Background

On August 18, 2016, the Turkish Capital Markets Board (the "CMB") announced that the Turkish Capital Markets Association (the "TCMA") has established its arbitration panel to resolve customer disputes. The arbitration panel is expected to bring quicker, more effective and efficient settlement of disputes arising from over-the-counter transactions. The panel will consist of three judges.

Highlights

  • Eligible parties: The members of the TCMA (i.e. brokers/intermediary institutions, banks, portfolio management companies and investment trusts) (the "Member(s)") and the investors can apply to the arbitration panel for settlement of disputes between either the Members themselves or the Members and the investors.
  • Permitted applications: The arbitration panel is only authorized to hear disputes arising from OTC transactions. Any application already submitted to the courts or the consumer arbitration, or regarding criminal activities, is not eligible.
  • Focus areas: The arbitration panel is expected to focus initially on disputes relating to intermediary activities, portfolio management, collective investment schemes, and leveraged trading.
  • Judges: Each arbitration panel consists of three judges who have at least 7 years of experience in capital markets.
  • Pecuniary damages: The arbitration panel will address pecuniary damages only.
  • Consideration: Services provided for the investors by the arbitration panel are free of charge.
  • Application to the Members: In order to settle the dispute, the eligible parties must first apply to the Members with whom they are in dispute within five years from the date which the dispute arose. Supervision or internal audit departments of the Members shall examine the application and render their decision within 30 days from the date of application.
  • Application to the arbitration panel: The eligible parties may apply to the panel within 60 days from (i) the decision rendered by the Member in relation to the application above, provided that the Member's decision does not fully address the claimant's claims or (ii) the 30th day upon the application made to the Member, in cases which the Member remains silent and fails to respond. The panel shall render its decision within 90 days upon the application. In cases where the application requires special examination of the circumstances and evidence, the panel might extend the foregoing time limit by 30 days.
  • Application to the CMB or other public authorities: Any application regarding the disputes arising from OTC transactions filed to the CMB or other public authorities shall be transmitted to the arbitration.
  • Objection: The parties may object to the decision rendered by the arbitration panel before the CMB within 10 business days upon the receipt of the decision of the panel. The decision rendered by the CMB regarding an objection will be final and binding.
  • Appeal: Parties to the dispute may appeal to the courts regarding arbitration panel's decisions. However, the decisions rendered by the arbitration panel in favor of the investors in disputes with a value below TRY 3,480 (approx. USD 1,160) must be enforced regardless of any appeal. The foregoing threshold is subject to an annual adjustment according to the re-evaluation rate declared by the Ministry of Finance.

Conclusion

As the Turkish OTC market grows, especially with the demand for the leveraged transactions, the need for alternative dispute resolutions similar to the ones in place within the exchange became a necessity for the OTC markets. The specialized arbitration panels are expected to contribute to the development of the capital markets; help the Members maintain their conduct of business in a more diligent and disciplined manner and enhance professional know-how in the capital markets. On the other hand, investor friendly rules, introduced along with the arbitration, will greatly benefit unsophisticated investors who may be subject to adverse conditions when trading in less stringent OTC markets.