ABSTRACT
Capital Markets Board (“CMB”), the authority to impose administrative sanctions for market-distorting actions and the legal remedies that can be taken against these administrative sanctions are examined.
I. INTRODUCTION
Under the 2012 Capital Markets Law1 (“CML”), market abuse is defined for the first time in Turkish law. In this study, market abuse is defined based on the regulations on market abuse within CML, and types of market abuse is evaluated under the Communiqué on Market Abuse2 (“Communiqué”) issued under CML. Finally, the authority of Capital Markets Boards of Türkiye (“CMB”) to impose administrative sanctions and legal remedies against these sanctions are analysed.
Capital markets have a very important position in economies of states. Inventors take into account capital markets regulations and actors within capital markets while determining the state which they will invest and the amount of their investment. Therefore, governments take various measures to make capital markets reliable, fair, transparent and to protect the competition in the market. Accordingly, various legal regulations have been made in our country, and one of these regulations is the market abuse under article 104 of CML.
Market abuse was first introduced to Turkish capital markets legislation through CML, which entered into force on December 30, 20123. This regulation about market abuse is intended to ensure the reliable functioning of the capital market and to protect the rights and interests of market actors, parallel with the first article of CML4.
In light of the fact that our nation lacks specific legislation governing the penalties for transactions that might endanger the capital market and that specialized courts have not been formed to swiftly punish conduct that cause market distortion, the legislator has taken a legal precaution to protect the fairness and competitive structure of the market5.
CMB is authorised to make necessary regulations and impose sanctions on actions that may harm the market, under article 104 of CML. Based on this authorisation, CMB issued the Communiqué in order to determine the characteristics of market abuse and the actions that constitute market abuse. While regulating the Communiqué, it is aimed to comply specially with the European Union Directive 2003/6/EC6.
II. MARKET ABUSE
A. Definition
Market abuse is defined in article 3 of Communiqué. Article 104 of CML defines market abuse in almost identical terms.
As understood from both regulations, three conditions are required for an action to be considered as a market abuse: The action, (i) should be in a nature to disrupt the operation of stock exchange and other organized markets in trust, openness, and stability (ii) should not be defined with a reasonable economic and financial justification and (iii) should not constitute a crime. As a result, (a) an action will not be considered a market abuse if it can be defined with a reasonable economic and financial justification or (b) if it constitutes a crime. These actions are those that tend to disrupt the operation of stock exchanges and other organized markets in trust, openness, and stability.
Another point to be considered on is the “reasonable” word in the condition that “the action should not be defined with a reasonable economic and financial justification”. Important point in that condition is the need to evaluate the alleged economic and financial justification both objectively in terms of market conditions and subjectively in terms of person or persons performing the action. This is because the alleged reason may not be reasonable for a big company whereas it may be reasonable for a smaller company. Therefore, a separate evaluation for each case must be made7.
In order for an action that disrupts the market to be considered as a market abuse, the action must not constitute a crime. The term “crime” expresses not only the capital market crimes regulated between CML articles 105-113, but also all actions regulated as crime in our legislation. In this regard, the Crime of Insider Trading regulated under article 106 of CML and Market Manipulation Crime regulated under article 107 of CML is important. This is because the typical actions that constitute these crimes and the actions that constitute market abuses are written in a similar systematic manner. The relationship between capital market crimes and market abuses will be analysed below. On Communiqué, the Market Abuse action are defined as follows: (i) actions related to inside information or continuous information, (ii) actions related to orders and transactions, (iii) actions committed through communication or transformation and (iv) others. The following analysis is based on this systematic manner.
B. Market Abuses Related to Inside Information or Continuous Information
1. The Importance of Inside Information for Capital Market Confidence
One of the most important conditions for maintaining investors’ confidence in the market and ensuring fairness and transparency in the market is that market-related information is equally accessible to all. In this regard, there are several regulations on the information to be disclosed to the public by companies. The aim of these regulations is to equalize the information that investors have.
The situation where everyone does not have the equal information in the capital market does not only reduce the confidence towards the market, but also cause unnatural changes on the prices of capital market instruments, therefore cause damage to investors. This situation will also cause damage to the economy of the country and hinder its development8.
For the aforementioned reasons, it is considered market abuse when persons with knowledge that is not available to the general public conduct transactions.
2. Market Abuses Related to Inside Information or Continuous Information
Article 3 of Communiqué regulates that in order for an information, event or development to be defined as “inside information”, it must be capable of affecting capital market instrument’s “value” and “price” and “investment decision of investors”.
Continuous information is defined as “all the information, events or developments that are outside the definition of inside information” in the Communiqué on Material Events (numbered II-15.1).
Market abuses related to inside information or continuous information are regulated under article 4 of the Communiqué.
According to the aforementioned provision, people with inside or continuous information are obliged to maintain the confidentiality of such information. According to subparagraph ç of Article 3 of Communiqué, these people are: (i) directors of the issuers or their subsidiaries or controlling shareholders, (ii) persons who have information due to their shareholding in the issuer or their subsidiaries or controlling shareholders, (iii) persons who have information due to their performance of business, profession and duties, (iv) persons who have obtained information by committing a crime and (v) persons those who know or, if proven, should know the qualification of the information.
People who may have insider or continuous information are either those who are connected to the business with which the non-public information is associated or those who have some other way of learning about it. The regulation imposes an obligation on these people to keep that information confidential, and aims to prevent these persons from making benefit themselves through using that information and thus have advantage in the market. If these people do not comply with their obligations to keep information confidential and/or make transactions based on the information they have, administrative sanctions regulated in CML will be imposed on these persons. With this regulation, the legislator aims to prevent such actions and deter people from committing them. Another point to be considered is that while these actions are considered as market abuse for those who share and (directly/indirectly) receive inside or continuous information, if such actions are committed by persons who can commit Crime of Insider Trading, the Crime of Insider Trading will occur9. After this general information, market abuses related to inside information or continuous information regulated in the Communiqué will be analysed below.
3. Disclosure of Inside or Continuous Information to Other Persons
As it can be understood from article 4, paragraph 2 of Communiqué, sharing of inside or continuous information to other people by persons who have this information and making transaction in relevant capital market instrument by persons who (directly/indirectly) receive such information will be considered as market abuse.
4. Making Transaction in Prohibited Period
The legislator prohibits persons who have inside or continuous information to make transactions on specific capital market instruments for a given period. This period, which is called “prohibited period” in FCA regulations (The Model Code), is called the same in Türkiye10.
According to article 4, paragraph 3 of Communiqué, it is understood that the prohibited period in Turkish capital markets refers to the period between the end of the accounting period11 in which financial charts and reports and independent audit reports of the relevant company are prepared and the public disclosure of these reports and charts in accordance with the legislation. During this period, making transaction in capital markets is not only prohibited for persons that have inside or continuous information, but also for their spouses, children and persons living in the same household with them. If a transaction is made, it will be considered as a market abuse.
5. Making Transaction Before Public Disclosure of Inside or Continuous Information
Since the persons who have inside or continuous information are in an advantageous situation compared to the investors who do not yet have this information, making transaction on relevant capital market instrument will disrupt capital market’s fairness, reliability and transparency. For this reason, it is considered as a market abuse on Communiqué to make transaction during the period from the finalisation of inside or continuous information until the public disclosure of these information. Moreover, not only persons who have this information, but also their spouses, children and persons living in the same household are prohibited from making transactions on relevant capital market instrument. If a transaction is made, this transaction will also directly be considered as a market abuse.
C. Market Abuses Related to Orders and Transactions
Market abuse related to orders and transactions are the actions which persons harm market’s reliability through orders and transactions.
Actions of individuals, whether collectively or singly; are deemed significant or effective in relation to the operation of the capital markets or the setting of the prices of financial instruments, such as the prices of financial instruments, price changes, transaction vol - umes, quantities, and rates; the quantities and rates of orders; and the quantities and rates of order cancellations and fulfilment. Market abusers are those whose activities provide incorrect or misleading information or otherwise interfere with the safe, open, and stable operation of the stock market and other structured markets. The examples of those kind of actions are given as follows:
a) Conducting buying or selling transactions, performing account activity, placing orders, cancelling or changing orders,
b) Placing orders to different price levels,
c) Placing reverse orders within a time period less than one minute, such as a sell order at a price equal to or lower than the best purchase price in the market or a buy order at a price equal to or higher than the best sale price;
d) Conducting self-to-self or reciprocal transactions,
e) Conducting transactions to affect the opening or closing prices,
f) Conducting transactions to affect end-ofday or end-of-maturity settlement prices,
g) Conducting transactions to raise or lower the prices or to keep the prices steady,
h) In derivatives market, exceeding position limits on a market basis or for all accounts linked to the same registry,
i) In derivatives market, conducting transac - tions in same directions as the transactions executed in the relevant underlying market and conducting similar transactions.
The meaning of the term “persons acting together” mentioned in the provision is defined in article 3, paragraph 1, subparagraph a of Communiqué. According to this provision, persons acting together are the persons that place order, execute transaction, transfer or virement cash, cash equivalent or capital market instrument, perform account activity, give information about accounts, orders, transactions or companies to persons who commit these actions unlawfully or directly or indirectly transfer or virement cash, cash equivalent or capital market instrument between them, between their accounts or between the accounts they manage or use under any name whatsoever, by
a) Acting with the knowledge of one or more person’s order or transactions, plans of order or transactions, or capital market instruments they have,
b) Acting based on an implied, oral or written agreement,
c) Acting under direction of same person or persons,
d) Directing one or more persons,
e) Using other persons’ account with or with - out the power of attorney,
f) Using the same place or any of the virtual medium, computer, phone, internet connection or any of the communication channels.
One of the important issues to be considered is that market abusive actions related to orders and transactions can be confused with the actions that constitute “Market Manipulation Crime”12. That is because the actions that are stated to constitute market abuse in article 5 of Communiqué also constitutes the material aspect of market manipulation crime. However, an act to constitute a market manipulation crime must be made for the purpose of creating a false or misleading impression regarding prices, price changes, supply and demands of Capital market instruments. In this regard, for the occurrence of the crime, the typical actions must be made deliberately and for a specific purpose. As mentioned above, one of the conditions for market abuse is that the action “should not constitute a crime”. Therefore, if the act does not satisfy the required condition of motive, market manipulation crime will not occur and will be considered as market abuse.
The legislator determined that even if the activity is not intended to disrupt the market, it nonetheless affects the market’s openness, dependability, and transparency; consequently, a punishment was established to prevent this circumstance.
D. Market Abuses Committed Through Communication or Transformation
The separate regulation of market abuses related to inside or continuous information and market abuses committed through communication or transformation originates from the necessity that the supervision of pricing of capital market instruments to be more sensitive in Türkiye than the European Union. This necessity is based on the fact that Turkey has smaller and more vulnerable markets13.
One of the key principles that supports investor protection and, thus, keeps the market vibrant and trustworthy in the context of information exchange is the idea of public disclosure. In this regard, article 6 of Communiqué related to market abuses committed through communication or transformation stipulates sanctions for transactions which violate the obligation of public disclosure, but which isn’t considered a Crime under article 107 of CML. At this point, it is important to determine whether an act constitutes a market manipulation crime or market abuse. Market abuses are legal transactions that, although harms safe and stable functioning of the market, does not reach to a level that can constitute an artificial effect on pricing of market instruments, and does not meet the condition of eligibility (the ability to affect other investors) required for market manipulation crime. On the other hand, in order for a market manipulation crime to occur, the existence of the element of specific intent is required14.
If it is understood that required conditions for the occurrence of crime is not satisfied but the market balance is still disrupted, market abuses committed through communication or transformation will be deemed to occur and it will be introduced into sanction system with administrative fine to be imposed. It is not possible for the transaction to constitute a crime with dolus eventualis or negligence, but still an administrative sanction is regulated. Thus, market actors with good faith are protected to a certain extent and the fair functioning of systems are maintained. In order for market abuse to occur, a result is not required; it is sufficient that the conducting element of the action is completed.
As implied by paragraphs 1 and 2 of Article 6 of the Communiqué, another issue to be considered is the dissemination of incorrect, inaccurate, or misleading information, rumours, notifications, material disclosures, comments, or preparations of reports. It is not necessary for the first person to be aware that this information is incorrect, inaccurate, or inaccurate in situations where various orders and/or transactions are placed on the pertinent capital market instrument before or after the realization of the abovementioned acts. Afterwards, it is required for the persons disseminating such information to know or should have known that such information is fake, false or faulty15.
The non-disclosure of the information that can affect the prices, values of capital market instruments and investors’ decisions are also covered in the market abuse regulations, in the scope of correct disclosure and risk elimination for occurrence of market abuse16.
In the 4th paragraph of Article 6 of the Communiqué, acting in the opposite direction of the advice given, after making a comment or advice on capital market instruments by using communication tools, until they change their comment or advice, or in any case within 5 working days, is also considered a market disruptive action. The clarity of related regulation came before the Council of State and it was discussed.
In the lawsuit filed for the purpose of cancellation of article 6, paragraph 4, court is appealed for allegations, such as the factions that the boundary for the content of the interpretations to be made through mass media is not demarcated, which types of interpretation or advice can be considered as “buy, hold, sell”, CMB was authorised to include all kinds of interpretations made through these instruments under this regulation, and in general, the provision is being vague; however, the Council of State correctly stated that there is no ambiguity in the relevant article that could be considered as a violation for legal clarity, and that there is no violation for principle of legal certainty in applying that rule through considering the characteristics in each case17. It is because, as it can be seen in markets of Türkiye and other countries, several manipulation methods are being generated each day, and it is needed for relevant regulations to be designed in a way that can meet the diversity and to give space for decision-makers.
E. Other Market Abuses
Article 7 of Communiqué, titled other market abuses, does not regulate general provisions for actions that are not considered in the scope of articles 3, 4 and 5; as might be thought at first glance. Instead, regulations are made for actions that are considered important.
1. Front Running
In article 7 of Communiqué; before the input of an order that can affect the value or price of capital market instrument to investment firm, stock exchange and other organised markets, placing and changing order related to this capital market instrument with knowledge of other investor’s decisions or sharing the information is regulated as market abuse. For instance, if an underwriter places an order on a capital market instrument before transmitting such an order, it will be considered as a market abuse. Therefore, with this regulation, it is aimed to prevent such case18.
Considering that an order that can affect the value and price of capital market instrument have the aforementioned conditions of inside information, such actions would essentially constitute insider trading crime; however, it can be understood that it is intended to sanction the actions of persons that are other than listed persons in article 106 of CML.
2. Unauthorised Actions
Article 7, paragraph 2 of Communiqué introduces a regulation to persons who “use the accounts of others”19 of in order to conceal their actions. According to the regulation; (a) using someone else’s account to place orders, conducting transactions, or making account movements and (b) enabling someone else to execute such actions in stock exchange and other organised markets, without a power of attorney or authorisation issued by notary public, are considered as market abuse.
3. Violation of the Obligation to Issue Information Form for Shareholders
According to article 7, paragraph 3 of Communiqué regulates actions that are against Communiqué on Shares20 and Board Resolutions about the practice of this article are evaluated as market abuse.
According to article 27 of Communiqué on Shares, an information letter must be issued regarding the sales of shares above certain ratios, and this form must be approved by CMB; afterwards, it must be disclosed in Public Disclosure Platform. Violation of these regulation are also considered as market abuse.
4. Persons Subject to Prohibition of Transaction
In the scope of CMB’s authority to prohibit transaction, the actions of persons who are subject to a transaction prohibition are regulated as market abuse. No distinction is made between whether these persons conduct transactions on their own account or someone else’s account. In any case, the transactions of these persons are regulated as market abuse.
F. Actions not Considered as Market Abuse
The Communiqué not only regulates the actions that constitute market abuse, but also the actions that do not constitute market abuse. According to article 8 of Communiqué, the following actions do not constitute market abuse:
(i) actions that are not considered as market manipulation or inside trading, according to article 108 of CML,
(ii) actions that are in the scope of freedom of press,
(iii) actions and transactions that are not in the scope of article 104 of CML.
Central Bank of Türkiye’s implementation of various policies, like monetary, exchange rate and public debt management policies and its operations to ensure financial stability, issuance of shares to employees by issuers or transactions made within the scope of share acquisition programs can be given for examples of actions that do not constitute market abuse21.
CMB aimed to ensure the freedom of press with this regulation. In connection with this purpose, the actions of press officers will not be considered as market abuse as long as no unfair advantage is obtained as from the publication of these news and interpretations, and such news and interpretations are not published in agreement or in direction of persons committed market manipulation or insider trading, and no transaction is made on the relevant capital market instrument before the publication22.
III. SANCTIONS OF MARKET ABUSE
In case the occurrence of actions that are regulated as market abuse on Communiqué, according to article 104 of CML, an administrative fine of twenty thousand Turkish Liras to five hundred thousand Turkish Liras shall be imposed on persons who committed such actions. However, if a benefit is obtained in this way, the amount of administrative fine cannot be lower than twice of the benefit. As can be understood from this regulation, even if the person who committed such actions did not obtained a benefit, he/she could face sanctions.
IV. JUDICIAL REVIEW OF SANCTIONS OF CMB ON MARKET ABUSE
According to article 125 of the Constitution of the Republic of Türkiye, “Recourse to judicial review shall be available against all actions and actions of administration”. Therefore, the administrative sanction decisions of CMB, which is an independent administrative authority, are also subject to judicial review23. Parallel with that, it is regulated in article 105 of CML that administrative judicial remedy can be applied on administrative sanctions of CMB. Therefore, it is clearly stated that administrative sanctions of CMB on market abuse shall be subject to administrative judicial remedy.
An annulment action may be filed against administrative sanctions of CMB, as well as full remedy action, if there is a damage originated from the execution of an administrative act.
The number of days to file a lawsuit against administrative actions is regulated in the Administrative Procedure Law (“APL”). According to article 7, paragraph 1 of APL, the number of days to file a lawsuit is 60 in administrative courts and the Council of State, and 30 days in tax courts. The term starts with the written notification date. These terms are general periods to file a lawsuit; therefore, if a special period is stipulated under other legislation, the term will be based on that.
A special period to file a lawsuit against the actions of CMB is not regulated under CML. Therefore, an annulment or a full remedy action may be filed against the actions of CMB in the general period of 60 days24.
V. CONCLUSION
With the enactment of the law, the legislator has stipulated a number of administrative sanctions in order to prevent market abuse, which is not as severe as market crimes but may still adversely affect the market, and to deter if not prevented. In scope of that, Communiqué on Market Abuse is issued, and detailed provisions are regulated. As a requirement for the rule of law, the judicial remedies for the relevant persons against administrative sanctions of CMB are stipulated.
In conclusion, the legislator aims to ensure the reliability, transparency and fairness of the market and to preserve the competition conditions in the market, in parallel with both the purpose of CML and the purpose of establishment of CMB.
BIBLIOGRAPHY
BAYRAM VOLKAN ALAN, Sermaye Piyasası Kurulu’nun İdari Yaptırım Yetkisinin İdarenin Takdir Yetkisi Kapsamında Değerlendirilmesi ve Yargısal Denetimi, May 2018.
EMRE KESİCİ/ M. BİLGEHAN NACAKCI, Piyasa Bozucu Eylemler, Capital Markets Journal, S. 15, August 2014.
HANİFE ERGÜN AKSU, Sermaye Piyasası Hukukunda Kamusal Denetim ve Yaptırım Sistemleri: Avrupa Birliği ve Türkiye Karşılaştırması, Master’s Thesis, Ankara Hacı Bayram Veli Üniversitesi, 2021.
NUSRET ÇETİN/ HATİCE EBRU TÖREMİŞ/ ZEYNEP CANTİMUR, 6362 sayılı Sermaye Piyasası Kanunu’nun Sistematik Analizi, Yetkin Yayınevi, Ankara, 2014.
SEÇİL COŞKUN, Sermaye Piyasası Hukukunda Piyasa Dolandırıcılığı Suçu (6362 Sayılı SerPK md. 107), İstanbul, 2021.
MURAT BALCI/ SİNEM TURAN, Açıklamalı, Gerekçeli İçtihatlı Sermaye Piyasası Kanunu Şerhi Cilt II, Adalet Yayınevi, Ankara, 2020.
FOOTNOTE
1 Capital Market Law no. 6362, dated 30.12.2012.
2 Communique on Market Abuse numbered VI-104.1 and dated 21.04.2014.
3 Grand National Assembly of Turkey, Plan and Budget Commission, Draft of Capital Market and Plan and Budget Commission Report (1/683), p. 35.
4 Article 1 of CML states, “The purpose of this Law is to regulate and supervise capital markets to ensure the functioning and development of capital markets in a secure, transparent, efficient, stable, fair and competitive environment and to protect the rights and interests of investors.”
5 Emre Kesici/ M. Bilgehan Nacakcı, “Piyasa Bozucu Eylemler”, Capital Markets Journal, I. 15, August 2014, p. 1.
6 Kesici/ Nacakcı, p. 2.
7 Nusret Çetin/ Hatice Ebru Töremiş/ Zeynep Cantimur, 6362 sayılı Sermaye Piyasası Kanunu’nun Sistematik Analizi, Yetkin Yayınevi, Ankara 2014, p. 229.
8 Kesici/ Nacakcı, s. 3.
9 Murat Balcı/ Sinem Turan, Sermaye Piyasası Kanunu Şerhi – II, Ankara 2020, p. 389.
10 Kesici/ Nacakcı, p. 5.
11 In the Resolution dated 28.05.2014 and numbered 16/514 published in the CMB Weekly Bulletin numbered 2014/15, it was announced that the expression “accounting period” will be accepted as “6-month and 12-month periods”.
12 Article 107, paragraph 1 of CML states that, “Those who make purchases and sales, place orders, cancel orders, change orders or carry out account activities with the purpose of creating a false or misleading impression on the prices of capital market instruments, their price changes, their supplies and demands, shall be sentenced to imprisonment from three years up to five years and be punished with a judicial fine from five thousand days up to ten thousand days. However, the amount of the judicial fine to be imposed due to this crime shall not be less than the benefit obtained by committing the crime.”
13 Hanife Ergün Aksu, Sermaye Piyasası Hukukunda Kamusal Denetim ve Yaptırım Sistemleri: Avrupa Birliği ve Türkiye Karşılaştırması, Master’s Thesis, Ankara Hacı Bayram Veli Üniversitesi, 2021, p. 197.
14 Seçil Coşkun, Sermaye Piyasası Hukukunda Piyasa Dolandırıcılığı Suçu (6362 Sayılı SPK md. 107), İstanbul 2021, p. 152.
15 Ergün Aksu, p. 200.
16 Ergün Aksu, p. 200.
17 Board of Presidency of Council of State decision, 13th Chamber- B. 2020/1968, D. 2021/1467, D. 20.4.2021.
18 Article 47/A of the former Capital Markets Law stipulated trading with the knowledge of the order as a crime. The scope of the provision has been expanded with the addition of regulations on orders.
19 Kesici/ Nacakcı, p. 9.
20 Communiqué on Shares, no. VII128.1, dated 27.05.2023.
21 Kesici/ Nacakcı, p. 10.
22 Kesici/ Nacakcı, p. 11.
