Capital Markets Law

A capital markets lawyer is a specialist with command of the secondary regulations issued by the Capital Markets Board (SPK) in particular, and of the dynamics of the capital markets.

Like insurance law, capital markets law is known as a sub-branch of commercial law. Indeed, many provisions of the Turkish Commercial Code, such as those on joint stock companies, mergers and demergers, also apply in capital markets law. However, as provided in Article 2/2 of the Capital Markets Law, the Capital Markets Law (SerPK) and the secondary regulations issued by the SPK are the main sources of this discipline.

Our firm's services are provided by lawyers who hold Corporate Governance and Level 3 licences and have completed master's degrees in this field, offering specialist and professional capital markets legal services.

Below we address some of the core concepts and legal issues in capital markets law.

What Is Capital Markets Law?

Capital markets law is the legal discipline governing how companies raise funds from the public, regulating investors' rights and covering market supervision and regulation. Its main purpose is to ensure that the market operates transparently, fairly and reliably. Capital markets law has both private law and administrative law characteristics.

The main sources of capital markets law are the Capital Markets Law and the secondary regulations, known as communiqués, issued by the Capital Markets Board as a public authority. These secondary regulations occupy a large place in capital markets law.

Legal Services in Capital Markets Law

Our services are provided by lawyers who carry out academic work in capital markets and are licensed by the Capital Markets Board.

Capital markets law is more technical and specialised than other fields of law, so support from specialists is extremely important. Our main services in capital markets law are:

• Investor disputes,
• Compliance with capital markets legislation and regulatory advice,
• Disputes between companies and investors,
• Compliance with corporate governance principles and legislation,
• Initial public offerings,
• Issuance of capital market instruments,
• Preparation of general meetings,
• Board of directors advisory services,
• Preparation of issuer documents such as prospectuses and legal opinions,
• Drafting the articles of association of public companies,
• Support with public disclosure.

Our Capital Markets Crimes Defence Services

Articles 106 to 116 of the Capital Markets Law set out acts contrary to the capital markets and their sanctions. The best-known offences are market manipulation, insider dealing and unauthorised capital markets activities. For detailed information, see our article "Capital Markets Crimes and Penalties" (in Turkish).

An effective defence against accusations arising from capital markets activities is only possible with command of the capital markets. A lawyer without command of capital markets law is unlikely to mount an effective defence in capital markets crimes.

Our services are provided by SPK-licensed lawyers who carry out academic work in this field, offering clients an effective defence in offences specific to the capital markets.

Legal Advice on Investments

Our legal advice on investments concerns risk assessment and process management for people who wish to invest their funds. This includes:

• Concluding agreements with investment firms and managing the process,
• Assessing the legal nature of investments and potential risks,
• Tax planning,
• Informing investors of the rights and powers available to them,
• Exercising the right of exit and managing the process,
• Attending general meetings.

Capital Market Instruments and Investment Funds

Capital market instruments are the securities or debt instruments that companies wishing to raise funds from the public offer to investors. Examples include shares, derivatives, bonds, commercial paper and lease certificates (sukuk).

Investment funds can be defined as the pooling of investors' savings to be managed by finance specialists.

Public Offerings and Company Obligations

A public offering means any invitation to sell capital market instruments in order to raise funds from the public, and the sale following that invitation. Preparing a prospectus is mandatory for a public offering under capital markets law.

In addition, many legal issues are likely to arise during the process, and mistakes can lead to serious penalties. Legal advice during the public offering process is therefore important.

Investor Protection and Market Supervision

One of the main purposes of capital markets law is investor protection. For this reason, companies raising funds from the public are kept under strict supervision.

In addition, the Investor Compensation Centre (YTM) compensates investors' losses in the event of the bankruptcy of financial institutions.

Corporate Governance Principles

Corporate governance principles are a set of rules on the management of companies subject to capital markets law. They govern company management and the company's legal relationships with its shareholders and third parties.

The corporate governance principles are set out in Corporate Governance Communiqué No. II-17.1. Under Article 4 of the Communiqué, they are divided into 4 parts:

• Shareholders
• Public Disclosure and Transparency
• Stakeholders
• Board of Directors

These headings contain a body of 97 rules to be complied with. Some of these rules are mandatory under capital markets law and others are voluntary. Reporting on compliance with the corporate governance principles is mandatory.

For reporting:

• The URF format must be used to report compliance with non-mandatory principles,
  and the KYBF format to report compliance with mandatory principles.

Significant Transactions and the Right of Exit

Significant transactions are certain decisions by companies subject to capital markets law that affect the company itself, the market and investors, and are therefore subject to specific procedures and principles. The test is whether the decision is significant enough to affect the company and change investors' decisions. Under capital markets law, each case must be assessed on its own facts.

Significant transactions are set out in Article 23 of the Capital Markets Law and Communiqué No. II-23.3 on Significant Transactions and the Right of Exit. The main significant transactions under capital markets law are:

• Becoming a party to mergers and demergers,
• Creating or changing privileged voting shares,
• Transferring a significant amount of assets.

The right of exit is a consequence of significant transactions. Under Article 23 of the Capital Markets Law, a shareholder who does not agree with a decision on a significant transaction has a right of exit. To exercise this right, the shareholder must:

• Attend the general meeting at which the significant transaction is discussed,
• Participate in the decision and vote against it,
• Have their dissenting vote recorded in the minutes of the meeting.

Takeovers

Another important topic in capital markets law is takeovers and share acquisitions. A takeover is the purchase of shares to gain control of a company and its board of directors. Some takeover methods are:

• Friendly takeover: Made by presenting an open offer to the target company, which is therefore informed.
• Open market transactions: Made by buying the target company's shares on the stock exchange.
• Proxy solicitation: Made by collecting the proxies of shareholders represented at the company's general meeting and board.

Rules on Inside Information and Its Protection

Inside information is information that has not yet been disclosed to the public by the company and that could affect the value or price of capital market instruments such as shares, or investors' investment decisions. In capital markets law, inside information matters to the extent that it affects investment decisions. For example, if developments concerning a listed company would lower its share price, that information is inside information.

Capital markets law seeks to prevent the misuse of inside information by those in control of the company's management. To this end, Material Events Communiqué No. II-15.1 was issued. Inside information must be disclosed correctly and made public to inform investors and prevent its misuse.

Market Manipulation

Market fraud and manipulation are offences prohibited under capital markets law and met with criminal sanctions.

Manipulation involves misleading prices or trading volumes in the market in order to deceive investors. Capital markets law imposes strict rules and sanctions to prevent manipulation.

Capital Markets Board (SPK) Supervision and Sanctions

The SPK carries out inspections to ensure the orderly and reliable functioning of the capital markets and applies various sanctions to companies or investors who act unlawfully.

Administrative fines, trading bans and compensation claims are examples of these sanctions. Capital markets law and its secondary regulations provide the measures necessary for the market to function properly.

Capital Markets Compliance and Advisory Services

Companies must comply fully with capital markets regulations. In processes such as public offerings, capital increases and SPK inspections, they should seek advice from lawyers practising in capital markets law.

Managing compliance processes smoothly enables both companies and investors to trade with confidence in the capital markets.