Turkey Implements Multi-Pronged Emergency Measures: Nearly $20 Billion Fund Liquidation, Executives Arrested, Trading Ban

The Turkish government is taking a multi-pronged approach, from fund liquidation and market regulation to central bank liquidity support, in an attempt to "extinguish" the liquidity crisis in the fund industry and prevent market turmoil from spreading to the broader financial system.

According to reports, on Thursday the 17th local time, the Turkish Capital Markets Board announced the liquidation of more than 100 funds managed by seven asset management companies including Tera and Pusula, involving a scale close to $20 billion. Meanwhile, the scope of the investigation has further expanded, with several senior executives of financial institutions being arrested, detained, or subject to travel restrictions.

The regulator has also taken action against suspected stock price manipulation. It is reported that the Turkish Capital Markets Board filed criminal charges against 38 individuals and imposed a two-year trading ban, involving stocks such as Katilimevim, Gundogdu Gida, and Destek Finans Faktoring.

Following the announcement of emergency measures, the Turkish stock market showed a mixed response: the benchmark BIST 100 index closed up 3%, the bank stocks index surged over 9% intraday, but many small and mid-cap stocks continued to fall, indicating that the policy support has not fully alleviated market pressure.

The core contradiction of this crisis lies in the fact that some funds previously held a large proportion of low-free-float, relatively illiquid stocks, and amplified their investment exposure through borrowing. When tighter regulation forces funds to reduce positions and investors rush to redeem, the seemingly impressive investment returns are quickly exposed as carrying high risks of illiquidity.

More than 100 funds from seven asset management firms enter liquidation, regulatory investigation upgraded in tandem

Turkish regulators have suspended and ordered the liquidation of multiple investment funds from seven asset management companies, including Tera Portfoy, Pusula Portfoy, and Hedef Portfoy.

Sources told a media outlet that the total size of the portfolios of funds slated for liquidation is about 891 billion lira, equivalent to around $21.4 billion, involving about 353,000 investors. Another media report said the funds planned for liquidation are close to $20 billion. The slight discrepancy between the two media figures shows the scale of the fund assets involved in this disposal is substantial.

In addition to liquidation, regulators have also suspended trading in the related funds and taken measures against suspected stock price manipulation. According to Bloomberg, the Turkish Capital Markets Board imposed trading bans on managers related to Tera and Pusula, involving stocks such as Katilimevim, Gundogdu Gida, and Destek Finans Faktoring.

Meanwhile, the investigation has expanded from fund trading to the top levels of financial institutions. Reports say Pusula Portfoy chairman Muhammed Yariz was arrested; Hedef Holding chairman Namik Kemal Gokalp, Destek Holding major shareholder Altunc Kumova, and Tera Portfoy deputy CEO Ibrahim Bekci were detained; Tera Holding chairman Emre Tezmen was restricted from leaving the country.

These measures demonstrate that Turkish authorities are not only seeking to relieve redemption pressure but also to investigate the roots of the crisis and assign responsibility for relevant trading behavior.

Central bank boosts lira liquidity, bank capital requirements eased simultaneously

In addition to fund liquidation and investigation, the Turkish central bank also acted swiftly to provide liquidity support to the market.

Reports indicate that the Turkish central bank increased the size of repo financing to 300 billion lira and raised the lending cap for banks in the interbank money market to ten times the original amount, ensuring sufficient lira liquidity. The central bank also stated it would take further measures if necessary.

The Turkish Capital Markets Board has also temporarily lowered the minimum equity maintenance requirement for margin trading from 35% to 20%, with the measure valid until October 2. According to regulations, brokers may adopt a lower threshold based on their own risk policies.

Banking regulators have allowed banks listed on Borsa Istanbul to enjoy temporary flexibility in calculating capital adequacy for share repurchase programs before year-end. Bloomberg reports that banks may exclude such repurchased shares from core capital requirement calculations.

This set of policies addresses market liquidity, leveraged trading, and bank capital constraints, aiming to ease short-term funding pressures and prevent fund redemptions and share sell-offs from further impacting the financial system.

Benchmark index rebounds after nearly 10% drop in three days, small caps remain under pressure

After the policies were announced, the Turkish stock market rebounded, but the recovery was uneven.

Data shows the Turkish BIST 100 index closed up about 3% on Thursday, after falling nearly 10% over three consecutive sessions; as of this week it is still down 6.9%, and may log its worst week since March 2025. Bank stocks notably rebounded after the government's policy announcement, with the bank stock index surging as much as 9.4% intraday on Thursday.

However, the index's rise does not mean that selling pressure has completely dissipated.

Among more than 550 Turkish listed companies, 367 closed lower on Thursday, with about 170 falling by 5% or more; over 100 small-cap stocks were close to the 10% daily decline limit set by regulators.

Analysts pointed out that after the regulatory adjustment of fund rules, prices of some illiquid stocks dropped significantly, making it hard for funds holding these shares to secure cash, forcing them to sell core positions to meet redemption needs.

The market fragmentation reflects a key issue: while regulatory and central bank measures may relieve overall funding stress, the concentrated pressure from selling illiquid stocks remains.

Tera at the center of the storm: over 66,000% return in three years, high-leverage bets on related companies

One of the highlights of this crisis is Tera Portfoy, whose asset management scale rapidly expanded.

Reports say Tera was founded by Emre Tezmen and manages about 730 billion lira (approx. $15 billion) in assets. Its flagship fund returned over 66,000% over the past three years, attracting much attention in Istanbul financial circles.

But such astonishing returns come from a highly concentrated investment strategy: the fund invested tens of billions of lira into a handful of related companies and leveraged its exposure by borrowing.

When positions concentrate on stocks with a low public float and shallow trading depth, there can be a significant gap between rising asset prices and the ability to exit the market. Once the market turns, the fund may find it hard to sell its holdings without markedly impacting prices.

It is reported that on Wednesday, Tera stated its money market and equity funds were unable to fulfill redemption payments as required; a day earlier, Pusula Portfoy disclosed similar difficulties.

Tezmen defended his company on social media, saying some funds had only "temporary liquidity issues" and alleging the company was the target of organized speculative attack. This is his personal account and cannot be taken as a definitive cause of the crisis.

Tighter regulation triggers deleveraging—how does liquidity risk turn into market shock?

The trigger for the crisis can be traced to August.

According to reports, in August, Turkish regulators tightened rules on equity funds, focusing particularly on those heavily invested in listed company stocks with low public float.

The rule changes forced some funds to sell their holdings, which led to exit pressures in the market. When fund investors concentrated their redemptions, managers needed to raise cash; but if the stocks held were illiquid, selling could further depress prices, creating a feedback loop of "NAV decline — more redemptions — forced selling."

Analysts noted that high concentration of funds in illiquid stocks is an important context for the current market turbulence.

This has also brought the fast-growing Turkish fund industry under stricter scrutiny: when fund scale expansion, use of leverage, and position concentration occur simultaneously, high returns in boom periods do not necessarily lead to smooth outcomes during stressful times.

Finance Minister calls risk “temporary and controllable,” market still watching for policy effects

After an emergency meeting chaired by Finance and Treasury Minister Mehmet Simsek, the Turkish Financial Stability Board stated that current problems are limited to specific segments of the fund market, are "temporary and controllable," and denied the existence of broader structural risks.

However, analysts remain cautious about the outlook.

Piotr Matys, Senior FX Analyst at ITC Markets, commented that decisive action by the central bank and regulators gives equity investors some breathing room, but it's too early to declare the sell-off over.

Hasnain Malik, Head of Equity Strategy for Emerging Markets at Tellimer, said that loan, collateral, and potential contagion risks between institutions are hard to predict, though the current market turmoil appears largely unrelated to macroeconomic conditions and should not cause systemic risk.

Meanwhile, MSCI said in June it continued to monitor shareholder transparency and coordinated trading issues in the Turkish stock market, and warned it may reassess Turkey’s market status if regulatory reforms lack credible progress.

The Turkish government's current policy goal is to contain the fund redemption crisis within specific market sectors and prevent it from escalating into broader financial system stress. In the short term, rebounds in the equity and bank indices provide some buffer; however, persistent declines in small caps, the large scale of fund liquidation, and the constantly expanding regulatory investigation all indicate that a recovery in market confidence remains to be seen.