Turkey's Capital Markets Board Chairman Resigns Amid $20B Fund Crisis
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Mahmut Sütçü, the chairman of Türkiye’s Capital Markets Board (SPK), resigned on October 2, 2023, citing health reasons, amid a deepening crisis in the country’s fund management industry. The crisis, which began last month, has resulted in trading suspensions, widespread liquidations, and criminal probes into market manipulation, impacting approximately 500,000 retail and institutional investors.
The turmoil started when several investment funds struggled to meet investor redemption demands during a sharp market sell-off. This liquidity squeeze raised concerns about fund solvency and the integrity of Turkish equity trading. On September 17, the Capital Markets Board of Turkey suspended purchase and redemption transactions for funds managed by seven portfolio management companies and issued liquidation orders for 131 funds.
The affected institutions include Tera Portföy, Pusula Portföy, Hedef Portföy, Atlas, A1 Capital, Pardus, and Bulls. According to data from the Central Registry Agency of Turkey (MKK), the number of individual retail investors holding positions in the liquidated funds reached 455,758. The total assets of the affected funds ordered for liquidation exceed $20 billion.
Investigations are focusing on suspected market manipulation involving thinly traded equities. Certain funds had built heavy concentrated positions in low-liquidity stocks, artificially inflating their prices and generating extraordinary returns. These positions collapsed under pressure as redemption requests surged. The funds at the center of the crisis amassed over $20 billion in assets in roughly three years, fueled by investors seeking high yields to hedge against soaring inflation and the depreciation of the Turkish lira.
The probes have also expanded to target executives at the investment firms amid growing allegations of market rigging. The ripple effects have hit Borsa Istanbul, with the benchmark index suffering its worst performance in years.
CONTEXT: This crisis underscores the vulnerability of Turkey's financial markets to liquidity pressures and market manipulation, highlighting the need for robust regulatory oversight and investor protection measures.
