Turkey bans six banks from betting against local stocks

Turkey has banned six international banks from betting against its stock market in the latest in a series of moves against foreign investors engaged in short selling.

Borsa Istanbul said Barclays, Credit Suisse and Merrill Lynch (part of Bank of America) would be subject to a three-month ban on short sales of shares listed on its exchange after failing to comply with a requirement to notify the authorities about such trades.

The bourse added that Goldman Sachs, JPMorgan and Wood & Co, the specialist emerging markets investment bank, would face a one-month restriction for the same reason. 

BofA, Barclays, Credit Suisse and JPMorgan declined to comment on the announcement. The other two did not immediately respond to requests for comment.

The move risks compounding concerns among foreign investors that Turkey has adopted an increasingly hostile approach to overseas fund managers, especially those looking after short-term portfolios sometimes classed as “hot money”.

Analysts say that such flows of foreign capital are vital for funding the country’s economic growth, especially at a time of low levels of longer-term direct investment. But Turkish authorities have increasingly railed against what they describe as manipulative behaviour by foreign “speculators” in recent years as the lira has faced bouts of volatility.

In 2019, authorities launched an investigation into JPMorgan after the bank published a report that advised clients to short the lira.

In May, as the currency hit a new record low, Turkey’s banking regulator briefly froze UBS, Citibank and BNP Paribas out of its foreign exchange market. The regulator said that the decision to ban the trio was taken after the banks failed to settle their lira liabilities on time. 

But some investors worry that it is part of a broader effort to push them out of Turkish markets, and say that such steps have already led to an exodus of capital. Foreign investors have withdrawn $7.9bn from the country’s stock market since the start of the year, according to central bank statistics.

Berat Albayrak, the country’s finance minister, has repeatedly indicated that he wants to make his country less reliant on short-term foreign capital — and has praised the increased share of local investors in the stock market as a positive development.

The latest decision to temporarily ban banks from engaging in short selling comes a week after the country’s capital markets board announced it was lifting a bar on betting against the top 30 shares listed on the Istanbul bourse. Short selling involves a fund borrowing shares and then selling them in the hope of buying them back later at a lower price and pocketing the difference.

In its announcement, the regulator reiterated a requirement to notify the authorities of any intraday short-selling activity, which sees investors open and close a position within a single day. 

A person close to the Turkish government said the banks had failed to comply with that requirement.

“When you say that six foreign investors are banned, it sounds horrible but the details are actually very benign,” said the person. “The rules are very clear. [The banks] failed to obey the rules.”

Turkey is not alone in requiring investors to report short positions to financial authorities.

European regulations require holders to notify authorities if their net short position on a stock exceeds 0.1 per cent of the company’s issued share capital. Before March, the threshold for reporting stood at 0.2 per cent.