This brief note only focuses on securities law aspects of manipulation claims over share prices of banks and listed corporates on Borsa Istanbul, although banking law also provides limited rules that prohibit wilfully damaging reputation, prestige or assets of a bank through disseminating inaccurate news using any means of communication.
Manipulation is a crime specifically defined and called as “market fraud” and is regulated in two folds under Turkish law, namely trade/transaction-based market manipulation and knowledge-based market manipulation. The latter might be controversial, so it requires some explanation: knowledge-based manipulation is generally defined as providing or distributing false, wrong or misleading information, rumours, news, comments or reports in order to affect the prices of capital market instruments, their values or the decisions of investors and obtaining benefit derived from committing such actions.
The first element of knowledge-based market manipulation is committing one of the above-mentioned actions with an aim to deceive the markets or affecting the decision process of investors. Only a real person can be the offender of such a crime. The most important element of this crime is to gain benefit as a result of such action, which was introduced with a law amendment back in 2015 to provide, among others, a distinction between trade-based and knowledge-based manipulation. In the absence of any factual finding of benefit, such breach may then potentially fall under the scope of “market abuse” as discussed below.
Sanction for knowledge-based market manipulation is imprisonment “and” judicial fine.
Market abuse is categorised as a misconduct and is defined as actions and transactions which cannot be explained with a reasonable economic or financial justification, which are of a nature deteriorating the functioning of exchanges and other organized markets in security, openness and stability. Therefore, inter alia, providing false, wrong or deceptive information, making public disclosures, telling rumours, giving notices, making comments or preparing reports regarding the market indicators which may have an effect on the prices of capital market instruments, their values or the decisions of investors would be defined as a market abuse conduct if the offenders give sale or purchase orders and/or realize transaction on the relevant capital market instruments.
An administrative fine for market abuse may be imposed on such persons. In contrast to market manipulation, the offenders do not have to gain benefit from the relevant transactions for a market abusive misconduct to occur.
Insider traders are defined as the persons who give purchase or sale orders for capital market instruments or change the orders they have given or cancel them, and thus provide a benefit to themselves or someone else on the basis of undisclosed information concerning directly or indirectly about the capital market instruments or issuers which can (if known by public) affect the prices of the related capital market instruments, their values or the decisions of investors.
All inside information should be kept confidential by the relevant officials of the company (i.e. the insiders) up until such inside information is duly disclosed to public. If the insiders fail to comply with this requirement and if the third persons who have an access to inside information trade on the relevant capital market instruments, then both insiders and insider traders will be sanctioned.
Any act constituting insider trading is punishable by imprisonment or a judicial fine which cannot be less than twice of the benefit obtained by committing such crime.