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Three Traders Punished for Havoc on Istanbul Stock Exchange

Updated on
  • Capital Markets Board imposes curbs on those named responsible
  • Sudden plunges in Koc and Turkcell algo-driven, Borsa CEO says

Turkey’s capital markets regulator has slapped punishments on three investors it identified as responsible for irregular price action in two of the country’s biggest companies.

Algorithmic trading was to blame for the sudden moves in the shares of Turkcell Iletisim and Koc Holding near the close of trading earlier this week, Borsa Istanbul Chairman and Chief Executive Officer Himmet Karadag told Bloomberg on Friday, shortly before three men were identified by the Capital Markets Board for their alleged involvement.

The regulator will communicate with investment firms to prevent the individuals from engaging in any algorithm trading for three months, according to the regulatory filing. The restrictions on the trio’s activities include a ban from short selling and margin trading, and their orders will be subject to increased scrutiny.

The Borsa Istanbul exchange identified where the trades were executed from and submitted the information to the Capital Markets Board, the country’s market regulator, Karadag said in the interview ahead of the regulator’s announcement. He said the exchange has a fail-safe to prevent excessive moves due to algorithmic trading in the form of circuit breakers, which were activated when each dropped by about 10 percent within seconds on Wednesday.

Turkcell has a 4.9 percent weighting on the nation’s benchmark equity index, while Koc Holding accounts for 4.5 percent of it.

Algorithmic trading is relatively new to Turkey and wreaked havoc in the market last year, when an unknown trader or group of traders using brokerage Yatirim Finansman dictated market moves with trades that were sometimes double the market’s average volume. Local investors began referring to the mystery trader as “the Dude,” and its identity was never revealed.

Yatirim Finansman Chief Executive Officer Seniz Yarcan told Dunya newspaper in April last year that the abnormally large trades weren’t a single investor, “but a big, new fund investor profile that trades with algorithms.” The Borsa Istanbul opened up to such investors after it moved to the Nasdaq system in Nov. 2015 with a technology upgrade, Yarcan said.

Murat 131

“Using this many algos on the Borsa Istanbul is like putting a Ferrari engine in a Murat 131," said Burak Cetinceker, a fund manager at Istanbul-based Strateji Portfoy, referring to a Turkish-produced family car, a version of the Fiat 131. “You can drive it, but you can’t predict where it’ll go."

In algorithmic trading, computers relying on a pre-defined set of instructions execute trades rather than humans. The high speed and frequency of such computer-generated trading can cause violent price swings or so-called flash crashes in the assets being purchased or sold.

At 5:45 p.m. on February 22, both Koc, Turkey’s biggest group of companies, and Turkcell, its largest mobile phone company, suddenly plunged about 10 percent, triggering the circuit breakers. The shares erased losses after trading was restored. During the plunge, almost all of the sell orders were placed by a single brokerage, Finans Invest, a unit of Finansbank AS, according to data compiled by Bloomberg.

Finans Invest didn’t immediately respond to requests for comment on Friday.