Due to dynamic structure of the capital markets, resolution of disputes in a short period of time is of great importance and the existence of an effective dispute resolution system primarily plays a role in preventing massive loss of rights and establishing a safe market. This article highlights the arbitrability of disputes in Turkish capital markets.

Disputes in Capital Markets

Basically, capital market disputes arise from conflicts between capital market members and transactions conducted in relation to capital market instruments. Capital market transactions can be defined as transactions between investors, issuers, capital market institutions, regulatory forces in relation to at least one capital market instrument.  However, enumeration of capital market transactions are unlikely, due to the dynamic nature of capital market which requires diversity and variability. Therefore, it shall be appropriate to decide whether a transaction in question is a capital market transaction by evaluating the circumstances for each case[1].

Apart from the responsibility deriving from the bilateral contracts, parties in a legal transaction in capital market, are also responsible for market actors due to the legislative provisions that contain regulations regarding market rules. In this regard, a wide array of capital market disputes arise because of market actors’ failure to comply with such responsibilities. For instance, common capital market disputes to be settled in arbitration are as follows[2]; (i) investors’ damage as a result of intermediaries’ intentionally guidance to a wrong investment, (ii) damage of either party due to a breach of a contract between market actors and other parties, (iii) guidance by intermediaries shall not be suitable for the capital market instrument and the financial status of the investor, (iv) intermediaries’ conducting unauthorized transactions  on the name and account of the investors without the consent of investors, and (v) breach of use of credit contracts by intermediaries where the cash in the investor’s account is not sufficient for a transaction.

Arbitrability of Capital Market Disputes

“The freedom of contract”, being the core principle of contracts law, is the power of contracting parties to determine the terms of their arrangement[3]. In this regard, the freedom of contract also gives the parties a freedom to conclude agreements that include their will to bring any dispute to arbitration. However, this freedom is limited to arrangements contrary to public policy. So, the first obstacle of arbitrability of capital market disputes is the violation of a public policy (or order). Also, as per article 1(4) of Turkish International Arbitration Code numbered 4686 and dated July 5, 2001 (“TIC”), disputes concerning rights in rem over an immovable property in Turkey and that are not subject to parties’ consent are non-arbitrable. According to this rule, it is possible for the parties to arbitrate capital market disputes in which they can freely consent.

In Turkish Financial Dispute Settlement Model, there are two main authorities: (i) Borsa İstanbul A.Ş Execution Board and (ii) Capital Markets Association of Turkey[4]. While Borsa İstanbul is established as per the “Capital Market Law” numbered 6362 and dated December 6, 2012 as a limited liability company; Capital Markets Association of Turkey (“the Association”) is established as a self-regulating professional public institution. All banks, intermediaries, portfolio management companies and investment trust companies operating in capital market are members of the Association.

Borsa İstanbul invokes ad-hoc arbitration practice and according to article 70 of Law numbered 6362, it seeks resolution of disputes and surveillance of exchange transactions and aims to ensure reliable, transparent, effective, fair and competitive execution of transactions. Only stock exchange transactions are subject to Borsa İstanbul. Stock exchange transactions hereby refer to transmitting and matching orders of capital market instruments to stock exchange and performing in due time obligations related to executed trades. The procedure in Borsa İstanbul commences after duly submission of written petition and payment of dispute service fee.

Capital Markets Association of Turkey has published the very first regulation numbered 2003/5305 and dated February 27, 2003 regarding arbitration proceeding to be initiated between intermediaries and its customers in relation to non-exchange disputes in capital market. Since the scope of arbitration held by the Association is limited to disputes arising from “non-exchange transactions”, tendency to be settled in arbitration decreases. In general, non- exchange transactions are related with brokerage, portfolio management, commission of share certificate etc. While, in disputes regarding such non-exchange transactions, the amount of dispute and the potential arbitration costs are very close; practice of arbitration has a negative impact on Turkish capital market. From this perspective, enhancing the regulations by enlarging the scope of disputes may cause positive impacts of capital market parties to use arbitration as an alternative way of dispute settlement[5].


Capital market instruments have two types as (i) “securities” and (ii) “other instruments”. Securities can be defined as an instrument or a paper, which documents the existing and future subsidiaries of business. They also generate rights on income, gains or commercial assets of business’ that have a profit. The term “security” comes from the use of securities in financial markets as a protection thus, as a state of being secure. Notes, stocks, bonds and debentures, evidence of indebtness, certificates of interests are the written form of securities which are frequently used in commercial transactions[6].  

Capital market and securities market are seen as the two faces of the same coin. Since, capital funds in the capital market derivate within the trade of securities, both are commonly used as a synonym. Securities market, is a large market in which direct financing takes place, investors and issuers are confronted with the securities channel and savings are transferred to investments. To highlight, large scale of securities dispute stems from conflict of interest between investors who initiate exchange transactions, and issuers in the stock exchange starting from the legal relationship.  In this regard, disputes arise and resolution of such disputes seeks alternative mechanisms to settle.

According to article 13 of Statutory Decree on Securities Market numbered 91 (“IMKB”) and dated October 6, 1983 disputes arising from stock exchange transactions between stock exchange members shall be resolved by exchange execution board and parties shall have a right to object against decisions of IMKB  to Capital Markets Board. In fact, the system of IMKB is not considered as an arbitration since the system does not require the written consent of parties. Thus in IMKB system, parties shall always have a right to appeal to national courts which means parties consent to apply IMKB does not rule out the power of national jurisdiction. So, IMKB has a sui generis dispute settlement model[7]. Once cases are rendered to IMKB, the execution board firstly determines whether the dispute arises from stock exchange transactions. If this requirement is met, execution board decides on the merits of the case and the procedure only takes six months. 

Comparative Approach

Arbitration in resolution of capital market disputes has been used in USA for the first time. Other countries such as; United Kingdom, France, Singapore have followed this path and have developed different dispute settlement models in various structures. For instance, Financial Industry Regulatory Authority (“FINRA”) was established by USA Congress, aimed to seek independent, non-profit and fair protection of capital market and investors. Even though FINRA has been established as a self-regulating institution, it is supervised by United States Securities and Exchange Commission. FINRA offers its members arbitration and mediation practice in relation to disputes between companies publicly held in capital markets, investors and intermediaries. Other countries also have different dispute settlement mechanisms such as; UK’s Financial Ombudsman Service, Singapore’s Financial Industry Disputes Resolution Centre. It is understood that all these mechanisms have distinct way of dispute resolution.  

 Author: Ezgi Ceren Aydoğmuş

[1] Tevetoğlu syf. 43, Naklen Özdemir.

[2] Özdemir, E. (2019) “Sermaye Piyasası Uyuşmazlıklarının Alternatif Yöntemlerle Çözümünde Tahkim”, 0002

[3]Bix, B. (2012) “Theories of Contract Law and Enforcing Promissory Morality”, University of Minnesota Law School.

[4] Özdemir, E. (2019) “Sermaye Piyasası Uyuşmazlıklarının Alternatif Yöntemlerle Çözümünde Tahkim”, 0002.

[5] Özdemir, E. (2019) “Sermaye Piyasası Uyuşmazlıklarının Alternatif Yöntemlerle Çözümünde Tahkim”, 0002.

[6] Ceviz, R. (2016) Uluslararası Menkul Kıymet Yatırım Uyuşmazlıklarında Tahkim, Legal Kitabevi, syf. 5-13.

[7] Türkiye Sermaye Piyasası Aracı Kuruluşları Birliği, Sermaye Piyasasında Gündem (2007) sayı: 53, https://www.tspb.org.tr/wp-content/uploads/2015/07/AIM_Yayin_ve_Raporlar_Aylik_Yayinlar_2007_gundem_200701.pdf