A group of investment funds in Turkey failed to meet redemption deadlines, leading to a liquidity crisis that spread to a comprehensive sell-off in the stock market. Regulators subsequently suspended trading for funds under seven management companies and ordered the liquidation of 131 funds.

The BIST 100 index dropped over 6% at one point, triggering a circuit breaker, with an intraday maximum decline of approximately 7.7%, closing down about 5.5%. The benchmark index fell about 8% over the week, with September's decline expanding to a range of approximately 10% to 15%, significantly down from the May peak. The total market capitalization evaporated by about $51 billion that week. During the redemption wave, approximately 150 billion lira flowed out in two days, with reports indicating about $1 billion withdrawn from funds in a single day.

The named managers include Pusula, Tera, Hedef, Atlas, A1 Capital, Pardus, and Bulls. The related asset scale is approximately 890 billion to 1 trillion lira, equivalent to about $18.3 billion to $21 billion, involving investors ranging from about 350,000 to between 450,000 and 930,000. Some funds heavily invested in low liquidity, low float stocks were forced to sell core holdings for cash after regulators tightened rules in August, exacerbating price declines and redemptions.

The capital market will hand over the liquidation to İş Bank and Agricultural Bank, extending the deadline from three months to six months. The central bank raised repo funding to 300 billion lira, increased interbank lending limits tenfold, and lowered collateral discounts; regulators temporarily reduced the maintenance margin for financing from 35% to 20% to reduce forced liquidations. The finance minister stated that the liquidation itself does not constitute systemic risk while emphasizing continuous market monitoring.

On the judicial side, several chairpersons and executives have been detained or arrested, with asset freezes covering dozens of companies, several funds, and over forty individuals, along with travel restrictions. Prosecutors have opened cases for stock price manipulation, aggravated fraud, and organized crime, with investigations covering the peak fund sizes from July to the day of the redemption explosion. Some companies have had their asset freezes lifted, but personal restrictions remain in place.

In market mechanics, the sellers were initially the funds unable to meet redemptions and the financing that required additional margins, while buyers included sovereign wealth funds and bank stocks after the circuit breaker. This was an event-driven run triggered by tightened regulations and concentrated holdings, with funds fleeing from thematic stocks, factoring, and savings financial stocks to cash and banks. The beneficiaries are the large banks that gained liquidation custody rights and the central bank windows providing lira liquidity, while the pressured parties are the funds heavily invested in small-cap stocks, their associated listed platforms, and controlling shareholders using stock market value to support financing.

The exchange subsequently plans to significantly replace BIST 100 components, removing illiquid stocks. The expected stock recovery rate is lower than that of money market fund shares, and the prolonged liquidation itself will continue to suppress related chips.

Source: Public Information