CAPITAL MARKETS BOARD of TURKEY

1. CAPITAL MARKETS BOARD of TURKEY

2. WHAT ARE THE POLICY TRADE-OFFS FOR IMPROVING DISCLOSURE OF BENEFICIAL OWNERSHIP? OECD MOSCOW ROUNTABLE November 2004 İ. KUBİLAY TEMUÇİN Vice Chairman of Capital Markets Board of Turkey ktemucin@spk.gov.tr www.cmb.gov.tr

3. Background • Fighting against the abuses of the global financial system is crucial for a sound financial system. • Capital movements by the merit of technology is possible everywhere. • These improvements also serve for financing the increasing terrorist activity, insider dealings etc. • Under the corporate governance aspect, disclosure will enhance transparency and give investors better insight of the capital and control structure of the company.

4. Background • Beneficial ownership, by its nature has a strategic importance for the realization of illicit purposes. • In order to tackle with the misuse of corporate entities; • Supervisors should be able to obtain information on the beneficial ownership and control of corporations. • Information sharing mechanisms with the domestic and foreign authorities are also vital.

5. OECD Report –Options For Disclosure • Three of the options are efficient vehicles to cope with the problem. • Each option presents different approaches so they are available in adapting different systems. • Parallel to the investigative powers of the system, the option changes.

6. TURKEY CASE • The main characteristic of Turkish Corporate sector is concentrated ownership. In 46% of listed companies, one shareholder holds more than 50% of voting rights. Generally, controlling shareholder is a holding company controlled by a family. • Shares of joint stock corporations may be in issued two types. • Registred form • Bearer form The owner of the share is anonym. The ownership transfer of these shares are not subject to any formal requirement other than delivering the share itself.

7. Bearer Form Shares- Making Up The Disadvantages • Anonymty brings the risk of being used for illicit purposes. • Knowing the owners of these bearer form shares is important for investigative authorities with respect to tax evasion and money laundering. • The use of bearer shares may be abolished or enjoying the administrative or financial rights may be subject to the deposit condition for holders of these shares.

8. Bearer Form Shares- Making Up The Disadvantages- Dematerialization • As per March 2005, capital market instruments will be dematerialized. • A Central Registry Authority will handle the beneficiary ownership upon the shareholders’ claim. • A shareholder who does not want to be known as a security holder but wants to enjoy the financial and administrative rights will inform the intermediary institution and intermediary institution will inform the Central Registry Authority accordingly. Beneficial ownership practice will be applicable in Turkey. This information shall only be delivered to the supervisory and regulatory authority. The competent authority shall have proper oversight and high integrity for obtaining beneficial ownership and control information.

9. TURKEY CASE • Currently, in technical terms concept of beneficial ownership does not exist. • There are various disclosure requirements at the acquisition and disposal procedure of shares. • Pursuant to CMB’s “Communique On Principles Regarding Public Disclosure Of Material Events”, changes in capital structure and control of the corporation should be disclosed to public.

10. TURKEY CASE-Changes in capital structure and control of the corporation • Change in the control of management, either directly or indirectly due to changes in the capital structure, voting rights of shares, • Cases of changes either within the direct or indirect ownership of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 75% or more of the total voting rights or capital of the corporation by real or legal person,

11. TURKEY CASE-Changes in capital structure and control of the corporation • Direct or indirect ownership of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 75% or more of the total voting rights or capital by the mutual funds founded by the same legal person, • Purchase or sale of the stocks of the corporation by such persons as chairman or members of the board of directors, general directors or assistant general directors, shareholders who directly or indirectly own 5% or more of the capital or voting rights should make disclosures. • Also client identification and “know your customer” rule is available.

12. Know Your Customer Rule • Intermediary institutions, • Must know the identity of the customers prior to opening an account according to the Law on Prevention of Money Laundering. • For the joint accounts each account holder should be identified separately. Apart from the customer, only the persons who have been authorized through proxy drawn before the public notary can make transaction on behalf of the customer. • Shall request from foreign banks and brokerage firms a written undertaking that they would provide identification details of the customers on behalf of whom the transaction is to be made, before getting their buy and/or sell orders.

13. CAPITAL MARKETS BOARD of TURKEY