Recent development   

On February 8, 2016, the European Securities and Markets Authority ("ESMA") announced that prospectuses approved by the Turkish Capital Markets Board (the "CMB") can constitute valid prospectuses under the EU Prospectus Directive for the purposes of its approval by the home regulatory authority of a member state within the European Economic Area (the "EEA"). This follows Turkey's prospectus equivalency application to ESMA and the CMB's recent amendments harmonizing Turkish prospectus requirements with EEA standards.

Article 20 of the Prospectus Directive allows a non-EEA issuer to submit an equity prospectus, which has been prepared in accordance with the laws of a non-EEA country, to a regulatory authority of an EEA member state for the approval. As a result of ESMA's decision, Turkish issuers may now submit their CMB-approved equity prospectuses to the relevant regulators in the EEA for approval. Upon obtaining the regulator's approval, an equity prospectus may be used for offers to the public and/or admissions to trading on regulated markets in EEA countries without further review or disclosure under the EEA passporting regime.

In addition, ESMA considers that a wrap (a separate document placed on the front of the prospectus) need not accompany a CMB-approved equity prospectus in order to make it equivalent with the requirements under the Prospectus Directive if the financial statements included in the prospectus are prepared in accordance with International Financial Reporting Standards. Despite this, ESMA notes, however, that EEA regulators may require additional information and disclosure within the prospectus or in the form of a wrap. It is not yet known what additional information may be required and which EEA regulators will require it, though this should become clearer over time once Turkish issuers submit CMB‑approved equity prospectuses to EEA regulatory authorities for approval.

ESMA’s equivalency opinion covering CMB-approved equity prospectuses does not relate to rights issue prospectuses or to prospectuses for small and medium-sized enterprises or other companies with reduced market capitalization as ESMA did not assess these disclosure regimes.

Conclusion

Considering Turkey's ongoing harmonization of its capital markets rules with those of the EU, ESMA's decision plays a pivotal role in the integration of Turkish capital markets with European markets as it allows the filing and eventual passporting of a CMB-approved equity prospectus throughout the EEA once it has been approved by the relevant home regulator in the EEA. By paving the way to access EEA markets, ESMA's decision also bolsters Turkey's aim to develop Istanbul as a financial center. Furthermore, ESMA's decision will permit Turkish companies to seek equity financing in the EEA with significantly less red tape.