SocGen Ceases Commentary on Turkey as New Law Threatens Jail

Societe Generale SA ordered employees to cease commentary on Turkey pending a review of new legislation that threatens up to five years imprisonment for certain types of commentary on financial markets.

Turkey’s Capital Markets Law enacted on Dec. 31 stipulates punishment for “those who provide untruthful, wrong or misleading information, start rumors, or provide news, commentary, or prepare reports with the intention of influencing prices, values of capital markets instruments or investor decisions.” Bank of America Merrill Lynch and Commerzbank AG said they were also reviewing how the new law will affect their business in Turkey.

“I am quite surprised by the contents of the section on market commentary as the authorities have proven to be proactive in promoting an investor-friendly environment in the past,” Benoit Anne, head of emerging-markets strategy at Societe Generale in London, said by e-mail today. The bank is seeking legal advice and won’t comment on Turkish markets until further notice, he said.

While the new legislation outlaws market manipulation, it risks reducing the quality of financial information available to investors, according to Isik Okte, a strategist at the investment unit of state-run Turkiye Halk Bankasi AS in Istanbul. The Capital Markets Board in Ankara had no comment, said an official who asked not to be named.

Free Expression

“I am going to be much more careful in what I say or don’t say from now on,” Okte said in an e-mailed comments today. “Strategists and economists will be worried about going to jail for saying something if it moves the markets, so they will shut up.”

Commerzbank has called off analyst trips to Turkey “until the law has been clarified,” Tatha Ghose, a London-based economist at the bank, said in e-mailed comments today. Arko Sen, a debt and currency strategist at Bank of America in London, said he’s asked the compliance team to review the law.

International criticism of Turkey’s record on free expression intensified last year. The New York-based Committee to Protect Journalists said in an October report that Turkey has the most reporters imprisoned of any nation and that Prime Minister Recep Tayyip Erdogan was leading “one of the biggest crackdowns on press freedom in recent history.”

The European Commission expressed “serious concern” over the rising number of court cases related to freedom of expression, in a report published the same month.

Badly Worded

The new law is probably meant to target people who manipulate security prices with misleading information, said Slim Feriani, the London-based chief investment officer of Advance Emerging Capital Ltd. Policy makers probably aren’t trying to restrict local institutions or foreign investors, he said.

“While we are for free markets and against excessive regulation, we can see the merits for such regulation,” Feriani, who oversees about $800 million in emerging and frontier markets, said in an e-mail today. “We would hope that this would lead to a more level playing field.”

The law may have been badly worded, said Julian Rimmer, a trader at CF Global UK Ltd. in London. The Capital Markets Board didn’t provide a translation in English on its website.

“If interpreted as written it implies no one can opine on Turkish financial assets without incurring a prison sentence,” Rimmer said by e-mail. The legislation is “doomed from the start and destined for revision,” he said.

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