Issuance And Public Offering Of Capital Market Instruments

1) Concepts of Issuance and Public Offering

The concepts of issuance and public offering are regulated in the Capital Markets Law and its regulations.

a) Issuance;

“The sale of capital market instruments by issuers through public offering or without public offering”. (SerPK Art. 3/1-ğ and Circular No. II-5.1 Art. 4/1-f) According to the definition in the doctrine, issuance is a technical term specific to the capital market, referring to the issuance of capital market instruments—particularly by joint-stock companies—and their sale to the public or without a public offering.

Furthermore, while issuance constitutes a sale transaction between the issuer and the investor, it holds a significant and central position in capital market regulations due to the nature of the subject matter of the sale—being a financial instrument rather than ordinary goods or services—and the fact that the buyer side involves not one but a large number of investors, which may reach tens of thousands depending on the circumstances.[1]

b) Public offering;

“A general call made by any means for the purchase of capital market instruments and the sale made following this call”. (SerPK Art. 3/1-f, Circular No. II-5.1 Art. 4/1-e, and Circular No. II-5.2 Art. 4/1-ç) According to the definition in doctrine, public offering is an important means of directing idle savings in the hands of the public toward investment and spreading capital to the broader base.

A public offering not only provides companies with cheap financing but also, through the trading of their shares on the stock exchange, enhances the company’s credibility, recognition, and institutionalization, while providing shareholders with liquidity. A public offering is a written or oral invitation to the public to purchase capital market instruments. Pursuant to Article 16/1 of the Capital Markets Law, joint stock companies with more than 500 shareholders shall also be deemed to have been publicly offered.[2]

Considering the above definitions, there is a fundamental difference between the concepts of issuance and public offering. The concept of issuance covers sales that are or are not publicly offered. The concept of public offering, on the other hand, refers to sales made as a result of a general call. As a result, it can be seen that the concept of issuance has a broader scope than the concept of public offering.

2) The Concepts of Issuer and Public Offeror

The concepts of issuer and public offeror are regulated in the Capital Markets Law and the relevant regulations.

According to the regulations, the term “issuer” is defined as “legal entities that issue capital market instruments, apply to the Board for the purpose of issuing capital market instruments, or have capital market instruments offered to the public.”[3] Under this definition, there will be four types of issuers:

• Those who issue capital market instruments,
• Those who apply to the Capital Markets Board to issue capital market instruments,
• Legal entities that offer securities to the public,
• Investment funds subject to the Capital Markets Law.

According to the regulations, the term “entity offering to the public” is defined as “real or legal persons who apply to the Board to offer their capital market instruments to the public.” (SerPK Art. 3/1-g, Circular No. II-5.1 Art. 4/1-f, and Circular No. II-5.2 Art. 4/1-d) The key point to note here is the phrase “that it owns.” This is because the issuer only has the right to dispose of the instruments it owns in the context of the capital markets.

Considering the aforementioned definitions, the fundamental difference between the issuer and the public offering entity is that the public offering entity can offer for sale capital market instruments it owns, while the issuer can issue capital market instruments it does not own.

3) The Concepts of Issuance Certificate and Prospectus

a) Issuance certificate;

“In cases where capital market instruments are issued without being offered to the public, except for issuances abroad or issuances of capital market instruments for which a disclosure document is prepared in accordance with the provisions of this Circular, the document containing information about the nature and sale conditions of the capital market instruments to be issued, which issuers may issue without preparing a prospectus.” (Circular 4/1-ğ)

The scope of the issuance document includes general information about the nature and terms of sale of the capital market instrument.[4] Within the framework of this provision, there are three (3) different situations in which the issuance document is prepared:

• Sales made without a public offering,
• Sales made abroad,
• Situations where the Capital Markets Board has determined that a prospectus is not required.

b) Prospectus;

“A public disclosure document containing all information necessary for investors to make an informed assessment regarding the financial condition and performance of the issuer and, if applicable, the guarantor, their future expectations, activities, and the characteristics of the capital market instruments to be issued or traded on the stock exchange, as well as the rights and risks associated therewith.” (SerPK Art. 3/1-j, Circular 4/1-i) Within the scope of this definition, the prospectus must be prepared by the issuer and, if applicable, the guarantor.

The primary purpose of the prospectus is to inform the public and disclose complete and accurate information about the capital market instruments being issued. In this context, certain information must be disclosed to the public for the purpose of protecting investors and/or shareholders, as detailed in the following section. A prospectus must be prepared for all issuances made through a public offering.[5]

Considering the above definitions, the fundamental difference is that while an issuance document must be prepared for sales of capital market instruments that are not offered to the public, a prospectus must be prepared for sales made through public offerings.

4) Issuance of Capital Market Instruments

The main regulations regarding the issuance of capital market instruments are set forth in Articles 5-13 of the Capital Markets Law, and in Communiqués No. II-5.1, No. II-5.2, and No. II-13.1.

Process for the Issuance of Capital Market Instruments

In the issuance of capital market instruments, the basic procedure involves the preparation of the prospectus, its approval by the CMB, and the sale of the instruments following the advertising, promotion, publication, registration, and announcement processes. This process should be carried out in the following manner:

a) Application to the Board and Preparation of the Prospectus

• In the process of publicly offering capital market instruments, the prospectus related to the capital market instrument to be sold must first be prepared and approved by the CMB. (SerPK Art. 4/1, Circular Art. 5/1)
• The prospectus is submitted to the SPK for approval in a format that is easily understandable by investors and contains the necessary information detailed in the subsequent section for the protection of investors. The SPK decides on the application within 10 (ten) business days from the submission of the prospectus and other required information and documents, or within 20 (twenty) business days in the case of an initial public offering. (SerPK Art. 6/2, Communiqué Art. 19/1)
• The CMB reviews the application and examines whether the information in the prospectus and the documents submitted are incomplete or whether additional information and documents are required. As a result of this review, the application for approval of the prospectus may be accepted, a period may be granted for the completion of the deficiencies, or the application may be removed from the process if it is incomplete to the extent that it does not allow for review. If the prospectus is not removed from the process, the procedure for the disclosure, publication, and announcement of the prospectus, as explained in the following article, is initiated. (Capital Markets Board Regulation Article 6/3, Circular Article 19/2 and 19/3)
• Any promotional materials or advertisements related to the capital market instruments to be offered to the public must be truthful and free from false information. If the prospectus has not been approved, this fact must be stated in the promotional materials or advertisements; if it has been approved, the location where the announcement will be made must be specified. (SerPK Art. 7/3, Circular Art. 27/1 and 27/2) Additionally, there is a restriction on promotional and advertising activities conducted after the application to the SPK but before the publication of the prospectus, and this restriction applies only to the issuer’s core business activities and the product in question. (Circular Art. 27/2)

b) Process Following Approval of the Prospectus by the Board

After the prospectus is approved by the SPK, it shall be published on the issuer’s website, on KAP if the issuer is a member, and on the website of the authorized institution involved in the issuance process, if any, within 15 (fifteen) business days following receipt.

• If the issuer so requests, the prospectus may also be published in the press. (Regulation Article 28/3) The prospectus approved by the SPK must also be published on the websites of certain capital market instruments and certain institutions simultaneously with the date of publication on KAP.[6]
• Following the publication of the prospectus, the place where the prospectus was published must be registered with the trade registry within 10 (ten) business days from the date of publication and announced in the TTSG. It should be noted that it is not the prospectus itself but the places where it was published that must be disclosed in the TTSG. (SerPK Art. 7/1, Circular Art. 28/9) There is no requirement to publish the prospectus in the TTSG for the sale of capital market instruments. (Circular Art. 28/9)

As a result of all the processes described above, capital market instruments may be sold, and the sale of capital market instruments shall be explained in our next article.

Year: 2025

Application: Issuance And Public Offering Of Capital Market Instruments

Lawyers: Mehmet Said Sarıbaş & Bilal Akbaba

E-mail: info@saribasakbaba.av.tr

Website: saribasakbaba.av.tr

[1] Memiş, T., Turan, G., Capital Markets Law, 2nd Edition, Ankara, 2016, p. 49.

[2] Memiş/Turan, p. 51.

[3] In addition to the definition in the notification provisions, Article 3/1-h of the Capital Markets Law No. 6362 includes the phrases “except for those who collect money through crowdfunding platforms” and “investment funds subject to this Law.”

II-5.1 Prospectus and Offering Document Regulation, Article 4/1-h, and II-5.2 Capital Markets Instruments Sales Regulation, Article 4/1-g.

[4] Since this study is based on the prospectus, the details of the offering document are not included here, and the explanations provided below will refer to the issuance of capital market instruments that require a prospectus.

[5] Memiş/Turan, p. 65.

[6] II-5.1 Prospectus and Offering Document Communiqué, Article 28/8, see; the issuer or asset leasing company in the issuance of lease certificates, the fund manager in the issuance of asset-backed securities, and the market maker in the issuance of capital market instruments traded on the stock exchange based on the market maker principle, are required to publish on their websites.