Turkey’s latest stock-market turmoil has drawn nearly half a million individual investors into a regulatory intervention involving more than $18 billion of investment-fund assets, exposing the liquidity and valuation risks that can emerge when large pools of money are concentrated in thinly traded shares.
The Capital Markets Board, known as the SPK, said on Wednesday that 455,758 individual investors hold stakes in the funds ordered to be liquidated. The figure, based on records from Turkey’s central securities depository, gives the clearest indication yet of the retail reach of a market disruption that began with difficulties meeting withdrawal requests and quickly spread into the wider stock market.
The SPK had ordered the liquidation of 131 funds managed by seven portfolio-management companies after the market selloff exposed problems at some funds. Authorities have also suspended transactions involving the affected funds and introduced measures designed to prevent the liquidity shock from generating a broader wave of forced selling.
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The intervention came after some funds struggled to meet redemption requests as investors rushed to withdraw their money. That created a classic liquidity problem: funds can hold assets that appear valuable when markets are functioning normally but cannot necessarily be sold quickly at those prices when many investors seek cash simultaneously.
The problem became more acute because parts of Turkey’s equity market have relatively limited free floats and relatively few highly liquid companies capable of absorbing large institutional transactions. Reuters reported that the BIST-100 index fell more than 8% last week, its worst weekly performance since March 2025, as concerns over funds exposed to illiquid stocks intensified.
The mechanics have become necessary because if a fund receives heavy redemption requests, it must raise cash by selling assets. Where the portfolio contains thinly traded shares, those sales can push prices sharply lower. Falling prices reduce the value of the remaining portfolio, potentially encouraging more investors to redeem. That can create a feedback loop in which withdrawals cause selling, selling causes lower valuations, and lower valuations generate further withdrawals.
Turkey’s authorities moved quickly to interrupt that cycle.
The central bank increased funding available to banks, while regulators eased certain margin and capital requirements to reduce the risk of forced sales elsewhere in the market. Reuters reported that central-bank repo funding rose to 603 billion lira, while banks’ interbank borrowing limits were increased tenfold. The SPK also temporarily eased margin-trading requirements.
The liquidation process itself is unusually significant. Under the SPK’s framework, two banks have been appointed as custodians and will conduct the wind-down process. Portfolio assets are to be converted into cash while taking account of market depth and liquidity conditions, with proceeds distributed to investors according to their holdings. The liquidation period is expected to run for up to three months, although the regulator can extend it.
That structure makes the coming weeks important for investors. The key question is how much cash can be realized from underlying assets without triggering another destabilizing wave of selling.
The episode also points to weaknesses that existed before the latest panic.
Turkey has hundreds of listed companies, but relatively few have the size and free float needed to absorb substantial institutional investment. Many large businesses remain closely controlled by founding families or have limited shares available for public trading. That can leave funds concentrated in a relatively narrow group of stocks and make prices more sensitive to changes in fund positioning.
Regulatory changes introduced in late August added another source of pressure. The SPK imposed limits on funds’ exposure to illiquid stocks, with limits of between 2% and 8% being phased in over the coming months. Analysts told Reuters that the rules forced some funds to reassess concentrated positions and liquidity requirements, contributing to selling pressure before the wider market decline.
The investigation into trading in three companies has added a separate dimension to the crisis.
The SPK filed criminal complaints involving transactions in Katilimevim, Gundogdu Gida and Destek Finans Faktoring. Reuters reported that the regulator had referred 38 people to prosecutors over alleged market manipulation and imposed two-year trading bans on them. Pusula Portfoy, a fund manager linked to Katilimevim, was also barred from trading the shares on its own account for two years.
Turkish media reported that five people detained in recent days appeared in court on Wednesday and were jailed pending trial. The Justice Ministry said individuals face charges including violations of the capital markets law, membership of a criminal organization and aggravated fraud allegedly committed by company executives or others acting on behalf of a company during commercial activities.
Those are allegations rather than findings of guilt, and the criminal proceedings will determine whether the suspected conduct occurred.
The connection between the trading investigation and the fund-liquidity crisis is nevertheless significant for market confidence. The three companies under investigation had experienced exceptionally strong share-price gains before the recent selloff. Reuters reported that Katilimevim and Destek Finans remained more than 300% higher for the year even after their recent declines, while Gundogdu Gida was still up more than 140%.
That gap between headline valuations and the ability to transact in size is at the heart of the problem. A quoted market price does not necessarily mean that a large portfolio can be liquidated at that price. When free float is limited and trading becomes one-sided, the executable value of an asset can fall substantially below its previous marked value.
The episode is also occurring at a sensitive time for Turkey’s efforts to deepen its capital markets and attract international investment. MSCI has previously raised concerns about possible coordinated trading involving fund holdings and smaller Turkish-listed companies and has indicated that regulatory progress could affect Turkey’s status in its equity indexes.
For the government, containing the immediate liquidity shock is only the first task. The more difficult issue is restoring confidence in valuation, governance, liquidity management and the ability of investment funds to honor redemption obligations under stressed conditions.
The nearly 500,000 investors now caught up in the liquidation process make that challenge considerably more consequential than a problem confined to a handful of fund managers.