Compliance Report ISSA Recommendations 2000

ISSA - International Securtities Services Association

Compliance to the ISSA Recommendations 2000

Market: Turkey

Status: October 9, 2001

Recommendation 1
Recommendation 2
Recommendation 3
Recommendation 4

Recommendation 5
Recommendation 6
Recommendation 7
Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1. Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents? Yes. Securities Lending Borrowing scheme covers equities in the ISE-100 composite index and lending is available for a period of up to one month for the ISE members. Takasbank meets the securities borrowing requests of the ISE members by the available securities of other ISE members upon their consent.

2. Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest? 99.98% of the funds obligations and 99.86% of the securities obligations are fulfilled on the due settlement date. Therefore the failure rate is minor in the equities market.
Settlement is based on delivery versus payment (DvP). For this purpose, receivables of the participants are pledged against their obligations. Thus, participants do not get their receivables unless they fulfill their obligations. In case of a failure of a clearing participant, the blocked receivables amounting to the remaining obligations are used for buy-in or sell-out, the day after the actual settlement date with same day settlement value. If the proceeds are insufficient to discharge obligations, then the participants collateral with the ISE is employed. Furthermore, the penalty charge is considerably high for the failing clearing participants and calculated as two times of the prevailing market interest rate. Besides having its receivables latest one day after the actual settlement date, the innocent counterpart is remunerated out of the penalty payment collected from the failing party.

3. Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover? There is a fund belonging to the ISE under the management of Takasbank that is used for the ease of settlement. This fund is made up of the fines collected from ISE members with late payments and deliveries to settlement. The amount of the fund is approximately US$ 2.9 million as of June 2001. This fund is activated every day providing the first liquidity to the settlement process, which is centrally carried out by Takasbank. At the end of the settlement, if all the parties fulfill their obligations, this fund is released in full and remunerated in market terms via the Treasury Department of Takasbank. Otherwise, it is used to cover the failure of the buyer against the seller. The coverage is limited with the prevailing value of the fund. Therefore this fund is actually a temporary liquidity facility for the settlement process. There is a joint project of Takasbank and ISE for expansion of the value of this fund.

4. Are the stock transfer agents (share registrars) linked electronically to the depository? Not applicable. There are no share registrars in Turkey.

5. Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline? No.

6. Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced? Investors are entitled to all benefits from the point of finality of settlement. Corporate Law, Capital Markets Law, relevant regulations of the Capital Market Board (CMB) state the rules enforcing such. CMB is responsible for the supervision.

7. Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method? Proxy voting is permissible in the market, however such proxies cannot be lodged by post or any other remote delivery method. Proxy voting is realised by the power attorney from the public notary.
For the securities safekept at Takasbank; the participant asks a written request and power of attorney from the beneficial owner and applies to Takasbank for a blockage letter indicating the number of securities and the name of the investor. Upon this application and the validity of the availability of the securities, Takasbank puts blockage on the specified number of securities in the specified investor's account until the end of the general meeting and issues a blockage letter to be used in the general meeting.

8. Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions? Yes. According to the Corporate Law, it is required to hold the General Meeting within three months following the end of the financial year. Capital markets regulations require the dividend payments to be realised by the issuer within five months following the end of the financial year.
For those securities under safekeeping at Takasbank, issuers are required to pay the dividends to Takasbank within 3 days following the receipt of the declaration from Takasbank, to be further credited to participant accounts. The declaration of Takasbank is realised on the settlement date of the dividend payment date(T+2), to the issuer. The bonus issues and rights coupons are credited to the participants' accounts on the settlement date of the corporate action date (T+2).
The execution period of the pre-emptive rights cannot be less than 15 days and more than 60 days. Rights for dividend collection and for bonus issues, remain valid for 5 years.

9. Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors? Yes. Issuers inform the Istanbul Stock Exchange for corporate actions. The announcements are published in the ISE daily bulletin, which is publicly available and in the financial press.

10. Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion? Corporate actions information is published on the daily bulletin of the ISE which is also posted on its web site (http://www.imkb.gov.tr)
Executed corporate actions information is also available through Alo-Takas interactive voice response system of Takasbank.
The minimum lapsed time for responding such actions is considered to be sufficient.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	Yes. Securities Lending Borrowing scheme covers equities in the ISE-100 composite index and lending is available for a period of up to one month for the ISE members. Takasbank meets the securities borrowing requests of the ISE members by the available securities of other ISE members upon their consent.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	99.98% of the funds obligations and 99.86% of the securities obligations are fulfilled on the due settlement date. Therefore the failure rate is minor in the equities market. Settlement is based on delivery versus payment (DvP). For this purpose, receivables of the participants are pledged against their obligations. Thus, participants do not get their receivables unless they fulfill their obligations. In case of a failure of a clearing participant, the blocked receivables amounting to the remaining obligations are used for buy-in or sell-out, the day after the actual settlement date with same day settlement value. If the proceeds are insufficient to discharge obligations, then the participants collateral with the ISE is employed. Furthermore, the penalty charge is considerably high for the failing clearing participants and calculated as two times of the prevailing market interest rate. Besides having its receivables latest one day after the actual settlement date, the innocent counterpart is remunerated out of the penalty payment collected from the failing party.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	There is a fund belonging to the ISE under the management of Takasbank that is used for the ease of settlement. This fund is made up of the fines collected from ISE members with late payments and deliveries to settlement. The amount of the fund is approximately US$ 2.9 million as of June 2001. This fund is activated every day providing the first liquidity to the settlement process, which is centrally carried out by Takasbank. At the end of the settlement, if all the parties fulfill their obligations, this fund is released in full and remunerated in market terms via the Treasury Department of Takasbank. Otherwise, it is used to cover the failure of the buyer against the seller. The coverage is limited with the prevailing value of the fund. Therefore this fund is actually a temporary liquidity facility for the settlement process. There is a joint project of Takasbank and ISE for expansion of the value of this fund.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	Not applicable. There are no share registrars in Turkey.
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	No.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	Investors are entitled to all benefits from the point of finality of settlement. Corporate Law, Capital Markets Law, relevant regulations of the Capital Market Board (CMB) state the rules enforcing such. CMB is responsible for the supervision.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	Proxy voting is permissible in the market, however such proxies cannot be lodged by post or any other remote delivery method. Proxy voting is realised by the power attorney from the public notary. For the securities safekept at Takasbank; the participant asks a written request and power of attorney from the beneficial owner and applies to Takasbank for a blockage letter indicating the number of securities and the name of the investor. Upon this application and the validity of the availability of the securities, Takasbank puts blockage on the specified number of securities in the specified investor's account until the end of the general meeting and issues a blockage letter to be used in the general meeting.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	Yes. According to the Corporate Law, it is required to hold the General Meeting within three months following the end of the financial year. Capital markets regulations require the dividend payments to be realised by the issuer within five months following the end of the financial year. For those securities under safekeeping at Takasbank, issuers are required to pay the dividends to Takasbank within 3 days following the receipt of the declaration from Takasbank, to be further credited to participant accounts. The declaration of Takasbank is realised on the settlement date of the dividend payment date(T+2), to the issuer. The bonus issues and rights coupons are credited to the participants' accounts on the settlement date of the corporate action date (T+2). The execution period of the pre-emptive rights cannot be less than 15 days and more than 60 days. Rights for dividend collection and for bonus issues, remain valid for 5 years.
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	Yes. Issuers inform the Istanbul Stock Exchange for corporate actions. The announcements are published in the ISE daily bulletin, which is publicly available and in the financial press.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	Corporate actions information is published on the daily bulletin of the ISE which is also posted on its web site (http://www.imkb.gov.tr) Executed corporate actions information is also available through Alo-Takas interactive voice response system of Takasbank. The minimum lapsed time for responding such actions is considered to be sufficient.