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Turkey mulls new regulations to prevent stock market manipulation

Reuters/Amanda Perobelli
Borsa Istanbul announced a temporary halt to transactions in shares of several companies in the earthquake zone
  • Istanbul shares fell 36% in the last two weeks due to margin calls
  • Future contracts may be reduced for SMEs with low trading volumes

Turkish authorities are expected to make stock market regulatory changes within a few days to prevent market manipulation after sharp falls in prices due to margin calls on futures positions, market participants and analysts said.

They said the issue was likely to be among those discussed at a meeting which President Tayyip Erdogan convened on Friday afternoon with top economy officials, with steps potentially including a reduction in the number of futures contracts.

Led by banking stocks, Istanbul shares fell 36 percent in the last two weeks, eroding a 150 percent surge in the last two months. The sudden slide has started to cause concern in the government in Ankara.

Last week’s falls tripped Borsa Istanbul circuit breakers for Vakifbank, Akbank, Albaraka Turk , YapiKredi and Garanti BBVA, leading to trade in them being temporarily suspended.

“Such moves must definitely be prevented from happening,” a senior economy official said. “Alternative steps are being considered. Which steps will be decided soon.”

A brokerage house manager, who declined to be named, said the Treasury may coordinate changes in regulations to prevent a repeat and “in all probability, they won’t wait till next week.”

Steps may be taken to limit futures contracts on the shares of small or medium-sized companies with low trading volume vulnerable to price manipulation, analysts said.

The Treasury and Borsa Istanbul directed questions towards regulatory authorities. The Capital Markets Board did not immediately respond.

First Major Crisis

After sharp declines, Turkey’s largest bank stocks steadied this week, but falls continued in stocks such as Sekerbank, TSKB and Is GYO.

One source said the futures market positions were largely held by investors trading with five brokerage houses and that if investors can’t meet the collateral requirements they may be reflected in brokerages balance sheets.

Two sources said the investors who need to meet collateral requirements had carried out the trades with the brokerages Ahlatci, Alnus, Gedik, Tacirler and Trive.

The margin call hit a record 1.8 billion lira ($98 million) last week. It declined to 1.4 billion liras at the start of the week and stood at 567 million lira on Thursday.

Investors must meet margin calls by showing cash, shares or other securities equal to the margin call to keep their positions. Otherwise brokerages meet them by selling the shares.

If these sales are insufficient brokerages must use their own funds or if these are insufficient, the clearance institution Takasbank’s guarantee fund is used.

Takasbank said this week risk parameters used in transaction collateral calculations for banks’ underlying assets in the derivatives market had been amended.

The size of the Takasbank guarantee fund – at 1.2 billion lira – is expected to be enough to cover potential losses but losses may be reflected in brokerages’ balance sheets.

Gedik Investment said, “We cannot comment on the volatility in markets. Our confidence in the capital markets of our country continues today as it was yesterday.”

Alnus Investment did not respond to questions. A source close to the company said there is sufficient collateral, some of which are shares.