Q4/2017 Crowdfunding: a Funding Alternative for Projects and Business Ventures
Crowdfunding is a tool for entrepreneurs to collect funds from a large number of individuals through crowdfunding platforms to finance their projects or business ventures.
Law No. 7061 (published in the Official Gazette dated December 5, 2017 and numbered 30261) which amended the Capital Market Law (Law No. 6362) (published in the Official Gazette dated December 30, 2012 and numbered 28513) (the “Capital Market Law”) paved the way for collecting funds from crowdfunding without being subject to the Capital Markets Board regulations regarding public offerings.
The recently introduced crowdfunding provisions of the Capital Market Law are as follows:
Crowdfunding might be a viable funding alternative for new projects and developing businesses since the Capital Market Law Amendments provide a safe harbor for the collection of funds from capital markets without being subject to the heavier regulations of the Capital Markets Board regarding public offerings.
It should also be noted that the regulatory environment would be clearer when the relevant Capital Markets Board communiqué is published and crowdfunding transactions start after crowdfunding platforms become operational upon the permission of the Capital Markets Board.
Q4/2017 Amendment on the Communiqué on Sales of Capital Market Instruments
The Capital Markets Board amended the Communiqué on Sales of Capital Market Instruments (II-5.2) (published in the Official Gazette dated June 28, 2013 and numbered 28691) on December 1, 2017.
Under the amended Article 10/2, the initial public offering price, or price range in the case of demand collection within a price range, or interest or discount rate of the capital market instruments, may be revised downwards by making a special events disclosure without requiring any change to the prospectus before the date of commencement of the sale and/or demand collection or within such periods. If the price is revised before the start date of the sale and/or demand collection period, the public offering can be started on the second day following the disclosure. If the revision is made within the sales and/or demand collection period, a minimum of two business days is to be added to the specified public offering period.
In addition, according to Article 18/4, at least 10% of the nominal value of capital market instruments to be offered to the public is required to be allocated to local individual investors, and 20% thereof is required to be allocated to local institutional investors (previously the rate was 10%). The Capital Markets Board is authorized to reduce the minimum allocation ratios to zero or increase such a rate by taking into consideration the market value of the instruments to be offered to the public, market conditions and similar grounds, and the demand of the issuer.
The amendment to the Communiqué on Sales of Capital Market Instruments entered into force immediately following its publication in the Official Gazette.
The Capital Markets Board has amended certain provisions of the Communiqué Regarding Debt Instruments (published in the Official Gazette dated June 7, 2013 and numbered 28670) (“Communiqué”) on February 18, 2017 with immediate effect.
The Communiqué includes the below provisions:The term “note” has been changed to “financing note”. Domestic and cross border issuances are separated more clearly and the documents which are required for both type of issuance are slightly changed. Domestic issuances can be made through the public offering or without the public offering. The domestic bond issuances which are made without the public offering can be made through: (i) the sale to qualified investors, (ii) the private placement if the minimum nominal value is TL 100,000. The authority of the Capital Markets Board has been broadened. According to the amendment, Capital Markets Board may (i) request that a bank or a third party guarantees the payment obligations regarding the debt instruments (ii) request the limitations in the sale conditions (iii) reduce the validity period of the issuance document. In addition, the Amendment reduces the fee of application from 0.2% to 0.15% for the issuances of which their maturity period is longer than 730 days.
The Capital Markets Board has amended certain provisions of the Communiquéon Principles Regarding Investment Services, Activities and Ancillary Services (published in the Official Gazette July 11, 2013 and numbered 28704) (“Communiqué”) on February 10, 2017 with immediate effect.
Pursuant to amended Article 27 of the Communiqué the leverage ratio decreased from 100:1 to 10:1 in leveraged transactions and the initial margin requirement for leveraged transactions has been increased from TL 20,000 to TL 50,000 (or its equivalent in foreign currency).
A regulated money market (“Market”) has been established in the Turkish exchange; Borsa İstanbul A.Ş. (“BIST”), where collateralized borrowing and lending transactions of banks and brokerage firms supplying and demanding Turkish Lira are executed. Banks and brokerage firms authorized in accordance with the BIST regulations and İstanbul Takas ve Saklama Bankası A.Ş. (“Takasbank”) may trade on the Market.
Members may place orders for their own accounts, and for the accounts of investment funds / investment trusts and customers, whilst Takasbank provides central counterparty (CCP) service for the Market and guarantees the settlement by acting as buyer to the seller and seller to the buyer for any transaction executed.
In order to protect the interests of investors more efficiently and to satisfy compensation claims swiftly, the framework regarding the implementation of Customer Disputes Arbitral Tribunal before the Turkish Capital Markets Association (“Arbitral Tribunal”) has been finalized and it has been resolved by the Capital Market Board that the applications regarding the disputes arising from off-exchange transactions between investment institutions and their customers shall be made to the Turkish Capital Markets Association.
The disputes shall be settled by the independent Arbitral Tribunal consisting of 3 (three) members, and the parties may raise an objection to the decision of the Arbitral Tribunal before the Capital Market Board within the scope of the relevant provisions with their justifications within 10 (ten) business days upon the notification of such decision
A Communiqué on the Amendment to the Communiqué on Principles Of Investment Funds (“Communiqué”) has been published in the Official Gazette dated June 23, 2016 and numbered 29751 and has been put in effect at the same date.
The amendments brought by the Communiqué are as follows:
- The definition of “Precious Metals Umbrella Fund” has been broadened in order for gold based deposit and participation accounts to be within the scope of the type control of the 80%.
- The definition of share intensive funds has been amended in order for “Share Intensive Fund” control to be made based on the “fund portfolio value” rather than the “fund total value”.
- The provision enabling share sale and purchase over foreign currencies of which daily exchange rates are announced by the Central Bank of Turkey has been inserted to the Communiqué by forming share groups by funds which include the phrase “exchange” in their title. Also, it has also been enabled for the mentioned funds to be parties to OTC repo agreements.
- The condensation limit regarding capital market instruments issued by asset lease companies has been increased.
- It has been enabled for funds to carry out transactions in the domestic organized money markets.
The Ministry of Finance amended the Regulation on Measures regarding Prevention of Laundering the Proceeds of Crime and Financing of Terrorism (O.G. January 8, 2008, 26751) and the Regulation on Program of Compliance with Obligations of Anti-Money Laundering and Combating Financing of Terrorism (O.G. September 16, 2008, 26999) with a decision on March 18, 2016. Pursuant to the amendments, a compliance officer for the execution of compliance program shall be assigned in 30 days following the official operation permission of the relevant institution. Additionally, Central Bank of Republic of Turkey, development and investment banks, institutions other than banks who have the authority to issue bank cards or credit cards, authorized exchange offices given in legislation on foreign exchange, financing and factoring companies within the scope of legislation on money lending, reinsurance companies, financial leasing companies, institutions furnishing settlement and custody services within the framework of capital markets legislation are obliged to assign compliance officer at administrative level without developing a compliance program in 30 days following the operation permission of the relevant institution.
The CMB has published Communiqué on Shares No. VII-128.1 (O.G. June 22, 2013, 28685), within this publication, prospectus formats and manuals came into effect. Certain issues covered by the amendment of share prospectus formats and manuals are as follows:The summary document has been revised in accordance with European Union (EU) standards. On February 8, 2016 the European Securities and Markets Authority (“ESMA”) has reviewed the above-mentioned regulations and concluded that a prospectus drawn up in accordance with Turkish requirements can constitute a valid prospectus under the EU Prospectus Directive. The content of the statements given by the persons responsible from the prospectus has been amended. Hereinafter, statement of responsibility shall be taken from the institutions preparing the specialized agency reports.
Additionally, formats of certain offering documents have been updated.
The Communiqué Regarding Principles on Investment Services and Activities and Ancillary Services No. III-37.1 and Communiqué on Principles of Establishment and Operation of the Investment Institutions No. III-39.1 has been amended by the CMB on January 14, 2016 (O.G. January 14, 2016, 29593). With such amendments the items below entered into force:In order to encourage brokerage firms to conduct investment banking activities, investment and development banks are now allowed to make transactions on shares in Borsa Istanbul, provided that they take over an existing brokerage firm of the relevant banks. Before opening an account for leveraged transaction, in order for the investors to gain experience, they must be directed to a trial account first that will remain active for at least six business days to make at least 50 transactions. Brokerage firms’ advertising, marketing and announcement regarding the leveraged transactions are now subject to specific procedures and principles. In order to avoid conflict of interests, it is prohibited to provide individual portfolio management services and investment advisory services to leveraged transaction clients. Investment institutions licensed to deal on own account must produce a list of over-the-counter derivatives and underlying assets and publish these in their website. Brokerage firms may request from professional clients the indemnification of any losses occurred in their collaterals for leveraged transaction. Brokerage firms must report all electronic platforms, including their programs, modules and expansions used for their transactions and over the counter derivatives to the Turkish Capital Markets Association.