By Murat Yıldız
Türkiye's financial authorities were examining distorted pricing in low-float shares nearly nine months before the Capital Markets Board (CMB) issued rules requiring concentrated fund positions to be reduced. The issue reached the Financial Stability Committee on Dec. 2, 2025. The rule package was announced on Aug. 28.
The CMB set out the timeline in a Sept. 18 statement. It said funds managed by certain portfolio companies were already driving price movements in low-float shares during the final quarter of 2025 that could not be explained by economic conditions or company fundamentals. The regulator formed an internal working group on Dec. 3 and said the August package had been under preparation since then.
Some of the funds went on to post extraordinary gains. According to the Financial Times, two Pusula funds rose 164% and 144% in the first seven months of 2026.
On Sept. 17, the CMB closed all funds run by seven portfolio management companies to transactions on the Turkey Electronic Fund Trading Platform (TEFAS). It initially ordered 130 funds into liquidation before expanding the list to 131.
In its June market accessibility review, MSCI raised concerns about price formation in small-cap Turkish stocks and downgraded Türkiye's Information Flow assessment, citing free-float transparency and the reliability of observed prices. It also rated the stability of the institutional framework as needing improvement and noted that Türkiye had reinstated a market-wide short-selling ban on March 2 and repeatedly extended it, as Bosphorus News reported at the time.
MSCI's June 23 market classification review added another warning. International investors had reported possible coordinated trading involving funds closely affiliated with smaller listed companies, the index provider said, potentially distorting free-float estimates. MSCI called for stronger surveillance and enforcement, more detailed ownership disclosure and a transparent framework for securities with structurally distorted free float. It said a consultation on the treatment of Türkiye and eligible Turkish securities could follow if sufficient concrete and credible progress was not visible by the November 2026 Index Review.
The funds at the center of this week's crisis were concentrated in illiquid, low-float shares of the type MSCI had put under scrutiny. Rising net asset values attracted new investors, whose money was then recycled into many of the same illiquid shares, the Financial Times reported.
The mechanism broke down after the August rules required funds to reduce concentrated positions. Falling share prices made those positions harder to exit, redemptions forced further sales and the selling pushed fund values lower. Investors withdrew as much as $1 billion from Turkish funds in a single day, according to the Financial Times.
The BIST 100 fell 5.54% on Sept. 16. Losses exceeded 6% during the session, triggering Borsa İstanbul's index-wide circuit breaker and temporarily halting trading.
İş Bankası will wind down the Tera Portföy funds, while Ziraat Bankası will handle funds belonging to A1 Capital, Atlas, Bulls, Hedef, Pardus and Pusula. The liquidation can run for up to three months and may be extended with regulatory approval. Investors will receive proceeds as assets are sold.
The Central Bank of the Republic of Türkiye (CBRT) increased repo funding to 300 billion lira and raised banks' interbank borrowing limits, Reuters reported. The CMB cut the minimum equity maintenance ratio for margin trading to 20% from 35% until Oct. 2.
Treasury and Finance Minister Mehmet Şimşek described the turmoil as a credit and liquidity problem concentrated in a limited number of funds. He said the affected funds account for about 10% of fund-sector assets and rejected the existence of broader systemic risk. The Financial Stability Committee described the problem as temporary and manageable rather than structural.
Authorities have also opened criminal and regulatory proceedings. Justice Minister Akın Gürlek said four suspects, including fund board executives, had been remanded in custody. Another 51 people were placed under travel bans and had accounts and other assets frozen. In a separate social media investigation, authorities blocked access to 246 accounts over posts they said could cause fear and panic among investors.
T24 reported that Pusula Portföy chairman Muhammed Yarız was among those remanded. The CMB has also filed criminal complaints over trading in three listed companies and imposed two-year trading bans in connection with alleged manipulation.
MSCI warned in June that trading behavior in smaller companies could impair price formation. The CMB now says it had already identified unexplained moves in low-float stocks during the final quarter of 2025 and had been developing tighter rules since December. The measures that eventually forced concentrated positions to be reduced took effect in late August.
Reuters and the Financial Times linked those rules directly to the unwind, as funds were forced to sell down concentrated positions in thinly traded shares.
MSCI has said it may open a consultation if sufficient tangible and credible progress is not evident by its November review.
Retail investors are meanwhile left with savings locked inside funds undergoing liquidation, extending the confidence shock Bosphorus News examined after the freeze.
The liquidation window can extend into MSCI's November review. Any low-float positions sold by İş Bankası and Ziraat Bankası during that process will be repriced in the same part of the market MSCI questioned in June.
Sources: Capital Markets Board of Türkiye, MSCI, Financial Stability Committee, Ministry of Treasury and Finance, Ministry of Justice, Central Bank of the Republic of Türkiye, Financial Times, Reuters, Anadolu Agency, CNBC-e, T24, Bosphorus News review and reporting.