In recent years, Türkiye's capital markets have undergone a remarkable transformation. Initial public offerings have reached record numbers, the ranks of retail investors have swelled, and for the first time in decades, capital markets have captured the attention of broad segments of society. Yet the question worth asking today is no longer how many million investors we now have, or how much daily trading volumes have grown. The real question is why Türkiye still is not yet one of global capital's natural destinations.
Why do the world's largest pension funds, insurers, sovereign wealth funds and other long-term institutional investors continue to keep their allocations to Türkiye limited?
The answer, more often than not, lies not in individual companies but in market architecture.
Many companies operating in Türkiye are stronger than their emerging-market peers in growth potential, export capacity, operational efficiency and profitability. And yet a significant share of our companies trade at steep valuation discounts relative to their international counterparts. The reason is rarely company-specific risk; it is market risk. Investors do not price companies alone; they price rules, institutions and regulatory quality as well.
One of the most basic truths of financial theory is that the cost of capital depends not only on company performance but on the level of uncertainty perceived by investors. Strong corporate governance, predictable regulation and effective protection of investor rights all lower the risk premium. When the risk premium falls, the cost of capital for companies declines, valuations rise and investment accelerates. Capital market reform, in other words, does not just move a stock exchange; it moves economic growth itself.
Today, an investor is not choosing between Türkiye and no investment at all. They are choosing between Türkiye and India, Saudi Arabia, the United Arab Emirates or Singapore. For this reason, the benchmark for Turkish capital markets should not be its own past, but rival financial centers.
In recent years, the Dubai International Financial Centre (DIFC), the Abu Dhabi Global Market (ADGM) and Saudi Arabia's capital markets have carried out reforms that allowed them to capture a meaningful share of global capital. Behind that success lies not only economic growth, but predictable regulation, robust institutions, investor-friendly practices and long-term capital-attraction strategies. Capital, in truth, looks for trust before it looks for returns.
This is precisely where one of Türkiye's priorities should lie: bringing capital market regulation into closer alignment with the world's most advanced markets. From initial public offering (IPO) standards to public disclosure obligations, from corporate governance principles to enforcement mechanisms, practices at institutions such as the U.S. Securities and Exchange Commission (SEC) and the U.K. Financial Conduct Authority (FCA) should be followed closely, and legislation should be continuously updated. Global capital favors markets that are predictable and close to international standards.
Strong legislation alone, however, is not enough. Strong capital markets are built on strong institutions. The quality of a regulator is measured not only by the powers it holds but by the human capital it is able to attract and retain. Institutions such as the SEC, the FCA or the Monetary Authority of Singapore can draw some of the world's most capable lawyers, economists and finance professionals. In Türkiye, too, strengthening the compensation and career prospects of staff at the Capital Markets Board (SPK), and raising the institution's professional prestige, is not merely a matter of personnel policy; it is a strategic investment in the future of our capital markets. Türkiye's most talented young graduates should once again want to build their careers at the SPK.
I believe the regulatory approach itself also needs to evolve over time, from transaction-based oversight toward commitment-based oversight. In developed markets, regulators do not try to manage prices; they manage rules. The rise or fall of a stock is not, in itself, a matter for regulatory intervention. What matters is whether investors have been misled.
The 2021 GameStop episode is one of the clearest illustrations of this principle. Millions of investors moving in the same direction was not, by itself, treated as manipulation; regulatory scrutiny instead focused on unlawful conduct capable of undermining the fair functioning of the market. In Türkiye, too, it matters that the concept of manipulation be assessed in a manner more consistent with international standards. Neither a sharp price move nor investors who share the same view and take positions in the same direction should, on their own, be treated as manipulation. Regulators should focus on conduct that distorts the fair functioning of markets, rather than on investor behavior itself.
Similarly, when a company raises funds in an IPO on the promise of building new facilities, expanding capacity or growing exports, the regulator's core task should be to verify whether those commitments are actually being met. Far more rigorous monitoring of use-of-proceeds reports and IPO commitments would be one of the most important reforms for strengthening investor confidence. The same approach should apply to rights issues, with closer scrutiny of whether funds raised from investors are used for their stated purposes.
Liquidity, meanwhile, is critical to deepening capital markets. The world's most advanced markets are built on strong market-making systems. On the Nasdaq or the New York Stock Exchange, investors are not only investing in companies but in that market's liquidity itself. Firms such as Citadel Securities and Virtu Financial do more than execute trades; they form the invisible infrastructure of the market. Strengthening the market-making system in Türkiye, particularly easing liquidity constraints at small and mid-cap companies and narrowing bid-ask spreads, would meaningfully help reduce valuation discounts.
The goal of preserving liquidity must be balanced with investor protection. For that reason, the Volatility-Based Measures System (VBTS) must be regularly reviewed in light of international practice. Drawing more heavily on the views of brokerages, market makers and licensed capital markets professionals when circuit-breaker decisions are formed could improve overall market quality. The goal is not to prevent price movements, but to ensure that the price-discovery mechanism functions healthily.
As capital markets grow, risk-management infrastructure needs to keep pace. Along the lines of the Risk Center used in the banking sector, a similar central structure could be considered for capital markets, one that would allow the total credit exposure of investors to be monitored within defined limits. Likewise, establishing basic standards for collateral practices would narrow the differences among brokerages and support more effective management of systemic risk.
For foreign investors, corporate governance matters as much as financial performance. Related-party transactions, intra-group asset transfers, dual-class or privileged share structures and minority shareholder rights are all followed very closely in developed markets. Türkiye's long-term goal should not be simply to conduct more IPOs, but to build a market in which listed companies preserve investor trust for years after going public. Raising corporate governance standards and increasing transparency around related-party transactions would have a direct, positive effect on how international investors perceive the market.
Strong capital markets are not needed only to attract foreign investment. They are also one of the most powerful mechanisms for raising a society's overall prosperity. In advanced economies, citizens build wealth not only through work but through the financial assets they hold. When a company grows, makes new investments, or expands into global markets, a significant share of the economic value it creates flows to millions of investors through capital markets. Strong capital markets are, in this sense, among the most effective tools for spreading the benefits of economic growth across society as a whole.
This transformation cannot rest on retail investors alone. Pension funds, mutual funds, insurance funds and other institutional investors form the long-term backbone of capital markets. Growth in the Private Pension System (BES), the development of a fund-investing culture, and the strengthening of long-term savings habits are therefore critical to deepening Turkish capital markets. Financial literacy matters just as much. The development of capital markets cannot rest on a culture of short-term speculation; it requires a culture of long-term partnership and savings.
The rise in the number of equity investors in Türkiye, from roughly 1 million before the pandemic to more than 6.5 million today, is an extremely valuable development. But for a country of 85 million people, that figure still shows how far there is to go. The long-term goal should be to raise the number of citizens with a direct or indirect connection to capital markets to somewhere between 30 and 40 million. Strong capital markets do more than finance corporate growth; they help citizens protect their savings, build wealth and share in the country's economic growth.
Türkiye has a significant opportunity in front of it. With more predictable rules, stronger institutions, more effective corporate governance standards, deeper liquidity, a broader investor base and a stronger institutional investor ecosystem, Istanbul can become not merely a regional exchange but a genuine international financial center spoken of in the same breath as London, Dubai and Singapore. In the long run, the markets' capital preferences are not the ones that intervene the most, but the ones that inspire the most trust. The next phase for Turkish capital markets is precisely about building that trust.