Turkey Bans Short-Selling In Plunging Financials After US Brings ‘Illegal’ Charges Against Halkbank

Recep Tayyip Erdogan had to ban short-selling in more than a half-dozen banks on Wednesday amid a steep slide in financial shares.

US prosecutors filed criminal charges on Tuesday against Halkbank as part of a long-running, high-profile case that implicated officials at the highest levels of the Turkish government, including Erdogan himself.

This is more commonly known as the “Reza Zarrab case”, and it recently found its way back into the news cycle thanks to reports that Trump once pressed Rex Tillerson to intervene in the ongoing criminal proceedings, and also due to the White House’s panicked efforts to clean up the mess Trump made in northern Syria by green-lighting Erdogan’s cross-border incursion.

Read more: In Total Coincidence, US Finally Charges Turkey’s Halkbank In Zarrab Case

At one point, Halkbank was down more than 7% Wednesday. The banks index plunged more than 4% before the ban was announced, triggering a rebound.

The Capital Markets Board released an amusing statement that appears to stipulate that only brokers can sell the shares and that if they do, they should bear in mind their “responsibility” for the “control and monitoring” of transactions for compliance.

Here is the actual advisory:

Pursuant to Article 128 / 1- (a) of the Capital Markets Board (CMB) in order to ensure the safe, transparent and stable operation of the capital markets and to protect the rights and benefits of the investors within the framework of Article 1 of CMB numbered 6362, Akbank TAÅž. (AKBNK.), Turkey Garanti Bankası A.Åž. (GARAN.), Turkey Halk Bankası A.Åž. (HALKB.), Turkey Ä°ÅŸ Bankası A.Åž. Group C (ISCTR.), the Industrial Development Bank of Turkey (TSKB.), Turkey Foundations Bank TAO (VAKBN.) is Yapı ve Kredi Bankası A.Åž. (YKBNK.E) temporarily in the share markets as of 16.10.2019,

1. 1. Prohibiting short sale transactions, informing investors and investment institutions that the positions made without pressing the short sale key during the day and which are closed within the same day are within the scope of the prohibition,
   2. Implementation of a warehouse condition for the shares of AKBNK.E, GARAN.E, HALKB.E, ISCTR.E, TSKB.E, VAKBN.E, YKBNK.E to be sold by investors,
   3. Investors who have shares of AKBNK.E, GARAN.E, HALKB.E, ISCTR.E, TSKB.E, VAKBN.E, YKBNK.E, can only sell these assets through the investment institutions where the relevant assets are located,
   4. Reminding that the responsibility for the control and monitoring of compliance with the decision of the Board lies with the investment institutions,

Those latter three stipulations appear to make it very onerous for foreigners to sell.

All of that could potentially put more pressure on the rest of the market as investors look for ways to access liquidity or otherwise do what they’d like to be doing with the financials in light of the charges brought against Halkbank.

The shares have woefully underperformed the broader Turkish banks index and the US-listed Turkey ETF in 2019.

Erdogan called the case against the bank illegal.

“It was closed but they unlawfully reopened it”, he said in Ankara, adding that he’ll “see their steps first and take measures accordingly”.