chapter 4 non-depository institutions. insurance companies they provide ithey provide insurance...

CHAPTER 4CHAPTER 4

NON-DEPOSITORY NON-DEPOSITORY INSTITUTIONSINSTITUTIONS

INSURANCE COMPANIESINSURANCE COMPANIES

• They provide iThey provide insurance policies• They promise to pay specified amounts

contingent on the occurance of future events.• They are risk bearers.They are risk bearers.• They accept risk in return of insurance They accept risk in return of insurance

peremiumperemium• Their major task (underwriting Process):Their major task (underwriting Process):

– Deciding which applications for insurance they should Deciding which applications for insurance they should accept or reject.accept or reject.

– Determine how much to charge for insurance if they Determine how much to charge for insurance if they accept the application. accept the application.

There are two kinds of sources for the There are two kinds of sources for the insurance companies;insurance companies;

• Initial Underwriting Income (Insurance Initial Underwriting Income (Insurance Premium)Premium)

• IInvestment incomenvestment income



• TYPES OF INSURANCE COMPANIES in TYPES OF INSURANCE COMPANIES in TurkeyTurkey– Life Insurance CompaniesLife Insurance Companies

• Term InsuranceTerm Insurance• Whole Life InsuranceWhole Life Insurance• Other Life Insurer activities;Other Life Insurer activities;

– Private pension fundsPrivate pension funds– Accident and health insuranceAccident and health insurance– Group insurance: providing health insurance coverage to Group insurance: providing health insurance coverage to

corporate employees.corporate employees.

– Non-life Insurance CompaniesNon-life Insurance Companies• fire fire • transport transport • accident accident • engineeringengineering• agricultureagriculture• healthhealth


Differences of non-life insurance from life Differences of non-life insurance from life insurance;insurance;

• Non-life insurance covers a wide variety of Non-life insurance covers a wide variety of activities. However, life insurance is more activities. However, life insurance is more focused.focused.

• Non-life insurance policies often last for a Non-life insurance policies often last for a short-term (one year or less) as opposite short-term (one year or less) as opposite to the long-term and even permanent life to the long-term and even permanent life insurance policies. insurance policies.


INVESTMENT COMPANIESINVESTMENT COMPANIES

• They are financial intermediaries that sell They are financial intermediaries that sell funds to the public and invest the funds to the public and invest the proceeds in a diversified portfolio of proceeds in a diversified portfolio of securities.securities.

• This portfolio is managed by the This portfolio is managed by the investment company on the behalf of its investment company on the behalf of its shareholders. shareholders.

TYPES OF INVESTMENT TYPES OF INVESTMENT COMPANIES in U.SCOMPANIES in U.S

• Mutual FundsMutual Funds

• Closed-end FundsClosed-end Funds

• Unit Investment Trusts (UITs)Unit Investment Trusts (UITs)– Real Estate Inv. Trusts (REITS)Real Estate Inv. Trusts (REITS)– Real Estate Mortgage Conduits (REMICs)Real Estate Mortgage Conduits (REMICs)

MUTUAL FUNDSMUTUAL FUNDS

• Funds comprised of various types of securities. Funds comprised of various types of securities. Such as common stock, bonds, MM instruments Such as common stock, bonds, MM instruments and combination of them.and combination of them.

• Since each investor may sell their shares or buy Since each investor may sell their shares or buy new shares each business day, they are called new shares each business day, they are called as “open-end investment companies”.as “open-end investment companies”.

• Each mutual fund has a manager or investment Each mutual fund has a manager or investment advisor.advisor.

• The price of each share is Net Asset Value (NAV):

• NAV = Mrk. Value of the port – Liabilities

Nr. Of shares outstanding

• NAV is determined only once in day , at the close of the day)

Closed-End Funds

• The shares of closoed –end funds are like the shares of the common stock.

• The new shares of the closed end fund are initially issued by an underwriter for the fund.

• After the new issue the number of shares are remains constant

Unit Trust

• They are like closed-end funds in that the number of unit certificates are fixed.

• They specialize in bonds.

Differences btw Open-end Funds Differences btw Open-end Funds (Companies) (Mutual Funds) and (Companies) (Mutual Funds) and Closed-end Funds (Companies)Closed-end Funds (Companies)

• Purchased its Purchased its shares from the shares from the fund.fund.

• RedeemableRedeemable• Shares are being Shares are being

sold on a sold on a continues basiscontinues basis

• More liquid More liquid securitiessecurities

Traded in the Traded in the secondary secondary market.market.

Not redeemableNot redeemable They do not They do not

continuesly offer continuesly offer their shares for their shares for salesale

They are They are permitted to permitted to invest in a invest in a greater amount greater amount of “illiquid” of “illiquid” secutities than secutities than mutual fundsmutual funds

Similarities of the open-end and Similarities of the open-end and closed-end fundsclosed-end funds

• Both funds are managed by seperate entities Both funds are managed by seperate entities known as “investment advisors” that are known as “investment advisors” that are registered by the SEC.registered by the SEC.

• Both can come in many varities.Both can come in many varities.• They are subject to SEC registration and They are subject to SEC registration and

regulation are are subject to numerous regulation are are subject to numerous requirements imposed for the protection of requirements imposed for the protection of investors.investors.

Differences btw Unit Inv. Trusts (UITs) Differences btw Unit Inv. Trusts (UITs) and Mutual Fundsand Mutual Funds

• Have a termination dateHave a termination date• Make a one-time public offering Make a one-time public offering

of fixed amount of unitsof fixed amount of units

• Buy and hold a fixed portfolio of Buy and hold a fixed portfolio of stocks, bonds etc. concentrated stocks, bonds etc. concentrated in a particular industry. Have in a particular industry. Have shares of stocks of a few shares of stocks of a few companies. (Dogs of Dow companies. (Dogs of Dow Approach)Approach)

• Can not buy or sell securities Can not buy or sell securities frequently. frequently.

• Does not have an inv. AdvisorDoes not have an inv. Advisor

• You can buy or sell at any time You can buy or sell at any time

Never expireNever expire

No fixed amount.No fixed amount.

Diversification is essencial . It Diversification is essencial . It must hold a min. Nr. of diff. must hold a min. Nr. of diff. SecuritiesSecurities

Can sell and buy securities Can sell and buy securities frequently.frequently.

Have an inv. advisorHave an inv. advisor

Buy or sell at the end of the Buy or sell at the end of the trading day.trading day.

Similarities of the Mutual Funds Similarities of the Mutual Funds and UITsand UITs

• Their shares are both redeemable. Closed-end funds are Their shares are both redeemable. Closed-end funds are not redeemable.not redeemable.

• They must both calculate the NAV at least once every They must both calculate the NAV at least once every business day after the major US exchanges are closed. business day after the major US exchanges are closed. Closed-end funds are not subject to this requirement.Closed-end funds are not subject to this requirement.

• The share price of them are based on; The share price of them are based on; – Per share NAV+fees at purchase (sales load, purchase fees)Per share NAV+fees at purchase (sales load, purchase fees)

• The price the investors receive at redemption;The price the investors receive at redemption;– app. NAV-fees (deferred sales loads or redemption fees)app. NAV-fees (deferred sales loads or redemption fees)

Fund Sales Charges and Annual Operating Expenses

• There are two types of costs for the mutual fund investors;– Shareholder fee (sales charge): One –time

charge for a specific trensaction such as purchase, redemption and etc.

– Annual operating expenses (expense ratio): is debited annually from the investor’s fund balance by the fund sponsor such as management fee, investment advisory fee and etc.

Economic Motivation for FundsEconomic Motivation for Funds

1.1. Risk reduction through diversification.Risk reduction through diversification.

2.2. Lower costs of contaracting and processing Lower costs of contaracting and processing information.information.

3.3. Professional portfolio management.Professional portfolio management.

4.4. Liquidity.Liquidity.

5.5. Variety.Variety.

6.6. A payment mechanism. A payment mechanism.

Types of Funds by Investment Types of Funds by Investment ObjectiveObjective

• Main categories;Main categories;– Stock fundsStock funds– Bond FundsBond Funds– MM FundsMM Funds– Others.Others.

• Other clasification;Other clasification;– U.S only fundsU.S only funds– International funds (No U.S)International funds (No U.S)– Global funds (U.S and International)Global funds (U.S and International)

• Another clasification;Another clasification;– Passive funds (Indexed funds)Passive funds (Indexed funds)– Active funds.Active funds.

• Acc. to market capitalization;Acc. to market capitalization;– Small capSmall cap– Mid capMid cap– Large capLarge cap

• Acc. to style;Acc. to style;– Value Value – GrowthGrowth

• Acc. to sector specialization;Acc. to sector specialization;– TechnologyTechnology– UtilitiesUtilities– Go on....Go on....

• Funds in funds.Funds in funds.

Common objective of the mutual Common objective of the mutual fundsfunds

– Long-term growthLong-term growth– High current incomeHigh current income– Preservation of principalPreservation of principal

Types of mutual funds in U.STypes of mutual funds in U.S• Stock funds;Stock funds;

– Equity income funds (conservative)Equity income funds (conservative)– Growth funds-value funds (mainstream)Growth funds-value funds (mainstream)– Small company funds (aggressive)Small company funds (aggressive)– International funds (aggressive)International funds (aggressive)

• Bonds (by maturity);Bonds (by maturity);– Short-term bondsShort-term bonds– Intermediate bondsIntermediate bonds– Long-term bondsLong-term bonds

• Bonds (by creditworthiness of issuers)Bonds (by creditworthiness of issuers)– Government bondsGovernment bonds– corporationscorporations– High yield corporationsHigh yield corporations– İnvestment grade İnvestment grade

• Asset Allocation funds,Asset Allocation funds,

Exchange Traded Funds

• They consist of investment companies that are similar to mutual funds but trada like stocks on an exchange.

• Even-though they are open-end funds, ETFs are similar to closed-end funds which have small premiums or discounts from their NAV.

• They are based on stock indices or sub-indices, not actively managed portfolios.

Exchange-traded funds in USExchange-traded funds in US

• SPDRS, Spider, SpydersSPDRS, Spider, Spyders– Traded as SPY on AmEx.Traded as SPY on AmEx.– Tracks S&P 500 indexTracks S&P 500 index

• QubeQube– QQQ on AmExQQQ on AmEx– 2.5% of the NASDAQ 100 Index2.5% of the NASDAQ 100 Index

• DIAMONDSDIAMONDS– DIA on AmExDIA on AmEx– 1% of the DJIA1% of the DJIA

REITs and REMICsREITs and REMICs

• They are pass-through securities.They are pass-through securities.– REITs specializes in investing in mortgages, property or REITs specializes in investing in mortgages, property or

real estate company shares offering their investors an real estate company shares offering their investors an apportunity to participate in real estate profits and tax apportunity to participate in real estate profits and tax benefitsbenefits

– REMICs must invest only in mortgages not real estate.REMICs must invest only in mortgages not real estate.• There are 3 institutions that sell these securities There are 3 institutions that sell these securities

guaranteed and issued by the government;guaranteed and issued by the government;– Government National Mortgage Association, Government National Mortgage Association,

Ginnie MaeGinnie Mae– Federal Home Loan Mortgage Corporation; Federal Home Loan Mortgage Corporation;

Freddie MacFreddie Mac– Federal National Mortgage Association; Fannie Federal National Mortgage Association; Fannie

Mae. Mae.

PENSION FUNDSPENSION FUNDS

• It is a fund established by private It is a fund established by private employers govenments, or unions for the employers govenments, or unions for the payment of rertirement benefits.payment of rertirement benefits.

HEDGE FUNDS (Private HEDGE FUNDS (Private Limited Partnership)Limited Partnership)

• Private inv. tool that invests all or most of their assets in Private inv. tool that invests all or most of their assets in publicly traded securities.publicly traded securities.

• Make inv.s in CS, bonds, commodities and currencies Make inv.s in CS, bonds, commodities and currencies and using some tools such as leverage, derivatives and and using some tools such as leverage, derivatives and arbitrage.arbitrage.

• Structured as limited partnerships. Structured as limited partnerships. • They are unregulated.They are unregulated.• Hedge fund fees (management fee or performance fee); Hedge fund fees (management fee or performance fee);

US hedge funds charge the standard “one-to-twenty”.US hedge funds charge the standard “one-to-twenty”.

HEDGE FUNDSHEDGE FUNDS

• Min inv. For one share is 250,000 $Min inv. For one share is 250,000 $• Accredited investor; professional, sophisticated, Accredited investor; professional, sophisticated,

institutional investor who has net worth of 1 institutional investor who has net worth of 1 million $ or more.million $ or more.

• Qualified purchasers; super accredited investors Qualified purchasers; super accredited investors who has net worth of 5million $ or more.who has net worth of 5million $ or more.

• The most famous hedge funds are;The most famous hedge funds are;– Quantom Fund (George Saros)Quantom Fund (George Saros)– L-T Credit ManagementL-T Credit Management

CM Entities in TurkeyCM Entities in Turkey

• TThere are several participants in the capital here are several participants in the capital markets. The new Turkish Law 6362 refers to 11 markets. The new Turkish Law 6362 refers to 11 of them, which are titled “capital market of them, which are titled “capital market institutions” in the article 35 as follows: institutions” in the article 35 as follows:

• Investment Investment firms (Yatırım Kuruluşları)firms (Yatırım Kuruluşları)• Collective investment Collective investment firms (Kolektif Yat. firms (Kolektif Yat.

Kuruluşları)Kuruluşları)• Auditing, rating, scoring firmsAuditing, rating, scoring firms(Bağımsız denetim, (Bağımsız denetim,

değerleme ve derecelendirme kuruluşları)değerleme ve derecelendirme kuruluşları)

• Portfolio management corporationsPortfolio management corporations (Portföy (Portföy yönetim şirketleri)yönetim şirketleri)

• Mortgage finance corporationsMortgage finance corporations( İpotek ( İpotek Finansmanı kuruluşları)Finansmanı kuruluşları)

• Housing finance and asset finance mutual fundsHousing finance and asset finance mutual funds (Konut finansmanı ve varlık finansmanı fonları)(Konut finansmanı ve varlık finansmanı fonları)

• Asset leasing corporations (for Islamic Bonds.ie., Asset leasing corporations (for Islamic Bonds.ie., Sukuku İcara)Sukuku İcara) (Varlık kiralama şirketleri) (Varlık kiralama şirketleri)

• Central Central Clearing housesClearing houses (Merkezi takas (Merkezi takas kuruluşları)kuruluşları)

• Custodian housesCustodian houses (Merkezi saklama (Merkezi saklama kuruluşları)kuruluşları)

• Data storage houses (Trade repositories)Data storage houses (Trade repositories)(Veri depolama kuruluşları)(Veri depolama kuruluşları)

• OthersOthers (Diğer sermaye piyasası kurumları)

1. 1. Investment Investment Firms (Yatırım Firms (Yatırım Kuruluşları)Kuruluşları)

According to the Law 6362, 3 (v), investment instiutions consist of;

- Investment firms (Aracı kurumlar)

- Banks

Investment Investment FirmsFirms

• MiFID (Markets in Financial Instruments Directive) refers to “banks and investment firms” as “providing investment services such as brokerage, advice, dealing, portfolio management, underwriting, et al”.

• We may deduce two things out of this: – Investment firms and banks are considered together

in providing investment services– Dealers and brokers are only part of the investment

firms

• The Law 6362, likewise, refers to investment firms and banks as “investment institutions” (yatırım kuruluşu) in its sub article (v) of the article 3.

• In the USA “dealer” means any person who engages either for all part of his time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling. Or otherwise dealing or trading in securities issued by another person (Securities Act 1933 – 2/12). “Broker” means any person engaged in the business of affecting transactions in securities for the accounts of others (Securities Exchange Act 1934-4/A).

• Broker does business for the others only, yet dealers may do business either in his name or account, or for the others.

• In Turkish regulations, however, there is no reference to “dealer” or “broker”, these words are in use, and be it erroneously.

• Turkish capital markets call the customer representative at the counters of banks or intermediary institution “aracı kurum” as “dealer”, and those who are seated in front of the monitors at the Borsa Istanbul as “brokers”!

• Investment services and activities of Investment firms (aracı kurum) in Turkey – They receive and send orders for the capital market

instruments– They realize orders in their name and in their own

account or in their name and in their customers’ account

– They buy or sell capital market instruments from their own account.

– They intervene public offerings of capital market instruments through underwring.

– They intervene public offerings through best efford selling.

2. Collective investment firms

• These are definitions that the old Capital Markets Act of Turkey had no reference.

• Collective investment firms are made up of the “mutual funds” (yatırım fonları), and “unit investment trusts” (yatırım ortaklıkları) (6362 3/m).

• Previously, in Turkey for example, banks, investment firms (brokers/dealers), insurance companies as well as pension funds were allowed, subject of course to the Capital Markets Board’s approval, to set up “mutual funds”. Henceforth, the authorized “portfolio management companies” only will have this right.

Collective investment firms

• As regards the unit investment trusts, they are set to make use of the portfolio management services of a unit investment trust.

• Second momentous change has been on the capital of the unit investment trusts. – Previously, they were allowed to have a semi-open-

ended capital structure. With the advent of the new Law, open-ended capital structures for the unit investment trusts have been made possible.

– According to the article 50 of the new Law, their capital will always be equal to their net-asset-values. The net-asset-value of the unit investment trusts will be found by deducting total liabilities from total assets.

– On the other hand, the capital of open-ended unit investment trusts will be the total of investors’ shares (yatırımcı payları), and set-up shares (kurucu payları).

– There will be no nominal value of the open-ended unit investment trusts.

– Open-ended unit investment trusts are required to refund the shares on the investors’ demand.

– Investor shares do not enable the holders any management prerogatives.

Collective investment firms

• The adjective “collective” is, again, a new defining attribute.

• These institutions are for portfolio management on the very basic principle of risk diversification. But the new regulations, MiFID of the EU and Turkish 6362, do not make reference to this previous “diversification” principle.

2.1. Mutual Funds

• As in the old Capital Markets Act (2499), the new one (6362) gives the definition for the mutual fund as portfolio management entities that are not incorporated, meaning with separate assets, on the basis of fiduciary ownership.

• Portfolio management companies are earmarked to set up, manage and represent; and even audit the mutual funds (6362/52-3)

Mutual Funds

The basics of the definition for mutual funds are; • They are set up for the sole purpose of portfolio

management• They are unincorporated entities (no legal identities)• They are set up and managed and even audited by

portfolio management companies on behalf of investors on the following bases: – Management is based on fiduciary ownership (İnançlı mülkiyet)– Management is based on proxy relationship (Vekalet ilişkisi)

(Turkish Code of Obligation articles 502 & 514 applicable in case of ambiguity)

– Management has to be strictly in line with the fund’s bylaw (Fon İç Tüzüğü)

Types of the Mutual Funds in Types of the Mutual Funds in TurkeyTurkey

• A Type Fund: These funds are accounted A Type Fund: These funds are accounted for by at least 25% stock of companies for by at least 25% stock of companies that are founded and operate in Turkey.that are founded and operate in Turkey.

• B Type Fund: These funds are “the other B Type Fund: These funds are “the other types” than A type funds that do not have types” than A type funds that do not have any limitations.any limitations.

Names of the Mutual Funds in Names of the Mutual Funds in TurkeyTurkey

• If at least 51% of the portfolio consists of;If at least 51% of the portfolio consists of;– bonds and bills, it is called as bonds and bills fundbonds and bills, it is called as bonds and bills fund– common stocks, it is called as common stock fundcommon stocks, it is called as common stock fund– foreign securities, it is called as foreign securities fundforeign securities, it is called as foreign securities fund– gold and other precious metal, it is called as gold and other precious metals fundgold and other precious metal, it is called as gold and other precious metals fund– the securities of the main company and its sub-companies, it is called as group the securities of the main company and its sub-companies, it is called as group

fundfund• If the whole fund consist of ;If the whole fund consist of ;

– At least two of At least two of the following instruments; common stock, bond, billsthe following instruments; common stock, bond, bills,, gold and gold and other precious mother precious metalsetals and other capital market instruments and also the value of and other capital market instruments and also the value of investment in each instrument at most 20% of the fund value, it is called as investment in each instrument at most 20% of the fund value, it is called as mixed fundmixed fund

– financial instruments which has at least 90 days maturities, it is called as liquid financial instruments which has at least 90 days maturities, it is called as liquid fund.fund.

• If the 80% of the portfolio consist of the securities of an index, it is called as If the 80% of the portfolio consist of the securities of an index, it is called as index fund.index fund.

2.2. Exchange-Traded Funds

• These intermediaries are on the rise everywhere. Turkey could not have stayed away from this trend. Turkish exchange-traded funds (borsa yatırım fonları) are now traded on the “Borsa Istanbul Fund Market”.


• DJIST: Dow Jones İstanbul 20 A Type ETF GOLDIST: İstanbul Gold B Type Gold ETFFBIST: FTSE İstanbul Bono B Type ETF BANKA: Turkish Banks with High Market Capitalization Rates A Type ETF IST30: BİST-30 A Type ETF DOLAR: Dollar B Type ETF GÜMÜŞ: İstanbul Silver B Type ETF


• The asset distribution is announced daily in exchange traded funds that enables the investors to follow up all the content of their investments transparently on a daily basis.

• They combine the possibility of availability for purchase and sale easily with high liquidity of the equities and the following features of the mutual funds; distributing risk and letting the investors benefit from yields of the markets in which they invest.

• ETFs enable the investors to invest in index by purchasing only one product.


• ETFs can be purchased and sold as easily as the equities during BIST session period.

• Management fees of the ETFs are lower compared to the other mutual funds.

• The purchase and sale of ETF participation certificates, deemed suitable for being traded on the Exchange, are carried out with a feature code (F) on the Fund Market of the Equity Market.

• Purchase and sale transactions are executed in the trading hours of the market where securities forming the underlying index of ETF are traded.

• The base price is determined by rounding the weighted average of the transactions of the previous session to the nearest price tick as with the stocks.

2.2. Exchange-Traded Funds• Lot size has been determined as one participating share. • The maximum amount of orders that can be submitted to the

system at any one time is determined by the Stock Market Management.

• Unit share price of ETF to be traded on the Stock Exchange is determined to be minimum TRY 1.

• On the ETF Market, the price margin applicable to the National Market is applied.

• Special order transactions are performed as per the present rules in the Stock Market. Price ticks different from the stocks are applied on the ETF Market.

• Settlement of the fund transactions is realized on the second business day following the transaction day (T+2). Fund Share Formation and Repurchase Transactions are performed via “central clearing entity” (Takasbank)

2.3. Hedge funds

• In Turkey, new announcements are expected to emerge out of the Turkish Capital Market Board under the new Law 6362.

• Present legislation about the hedge funds is the Communique of the SPK Serial VII No. 10. It defines these funds as free funds (Serbest Yatırım Fonu), and “Serbest Yatırım Fonları are for the “qualified investors” only”.

• Nonetheless Turkish regulations require that these funds should develop their risk management systems.

• The participation certificates of these funds do not trade at exchanges in Turkey.

2.3. Hedge funds

• Said Communique gives the definition for the “qualified investor” as follows:

2.4. Housing finance funds (HFFs)

• Housing finance funds (HFFs) are portfolios of investors: – Made up of “mortgage-backed securities”– Unincorporated portfolios (no legal identity)– Run (managed) by the founders on the bases

of:• Fiduciary ownership• Proxy relationship

2.4. Housing finance funds (HFFs) (Konut Finansmanı Fonları)

• Housing Finance Funds (HFFs) are portfolios of investors consisting of “mortgage-backed securities.

• HFFs are set up by the fund’s bylaw (Fon İç Tüzüğü).

• Fund assets are under the protection of the Law 6362 against collateralization as well as mortgaging by the fund managements.

• Fund Management Teams are held responsible by the Law for the custody and safekeeping.

2.5. Assets finance funds (AFFs)

• Asset finance funds (AFFs) are portfolios of investors consisting of “asset-backed securities”.

• This is the basic distinction that differentiates them from the HFFs. The rest are same as above.

2.6. Unit investment trusts

• Unit investment trusts (UITs) are corporations are set up to manage portfolios consisting of: – Capital market instruments– Real estates– Venture-capital investments– Other assets and rights to be designated by the

Capital Market Board of Turkey

• As a momentous change UITs can now be open-ended or close-ended.


• Prerequisites for new UITs are: – A registered-capital system– Compliance with the minimum initial capital

amount– Fully-paid capital at setting-up– Clear reference to UIT in the title– Openly stated custodian


• Publicly-held -shareholding ratios, lines of business, types, share transfers, registry statements, asset custody alignments, preferred share issues, dividend distributions, share-call procedures, liquidation and termination of the corporation methods are all to be subject to the Capital Market Board decisions.

• Open-ended UITs’ capital will always be same as their net-assets-value, which will be equal to the difference between the assets and liabilities.

• Finally, UITs are required to seek the management services of portfolio management corporations.

2.7. Open-ended investment trusts

• These are new types of investment trusts in the form of joint stock companies for Turkey. Previously Turkey had semi-open-ended investment trusts, for which “right issues” (capital increases) were subject to the Turkish Commercial Code.

• With these type of investment trusts a new and hybrid kind of joint stock companies emerge. They are a combination of mutual funds and unit investment trusts.

2.7. Open-ended investment trusts

• The stocks of these companies will be the total of investor shares and to-the-name founder shares. The shares of open-ended investment trusts will not have par values. Net asset values of these companies will be the net of assets and liabilities.

• An important point is that the founder shares will not provide management prerogatives to the founders.

3. Auditing, rating, and scoring entities

• Auditing (independent auditing in the regulatory jargon) has to be carried out by auditors listed by the “Public Oversight - Accounting and Auditing Standards Authority” of Turkey (simply KGK).

• They not only conduct auditing but also authorized to give rating and scoring to the entities within the Law 6362.

• For your attention, there are; – Certified Public Accountants (Bağımsız Denetim Kuruluşları)– Chartered accountants (Yeminli Mali Müşavir)– Certified Consultants and Accountants (Serbest Muhasebeci

Mali Müşavir)

3. Auditing, rating, and scoring entities

• In the new Turkish Commercial Code, they are all authorized to conduct auditing and reporting.

• One thing that we know is that these entities will be equally responsible in any kind of harm that can be cause by auditing inefficiencies.

4. Portfolio Management Corporations

• Portfolios management corporations are defined and described in the articles 55 and 56 of the Law 6362.

• As far as asset management companies are concerned, the point is that in Turkey, with the advent of the new Law 6362, mutual funds will only be set up by them, and will have to be managed, and audited by them. Unit investment trusts will have to receive management services from these corporations.

5. Mortgage finance institutions(İpotek Finansmanı Kuruluşları)

• The terminology on; – Housing finance– Mortgage finance– Asset finance

• is a little confusing. We have touched on the “housing finance funds” and “asset finance funds” previously as they fall outright under the category of “mutual funds”. Now, let us try to give you the distinction among them in summary.


• Housing finance corporations

• These are solely:– Banks, – Leasing corporations and – Consumer finance corporations – All of whom solely engage in housing loans

and/or real estate rental activities.


• Asset financing activities• Asset financing is asset-backed or asset-

collateralized financial activities. Asset-backed finance is made up of the “asset finance funds” as explained previously and asset collateralized financing.

• Latter is also categorized as credit derivatives, among which the commonest ones are CDOs (Collateralized debt obligations).


• Mortgage vehicles consist of;

– Mortgage-collateralized vehicles,

– Mortgage-backed vehicles, made up of housing finance funds

– Asset-collateralized vehicles, consisting of SIVs (Structured investment vehicles)

– Asset-backed vehicles, made up mostly of asset finance funds.


• Collateralized debt obligations (CDOs) are a type of structured asset-backed security with multiple "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans.

• A structured investment vehicle (SIV) was an operating finance company established to earn a spread between its assets and liabilities like a traditional bank. The strategy of SIVs was to borrow money by issuing short-term securities at low interest rates and then lend that money by buying longer term securities at higher interest rates, with the difference in rates going to investors as profit.

http://en.wikipedia.org/wiki/Asset-backed_security

6. Asset leasing corporations (Varlık Kiralama Şirketleri)

• In order to tap certain segments of the oil-rich Gulf markets “asset leasing corporations” a new set of market rules were laid down in Turkey in 2012.

• The new system makes it possible to pay return to investors as rental instead of interest. Turkish Treasury issued in October 2012 the guidelines for this new system as follows:


• The procedure will be explained during the course of the Course.

7. Central clearing houses(Merkezi Takas Kuruluşu)

• Central clearing houses are private corporations that provide the contract settlement and collateral services in exchanges and other organized markets (6362 - 77). These corporations are suggested by the Capital Market Board (SPK) and approved by the Cabinet Minister who has the authority.

• Their start-up requires the SPK confirmation. The auditing procedures of clearing houses are regulated by the SPK.

• The SPK may require that counterparty settlements be made by the clearing houses. This is becoming increasingly important as capital market investment activities spread considerably over the world every passing day.

Central Securities Depository in Turkey

• MKK is the central securities depository for capital market instruments which are decided by CMB to be dematerialized (kaydileştirme). MKK conducts full dematerialization model on a rights owner basis (direct model) for the Turkish capital market instruments.

• Dematerialization process started with the dematerialization of mutual fund participation certificates in 24.04.2005, continued with the dematerialization of all stocks regardless of their types (traded at the exchange or not) until 28.11.2005. Following this date, corporate actions processes of publicly traded companies, issues of publicly traded companies and any capital market instrument issues of the companies started to be made as fully registered on an electronic medium without printing certificates physically.

• One of the main goals of MKK is to fulfill its responsibilities of increasing market efficiency and minimizing possible risks as well as following the global post-trade industry standards.

• MKK is transforming into a “technology firm” aiming to support our country with its value added projects and services besides its capability in offering efficient and affordable services to its members. Instead of having high revenues, MKK thrives to lower the market costs as much as possible for the market participants in favor of investors, being aware of the fact that its main aim is to add value to our economy while performing its functions as a central securities depository authorized by the regulations.

• As it is aimed by the Istanbul Financial Center Project (IFC) and MKK’s vision for 2023, it is evident that the capital markets will expand, new instruments will be introduced to the market and new IPO’s and issues will take place; however MKK’s intention is to use this opportunity for continuously cutting its central depository costs instead of increasing its revenues. With the discounts in fees, MKK will continuously lower its main operating revenues and increase its revenues from add value projects and services. A transformation like this is very crucial, not only for our company but also for our national capital markets. The positive effects of this transformation to our country, aiming continuous reduction in costs and adding value to our economy with add value services; will be better understood in the long run.

chapter 4 non-depository institutions. insurance companies they provide ithey provide insurance...

Documents

nonlife insurance policies

health insurance coverage

types of investment

openend investment companies

mutual funds funds

investment advisor

investment company

s mutual fundsmutual