Following the amendments made in the Banking Law No. 5411 on 20 February 2020, the Regulation on Manipulation and Misleading Transactions in Financial Markets ("the Regulation") was published in the Official Gazette on 7 May 2020 and entered into force.
The Article 76/A1, which was added to the Banking Law on 20 February as the basis of the Regulation, defines manipulation and misleading transactions in financial markets by explicitly referring to the banking transactions and sets forth that transactions and practices within this scope would be further embodied by the Banking Regulation and Supervision Agency ("BRSA").
According to this definition "the conduct of transactions and practices aimed to determine the prices including unnatural supply, demand or exchange rates in financial markets, the dissemination of false and misleading information through different means, including the internet, false and misleading orientation of savers or similar transactions and practices aimed at achieving this objective" are considered as manipulative and misleading transactions. Article 4 of the Banking Law listed the transactions that banks can perform under 20 sub-paragraphs which can be extended by BRSA introducing new transactions.
In the Regulation, transactions and practices in financial markets that are considered manipulative and misleading are listed under 11 sub-paragraphs. The Regulation did not introduce any provision other than counting these transactions. Relevant sanctions continued to be regulated in the Banking Law as they should be. In accordance with Article 146 of the Banking Law entitled "Administrative Fines for Enterprises", the Banking Regulation and Supervision Board ("the Board") is authorized to impose administrative fines to those who carry out manipulative and misleading transactions up to five percent of the total amount of interest, dividend income, fees and commissions received and banking service income in the financial statements at the end of the previous year, not less than twice the benefit received. According to Article 146 which was amended significantly on 20 February 2020 with the aim of "strengthening the deterrence of administrative fines"2, the Board is authorized to enforce the stipulated sanctions by doubling them if the violations have been committed more than once or if the same violation has been repeated within two years following the administrative fine.
The mentioned 11 sub-paragraphs set forth by the Regulation are as follows:
- a) 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 goals, or engaging in similar activities.
- b) 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.
- c) 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.
ç) 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.
- d) 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.
- e) 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.
- f) 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 even though it knows or should have know it is false or misleading.
- g) 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.
g) 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.
- h) Misleading account holders with false information.
i) Disseminating information or rumors that may cause systemic risk3 and harm investors' trust in the financial system.
The Regulation has brought together a number of discussions on the limits and scope of the relevant provision. The first one that draws attention from these discussions is whether the Regulation can also apply to real and legal persons other than banks. Although the Regulation refers to publications and applications made through "any mass media, including the internet", it can only regulate the transactions of banks according to the law which the Regulation is based on and cannot find a wide range of application to affect other individuals and organizations. This is also confirmed by the wording of the Regulation which solely concerns "the acts performed by banks". In an interview on 10.05.2020, the President of BRSA stated that the Regulation in question is not intended to "restrict or prevent the comments about financial markets and assets based on news and analysis" whereas he also pointed out that there are "other regulations relating to misleading news and comments". 4 The crime of "market fraud" regulated in the Capital Market Law can be cited as an example of these regulations (Article 107). This Article describes the crime in question as "[...] [to] give false, wrong or misleading information, [to] spread rumors, [to] make news, [to] make comments [...] and thus [to] provide benefit in order to influence the decisions of investors" and regulates related sanctions. As may be recalled, an investigation was filed due to a recent report published on Bloomberg against two journalists and 36 social media users for allegedly "providing moral benefit" and "expecting financial interest" upon the complaint of the Board.5
The President of the BRSA stated that the Regulation was written in accordance with the provisions of the European Union's Market Abuse Regulation dated 2014 and terms, definitions and commentaries thereof . When the Market Abuse Regulation is examined, it is seen that its scope is wide enough to include the Communiqué on Market Disruptive Actions No. VI-104.1 which was issued based on the Capital Market Law. On the other hand, Annex 1 of Market Abuse Regulation embodies the indicators that should be taken into consideration when determining whether a transaction is manipulative in order to maintain uniform application. Meanwhile, the Market Abuse Regulation also emphasize for the sake of fairness that the existence of these indicators may not always mean that the transaction is manipulative.
As of the date this article was written, no steps have been taken by the BRSA to embody and outline the limits of the Regulation in question. This uncertainty seems to have given rise to number of criticisms. For example, sub-paragraph (h) of the Regulation may cause interpreting the regular baking activities in a manner exceeding its original purpose. Reportedly, it is a concern that bank employees may not be eager to advise their customers about foreign exchange or other financial instruments.7 In the same vein, the risk of being subject to investigations for the reports the banks publish as expert institutions have an effect on prices is highlighted in view of sub-paragraph (e) of the Regulation,.8
The BRSA's press release dated 07.05.2020 issued following the suspension of foreign currency transactions made with BNP Paribas SA, Citibank NA and UBS AG which have reportedly failed in fulfilling their obligations to Turkish banks is a sign that this Regulation will remain on the agenda for a while. Confirming this, the BRSA President stated in his statement of 10 May that examinations and investigations concerning whether the transactions of these three banks constitute currency manipulation will continue irrespective of the fact that the suspension has been revoked.
Special thanks to Mehmet Berk Demir for his contributions.
1. Law No. 7222 on Amending Banking Law and Some Laws dated 20.02.2020 (Rationale of the Article): By this Article, the conduct of transactions and practices aimed to determine the prices including unnatural supply, demand or exchange rates in financial markets, the dissemination of false and misleading information through different means, including the internet, false and misleading orientation of savers or similar transactions and practices aimed at achieving this objective are considered to be manipulative and misleading transactions in financial markets and it is stipulated that the Banking Regulation and Supervision Board will determine which transactions will be within this scope and this will be published in the Official Gazette.
2. Law No. 7222 on Amending Banking Law and Some Laws dated 20.02.2020 (General Rationale)
3. Systemic Risk: The risk whereby the problems occurring in most or all of the financial systems results in the disruption of financial services to the extent which significant negative effects occur in the markets and/or the real economy.
4. "We Will Continue with Determination to Resist Manipulation Attempts"; Anadolu Agency, 10.05.2020. (Source: https://www.aa.com.tr/tr/ekonomi/bddk-baskani-akben-manipulasyon-girisimlerine-karsi-koymaya-kararlilikla-devam-edecegiz/1835635, last access date: 21.05.2020)
5. "BRSA Filed a Criminal Complaint against 38 People"; BloombergHT, 14.06.2019 (source: https://www.bloomberght.com/bddk-38-kisi-hakkinda-suc-duyurusunda-bulundu-2225032, last access date 21.05.2020); The contents of the accusation were accessed from the Twitter account of former Central Bank President Durmus Yilmaz.
7. "The Penalty for Manipulation and Misleading Transactions in the Foreign Exchange Market Can Be Severe", Prof. Dr. Erol Ulusoy, IHA, 09.05.2020 (source: https://www.iha.com.tr/haber-doviz-piyasasinda-manipulasyon-ve-yaniltici-islemlerin-cezasi-agir-olabilir-843991/, last access date 21.05.2020)
8. "Authorization of 'Detection of Manipulation' to BRSA", Deutche Welle Türkçe; (source: https://www.dw.com/tr/bddkya-manip%C3%BClasyon-tespiti-yetkisi/a-53365905 last access date 21.05.2020)
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