Article 2 of the Capital Market Law No. 6362 ("Law"), which was introduced by the Capital Markets Board of Turkey ("CMB") and entered into force on December 30,2012, sets forth specific transactions, markets, persons and institutions that are subject to the Law. Accordingly, issuance of capital market instruments is one of the transactions that fall within the scope of the Law.

Article 3 of the Law defines "capital market instruments" as securities, derivative instruments, including investment contracts, and other capital market instruments as determined by the CMB. The same article also includes distinct and separate definitions for securities and derivative instruments, where the term:

- "Securities" has the meaning of shares,other securities similar to shares, depository receipts, debt instruments, debt instruments based on securitized assets and revenues, excluding money, cheques, bills of exchange and promissory notes; and,

- "Derivative instruments" has the meaning of those derivative instruments: (i) giving the right to buy, sell, or exchange securities with each other, (ii) values of which are subject to price or return of a security; foreign exchange rate, price of any goods, precious metals or stones, or price variance of these; statistics published by institutions approved by the CMB and any changes in them; enabling the transfer of credit risk, which have measurement values, such as energy prices and climate variability, and depending on an index level that is determined by these items or changes in this index level; the derivatives of the foregoing instruments and giving the right to exchange the listed underlying assets, and (iii) leveraged transactions on foreign exchange, precious metals, and other assets to be determined by the CMB.

There is, however, no definition for "investment contracts" in the Law. Looking abroad, based on the relevant rules of the U.S. Securities and Exchange Commission ("SEC") and the precedents of the U.S. Supreme Court,1 we observe that investment contracts can be generally described as agreements where a person invests money in a joint venture with the expectation of gaining an interest.

In terms of Turkish capital markets law, the lack of a definition for "investment contracts" in the Law should be regarded and interpreted as a deliberate legal lacuna, to be filled by the CMB when necessary. Consequently, the investment contracts which can be regarded as capital market instruments are to be specified and determined by the CMB, on a case-by-case basis.

It is also important to point out that Article 2 of the Law clearly states that issuance of shares by private companies (without offering these shares to the public) would not be subject to the Law. For this type of issuance, only the provisions of the Turkish Commercial Code and its secondary legislation are applicable, unless the relevant company is subject to any other regulations (e.g., banking, energy, insurance, etc.) due to its field of activities.

In light of the above, it can be concluded that:

- If a public company issues any capital market instruments, such issuance will be subject to the Law and the rules of the CMB;

- If a private company issues shares by way of a public offering, such issuance will be subject to the Law and the rules of the CMB;

- If a private company issues any capital market instrument other than "shares", such issuance will be subject to the Law and the rules of the CMB, even if such instrument will not be offered to the public.

It is also worth mentioning that, in the event that a public or private company issues any capital market instrument contrary to the Law, the CMB shall be authorized, as the case may be, to take necessary measures to eliminate the consequences of the illegal issuance, to request return of the funds and other values/assets gathered from the right holders, to file a lawsuit against the company requesting its liquidation, to file a criminal complaint against the relevant persons in the company, to remove board memberships and signature authorities of the relevant signatories, and to appoint new board members to serve until the upcoming general assembly meeting.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2020. A link to the full Legal Insight Quarterly may be found here


1 Adıgüzel, Burak, "6362 Sayılı Sermaye Piyasası Kanımu'nda Sermaye Piyasası Aracı Kavramı" (Capital Market Instruments In the Capital Market Law Numbered 6362), Ankara Yıldırım Beyazıt Üniversitesi Ticaret ve Fikri Mülkiyet Hukuku Dergisi (TFM); TFM 2017; 3(1), s. 1-8

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