The custody and monitoring of government debt securities on a client basis at the Central Registry Agency commenced as of June 30 2012 in accordance with the decision of the Capital Markets Board dated August 25 2011.

The dematerialisation process, which began with mutual funds and stocks in 2005, has also included government debt securities. Formerly, the custody and settlement of government debt securities were overseen by the Central Bank - the central securities depository for debt instruments issued by the Turkish Republic. Under this system, each of the members - intermediary institutions, consisting of banks and brokerage houses - had a segregated proprietary account; however, unlike the system adopted by the agency, client assets were held in a separate pooled account, with no further segregation (ie, in a sub-account structure) at investor-client level. Further segregation of client holdings was reflected only in the relevant member's account books.

In the existing structure related to government debt securities, the Central Bank's electronic securities transfer system remains in use: it deals with the transfer and settlement of Turkish government securities and other securities issued by government institutions between members' securities sub-accounts, and holds book-entry records of securities information. Banks' proprietary holdings of government debt securities continue to be monitored on the electronic securities transfer system. However, the government debt securities holdings of members' clients are held at the agency on a client-name basis and are thus segregated from intermediary institutions' proprietary portfolios. Through the new system, the government debt securities are now held in investor accounts that are opened in the name of the actual rights holders, for which members are authorised to carry out transactions - similar to the structure for equities.

In this regard, the new system provides greater comfort to investors upon a member bank or brokerage house's insolvency. Government debt securities are clearly segregated from the intermediary institution's assets and therefore cannot be included in the bankrupt entities' assets, preventing problems that investors have encountered in the past.

For further information on this topic please contact A Cem Davutoglu or Burcu Sezgin Gürsu at Davutoğlu Attorneys At Law by telephone (+90 212 281 7100), fax (+90 212 281 6040) or email ([email protected] or [email protected]).