Türkiye’s capital markets have expanded significantly in recent years. Millions of new retail investors have entered the stock market, interest in initial public offerings has increased, and capital markets have assumed a more important role in corporate financing.
Yet higher trading volumes alone cannot make this growth sustainable. What capital markets need most is trust.
In recent years, some stocks have recorded sharp increases that are difficult to justify on the basis of economic fundamentals, followed by a succession of limit-down sessions. The greatest losses are often suffered not by those who orchestrate the manipulation, but by retail investors who enter the market believing that the rise is genuine.
This raises an important question:
Market manipulators are punished—but how are the investors they harm protected?
The Capital Markets Board of Türkiye has significant enforcement powers. It can impose administrative fines, introduce trading bans and refer cases to the judicial authorities. These measures are essential for preserving market order and ensuring deterrence.
However, the purpose of a modern regulatory system should not be limited to punishing offenders. It should also establish mechanisms through which harmed investors may obtain redress under clearly defined conditions, while strengthening confidence in the market.
There are several international examples.
In the United States, the SEC Fair Fund mechanism, introduced under the Sarbanes-Oxley Act of 2002, allows certain civil penalties and disgorged profits arising from securities-law violations to be placed in a fund and distributed to harmed investors.
In the Danske Bank case, a Fair Fund of $178.6 million was established. In the BlueCrest case, the UK Financial Conduct Authority created a separate redress scheme worth approximately $101 million for investors in the United Kingdom and other non-US jurisdictions who were not eligible to receive payments from the SEC fund.
The FCA’s approach is particularly noteworthy because it focuses not only on penalties but also on redress. Investors received compensation in the Connaught Fund and Blue Gate cases. In the John Burford case, taking previous payments into account, approximately 99 percent of the funds invested by around 70 identified victims were expected to be recovered.
Ontario, Canada, also introduced a new framework in 2025 allowing money recovered through disgorgement orders to be distributed to harmed investors in appropriate cases.
Türkiye already has an Investor Compensation Center. However, its mandate primarily covers situations in which an investment firm is unable to return client cash or financial instruments. It does not generally compensate investors for losses caused by market manipulation.
A new mechanism should therefore not replace the existing Investor Compensation Center. It should complement it by extending investor protection to a different category of harm.
The next question is obvious:
Where would the funding come from?
A substantial part of the funding could be generated from within the market itself:
• A defined share of administrative fines imposed in manipulation cases,
• Illicit gains recovered through judicial or regulatory action,
• Interest and settlement payments,
• If necessary, a very small levy on capital-market institutions.
These resources could be placed in a separately administered and independently audited Investor Redress Fund for Market Violations.
Such a structure would avoid placing an additional burden on the state budget. Instead, economic value recovered from unlawful conduct would be converted into renewed confidence in the market.
A crucial distinction must be maintained. This system would not insure investors against ordinary investment risk. The public cannot compensate every investor whenever a share price falls. Redress should be available only where a market violation has been conclusively established and a clear causal link between the violation and the investor’s loss can be demonstrated.
Such a reform could also alter the way the institutional performance of the Capital Markets Board is assessed.
Today, the public usually asks:
“How many people were fined?”
Under a redress mechanism, another question could be added:
“How many harmed investors received compensation?”
This shift would place greater emphasis on early detection, rapid intervention, the timely freezing of illicit gains and effective collection. A regulator’s success would be measured not only by the penalties it imposes, but also by the extent to which it protects market integrity and investor confidence.
Such a reform would not, by itself, guarantee an inflow of foreign investment. It could, however, strengthen Türkiye’s reputation for investor protection, market integrity and legal predictability.
Foreign institutional investors do not look only at company balance sheets and expected returns. They also examine the effectiveness of regulators, the protection of investor rights and the consistent and impartial enforcement of market rules.
A system that effectively recovers illicit gains and directs them, where possible, to harmed investors would send a powerful message to both domestic and international investors:
“In this market, offenders are not merely punished; honest investors are also protected.”
Perhaps the next major reform in Türkiye’s capital markets should not focus solely on harsher penalties. It should create an investor-protection system that converts enforcement into trust.
Because strong capital markets are built not only on capital and liquidity, but also on justice, credibility and trust.
PROF. DR. MEHMET BAHA KARAN
