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The concept and operations of an organized securities market in Turkey have their roots in the second half of the 19th century. The first securities market in the Ottoman Empire was established under the name of "Dersaadet Securities Exchange" following the Crimean War in 1866. Although its operations were suspended during the war years, this exchange, from time to time, witnessed substantial trading activity. Dersaadet also created a medium for European investors who were seeking higher returns in the vast Ottoman markets.

Following the proclamation of the Turkish Republic from the ruins of the Ottoman Empire, a new law was enacted in 1929 to reorganize the fledgling capital markets under the new name of the "Istanbul Securities and Foreign Exchange Bourse". Soon, the bourse became very active and contributed considerably to the funding requirements of new enterprises across the country. However, its success was clouded by a string of events, including the 1929 Depression and the impending Second World War abroad which took their toll in the embryonic business world in Turkey. During the industrial drive of the 1950's and subsequent decades, there was a continuous increase in the number and size of joint stock companies which began to open up their equity capital to the public. Those mature shares faced a strong and growing demand from mostly individual investors and some institutional investors.

In Turkey, financial markets have undergone a considerable degree of positive and promising changes in the past decade. As a part of the overall liberalization process which has been in effect since the beginning of the 1980's in the financial markets, liberalization and market orientation have been the dominant and leading factors shaping the system. One of the important steps taken in this period has been the stimulation of the capital markets by setting a new regulatory framework for the effective and healthy functioning of the markets.

The present legal framework of the Capital Markets in Turkey is based on the Capital Market Law enacted in 1981 and amended in 1992. Together with this law, which mainly sets the framework for primary markets, there is also the Decree-by-Law No. 91, enacted in 1983, which constitutes the regulatory base for secondary markets.

The Turkish Commercial Code, enacted in 1956, regulates the establishment and operation of companies, and defines and regulates negotiable instruments in general. Thus, joint stock companies subject to the Capital Market Law are required to comply with the provisions of the Commercial Code whenever there is no provision in the Capital Market Law.

The objective of the Capital Market Law was to regulate and control the secure, fair and orderly functioning of capital markets and to protect the rights and benefits of the investors.

Until the amendment to the Capital Market Law in 1992, issuing of corporate sector securities was subject to the approval of the Capital Market Board (CMB), an institution which began operating in 1982, established by the Capital Market Law.

With the new provisions introduced by the amendment to the Law, the previous merit system has been changed to disclosure, and now the Board decides only on the registration of the securities to be issued.

After the launching of the relevant regulation in 1985, the exchange began operating under the name of the "Istanbul Stock Exchange" in 1986.

The ISE, as Turkey's national centralized Stock Exchange, performed promisingly well in 1993, followed by successive good performances in the last couple of years, and proved to have a considerable weight in the Turkish financial sector. It also attracted growing interest of foreign investors.

Procedures for investment in Turkish securities by non-residents have been greatly eased by the introduction of the concept of portfolio investment as distinct from foreign direct investment in the regulations governing capital mobility in Turkey in 1989. As a part of the general liberalization policies adopted in the financial markets, as well as in foreign trade, the rules governing capital movements and foreign exchange transactions have been widely relaxed by the enactment of the Decree-by-Law No. 32 which replaced then present strict regulations on these subjects.

Under the present regulations there are no restrictions on the transactions of foreign investors. The stock and bond markets are open to foreign investors with guaranteed repatriation of proceeds.

Transactions on securities are required to be made through Stock Exchange members, the number of which declined to 162 by the end of 1994, with 100 brokerage houses, 12 investment banks and 50 commercial banks.

The Istanbul Gold Exchange was opened in 1994 as a part of the project of "the re-organization of the gold markets in Turkey and development of a fund-transferring mechanism within the financial system".

Apart from the above mentioned developments, " Regulation of the operational and organizational principles for the Futures and Options Exchanges" and "Regulation of the Izmir Futures and Options Exchange" have been launched in 1995.

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