• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren



The draft law stipulating amendments to the Banking Act No.5411 (“Banking Act”) and a number of laws and decrees including the Capital Markets Law No.6362 (“Capital Markets Law”), which has been submitted to the parliament in October 2014 introduces a proposed new provision to the Capital Markets Law that has the potential to restrict the ability to conduct OTC derivatives.


Article 41 of the draft proposes to insert an additional paragraph to Article 39 of the Capital Markets Law, which governs the activities that necessitate a license from the Capital Markets Board (the “CMB”). According to the proposed new paragraph:

The supervision of derivative transactions to be conducted by banks wih a view to monitor the risks imposed by them on the banks’ financial standing shall be carried out by the main banking regulatory, the Banking Regulatory and Supervisory Authority (the “BRSA”); and

(i) The CMB is granted the authority to restrict the conduct of certain derivatives and stipulate them to be traded solely on the derivatives exchange. Such derivatives are to be determined by the CMB, upon consulting the BRSA.

While the first sentence of the proposed new paragraph could be regarded as a positive development, aimed at a more efficient supervision of the systemic risks by delegating this task to the authority that is primarily in charge of banks and the banking system, it is difficult to say the same about the second sentence thereof.

By virtue of the second sentence, the CMB may create categories of derivatives, which may no longer be traded over the counter but solely at the derivatives exchange. This could act as a considerable hindering factor to Turkish financial markets by limiting the spectrum of OTC derivatives. It could also be expected to limit the ability of Turkish borrowers to find cross-border finance, given its negative impact on the hedging arrangements.

Practice Areas:
#Capital Markets Law
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