Turkey Caps Hedge Fund Investments to Protect Market Status

The Capital Markets Board of Turkey announced new regulations for hedge funds designed to curb market manipulation and satisfy demands for greater transparency from global index providers. The rules establish a cap on hedge fund investments in an issuer's free-floating shares between 2% and 8% and limit investments in affiliated entities to 20% of a portfolio. Furthermore, instruments that account for more than 5% of a portfolio cannot collectively exceed 20% of the total portfolio value.

These measures follow warnings from MSCI Inc., S&P Dow Jones Indices, and FTSE Russell regarding coordinated trading and shareholder transparency. The index providers cautioned that Turkey risks losing its emerging market status if these issues are not addressed. Finance Minister Mehmet Simsek acknowledged the presence of market manipulation within investment funds and indicated that tougher penalties are planned.

Funds are required to phase out excess positions by December 31, 2026, with mandatory incremental reductions due by October 31 and November 30. While the regulator previously revised free-float calculations in June, MSCI stated it will review Turkey's index classification in November 2026 to evaluate the practical impact of these new restrictions.