مرکز منطقه ای اطلاع رساني علوم و فناوري - New Approaches against Front Running In the Turkish Capital Market and Their Possible Effects

Abstract :

This paper focuses on the new regulatory rules about a market practice, called “front running”, and their probable effects on the Turkish capital market. The paper handles the issue with a real case reported and posted by the regulatory and supervisory agency of the U.S., namely the Securities and Exchange Commission. The paper compares and contrasts front running literature with the U.S. and Turkey’s market implementations utilizing the real case. At the end, the article concludes with policy recommendations for the Capital Markets Board of Turkey. Front running is an unethical and improper activity mostly deployed by the professional staff of financial intermediaries. A newly enacted capital market law which is the Turkish Capital Market Law of 2012 has banned front running with an article. Additionally, a communiqué based on the new law, has overtly defined front running as a kind of market abuse. Banning a market practice and sending a clear message to the market participants might change some trading manners and price discovery processes. Thus, one might expect a shift in market efficiency, costs, liquidity and other quality aspects of the market in the short and long terms. Even though, it is impossible to test the probable shifts right after the rule changes due to the lack of sufficient data, we academically discuss general outcomes of banning front running at the Turkish capital market and its probable effects. Having new rules against front running activities together with a well-organized market oversight structure at the regulatory and supervisory agency level in Turkey, the market may be better off in costs, liquidity, efficiency and some other aspects. However, the real effects are conditional on the future policies of the regulatory and supervisory agency.