Foreign investors exploit insider knowledge for massive stock market gains
Certain foreign investors with insider knowledge managed to capitalize on an upcoming regulatory change by the Central Bank of Turkey (TCMB), resulting in substantial gains in the stock market. The TCMB's recent decision to redirect foreign currency deposits towards Turkish Lira (TL) deposits by reducing Currency Protected Deposits (CPD) took the market by storm.
The regulation aimed to encourage the shift from CPDs to TL deposits and marked the end of the practice of additional/discounted securities issuance based on TL share. Although the official announcement was made after the markets closed, some American investment funds were already prepared to act on the information as soon as trading began.
According to reports from Cumhuriyet newspaper's Miyase İlknur, in the weeks leading up to the TCMB's "Incentives for TL Deposits, Limits on CPD Shares" regulation, a series of stories circulated indicating that "banks were cheap and foreign investors were heavily buying bank shares." This strategy, alongside most brokerage firms having multiple banks in their model portfolios, prompted local investors to flock towards the banking sector.
The market index surged relentlessly towards the 7,800 level, only to plummet by up to 5% shortly after. The massive sale of millions of lots of bank shares initiated a collapse in the banking sector.
Given the upcoming regulatory obligations for banks in the CPD arrangement, it was anticipated that bank shares would lose value. This foresight led to the early selling of millions of bank shares, with Merrill Lynch's "Bank of America" and HSBC leading the pack. Domestic brokerage firms Yatırım Finansman and AK Yatırım closely followed suit.
As bank sector shares suffered a considerable drop, Garanti Bank shares triggered circuit breakers to halt trading. Thanks to significant purchases by İş Yatırım, Halk Yatırım, and Unlu Menkuller, the banking sector's decline was limited to 4.6%.
The leaked information regarding the CPD regulation, which was deemed as benefiting from illegal insider trading, resulted in significant losses for local and small-scale investors.
Even on the night of the CPD's initial implementation, those privy to the information benefited immensely, selling off millions of dollars in foreign currency and profiting from a mass sale of shares. Investors who were unaware of the changes were left holding the bag, as their foreign currency and shares plummeted. Surprisingly, there hasn't been any investigation launched into who leaked the initial CPD regulation or the weekend follow-up.
He then joined Merrill Lynch, one of the world's leading investment banks, where he held various responsibilities covering countries such as Turkey, Greece, Egypt, and Israel in the Mediterranean region.
Over the years, Şimşek's responsibilities extended to include Russia, Poland, Hungary, and the Czech Republic, among other developing European countries. By 2005, he was appointed as the Head of Economic and Strategic Research for Europe, Middle East, and Africa at Merrill Lynch. In May 2007, he departed from Merrill Lynch to run for the 23rd term of the Turkish Parliament as a candidate from the Justice and Development Party (AKP).