misleading transactions in financial markets:
- Being involved in or intermediating in, or placing orders for transactions that provide or may provide a false or misleading impression of the supply, demand, or price of a financial instrument or that cause or may cause the price of a financial instrument, including exchange rates and interest, to remain unnaturally high, with the intention of achieving such transactions, or engaging in similar activities.
- Being involved in, intermediating in, or placing orders for, transactions that will affect the price of a financial instrument or reference values such as interest, exchange rates, or CDS (Credit Default Swap) by benefiting from fluctuating or shallow financial markets when the supply-demand balance is not set under normal circumstances and when the financial markets experience an increase in irregularities, or when the stability of the financial markets has been negatively affected, or engaging in similar activities.
The Regulation expressly defines the "reference value" as "the rate, index, or number taken as a reference in determining the value of a financial instrument or the amount to be paid in return for a financial instrument, which is disclosed to the public via publication or other means and is derived periodically or regularly through a formula and determined based on the value of one or more reference assets or based on prices or surveys such as estimated prices, actual or estimated interest rates, or other values."
- Carrying out or intermediating transactions and practices in an effort to indirectly bypass the decisions and restrictions imposed by the BRSA, including redeeming transactions early, postponing transactions, and/or neglecting to fulfill obligations, or to disregard the BRSA's decisions regarding currency swaps, forwards, options, and other derivative transactions made by banks with residents abroad where one leg of the transaction is denominated in foreign currency and the other leg is in Turkish Lira, or banks providing liquidity of the Turkish Lira abroad.
- Being involved in, intermediating in, or placing orders for transactions that affect or may affect the price of a financial instrument including exchange rates or interest through a deceptive mechanism or setup, or engaging in similar activities.
- Disseminating false or misleading information or rumors that provide or may provide a false or misleading impression regarding the supply, demand, or price of a financial instrument, including interest and exchange rates, or that cause or may cause such price to remain unnaturally high through any means of mass media, including the internet.
- Making or attempting to make an impact on the price of a financial instrument, including interest and exchange rates, by providing an opinion through the internet or other mass media channels on a financial instrument for which a position had previously been taken and hiding the conflicting positions from the public.
- Conveying false or misleading information about a reference value, intentionally providing false or misleading input, or intentionally engaging in any behavior that manipulates the calculation of a reference value.
- Taking actions that fix the purchase and sale prices of financial instrument or that help others unfairly profit from a dominant position held on the supply or demand of a financial instrument.
- Causing investors who take positions based on opening or closing prices are misled by carrying out purchase or sale transactions that affect or may affect the opening or closing prices of a financial instrument, including interest and exchange rates, at the opening and closing of financial markets.
- Misleading account holders with false information.
- Disseminating information or rumors that may cause systemic risk and harm investors' trust in the financial system.
The Regulation defines "systemic risk" as "the risk whereby the problems occurring in most or all of the financial systems results in the disruption of financial services to the extent that significant negative effects occur in the markets and/or the real economy."
The Law imposes an administrative fine on those who carry out the abovementioned transactions in an amount no less than twice the benefit provided, in the event that a benefit was provided, and up to 5% of the total interest, dividend income, fees, commissions, and banking service income included in the financial statements of the previous year. The BRSA is authorized to double these amounts in the event that the violation has been committed more than once or if the same violation is repeated within two years of the previous administrative fine.
The Regulation aims to prevent the depreciation of the Turkish Lira, to ensure stability in the financial markets, and to prevent the dissemination of information in a false and misleading way through different forms of communication, including electronic media. Deposits banks, participation banks, and development and investment banks located in Turkey should pay great attention to these matters while conducting their transactions and practices.