As the Central Securities Depository of the Turkish capital markets, Merkezi Kayıt Kuruluşu A.Ş. (MKK) provides its members with registration, settlement and custody services. MKK also offers value-added services to member organizations, issuers, investors and all other market participants with systems and platforms that it develops as part of its function as an R&D center and the e-MKK Information Portal that it developed in-house.
Securities Held in Dematerialized Form at MKK:
- Stocks of the companies listed on Borsa Istanbul,
- Government Debt Securities,
- Mutual Funds,
- Exchange-Traded Funds,
- Private Sector Debt Instruments,
- Real Estate Certificates,
- Electronic Warehouse Receipts
Settlement and Custody Services of MKK:
- Issuance of capital market instruments,
- Safekeeping of securities on a beneficial owner basis,
- Central clearing and custody services for securities in dematerialized form,
- Corporate actions and issuer services,
- Investor services,
- Services related to the transactions on the Securities Lending Market and the Electronic Fund Trading Platform of Turkey
Value-Added Services of MKK:
On the e-MKK Information Portal, where value-added services of the MKK are provided:
- e-CAS (Investor Notification and Alert System)
- e-GOVERNANCE: Corporate Governance and Investor Relations Portal,
- e-GEM: Electronic General Meeting System,
- e-COMPANY: Companies Information Portal,
- e-WAREHOUSE: Electronic Warehouse Receipts Center,
- e-TRADE REPOSITORY: Electronic Trade Repository Platform,
- e-DATA: Capital Markets Data Bank,
- e-BDS: Electronic Board of Directors System
MKK is also the operator of the Public Disclosure Platform (PDP), an electronic system that facilitates the electronic delivery and disclosure of all matters requiring public disclosure as per the Capital Market Law and Stock Exchange regulations.
What is a “Central Securities Depository Institution”?
Central Securities Depositories are among the most important post-trade institutions in capital markets. A Central Securities Depository (CSD) is an institution conducting at least one of the following activities; operating a Security Settlement System (SSS), performing first registry of securities (issue) (notary service) and holding securities accounts centrally at the highest level (central maintenance service).
Securities Settlement System is defined as a system in which securities transfer instructions are executed as per the EU Settlement Finality Directive numbered 98/26; article 2, section “i”, subsection 2. The core component of central depository function is to operate a central system, in which securities are issued, held in accounts either at participant or beneficial owner basis, traded, and their respective rights are installed.
MKK is a central institution that its responsibilities of issuing capital market instruments in dematerialized form, registering them in accounts opened at beneficial owner basis, monitoring their respective rights are given by law and the records kept in its books on these securities are legally binding. In other words, it is a central system which securities are issued, held in beneficial owner accounts, transferred and their respective rights are installed. Therefore, MKK with its current structure is the Central Securities Depository institution of Turkey.
History of Central Securities Depositories in Turkey
The ISE Settlement and Custody, Inc., which was established by the ISE in 1992, was the authorized central settlement and depository institution conducting settlement of transactions in cash and securities on the ISE markets. In Turkey, until 1995, Takasbank physically held stocks of listed companies in its vaults on a participant based immobilized system. After the financial crisis in 1994, as a result of the bankruptcy of some financial intermediaries, the ISE Settlement and Custody, Inc. was entrusted with the establishment of an investor (beneficiary owner) based immobilized system with respect to the Capital Markets Board (CMB) decree on 15 December 1994. The ISE Settlement and Custody, Inc. changed its name to the ISE Settlement and Custody Bank, Inc. (Takasbank) by receiving an investment banking license in 1997. During this period, stock certificates were continued to be physically issued and new certificates were printed for capital increases. However, publicly traded stocks of the ISE listed companies were immobilized at Takasbank first on a participant then on an investor basis. Therefore, the traditional valuable papers law and the physical system still existed legally for stocks and Takasbank continued its tasks accordingly until 28 November 2005.
Transition to the Dematerialised System and the Dematerialised System Law
The first step of the dematerialization reform for capital markets was taken with the addition of the Article 10/A to the Capital Market Law (CML). The Article 10/A of the (CML) brought about a significant change by annulling the former valuable papers law that was based on the physical certificates and introducing the legal framework for the dematerialized system in which Central Registry Agency Inc. (MKK) holds capital markets instruments and investor rights affixed on them in an electronic book keeping environment. MKK was founded in 2001 as the most important part of this reform.
The dematerialization process was started with mutual funds in April 2005, and on 28 November 2005 all publicly traded stocks on the ISE were fully dematerialized. Since 2005, all of the new capital market instruments have been issued in fully dematerialized form.
- The immobilized depository system that Takasbank continued to manage until 28 November 2005 was based on a CMB resolution, and our law did not attribute any legal impact concerning records held at Takasbank. In the physical system physical certificates constitute the legal basis whereas in the dematerialized system records held at MKK are deemed to constitute the legal basis. The Article 10/A of the CML removed the need for issuance of physical certificates on those securities and rights affixed on them that are deemed to be dematerialized by the CMB. Therefore, the former valuable papers system was discontinued for the new valuable rights system.
- The dematerialized system is a completely new legal discipline. The new system according to the Article 10/A introduced holding of shares and rights in an electronic environment by eliminating physical shares, and thus, eliminating the legal nature of the valuable paper. In this new system rights are entirely separated from papers. The dematerialized system removes many legal principles based on the valuable papers law. Besides bringing along new institutions the dematerialized system changed the legal nature of real rights to be established on shares.
- In the physical system that continued until 28 November 2005 only stocks that were traded on the ISE were physically held in Takasbank vaults. In the dematerialised system total capital, including all non-floating shares, are held in dematerialised form.
- At present all floating and non-floating shares of publicly traded companies, mutual funds, corporate bonds, commercial papers, warrants, covered bonds and asset backed securities are issued and held in MKK’s electronic book-keeping system. Rights affixed on all dematerialised securities are reflected to MKK records and these records bear legal basis. In this regard, Takasbank’s functions before the transition to the dematerialised system and the functions attributed to MKK by the relevant regulations concerning the dematerialised system are entirely different. MKK is not a depository institution which holds physically issued stocks in global form as Takasbank did. MKK is a central depository institution where capital market instruments and the rights on them are held in dematerialised form, and whose records are attributed legal basis as per the depository functions assumed from the law. MKK has assumed all the functions of a Central Securities Depository (CSD) in this structure.
- It can clearly be observed from the relevant regulations concerning the dematerialised system that the legislators concede legal basis to MKK records. The records created at MKK do not carry an organic but a declaratory status as claims made to third parties in connection with rights affixed on any dematerialised capital market instrument are based on the date of notification made by participants to MKK. It is not obligatory to carry out bilateral transactions on capital market instruments that are held at MKK through MKK for those transactions to be effectual for the parties. However, any notification that is made to MKK through the CDS renders a transaciton the ability to be claimed against third parties. Therefore, as per the Article 10/A of the CML, it has been acknowledged that the notification (date) made to MKK has a legal basis in right entitlements due to transactions in capital market instruments. Another novelty brought about by the Article 10/A is that, in registering the transfer of shares to their books, issuers can take the records at MKK as basis without the need for any documentary proof. MKK assumes a function with regard to the assessment of an investor’s status against issuers besides acting as the Central Securities Depository. This function is defined as the “registry” function in international post-trade industry. MKK has provided an efficiency by combining the Central Securities Depository (CSD) function with the Registrar function. In this context, the legal nature of the records held at MKK involves Registry functions beyond its CSD functions.
- The legal basis of the records held at MKK is further emphasised in the new Turkish Commercial Code which was adopted on 13 January 2011. By the Article no. 496 of the new Commercial Code it was decreed that in case the registered shares that are listed are sold on exchange, MKK will notify the companies about the identification of the transferor and the number of shares sold or will provide technical access to this information for those companies. Furthermore, the Articles no. 415-417 and 431 of the new Commercial Code, which regulates the procedures and principles of convening of general assemblies of joint stock companies, decrees that the list of participants to general assembly meetings shall be prepared according to the list of shareholders that will be received from MKK.
- The dematerialised system, which is primarily based on trust instead of documentary proof of right entitlements, cannot be insured in whole, and the inherent risks associated with this system cannot be covered by capital alone as the system carries substantial risks that cannot be fully indemnified. Therefore, by the Article no. 5 of the MKK regulation which was issued by the Council of Ministers, it was decreed that the CMB should appoint a member to the MKK board to act as the chairman of the board, through whom the CMB could effectively exercise its supervisory and regulatory roles. Furthermore, the Article no. 9 of the MKK regulation brings about additional requirements for the members of the MKK board of directors and its auditing board, and the MKK staff, preventing the hiring of personnel who were condemned of some specific criminal offenses.
- Another consequence of this is the management of the Investors Protection Fund by MKK.
Financial Accounts Center
MKK, was included to the integrated system which was established between Takasbank and the Turkish Derivatives Exchange (Turdex) for risk management purposes on a participant basis as the “Financial Accounts Center” in 2011. The CMB designated MKK as the “Financial Accounts Center” to enable assignment of unique registry numbers to investors for their transactions in different financial markets. In this respect, accounts that are opened with Takasbank for transactions on Turdex will be initially opened with MKK and the related arrangements that will enable assignment of unique registry numbers will be made by the two institutions. In this way, MKK has become the “Financial Accounts Center” of Turkey.
MKK, within the relevant legislative framework, shares data in the Central Dematerialised System on dematerialised capital market instruments with regulatory and supervisory authorities, settlement and custody institutions, exchanges, professional organisations, data vendors, issuer companies, investors and public in general. Data sharing is performed hourly, daily, weekly, monthly, quarterly and annually. The following institutions are among the organisations that MKK shares data with:
- Capital Markets Board of Turkey
- Banking Regulation and Supervision Agency
- Financial Crimes Investigation Board
- Central Bank of Turkey
- Istanbul Stock Exchange
- Takasbank-ISE Settlement and Custody Bank Inc.
- The Association of Capital Market Intermediary Institutions of Turkey
- Data Vendors
MKK, provides continuous data flow to the “CMB-ISE Surveillance Project” which was started to fulfil a surveillance function for the Turkish capital markets.
MKK also enables MKK members, within the designations of the Capital Markets Board of Turkey, to enter the following information to the Central Dematerialised System:
- Information on free-floating shares
- Mutual Funds Management Fees
- Information on account proxies
- List of insiders