Funding crisis in Turkish capital markets: Defaults, circuit breaker and CMB investigations

Turkish capital markets have been shaken recently by the successive news of defaults centered on investment funds, criminal complaints by the Capital Markets Board (CMB) and sharp declines in Borsa Istanbul. The insolvency of giant funds with assets under management approaching trillion liras and the restriction of investors' access to their money had a wide impact in the market.

Borsa Istanbul witnessed a sharp sales wave on the day the liquidity crunch crisis broke out in the fund market. As the losses in the BIST 100 index exceeded 6 percent, the Index Linked Circuit Breaker (EBDK) system was activated and transactions in the share market were temporarily suspended. While not only BIST 100 but also banking and industrial indices experienced sharp depreciations exceeding 6 percent, the index tested below 13 thousand points.

At the epicenter of the shakeup in the market is the Tera Group, which is known to manage assets of around 700 billion lira. Tera Portföy announced that it had defaulted on the participation fee refund payments for the Stock Fund (THF) and Money Market Fund (TP2) it founded, and announced that the liquidity management process was continuing.

The development that really worried investors was the sudden change in the return rules of other large funds managed by the company. The functioning of a total of 6 funds (TLY, TMV, TMM, T3B, TRU, DOH), including the TLY fund, which stands out with its more than 102 thousand investors and 243.6 billion lira size, has been changed. Investors, who were able to receive their money within T+2 (two business days) at daily announced prices in the old system, were trapped in funds with the new rules. According to the new practice, the fund unit share value will be calculated only once a month (15th day of the month), not every day, and the sales prices will be paid to the investor 10 business days after this date. This situation will cause investors in urgent need of cash to wait for weeks and be directly affected by possible value losses.

The spiral of crisis was not limited to Tera. There were also major losses in value and cases of default in the funds managed by Pusula Portföy. Following the allegations, Katılımevim (KTLEV) shares, which are part of the Pusula Group and traded on Borsa Istanbul, dropped rapidly from their historical peak of 69 lira to 27.46 lira. The stock lost 60 percent of its value in just 13 days.

In this crisis environment, Tera Group announced that it had started negotiations to take over the struggling Pusula Finans Holding and its affiliated companies (Pusula Portföy, Pusula Yatırım, Katılımevim, etc.). Although it was announced that a sales agreement was reached between the parties, no details regarding the monetary amount and CMB and BRSA approvals were shared. Following the default announcements, whether this transfer process would continue or not created a big question mark in the market.

The Capital Markets Board (CMB) imposed heavy sanctions upon the unusual activity in the market. According to the decisions reflected in the CMB bulletin dated September 17:

Pusula Front: Due to transactions deemed to be manipulative in the shares of Katılımevim and Gündoğdu Gıda, a 2-year transaction ban was imposed on Pusula Portföy Chairman Muhammed Yarız and many fund managers, and a criminal complaint was filed against them to the public prosecutor's office.

Tera Front: Transactions in Destek Finans Faktoring shares, which were overvalued in tera funds, were examined. As a result of the investigation, a criminal complaint was filed against İbrahim Bekçi, one of the managers of the TLY fund, which has assets of more than 200 billion liras, and a 2-year transaction ban was imposed on him.

Previously (October 2025), CMB imposed an administrative fine of 8.9 million TL per person on two Tera fund managers due to transactions in Vişne Madencilik shares. It is rumored behind the scenes that the CMB is working on new and harsh regulations that will limit the investments that investment funds can make in "related parties".

Tera Investment's weight in the market and the strategies it implemented were also the subject of a comprehensive research prepared by Bloomberg in recent months. The report emphasized that Tera Investment shares have increased by approximately 40 thousand percent since December 2022 and the company's market value reached 4.5 billion dollars, leaving behind global finance giants with thousands of employees such as Lazard and BGC Group.

The most crucial point of the report was the structure called "self-reinforcing loop". Tera's main fund (TLY) was investing 60 percent of its assets in companies directly related to Tera (Tera Yatırım, Destek Finans, Peker Gayrimenkul).

Destek Finans Faktoring: The company, whose public offering was mediated by Tera, climbed to 3 thousand 960 liras with the intense purchases of Tera funds after going public at 46.98 TL. (7,820 percent increase). The company's market value reached 18.8 billion dollars at one point, making it the third most valuable company on Borsa Istanbul.

Vişne Madencilik: It rose 2100 percent after the public offering. After the main fund and brokerage firm sold their shares, the stock lost 89 percent of its value.

Experts consider it a high-risk conflict of interest if the fund increases the price by buying shares of related companies, increasing the fund value and ultimately inflating the parent company's profitability. Another noteworthy detail was that in the same period, Tera's total borrowing increased from 132 million TL to approximately 60 billion TL within a year.

Emre Tezmen, the founder and Chairman of Tera Holding, which is also the jersey back sponsor of Beşiktaş JK, made a statement that we are used to seeing in politics after the default crisis broke out. Describing what happened as "a temporary liquidity shortage in certain funds", Tezmen described the situation as "a planned, deliberate and organized speculative attack by known evil forces".

Claiming that they took responsibility to prevent Pusula Group's investors from being victimized, Tezmen explained the reason for the attack as "the deepening of a local and national will in the market". Emphasizing his loyalty to AKP President Recep Tayyip Erdoğan, Tezmen asked investors to stand "upright" against speculative moves carried out abroad. In his past interview with Bloomberg, Tezmen argued that everything they did was in accordance with the legislation and that it was not possible to control the market.

The possibility of the crisis spreading also created controversy among market professionals. İbrahim Mustafa Turhan, one of the former managers of Borsa Istanbul, compared the current situation in the market with the 1998 Brazilian crisis in his posts on his personal social media account. Warning that the deterioration in financial intermediation functions may spread to the entire system with loss of confidence, flight and liquidity shortage, Turhan said, "The important thing is to take preventive measures without delay, otherwise bade harabu'l Basra (after Basra is devastated)."

Following these warnings, the Chief Public Prosecutor's Office announced that it had launched an ex officio investigation against Turhan on the grounds that he "made posts that would cause fear and panic in investors". How the capital markets will solve this complex knot in the coming days and the new steps the CMB will take are eagerly awaited.