Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 8

Local laws and regulations should ensure that there is segregation of client assets from the principal assets of their custodian; and no possible claim on client assets in the event of custodian bankruptcy or a similar event. Regulators and markets, to further improve investor protection, should work:

• to ensure clarity on the applicable law on cross border transactions
• to seek international agreement on a legally enforceable definition of finality in a securities transaction
• to ensure that local law fully protects the rights of beneficial owners
• to strengthen securities laws both to secure the rights of the pledgee and the protection accorded to client assets held in Securities Systems.

1.	Under local rules and regulations, what are the segregation requirements for keeping client assets and custodian assets in the depository?	ISE members are required to set-up one main account for their own and sub-accounts for each of their clients under their main account with Takasbank. Each investor is identified by name and is assigned a unique Takasbank number. However, Takasbank does not directly deal with investors. It is the ISE members' responsibility to move securities in and out of their customers' sub-accounts for settlement purposes.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	"The Code of Obligations" regulates that the ownership of the assets under custody do not pass to the custodian or to the depository, provided that there is a proper custody agreement between the parties. Therefore in case of an insolvency, the assets under custody are not deemed as the assets of the insolvent institution, and not subject to the bankruptcy board for the compensation of the creditors. Those assets are returned to their actual owners according to the replevin (istihkak) procedure regulated by the "Execution and Bankruptcy Law".
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	Beneficial ownership and legal ownership are recognized by the local law in Turkey. Beneficial owner is the actual owner of the security; while the legal owner has the possession of the security as a result of a bilateral act, or legal action such as: securities borrowing, custody or pledge.
4.	Does local law clearly define the point of time when a settlement, both for the security and the cash involved, achieves finality and thus cannot be unwound?	Currently finality occurs, when the securities and cash are credited to the ISE members' accounts with Takasbank for the organized market settlement, for OTC settlement and for all transfers. After dematerialization, finality will occur in the books of the Central Registry Institution.
5.	Does a pledgee have an absolute right to realise their security at all times?	According to the "Execution and Bankruptcy Law", realisation of the pledged assets are subject to a certain procedure. However, the pledgee may have the absolute right to realise those securities, should a clause exist in the relevant bilateral agreement between the parties of the business.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	No. There are no loss sharing provisions. However, there is an insurance scheme in place for this purpose. The insurance policy is organized in two parts: The first part mainly covers operational issues and related with falsification, misuse, breach of fidelity and computer crime with an insurance of USD 5million in total. The second part covers losses related to securities under safekeeping with an insurance of USD 97.5 million. The deductible amount is USD 100.000 for each case of loss.