MSCI’s Turkey Index Freeze and the Legal Response: Free Float, 3% Ownership Disclosure, Hedge Fund Limits, Enforcement and the Road to the June 2027 Review

On 15 October 2026, MSCI announced an interim freeze on certain changes to the MSCI Turkey Indexes, effective immediately and until further notice. It will not implement increases to foreign inclusion factors or numbers of shares, additions to the MSCI Turkey Investable Market Index, or upward migrations between size segments. MSCI said institutional investors had raised serious concerns about possible coordinated trading through fund holdings closely affiliated with certain smaller listed companies. In its view, this undermines the reliability of free float estimates and market integrity. It asked for three things: granular and timely disclosure of beneficial ownership, robust surveillance and enforcement, and a rules-based framework for securities with structurally distorted free float. If sufficient progress is not evident by June 2027, MSCI will consider further measures, including a consultation on reclassifying Turkey from Emerging Market to Frontier or Standalone status. FTSE Russell had already deferred certain Turkish index changes from August 2026, while keeping Turkey’s Advanced Emerging status. On the Turkish side, the Capital Markets Board (SPK) has redefined free float, lowered the starting point for shareholding disclosures to 3% and tightened the rules for hedge funds. Further legislation is in the pipeline. This guide sets out the legal framework behind these developments for foreign institutional investors. It reflects the legislation and announcements as at 26 October 2026.

Why index provider decisions matter

Many global institutional investors measure their equity portfolios against indices published by MSCI or FTSE Russell, and passive funds replicate those indices directly. How an index provider treats a market therefore has practical consequences. It affects how much capital is allocated to the market and to individual stocks, how free float and investable weight are measured, and whether new listings and capital increases are reflected. Market classification decides which family of indices a country belongs to. For Turkey, the stakes rose sharply in 2026, after the fund and market manipulation cases led the SPK to liquidate a large group of investment funds.

MSCI’s decision of 15 October 2026 is the clearest signal so far. It is not a reclassification. Turkey remains an Emerging Market in MSCI’s framework. But MSCI has linked the freeze to its market classification review and set June 2027 as the point at which it will consider further steps. MSCI did not ask for a single measure. It asked for structural improvements in three areas: beneficial ownership disclosure, enforcement, and free float. Each of these is governed by Turkish capital markets law.

This guide explains what MSCI and FTSE Russell have done, how the Turkish rules on free float, holdings disclosure, hedge funds and controlling shareholders’ sales have changed since June 2026, and what is expected next. It also sets out what this means for a foreign institutional investor’s own legal position. Index methodology questions are for the index providers. This guide addresses the Turkish legal framework that those providers are assessing.

What MSCI decided on 15 October 2026

MSCI announced an interim freeze on certain index-related changes for Turkish equity securities resulting from index reviews or corporate events. The freeze applies immediately and until further notice. MSCI explained that, during its 2026 Market Classification Review, institutional investors had raised serious concerns about possible coordinated trading through fund holdings closely affiliated with certain smaller listed companies. In its view, this undermines the reliability of free float estimates and market integrity.

The announcement lists only increases and additions as frozen events; it does not list decreases or deletions among them. The freeze does not by itself change Turkey’s classification. Its significance lies in the conditions MSCI has attached and in the June 2027 checkpoint.

FTSE Russell’s approach

Deferred changes since August 2026. FTSE Russell acted earlier. Following an announcement on 17 August 2026, it published a policy document on the treatment of Turkish securities, invoking the exceptional market disruption provisions of its index policy. It explained that, since 15 June 2026, the Central Registry (MKK) had published free float figures under a revised methodology. That methodology can exclude fund-held shares attributed to strategic shareholders, and its figures were generally lower than FTSE Russell’s own. Because only an aggregate figure was published, FTSE Russell said it could not reconcile the data with its free float rules.

What was deferred. For the September 2026 review, effective from 21 September 2026, FTSE Russell deferred several types of change: new additions including IPOs, weight adjustments from zero to positive, free float increases, and most size segment changes. Deletions for failing eligibility screens, quarterly share and free float decreases, and certain other changes continued. From 18 August 2026, IPO additions and some capital-raising events of domestically listed Turkish securities were also not being implemented. FTSE Russell said decisions on future treatment, including a possible return to full re-ranking, would be considered before the December 2026 review.

Classification unchanged. In its annual country classification announcement in October 2026, FTSE Russell kept Turkey’s Advanced Emerging status and did not place it on its Watch List. It reported that it continued to engage with Borsa Istanbul and the SPK. It also said the SPK was considering whether the free float data published by the MKK could be made more granular.

MSCI’s three requirements and the Turkish rules

MSCI’s requirements correspond to three areas of Turkish law, each of which changed during 2026. The table maps them. The following sections explain each in turn.

The new free float definition

June 2026. By principle decision 34/1044 of 4 June 2026, announced in Bulletin 2026/35, the SPK added a fund look-through to the long-standing free float definition. Shares held through hedge funds or special funds by persons whose own shares were excluded from free float were also excluded, in proportion to their holding in the fund. The MKK was to calculate the figures daily from 15 June 2026. This is the framework MSCI described as excluding fund-held stakes from free float where the beneficial owner is already excluded.

September 2026. By principle decision i-SPK.81.1 (54/1626 of 3 September 2026), announced in Bulletin 2026/57 of 8 September 2026, the SPK replaced the earlier free float decisions, including the June 2026 decision, with a single framework. Free float is defined as a measure of the public float of companies whose shares trade on the Borsa Istanbul Equity Market. It is calculated as the number of free float shares tracked by the MKK divided by the total number of shares the MKK can track. The following holdings are excluded:

1. 1. Shares owned by public legal entities.
2. 2. Shares held by the company and by entities related to its founders that are subject to consolidation.
3. 3. Shares bought back under Communiqué II-22.1 and the related SPK decisions.
4. 4. Shares of shareholders holding 10% or more of the capital.
5. 5. Shares of board and audit board members, the general manager and senior executives.
6. 6. Shares owned by the company’s pension funds and foundations.
7. 7. Shares given as collateral, with specified exceptions.
8. 8. Shares that are legally restricted, banned from trading or attached.
9. 9. Shares traded on foreign markets.

Look-through. Persons whose shares are excluded are also excluded for the issuer shares they hold indirectly through hedge funds, special hedge funds and other listed companies. The exclusion is calculated in proportion to their interest in the fund or company. The same look-through applies in identifying 10% shareholders, so a shareholder with a direct stake below 10% may cross the threshold once its indirect holdings are added. The whole portfolio of a hedge fund is not excluded, only the part attributable to excluded persons.

Implementation. The MKK calculates and publishes the free float figures daily from 11 September 2026. Every listed company must notify the MKK, on the first business day of each month, of the identity of the persons falling within the exclusion criteria. Free float is not only a statistic: it is now used as a reference in several other rules. These include the hedge fund concentration limits, the calculation of fund founders’ disclosure thresholds and the limits on controlling shareholders’ off-exchange sales described below.

Beneficial ownership and holdings disclosure

The statutory thresholds. Under the Special Situations Communiqué, a person must disclose when its direct or indirect share of the capital or total voting rights of an exchange-traded issuer reaches or falls below specified percentages. Persons acting in concert with it are counted together. The thresholds in the text are 5, 10, 15, 20, 25, 33, 50, 67 and 95%. A fund founder must make the same disclosure for the combined holdings of its investment funds (Communiqué II-15.1 Art. 12(1)). All voting rights attached to shares, including frozen ones, are counted (Art. 12(3)). Voting rights held under voting agreements, temporary transfers and certain collateral arrangements are attributed to the person concerned (Art. 13). Where a person reaches or falls below a threshold directly, the MKK makes the disclosure. Where the threshold is crossed in concert, indirectly or through voting rights, the obligation remains with the person (Art. 12(4)).

Disclosure from 3%. By principle decision i-SPK.15.2 (54/1614 of 3 September 2026), announced in Bulletin 2026/57, the SPK decided that, from the end of 11 September 2026, the lowest threshold for disclosures under Art. 12(1) and (4) starts at 3%. The same decision requires the MKK to keep two tables up to date. The first shows persons holding directly 3% or more of the capital or voting rights of listed issuers. The second shows persons holding 10% or more once indirect holdings through hedge funds, including special hedge funds, and through other listed companies are taken into account (Art. 16(1)–(2)). The SPK noted that the indirect holdings data are published for information on economic interests. They cannot be relied on directly for rules that assess indirect ownership, such as the mandatory tender offer.

Fund-level transparency. Item 9.8 of the SPK’s Investment Funds Guide, added on 28 August 2026, adds two rules. First, when a person’s holding in a fund traded on the TEFAS platform reaches or falls below 30, 40, 50, 60, 70, 80 or 90% of the fund’s outstanding units, the MKK announces the person and the ratio on KAP. Second, for funds traded on TEFAS, the founder’s disclosure ratios under Art. 12(1)(b) are calculated against the issuer’s free float shares rather than its total capital. A fund’s position therefore becomes visible earlier where free float is small.

The general disclosure framework is explained in our guide to continuous disclosure in Turkey, and MKK registration in our guide to the MKK central registry.

Hedge fund rules after August 2026

By decision 52/1589 of 28 August 2026, announced in Bulletin 2026/54, the SPK amended its Investment Funds Guide. The changes target the channels MSCI identified: concentrated fund holdings in small listed companies, related-party exposure and leverage.

Concentration relative to free float. Positions that each exceed 5% of a hedge fund’s portfolio may together not exceed 20% of it. Investment in instruments of issuers controlled by the manager or by its senior management or shareholders is capped at 20% of portfolio value. A hedge fund’s holding in an issuer is limited as a share of that issuer’s free float:

1. 1. 8% where the free float ratio is below 25%.
2. 2. 6% where it is between 25% and 50%.
3. 3. 4% where it is between 50% and 75%.
4. 4. 2% where it is above 75%.

All securities funds of a single founder under the same manager are limited together to 16, 12, 8 and 4% respectively. A hedge fund may hold no more than 1% of the free float of an issuer controlled by the fund’s own investors, with 2% for the founder’s funds combined. No more than 20% of a hedge fund’s portfolio may be invested in instruments of the same group (Investment Funds Guide item 4.3(1)). Exemptions apply to public-sector issuers, BIST 30 shares and index and exchange-traded funds (item 4.3(2)).

Phase-in. Excess positions as at 29 August 2026 became ceilings that cannot be increased. They must be reduced by at least one third by 31 October 2026 and two thirds by 30 November 2026, with full compliance by 31 December 2026 (item 4.3(8)).

Repo, collateral and related parties. Off-exchange repo transactions now require a written framework agreement and same-day notification to the custodian and Takasbank. Only BIST 30 shares may be used among equities, and at least one third of the instruments must be public debt instruments of the kind listed in the Repo Communiqué and at least one third BIST 30 shares (item 4.2.3(1)). Funds may not enter into off-exchange repo or promise contracts with the founder’s natural-person related parties or funds in which they invest. Exposure to legal-person related parties is capped at 10% of portfolio value (item 4.2.3(10)). Hedge funds may repo at most 20% of eligible assets and include at most 20% in off-exchange reverse repo and promise contracts (item 4.2.3(9)). Exchange-traded transactions must be brought under Takasbank central counterparty or central clearing from 31 December 2026, with fund-by-fund settlement from 31 December 2027 (item 4.2.3(3)).

Transparency and governance. Hedge funds traded on TEFAS must publish a weekly portfolio distribution report on KAP within three business days of each week (item 9.5). Each fund must have at least two portfolio managers, one of them responsible. A manager may manage no more than seven funds, phased in until 2031 (item 4.4(b)–(c)). Where a single instrument averages 5% or more of a fund’s portfolio over 30 days, the research supporting each trade must be approved by the general manager (item 4.4(ç)). The fund rules more generally are explained in our guide to Turkish investment fund rules.

Sales by controlling shareholders

The existing rule. Some shareholders must prepare a share sale information form and have it approved by the SPK before selling, on the exchange, more than 10% of a listed company’s capital in any twelve-month period. This applies to shareholders holding directly more than 20% of the capital, alone or with persons acting in concert. It also applies to holders of privileged shares carrying the right to elect or nominate at least one board member (Share Communiqué VII-128.1 Art. 27(1)). Companies controlled by such shareholders, and persons controlling a corporate shareholder, are treated as acting in concert (Art. 27(4)).

The August 2026 addition. By decisions 52/1589 of 28 August 2026 and 53/1590 of 31 August 2026, announced in Bulletins 2026/54 and 2026/55, the SPK limited off-exchange sales by the same shareholders. In any twelve-month period they may not sell, off the exchange, more than 2% of the capital or voting rights where the free float ratio exceeds 50%, or more than 4% where it is 50% or below. Off-exchange methods include special orders, the wholesale market, and transfer or account-to-account (virman) methods. Larger transfers require a share sale information form approved by the SPK. Until it is approved, the transfers cannot be made and non-traded shares cannot be converted into tradeable shares. The selling shareholder and the intermediary are responsible for compliance. Sales made before 29 August 2026 are not counted. Companies in the BIST 30 index and companies controlled by the Ministry of Treasury and Finance, the Türkiye Wealth Fund or public institutions are exempt.

These rules address a free float concern from a different angle. They limit how quickly controlling holders can move large blocks into the market, and they tie the limit to the free float ratio calculated under the new definition. Tender offer rules are discussed in our guide to mandatory tender offers in Turkey.

Surveillance, enforcement and the fund liquidations

The legal tools. Turkish law already provides the main enforcement tools MSCI refers to. Market manipulation through transactions or orders is a criminal offence (Capital Markets Law Art. 107(1)), as is information-based manipulation (Art. 107(2)). Insider dealing is also a criminal offence (Art. 106). Acts that disrupt the market without amounting to a crime are sanctioned with administrative fines (Art. 104). The SPK may take any measure against capital market institutions that act in breach of the rules, including suspending or cancelling their authorisations (Art. 96(1)). It may also take the action needed to secure the functioning of the markets under its general powers (Art. 128(1)(a)). These provisions are explained in our guides to market manipulation under Article 107 and market-disrupting acts under Article 104.

The fund liquidations. On 17 September 2026, relying on Arts. 96(1) and 128(1)(a), the SPK closed to trading on TEFAS all funds of seven portfolio management companies and ordered a group of their funds to be liquidated by a method it would determine. The decision was announced in Bulletin 2026/60. Under the procedure announced the same day, two banks were appointed as portfolio custodians and authorised to conduct the liquidations (Bulletin 2026/61). The liquidation period, initially up to three months, was extended to six months (Bulletin 2026/62). A Fund Coordination Board chaired by the Vice President was set up to oversee the process.

Criminal proceedings. Prosecutors have opened investigations, and asset freezes and travel bans have been reported. These proceedings are at the investigation stage. Everyone concerned benefits from the presumption of innocence, and no finding of manipulation by any person should be inferred from them. Investor participation in criminal proceedings is explained in our guide to joining a criminal case in Turkey as a foreign investor.

The legislative pipeline

The fund law. A law on the funds, Law No. 7596, was adopted by the Grand National Assembly on 22 October 2026. As at 26 October 2026, it had not yet been published in the Official Gazette, and it enters into force only on publication. Reports during the parliamentary process referred to two features. One is interim payments to investors in funds being liquidated. The other is the recovery of gains obtained through market abuse, calculated with reference to the average of consumer and domestic producer price changes, with details left to secondary SPK regulation. Its final text should be read once published.

Broader reform. In October 2026, the Minister of Treasury and Finance said a new law would target capital markets crimes, including coordinated trading by investment funds, with the beginning of 2027 as the target. The Vice President referred to a wider bill on structural market reforms. During the committee debates on the fund law, a broader revision of the Capital Markets Law was also said to be planned for after the new year.

The MSCI clock. MSCI’s June 2027 checkpoint and its 2027 Annual Market Classification Review fall shortly after these targets. Whether the new rules are seen as delivering structural improvements will depend on their content and on how consistently they are applied in practice.

Key dates

Points for foreign institutional investors

Your own disclosure threshold has moved. The 3% starting point applies to every holder, including foreign institutions. A direct holding that reaches or falls below 3% of a listed issuer’s capital or voting rights is disclosed by the MKK. Holdings through concert arrangements, indirect holdings and voting rights remain the holder’s own responsibility (Communiqué II-15.1 Art. 12(4); decision 54/1614). Groups that hold Turkish shares through several funds or mandates should check how their positions aggregate.

Free float data are now granular but partly aggregate. The MKK publishes daily free float figures and tables of direct holdings from 3% and indirect holdings from 10%. The indirect table is for information on economic interests. It is not a legal determination for tender offer or similar purposes. FTSE Russell’s difficulty in reconciling aggregate data shows why granularity matters.

Index treatment and legal rights are separate. An MSCI or FTSE Russell decision changes index weights, not legal rights. A shareholder’s rights under the Commercial Code and the Capital Markets Law are the same whether or not a stock is in an index. These include information and voting rights, rights in tender offers, and claims for losses caused by manipulation or misleading disclosure. Our guide to the 2026 crisis for foreign institutional investors sets out those rights.

Watch the phase-in dates. Hedge funds must reduce excess positions by one third, two thirds and in full by the end of October, November and December 2026. These reductions may affect liquidity and prices in the smaller listed companies concerned.

Read the fund law when it is published. Law No. 7596 may affect the recovery of losses and the treatment of gains linked to market abuse. Its published text, and the SPK’s secondary regulation, will determine how it applies.

Frequently asked questions

Has MSCI downgraded Turkey?

No. On 15 October 2026 MSCI froze certain index increases for Turkey until further notice. Turkey remains an Emerging Market, but MSCI will consider further measures if sufficient progress is not evident by June 2027.

Which MSCI index changes are frozen?

Increases in foreign inclusion factors and numbers of shares, additions to the MSCI Turkey Investable Market Index and upward migrations across size segments.

What could happen in June 2027?

MSCI may consult on reclassifying the MSCI Turkey Indexes from Emerging Market to Frontier or Standalone status, as part of its 2027 Annual Market Classification Review.

What did FTSE Russell do?

It deferred additions, free float increases and most size segment changes for Turkish securities from its September 2026 review, and kept Turkey’s Advanced Emerging status without a Watch List placement.

What is the new Turkish free float definition?

Free float shares tracked by the MKK divided by all shares it tracks. Strategic holdings are excluded, including 10%+ shareholders, insiders, the company, related entities and public bodies, with look-through for hedge funds and listed companies (SPK decision 54/1626).

Who publishes free float figures?

The MKK, daily from 11 September 2026; listed companies notify the MKK monthly of the persons excluded.

What is the lowest shareholding disclosure threshold now?

From the end of 11 September 2026, disclosures under Communiqué II-15.1 Art. 12(1) and (4) start at 3% (SPK decision 54/1614).

Does the 3% threshold apply to foreign investors?

Yes. It applies to any natural or legal person holding shares in an exchange-traded issuer.

Who makes the disclosure?

The MKK discloses direct crossings; the holder remains responsible for crossings through concert, indirect holdings or voting rights (Art. 12(4)).

How large can a hedge fund’s stake in a listed company be?

Between 2% and 8% of the issuer’s free float depending on the free float ratio, with combined limits for a founder’s funds (Investment Funds Guide item 4.3(1)(c)).

When must hedge funds comply?

Excess positions must be reduced by one third by 31 October, two thirds by 30 November and fully by 31 December 2026.

Are fund holdings visible?

TEFAS-traded hedge funds publish weekly portfolio reports on KAP, and holdings above 30% of a TEFAS fund’s units are announced (items 9.5 and 9.8).

Can controlling shareholders sell blocks off-exchange?

Only up to 2% or 4% of capital in twelve months, depending on free float, without an SPK-approved share sale information form (decisions 52/1589 and 53/1590).

Is the fund law in force?

Law No. 7596 was adopted on 22 October 2026 but, as at 26 October 2026, had not been published in the Official Gazette.

Does an index freeze affect shareholders’ legal rights?

No. Index treatment affects weights; shareholder rights and claims under Turkish law are unchanged.

Related guides

• Turkey’s 2026 Fund and Market Manipulation Crisis: Legal Guide for Foreign Institutional Investors — the entry point to this series
• Continuous Disclosure in Turkey
• Turkish Investment Fund Rules
• Market Manipulation under Capital Markets Law Article 107
• Market-Disrupting Acts under Article 104
• Mandatory Tender Offers in Turkey
• Borsa Istanbul Trading Rules
• The MKK Central Registry and Foreign Investors
• SPK Investigations
• Trading Halts and Delisting on Borsa Istanbul