CANCELLATION OF FUND REDEMPTION INSTRUCTIONS, PAYMENT OF REDEMPTION PROCEEDS, DEFAULT AND COMPENSATORY PAYMENTS

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Following the decisions of the Capital Markets Board of Türkiye (the “CMB” or the “Board”) restricting transactions in, and ordering the liquidation of, certain investment funds, the payment priority of pending redemption instructions has become a matter of debate. Bulletin No. 2026/61 dated 17 September 2026, published by the CMB, adopted a 13:30 cut-off for funds requiring advance notice and provided that amounts arising from unexecuted redemption instructions would be recorded as liabilities of the fund and paid as a priority out of cash generated through liquidation. This provision gave rise to debate as to whether instructions submitted before 13:30 qualified for priority payment¹.

By contrast, in its statement dated 28 September 2026, the Board announced that all instructions submitted to the Turkish Electronic Fund Trading Platform (“TEFAS” or the “Platform”) on 17 September 2026 had been cancelled as a result of the decision to suspend trading. It explained that the holders of these instructions would be paid out of the liquidation balance in proportion to their unit holdings. It also stated that instructions submitted on or before 16 September 2026 that could not be executed because of the fund’s default or failure to announce a price were within the scope of liquidation. Despite the time-based distinction in the initial provision, this statement prompted interpretations that instructions dated 17 September 2026 fell outside the scope of priority payment².

This legal briefing examines the submission of redemption instructions, settlement and payment obligations, the legal consequences of default and compensatory payments by reference to the Turkish Electronic Fund Trading Platform Implementation Principles dated 20 July 2026 (the “Implementation Principles”), the Turkish Electronic Fund Trading Platform Distribution Institution Agreement dated 6 July 2026 (the “Distribution Institution Agreement”) and the Turkish Electronic Fund Trading Platform Founder Agreement of the same date (the “Founder Agreement”) of İstanbul Takas ve Saklama Bankası A.Ş. (“Takasbank”)²³. It is important to emphasise that the Distribution Institution Agreement and the Founder Agreement bind the parties to those agreements, and investors cannot assert claims on the basis of those agreements. The term “sale transaction” in this briefing refers to the transaction by which an investor returns units to the fund and receives the corresponding redemption proceeds.

1. Submission and Execution Time of Redemption Instructions

On TEFAS, investors purchase and redeem units through member institutions. The definition of a member in the Implementation Principles covers fund founders, investment institutions and portfolio management companies authorised to transact after signing the relevant TEFAS agreement. Investors are not TEFAS members within the meaning of the Implementation Principles³.

Within this structure, the founder is the portfolio management company that establishes the fund. The fund distribution institution (“FDK”, the Turkish abbreviation) means the authorised investment institution or portfolio management company that intermediates the purchase and redemption of units through TEFAS. The operator member is the member institution authorised to conduct the fund’s TEFAS transactions on behalf of the founder, or the founder itself where it conducts these transactions³.

The investor’s redemption instruction is submitted to TEFAS by the FDK on a client-by-client basis. The operator member conducts the fund’s TEFAS transactions and is the counterparty to the redemption transaction on TEFAS. Where the operator member is an institution other than the founder, the operator member and the founder are jointly and severally liable for liabilities arising from transactions carried out by the operator member pursuant to Article 9(2) of the Implementation Principles³.

The Founder Agreement also regulates the founder’s liability for investor losses. Under Article 3(7), the founder must ensure that information relating to fund transactions is reported to the system accurately, completely and on time, and is kept up to date. Under paragraph 14 of the same Article, the founder is liable for losses arising from its own failure, or that of its authorised operator member, to discharge a cash obligation, or from the incorrect entry of fund price information. Accordingly, any assessment of a compensation claim must consider the breach of obligation, the loss and the causal link together²⁴.

When a redemption instruction is entered into the system, the units are blocked and the instruction is matched if sufficient units are available in the client’s account at Merkezi Kayıt Kuruluşu A.Ş. (“MKK”, Türkiye’s central securities depository). Matched instructions with a future settlement date remain pending in the system until that date. The pricing date determines the date of the unit price used to calculate the redemption proceeds; the settlement date is the date on which settlement is scheduled to take place. These dates are determined by reference to the rules in the fund’s prospectus and the time at which the instruction is submitted to TEFAS⁴.

The general operating hours prescribed in the Implementation Principles are as follows⁵:

The founder or operator member may set different dealing hours for individual funds, provided that they fall within the general operating hours and are defined in the system. Takasbank may also temporarily change operating hours under Article 12(4) of the Implementation Principles. In exceptional circumstances, Article 28 permits changes to operating hours, suspension of instruction submission and other necessary measures. Changes to operating hours are notified to members by general announcement⁵.

For funds traded in foreign currency, where the settlement date falls on a half business day, it is moved to the next business day; the pricing date remains unchanged. The matching status of the instruction and the relevant cancellation provisions must be taken into account when applying the automatic cancellation times in the table⁵ ⁶.

2. Cancellation of Redemption Instructions and the Effect of Price Information

A member’s ability to cancel a redemption instruction depends on whether it has been matched and on the cancellation cut-off specified for the fund. The periods prescribed in Article 19 of the Implementation Principles are set out below⁶:

The distribution institution is responsible for receiving and recording the investor’s instruction and submitting it to TEFAS in accordance with the applicable transaction rules. Once the instruction has been submitted to TEFAS, responsibility is determined by the obligation to be performed at the relevant stage of the transaction. Reporting the fund price and conducting the fund’s TEFAS transactions fall within the remit of the founder or operator member; operating the settlement system falls within Takasbank’s remit; and transactions relating to the client account fall within the remit of the relevant institutions. Submission of the instruction to TEFAS does not, however, extinguish the distribution institution’s obligations to inform the investor and to pay the client the redemption proceeds transferred to it. The stage at which a cancellation or delay occurred, and the institution within whose remit it arose, must therefore be established by reference to the records of receipt and submission of the instruction to TEFAS⁶.

Redemption instructions are submitted without any TEFAS limit or collateral requirement. Accordingly, as a rule, a redemption instruction cannot be cancelled solely on the ground of an insufficient limit or insufficient collateral. If a matched redemption instruction whose settlement date has arrived is not paid on time, the default provisions explained below, rather than cancellation of the instruction, become relevant. Any specific cancellation provisions applicable to the transaction and any Board decisions remain reserved⁷ ¹³.

The fund price is one of the essential elements for processing a redemption instruction on TEFAS. Article 14(4) of the Implementation Principles expressly prohibits the entry of instructions and the execution of transactions for funds for which no price information is available in the system. The absence of price information must therefore be regarded not merely as a valuation or calculation deficiency, but as a transaction condition preventing the transaction from proceeding on TEFAS⁷ ⁸.

Different legal consequences attach to the absence of price information, a subsequent price update and a fund merger. Instructions cannot be entered, and transactions cannot be executed, for funds without price information in the system. By contrast, where an existing price is subsequently updated, matched instructions may be cancelled by the system under Article 19(4) of the Implementation Principles. In a fund merger, instructions relating to the transferring fund with a value date on or after the merger date are automatically cancelled⁸ ¹³.

3. Payment of Redemption Proceeds: Discharge of Obligations and Distribution of Receivables

For redemption proceeds to be paid to the investor, the relevant fund’s cash obligation must be discharged through the Takasbank system. The required amount is held in the TEFAS cash obligation discharge account and the obligation relating to the relevant redemption instruction is discharged. The proceeds of the instruction thus met are transferred to the creditor distribution institution and credited by it to the investor’s account. To establish the payment status, it is therefore necessary to determine not only when cash was deposited in the discharge account, but also when the obligation relating to the instruction was discharged and when the proceeds were transferred to the distribution institution⁹.

Under Article 3(13) of the Founder Agreement, the founder must ensure that the cash required for obligations arising from the redemption of units is available in the relevant accounts and that those obligations are discharged within the periods prescribed in the Implementation Principles. This obligation may be performed directly by the founder or through an authorised operator member. Accordingly, an assessment of payment delay must examine the founder’s obligations to provide cash and discharge the obligation on time, as well as the operator member’s system operations²⁶.

Payment of redemption proceeds is based on the time at which instructions for each fund were entered into TEFAS. Although the operator member may select the fund whose cash obligation it will discharge, it cannot separately prioritise redemption instructions for the selected fund. Redemption instructions for the same fund are thus met in the order in which they were entered into the system¹¹.

Where the amount in the discharge account fully covers the next redemption instruction in the queue, the obligation relating to that instruction is discharged, the cash is transferred to the creditor member and the units are transferred. If the account balance is insufficient, the amount remains in the account until it is sufficient to cover the entire instruction. The partial payment procedure available in a default situation subject to certain conditions is explained separately below¹¹.

Takasbank does not guarantee or undertake that transactions will be settled on the scheduled settlement date and within the prescribed time. Nevertheless, the stage and cause of a payment delay must be established separately. A delay may arise from the obligor member’s failure to discharge its cash obligation on time, or from a technical or operational disruption in the operation of TEFAS. The source of the delay and the relevant institution’s obligations at that stage must therefore be examined separately in each case²⁷.

4. Payment Delay, Default and Default Interest

If a cash obligation is not discharged within the prescribed period, the relevant member is deemed to be in default without any further notice. The time at which the obligation is discharged is decisive in determining default. A member’s default in its capacity as a distribution institution and its default in respect of funds for which it acts as operator are monitored separately¹³.

In redemption transactions, the operator member’s cash payment obligation is not secured by specific collateral taken under TEFAS. Accordingly, in the event of the operator member’s default, redemption proceeds are not paid out of collateral collected in advance. Payment to the creditor member depends on the amount and timing of the defaulting operator member’s discharge of its obligation¹⁴.

Under Article 23(4)(b) of the Implementation Principles, a partial payment may be made where, on the value date and at the time specified by Takasbank, the amount in the discharge account does not fully cover the next redemption instruction in the queue. That amount is transferred to the creditor member. However, the units remain blocked in the investor’s account and are not transferred until the cash obligation relating to the redemption instruction has been met in full¹⁵.

If the default is not cured on the value date, subsequent payments are prioritised by value date. Obligations with earlier value dates are therefore met first. The consent of the relevant portfolio custodian is also required when the cash obligation of a fund for which the member acts as operator is discharged in this manner¹⁵.

Article 24 of the Implementation Principles governs the calculation of members’ default interest. The applicable rate is determined by taking the highest of the late liquidity window lending rate of the Central Bank of the Republic of Türkiye (“CBRT”) and the overnight weighted average interest rates prevailing in the repo and reverse repo markets specified in that Article, the CBRT Interbank Money Market and the Takasbank Money Market. Where a default continues for more than one day, the rate applicable to each day is used; the rate on the value date is not fixed for the entire period of delay¹⁶.

The multipliers applicable to cash obligations according to the time of payment are as follows¹⁶:

Interest is calculated on the basis of calendar days. Interest is also calculated for one day where an obligation is discharged on the day on which default occurs. For foreign-currency obligations, the default amount is determined by converting the foreign-currency amount discharged late into TRY at the CBRT foreign exchange buying rate on the discharge date. The calculation formula is as follows¹⁶:

Default interest = Default amount × Interest rate × Multiplier × Days / 360

For example, assume that a cash obligation of TRY 1,000,000 is discharged at 15:20 on a full business day and that the annual interest rate used in the calculation is 36%, solely for illustrative purposes:

TRY 1,000,000 × 0.36 × 0.5 × 1 / 360 = TRY 500

If the same obligation is discharged at 16:00, the multiplier is 1 and default interest amounts to TRY 1,000. The 36% rate in the example is not the current interest rate; an actual calculation must use the rate determined for the relevant day under Article 24¹⁶:

The calculation of default is based on the settlement date applicable to the transaction, not the date on which the instruction was given. Under Article 13 of the Implementation Principles, subsequent changes to a fund’s value-date information do not affect existing instructions pending in the system¹⁷.

Under Article 23(5) of the Implementation Principles, accrued default interest is payable by the member. If the default is not cured on the value date, interest may be paid after the relevant cash obligation has been discharged in full. Unpaid interest may be collected ex officio from the member’s unrestricted account in accordance with the Implementation Principles and the Founder Agreement²⁸.

Failure to pay default interest on time, even after the underlying cash obligation has been discharged, gives rise to a separate late-payment penalty. Under Article 23(8) of the Implementation Principles, if default interest is not paid within three business days, a penalty of 10% of the unpaid interest is applied for each day until payment. This penalty is calculated on unpaid default interest, not on the redemption proceeds²⁹. A member charged default interest may submit a reasoned objection to Takasbank within three business days under Article 24(5) of the Implementation Principles. If the objection is upheld, default interest is not applied; any amount already collected is refunded to the member³⁰.

As regards any interest that the investor may separately claim from the relevant institution, the payment obligor, the due date of the obligation and the conditions for default must first be established. Article 3(11) and the following paragraphs of the Distribution Institution Agreement regulate member default on TEFAS, while Articles 3(14) and 5(5) regulate the onward payment of compensatory payments to entitled clients. These provisions do not prescribe a general interest rate applicable to every payment delay between an investor and a distribution institution. Any separate interest claim by an investor must therefore be assessed by reference to its own legal basis and the conditions for default¹⁹.

5. Compensatory Payments and Their Transfer to Investors

Under Article 25 of the Implementation Principles, a member that has fulfilled its own obligation but cannot collect its cash receivable on the value date because of the counterparty’s default receives two-thirds of the default interest collected from the defaulting member as a compensatory payment³¹.

For a compensatory payment to be made, it is not sufficient for default interest merely to have accrued; it must also have been collected. In addition, the failure to make payment on the value date must not have resulted from problems in the systems of Takasbank, MKK or the CBRT, and any objection by the defaulting member must have been rejected. Accordingly, default interest arising because redemption proceeds were paid late within the value date does not, by itself, mean that an entitlement to a compensatory payment has arisen²⁰.

The compensatory payment is calculated on the basis of the default interest collected. There is no express provision requiring the inclusion in this calculation of the late-payment penalty accruing under Article 23(8) of the Implementation Principles for failure to pay default interest on time. Default interest, any late-payment penalty and the compensatory payment transferred to the distribution institution must therefore be treated as separate items³².

The obligation to pass the payment on to the investor is expressly regulated in Article 3(14) of the Distribution Institution Agreement. Under that provision, the distribution institution is responsible for calculating the compensatory payment received by it on a client-by-client basis and paying the persons entitled to it. Passing on the relevant investor’s share of the compensatory payment received is therefore not left to the distribution institution’s discretion²¹.

For example, assume that a cash obligation of TRY 1,000,000 is not paid on the value date and is discharged in full on the following calendar day. Taking an illustrative annual interest rate of 36%, a multiplier of 2 and a period of one day, default interest amounts to TRY 2,000. If all the interest is collected and the other conditions are met, the compensatory payment to the creditor member is as follows:

TRY 2,000 × 2/3 = TRY 1,333.33

If the entire amount relates to a single investor’s redemption instruction, the distribution institution must pay it to that investor. If the payment covers instructions of more than one client, each client’s share must be calculated separately and transferred accordingly²⁰ ²¹.

The Implementation Principles also allow a member that does not wish to receive a compensatory payment to notify Takasbank of that intention in writing. However, the effect of such notification on the client’s rights must be assessed by reference to the distribution institution’s authority to represent the client and the obligations it has assumed towards the client²⁰ ²¹.

Assessment of funds in liquidation: Where a decision has been taken to liquidate a fund, payments to investors must be considered within the framework of the liquidation provisions. Under Article 28(2) of the Communiqué on Principles Regarding Investment Funds (III-52.1), the fund’s assets are liquidated in accordance with the principles set out in its fund rules and prospectus, and the liquidation balance is distributed to unitholders in proportion to their holdings. Units may not be issued or redeemed from the commencement of liquidation. Any special liquidation procedures and principles prescribed by the Board for the particular funds must also be taken into account²².

In the liquidation process examined here, amounts arising from unexecuted redemption instructions within the scope of provision A/6 of Bulletin No. 2026/61 are to be recorded as liabilities of the fund and paid as a priority out of cash generated through liquidation. The Board’s statement dated 28 September 2026 explains that holders of instructions cancelled on 17 September 2026 will be paid out of the liquidation balance in proportion to their unit holdings, and that instructions submitted on or before 16 September 2026 that could not be executed because of default or failure to announce a price will be assessed within the scope of A/6¹ ².

Accordingly, a payment claim arising from an executed redemption, a redemption amount recorded as a liability in liquidation and a claim to the liquidation balance arising from unit ownership must be assessed by reference to their respective legal bases and payment rules. The default interest and compensatory payment provisions described for ordinary TEFAS transactions cannot be interpreted as a commitment to provide a return automatically throughout the entire liquidation period. As regards interest and compensatory payment rights alleged to have arisen before liquidation, the legal status of the instruction, the relevant period and the scope of the Board’s decisions must be established¹ ² ²⁰ ²².

When determining the scope of an investor’s claim, the legal basis on which the redemption or liquidation payment was made must be clarified. Any accrued and collected default interest and any compensatory payment received by the distribution institution must be followed through to their crediting to the client’s account. Subsequent payment of the redemption proceeds does not extinguish the obligation to pass on a compensatory payment that has been collected and is attributable to the investor. Any further claims for interest or damages must also identify which receivable or loss has been met by payments already made, so as to avoid double recovery¹⁹ ²⁰ ²¹.

For further information and assistance, please contact us at info@mapartners.com.tr.

Alican Tokmak
Partner, Attorney-at-Law
M&A Partners
Law and Consultancy

Legal Notice

This legal briefing has been prepared solely for general legal information purposes and does not constitute a legal opinion, legal advice, investment advisory services, investment advice or guidance concerning any person, institution, company, fund or specific dispute. The explanations and assessments contained herein must not be interpreted as establishing that a particular transaction is lawful or unlawful, that any person or institution is liable, or that a particular investor is entitled to compensation or any other claim.

Legal assessments of capital market transactions and investment funds must be made by examining together the circumstances of the individual case, the relevant fund and company documents, public disclosures, investor transaction and order records, agreements, portfolio and valuation data, applicable legislation and decisions of the competent authorities.

The explanations in this legal briefing do not constitute a recommendation or advice to buy, sell or hold any capital market instrument and must not be used as a basis for investment decisions. As legislation and administrative practice may change over time, separate legal and, where necessary, financial advice should be obtained under the current regulatory framework for any specific transaction or dispute.

References

References to the Implementation Principles are to the text dated 20 July 2026 provided by you; references to the Distribution Institution Agreement and the Founder Agreement are to the text dated 6 July 2026.

1. CMB, Bulletin No. 2026/60 dated 17 September 2026, announcement concerning Decisions Nos. 57/1706 and 57/1707; Bulletin No. 2026/61 dated 17 September 2026, Decision No. 57/1708, in particular A/5, A/6 and A/8; Bulletin No. 2026/62 dated 20 September 2026, Decision No. 59/1710.

2. CMB, “Press Release on the Liquidation Period”, 28 September 2026.

3. İstanbul Takas ve Saklama Bankası A.Ş., Turkish Electronic Fund Trading Platform Implementation Principles, 20 July 2026, Art. 3(1)(f), (ğ), (j) and (t); Art. 4(1); Art. 9(1)–(2); Art. 16(5); Art. 23(9).

4. Implementation Principles, Art. 13(1); Art. 14(3); Art. 21(7) and (11)–(12).

5. Implementation Principles, Art. 12(1)–(4); Art. 16(4); Art. 28(1).

6. Implementation Principles, Arts. 9 and 11 and Art. 19(1) and (3); İstanbul Takas ve Saklama Bankası A.Ş., Turkish Electronic Fund Trading Platform Distribution Institution Agreement, 6 July 2026, Art. 3(3), (5), (6) and (9).

7. Implementation Principles, Art. 14(4)–(5); Art. 19(2); Art. 20(3).

8. Implementation Principles, Art. 15(1); Art. 19(4).

9. Implementation Principles, Art. 22(1), (3)–(4) and (9)–(10); Distribution Institution Agreement, Art. 3(9)–(10).

10. Implementation Principles, Art. 22(2) and (11).

11. Implementation Principles, Art. 16(2); Art. 22(5)–(10).

12. Implementation Principles, Art. 11(1)–(3); Art. 22(12); Distribution Institution Agreement, Art. 5(2)–(3).

13. Implementation Principles, Art. 12(1); Art. 23(1)–(3); regarding transaction restrictions, see also Art. 6(4)–(6) and Art. 28(1).

14. Implementation Principles, Art. 20(3); Art. 23(9).

15. Implementation Principles, the introductory provision and subparagraph (b) of Art. 23(4); Art. 23(7).

16. Implementation Principles, Art. 24(1)–(4).

17. Implementation Principles, Art. 12(2)–(4); Art. 13(1)–(5); Art. 16(4); Art. 24(1)–(3); Art. 28(1).

18. Implementation Principles, Art. 23(5) and (7); Art. 24(5).

19. Distribution Institution Agreement, Art. 2, Art. 3(11)–(14) and Art. 5(5).

20. Implementation Principles, Art. 25(1).

21. Distribution Institution Agreement, Art. 3(14), p. 4; Art. 5(5), p. 8.

22. CMB, Communiqué on Principles Regarding Investment Funds (III-52.1), Art. 28(1)–(2); for the specific liquidation process, see also references 1 and 2 above.

23. İstanbul Takas ve Saklama Bankası A.Ş., Turkish Electronic Fund Trading Platform Founder Agreement, version dated 6 July 2026, Arts. 1–3.

24. Founder Agreement, Art. 3(5) and (7), p. 3; Art. 3(14), p. 4; Implementation Principles, Art. 9(2).

25. Founder Agreement, Art. 3(9), pp. 3–4; Implementation Principles, Art. 6(5)–(6) and Art. 10(1)(b). For special liquidation provisions, see also references 1, 2 and 22 in the present reference list.

26. Founder Agreement, Art. 3(12)–(13), p. 4; Implementation Principles, Art. 22(3)–(4) and (9)–(12).

27. Founder Agreement, Art. 3(22)–(23), p. 5; Art. 4(1)–(3), p. 6; Implementation Principles, Art. 11(1)–(3) and Art. 12(2).

28. Founder Agreement, Art. 5(1), p. 6; Implementation Principles, Art. 23(5) and (7).

29. Founder Agreement, Art. 3(27), p. 6; Implementation Principles, Art. 23(8).

30. Founder Agreement, Art. 3(13) and (15), p. 4; Implementation Principles, Art. 24(5).

31. Founder Agreement, Art. 4(5), p. 6; Implementation Principles, Art. 25(1).

32. Implementation Principles, Art. 23(8) and Art. 25(1). For calculation on a client-by-client basis and transfer to the persons entitled, see also Distribution Institution Agreement, Art. 3(14); reference 21 in the present reference list.

33. Founder Agreement, Art. 1, p. 1; Art. 7(1) and (3) and Art. 8, p. 7; Arts. 9–10, p. 8.