Handelsblatt53 minutes agoBusiness2 min readGermany

Turkish government sets up control board after investment fund crisis

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The Turkish government has set up a new vice-presidential coordination body to oversee the winding-up of more than 100 investment funds liquidated over alleged price manipulation and protect the rights of nearly half a million affected investors.
The crisis was triggered by irregularities at the Istanbul Stock Exchange, resulted in losses of around $20 billion and triggered government interventions including arrests and stock market reforms.

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Why It Matters

The crisis arose from alleged price manipulation on the Turkish stock exchange in thinly traded stocks, which led to heavy losses for several investment funds. When investors demanded their money back, the funds ran into financial difficulties because they could not raise liquid assets quickly enough.

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After suspected price manipulation on the Turkish stock exchange, numerous investment funds are in financial distress. The government wants to use the committee to secure the rights of the investors affected.

Recep Tayyip Erdogan: The background to the government's decision is a crisis in investment funds. Photo: IMAGO/Anadolu Agency

Ankara, Istanbul. After a serious crisis on the domestic financial market, the Turkish government is taking further measures and establishing a new control body.

A coordination council chaired by the vice president will oversee the processing of numerous investment funds, as President Recep Tayyip Erdogan announced in Ankara on Tuesday. This is intended to protect the rights of affected investors. He also commissioned the state control authority to investigate irregularities.

The background to the government's decision is a crisis in investment funds that was triggered by suspected price manipulation of thinly traded stocks on the Turkish stock exchange. This resulted in heavy losses for several funds. When concerned investors then demanded their money back, the funds ran into financial difficulties because they could not raise enough funds quickly enough.

The Turkish capital market regulator then ordered the compulsory liquidation of more than 100 of these funds. This affects almost half a million investors. The total volume of the funds affected is around $20 billion. The supervisory authority has now presented a plan on how the assets of the funds are to be gradually sold and investors paid out.

The turbulence severely shook the Turkish stock market in September. To prevent a collapse, the central bank injected additional money into the market. The authorities also arrested several suspects for alleged price manipulation. However, Finance Minister Mehmet Simsek emphasized that there was no general risk to the Turkish financial system.

In response to the crisis, the Istanbul Stock Exchange also excluded more than a quarter of the companies from the important leading index BIST-100. Among those affected were financial institutions whose share prices had fluctuated significantly in advance. In the future, stricter rules for inclusion in the index will apply in order to ensure the stability of the market.

What to Watch

AI outlook — possibilities, not facts

The outstanding payments to affected investors will be made gradually over several months, as planned by the regulator.
Likely · Within months
The new rules for inclusion in the BIST-100 index will reduce market fluctuations and limit speculative trading.
Possible · Within months

Open Questions

Who exactly is behind the alleged price manipulation?
How high is the actual amount of damage for individual investors?
When will the outstanding payments to investors be completed?
What penalties do those responsible for the irregularities face?