The Capital Markets Board of Turkey ("CMB"), authorized by the Omnibus Law No. 6111 for the supervision and surveillance of the leveraged forex transactions, has announced that it has finalized the intense work on the regulatory regime of leveraged forex transactions and sent the relevant Communiqué to the Official Gazette for publication. The Communiqué which will be in force as from 31.08.2011 will have a revolutionary effect in the market, as it will only pave way for CMB licensed Brokerage Firms and Derivatives Intermediary Institutions to act as fundamental service providers and close the door for entities currently conducting leveraged forex transactions. The Communiqué, together with other measures provided by the Capital Markets Legislation, will provide the long-awaited protective umbrella to investors dealing with those transactions.

Below are the fundamental headlines of the CMB announcement regarding the Communiqué which is expected to be published within the course of this week:

  • Under the new legal framework Brokerage Firms can act as market makers, white label brokers or introducing brokers in relation to leveraged forex transactions whereas Derivative Intermediary Institutions can only act as introducing brokers for Market Maker Brokerage Firms. However, it is required that Brokerage Firms and Derivative Intermediary Institutions shall obtain necessary licenses from the CMB before initiating leveraged forex trading services.
  • Banks, unlike Brokerage Firms and Derivative Intermediary Institutions, cannot act as fundamental service providers, but are entitled to provide agency services to CMB licensed Brokerage Firms on a limited basis. In this respect, Banks can only promote leveraged forex trading services of Brokerage Firms and provide intermediary services to their clients for opening leveraged forex trading accounts with those Firms. The CMB regulation does not cover liquidity and pricing services that may be provided by Banks to Market Maker Brokerage Firms.
  • Any unlicensed activity will be considered as violation of Capital Market Law as from 31.08.2011 and, accordingly, will be punished. However, Brokerage Firms currently conducting leveraged forex transactions as market makers will be entitled to continue their activities provided that they make the necessary licensing filing within a period of two weeks following 31.08.2011. As per the legal perspective all other entities shall terminate leveraged forex trading services until 31.08.2011.
  • The new legal framework requires that trading margins collected from investors shall be deposited to institutions domiciled in Turkey.
  • Brokerage Firms and Derivatives Intermediary Institutions intending to provide leveraged forex trading services shall fulfil certain conditions regarding organizational structure, capital adequacy requirements, IT infrastructure, risk management, internal control, documentation, reporting and advertisements.

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