Turkey bans short selling and eases buyback rules amid market rout

The Borsa Istanbul 100 Index shed more than 16 per cent last week after President Erdogan's main opposition leader was arrested

Protest demonstrations have broken out in Turkey after Istanbul Mayor Ekrem Imamoglu was arrested last week. AFP

Turkey banned short selling across all stocks and eased share buyback rules to prevent further losses in the country after the benchmark index plunged last week following the arrest of President Recep Tayyip Erdogan's main electoral rival that led to fears of economic instability in the country.

The new rules were announced late on Sunday and will continue to remain in effect until the end of trading session on April 25, Turkey’s markets regulator Capital Markets Board of Türkiye said.

The new restrictions broaden a previous ban that limited short-selling to only the top-50 listed companies.

The regulator also allowed listed companies to repurchase shares at prices above the last market close and reduced the minimum equity capital protection requirement for margin trading to 20 per cent from 35 per cent, Bloomberg reported.

The new rules on short selling – a process where investors sell borrowed securities and aim to buy them back at a lower price to pocket the difference – were implemented after the country’s main stock index tumbled last week after Istanbul Mayor Ekrem Imamoglu was arrested as part of a corruption investigation.

A Turkish court jailed Mr Imamoglu pending trial on Sunday, local media reported, as more than 300 people were arrested.

The jailing of the opposition leader has led to debate on whether the move is politically driven in an attempt to remove him from the next presidential race, currently scheduled for 2028.

Government officials reject the accusation and say Turkey’s courts are independent.

The move has caused widespread protests across Turkey, with demonstrators rallying in several cities to voice their opposition.

The Borsa Istanbul 100 Index, which includes some of the biggest Turkish companies and financial institutions in the country's economy, slumped by 7.81 per cent at close on Friday. It shed 16.73 per cent for the week amid countrywide protests. The benchmark BIST 30 index also tumbled 8.3 per cent.

Turkey's economy has been battling with chronic inflation for the past two years, although the government’s disinflation strategy has lowered it close to 40 per cent in February after peaking at more than 75 per cent last year, according to government data.

Turkey’s economy has also struggled to maintain growth momentum despite Ankara’s push to stimulate economic activity. The International Monetary Fund expects it to expand by 2.7 per cent this year, slower than the 3.2 per cent recorded last year.

There are signs of recovery and S&P Global upgraded Turkey's credit rating twice last year citing the impact of the tight monetary stance that has helped stabilise the economy.

The country's long-term sovereign credit rating was raised to BB- from B+ though its outlook was revised to stable from positive, S&P said at the time.