Introduction

The provision of investment services and activities in capital markets should not be regarded merely as a technical brokerage activity enabling investors to access capital market instruments, but rather as a comprehensive regulatory field that determines the boundaries of the legal relationship between investment institutions and their clients. Activities such as the purchase and sale of capital market instruments, transmission or execution of orders, portfolio brokerage, custody services, investment advisory services, underwriting and placement services in public offerings, and the provision of ancillary services give rise to different legal consequences in terms of the activity licenses, organizational structures, capital adequacy requirements of investment institutions, and the contractual relationship established with clients.

In this context, framework agreements for investment services and activities constitute the basis of the legal relationship between the investment institution and the client. These agreements are executed once at the outset and set out the general provisions applicable to individual transactions to be carried out subsequently. Framework agreements are not merely formal documents concerning the opening of a client account or the transmission of orders. On the contrary, they are the principal legal instruments regulating the scope of investment services, the markets and products in which the client may transact, the principles governing order transmission and execution, collateralization provisions, custody and settlement processes, notification obligations, electronic transaction channels, the use of client assets, the parties’ responsibilities, and the allocation of risks.

This study examines framework agreements for investment services and activities within the scope of Capital Markets Law No. 6362 (the “Law”) and Communiqué No. III-37.1 on the Principles Regarding Investment Services and Activities and Ancillary Services (the “Communiqué”). It also evaluates the classification of brokerage firms as narrowly authorized, partially authorized, and broadly authorized institutions, and the impact of such classification on framework agreements.

Concept of Investment Services and Activities

Under capital markets legislation, investment services and activities are regulated as activities that may be carried out only upon obtaining authorization from the Capital Markets Board. These activities include receiving and transmitting orders relating to capital market instruments; executing orders on behalf and for the account of clients or in the investment institution’s own name and for the client’s account; trading capital market instruments for the investment institution’s own account; individual portfolio management; investment advisory services; placement services in public offerings, whether on an underwriting basis or without underwriting; operating multilateral trading facilities and other organized markets outside stock exchanges; and custody and administration of capital market instruments on behalf of clients.

The common feature of these activities is that they establish the relationship between investors and the capital markets by enabling transactions involving capital market instruments or by intermediating the execution of such transactions. However, not every investment service has the same legal and operational intensity. For example, there are significant differences in terms of both risk level and regulatory requirements between merely transmitting client orders to another authorized investment institution and acting as counterparty to the client by trading from the investment institution’s own portfolio.

For this reason, capital markets legislation does not merely consolidate investment services and activities under a single heading. Instead, it provides separate rules for each type of activity regarding activity authorization, organizational competence, personnel and infrastructure requirements, principles of liability, and the contractual relationship to be established with the client.

Requirement to Obtain Activity Authorization and the Principle of Authorization

Investment services and activities may be carried out as a regular occupation or as a commercial or professional activity only upon obtaining authorization from the Capital Markets Board. This principle constitutes a fundamental protection mechanism for ensuring that capital markets operate in a reliable, transparent, and stable manner. Investment services directly concern investors’ assets, orders, and investment decisions. Therefore, such activities may only be performed by investment institutions authorized by the Board.

The requirement to obtain activity authorization also has a decisive function in relation to framework agreements. An investment institution may undertake to provide to its client under a framework agreement only those investment services and activities for which it is duly authorized. In other words, the scope of the framework agreement must be consistent with the activity authorizations held by the investment institution. The fact that a broad range of products and transactions is included in the agreement does not grant the investment institution the authority to provide an activity for which it is not authorized under the legislation.

Accordingly, one of the first matters to be examined when preparing framework agreements for investment services is which activity authorizations the brokerage firm holds and whether the agreement exceeds the scope of those authorizations. It is of particular importance that the contractual scope be structured in compliance with the relevant activity authorizations in areas subject to more intensive regulation, such as portfolio brokerage, general custody, derivative transactions, leveraged transactions, underwriting or placement services in public offerings.

Ancillary Services and Their Relationship with Framework Agreements

Investment institutions may also provide certain ancillary services in connection with the investment services and activities for which they are authorized. Services such as advisory services relating to capital markets, the provision of loans or lending services and foreign exchange services limited to investment services, investment research and financial analysis, general recommendations, services relating to the conduct of underwriting activities, intermediation in financing, wealth management, and financial planning may be evaluated within this scope.

Although ancillary services are complementary to investment services, they may significantly broaden the scope of the contractual relationship established with the client in practice. For instance, the provision of loans or lending services may bring collateral provisions into focus; the provision of investment research and general recommendations may raise the distinction between investment advice and general investment recommendations; foreign exchange services may relate to provisions on money transfers and settlement; and intermediation in financing may raise issues concerning the boundaries of the commercial relationship between the client and the investment institution.

Therefore, when provisions relating to ancillary services are included in framework agreements, care must be taken to ensure that these services are not confused with activities such as investment advisory services or individual portfolio management, which require separate special agreements and give rise to suitability obligations. A clear distinction should be made between information provided in the nature of general investment recommendations and personalized investment advice. Necessary warnings should be included in the agreement and in client information documents to ensure that the client does not interpret any research, report, bulletin, or market assessment as binding investment advice.

Legal Nature of the Framework Agreement for Investment Services

A framework agreement for investment services is a master agreement that determines the general terms applicable to individual transaction relationships to be established between the parties in the future. This agreement covers numerous matters, including the opening of the client account, receipt and transmission of orders, execution of transactions, settlement and custody processes, collateralization, notifications, fees and commissions, electronic transaction channels, risk disclosures, client classification, and termination of the agreement.

The most important function of the framework agreement is to predetermine the general legal basis between the parties without requiring a separate agreement for each individual capital market transaction. In this respect, the framework agreement provides transactional certainty for both the investment institution and the client. However, such certainty depends on the agreement being drafted in a clear, understandable, and legislation-compliant manner, enabling the client to identify which services will be provided and under what conditions.

In practice, framework agreements for investment services are often prepared by investment institutions as standard form contracts. For this reason, general terms and conditions, provisions that may be unfavorable to the client, unilateral amendment powers, use of collateral, ex officio collection from accounts, binding nature of electronic orders, limitations of liability, and provisions relating to custody services should be carefully reviewed. Although contractual freedom may be interpreted more broadly for professional clients, the agreement must not contain provisions contrary to mandatory capital markets rules or investor protection regulations.

Client Due Diligence, Appropriateness, and Risk Disclosure Process

Framework agreements for investment services are not limited to contractual provisions alone. Client identification forms, beneficial ownership declarations, risk disclosure forms, appropriateness and suitability tests, electronic communication consents, privacy notices and explicit consent texts regarding the protection of personal data, notification preferences, and product-based supplementary agreements constitute complementary elements of the framework agreement relationship.

The client due diligence process is a consequence of the investment institution’s obligation to know its client under both capital markets legislation and anti-money laundering legislation. The client’s identity information, financial status, investment experience, risk preference, the products in which the client wishes to transact, and declarations as to whether the client is acting on behalf of another person affect the scope of services to be provided by the investment institution and its warning obligations.

Risk disclosures and appropriateness assessments are particularly important for general clients. With respect to derivative instruments, leveraged transactions, transactions in foreign markets, repo and reverse repo transactions, or complex products, the client must be informed in a manner that enables them to understand the nature of the product, market risk, margin call obligations, leverage effect, liquidity risk, and the possibility of loss. Therefore, the annexes to framework agreements should not be regarded merely as formal signature documents, but as legal documents demonstrating that the investment institution has fulfilled its information and appropriateness obligations.

Classification of Brokerage Firms as Narrowly Authorized, Partially Authorized, and Broadly Authorized

Under capital markets legislation, brokerage firms are classified as narrowly authorized, partially authorized, or broadly authorized according to the scope of activities they may conduct. This classification affects not only the services that the brokerage firm may provide, but also its organizational structure, capital adequacy, risk management capacity, internal control mechanisms, custody capacity, and operational infrastructure.

Narrowly authorized brokerage firms are those that may conduct any or all of the activities of order transmission brokerage and investment advisory services. In this model, the brokerage firm essentially receives client orders and transmits them to another authorized investment institution, or provides investment advisory services. Since a narrowly authorized brokerage firm is not authorized to execute transactions, trade from its own portfolio, or provide general custody services, the scope of its framework agreement must also be kept narrow in line with these limitations.

Partially authorized brokerage firms are those that may conduct any or all of the activities of execution brokerage, best efforts placement, limited custody services, and individual portfolio management. Within this scope, partially authorized brokerage firms may execute client orders on behalf and for the account of clients or in their own name and for the client’s account; provide certain custody services; or conduct portfolio management activities. Accordingly, the framework agreements of partially authorized brokerage firms cover a broader regulatory field, including execution of orders, notification of transaction results to clients, limited custody, fees and commissions, monitoring of client assets, and portfolio management.

Broadly authorized brokerage firms are those that may conduct any or all of the activities of portfolio brokerage, general custody services, and underwriting. This classification represents the broadest category in terms of the brokerage firm’s activity capacity. A broadly authorized brokerage firm may, in certain cases, trade for its own account, act as counterparty to the client, provide general custody services, and undertake underwriting in public offering processes. For this reason, framework agreements prepared for broadly authorized brokerage firms are more comprehensive, multi-layered, and detailed in terms of risk allocation compared to agreements for narrowly or partially authorized brokerage firms.

Importance of the Framework Agreement for Broadly Authorized Brokerage Firms

The services provided by broadly authorized brokerage firms create a structure in which the relationship between the client and the brokerage firm is not limited to order transmission or transaction execution, but also covers various legal areas such as custody, collateral, settlement, portfolio brokerage, and underwriting in public offerings. Therefore, framework agreements prepared for broadly authorized brokerage firms are often structured to cover multiple products and services.

In such agreements, general provisions concerning the purchase and sale of capital market instruments may be regulated together with provisions on exchange-traded and over-the-counter transactions, OTC transactions, derivative transactions, repo and reverse repo transactions, foreign market transactions, electronic trading platforms, general custody provisions, use of cash balances in client accounts, collateralization principles, ex officio collection powers, notification procedures, and monitoring of client assets.

However, this broad scope does not mean that the investment institution is granted unlimited discretion. On the contrary, as the scope of activities expands, the agreement must be drafted in a clearer, more auditable, and legislation-compliant manner. Matters such as the custody of client assets, use of securities provided as collateral, accrual of interest or other returns on cash balances in client accounts, changes to transaction collateral, binding nature of electronic orders, and limitation of the brokerage firm’s liability are of particular importance from an investor protection perspective.

Distinction Between Order Transmission Brokerage, Execution Brokerage, and Portfolio Brokerage

One of the most important distinctions to be considered in framework agreements for investment services is the difference between order transmission brokerage, execution brokerage, and portfolio brokerage. In order transmission brokerage, the investment institution transmits client orders to an authorized investment institution and informs the client of the results of such orders. Under this model, the role of the investment institution is not to execute the orders itself, but rather to transmit them and to establish the connection between the client and the institution that will execute the transaction.

In execution brokerage, the investment institution executes orders relating to capital market instruments on behalf and for the account of the client or in its own name and for the client’s account. This activity creates a more intensive responsibility compared to order transmission, as the investment institution assumes a more active role in the execution of orders, monitoring of transaction results, notification to the client, and compliance with the rules of the relevant market.

Portfolio brokerage, on the other hand, arises where the brokerage firm trades capital market instruments for its own account. This activity is particularly important for broadly authorized brokerage firms. Since, in portfolio brokerage activities, the brokerage firm may become the counterparty to the client in certain transactions, conflicts of interest, pricing, fairness of transaction terms, and client disclosure become especially important. Therefore, provisions relating to portfolio brokerage in broadly authorized brokerage firm agreements must be drafted in a manner that clearly sets out the nature of the transaction and the role of the brokerage firm from the client’s perspective.

Custody Services and Protection of Client Assets

One of the most sensitive areas of framework agreements for investment services is the custody and monitoring of client assets. Custody and administration of capital market instruments on behalf of clients is separately regulated among investment services, and limited or general custody services may be relevant depending on the authorization type of the brokerage firm.

Custody provisions should clearly regulate where client assets will be held, how relationships with third parties such as the Central Securities Depository of Türkiye, Takasbank, or foreign custodians will be established, how client accounts will be monitored, reconciliation processes, confidentiality regarding client accounts, principles governing the use of cash balances, and custody risks in foreign market transactions.

The fundamental principle for the protection of client assets is that client assets must be monitored separately from the investment institution’s own assets and must not be subject to the investment institution’s disposal except upon the client’s explicit instruction or in cases permitted by legislation. Therefore, provisions in framework agreements granting the brokerage firm broad and ambiguous powers of disposal over client assets should be carefully reviewed, particularly in relation to non-professional clients.

Collateralization and Use of Client Accounts

Capital market transactions, particularly derivative instruments, margin trading, short selling, repo and reverse repo transactions, and OTC transactions, rely on collateralization mechanisms. Although collateral provisions are necessary for managing the credit and market risks to which the brokerage firm may be exposed, they must be regulated in the agreement in a clear and well-defined manner, as they directly affect the client’s assets.

Framework agreements should specify, without leaving room for doubt, which assets will be accepted as collateral, the valuation method for collateral, margin call procedures, position close-out or sale of assets in the event of collateral deficiency, replacement of collateral with other assets, and the transactions for which collateral may be used.

Collateral provisions become even more important for broadly authorized brokerage firms. These institutions may require more comprehensive risk management tools due to activities such as portfolio brokerage, general custody, or underwriting. Nevertheless, contractual provisions should not be expanded in a manner that grants the brokerage firm unlimited rights of set-off, deduction, pledge, or retention over all client accounts. The debts, transactions, and due and payable receivables in respect of which such rights may be exercised must be clearly limited.

Electronic Transaction Channels and Remote Approval

Today, investment services are largely provided through electronic trading platforms, mobile applications, and remote communication tools. Therefore, framework agreements regulate in detail matters such as the transmission of electronic orders, client authentication, use of passwords and security tools, IP and log records, legal effect of electronic approvals, transaction confirmations, and notifications through durable media.

While electronic transaction channels provide investors with speed and ease of access, they also entail operational risks. Unauthorized access, password security, system outages, delays in orders, errors in market data, connection problems, and proof of orders given by the client electronically are matters that may give rise to disputes between the parties. Therefore, provisions relating to electronic transactions should address, in a balanced manner, both the client’s security obligations and the brokerage firm’s obligations regarding technical infrastructure, record-keeping, and information disclosure.

For agreements approved remotely, it is important that a copy of the agreement be provided to the client, that it is clearly stated that signature statements constitute electronic approval, and that the client is able to access the agreement text through a durable medium. This process is important not only for the validity of the agreement, but also for proving the client’s informed consent.

Notification Obligations and Communication with the Client

Investment institutions must deliver account statements, transaction result forms, margin calls, risk disclosures, and other mandatory notifications to their clients in compliance with the legislation. Notifications may be made by e-mail, post, in-platform notification, or other durable media. However, it is important that the client’s notification preference be obtained clearly and that action be taken in accordance with such preference.

Framework agreements may regulate the client’s obligation to notify changes in address, e-mail, telephone number, and other contact details, as well as the legal consequences of notifications made by the brokerage firm to the existing records. Nevertheless, in notifications that may have important consequences for the client, such as margin calls, position close-out notices, or amendments to the agreement, the notification method must be clear and capable of proof.

Conclusion

Framework agreements for investment services and activities constitute the main legal backbone of the relationship between the parties in capital market transactions. These agreements should not be viewed merely as standard documents relating to account opening or transaction execution. Rather, they should be considered comprehensive legal instruments that determine the scope of the investment institution’s activity authorization, the nature of the services provided to the client, product and market risks, collateral and custody provisions, electronic transaction processes, and the balance of responsibilities between the parties.

The classification of brokerage firms as narrowly authorized, partially authorized, and broadly authorized is of decisive importance for the scope of framework agreements. While agreements for narrowly authorized brokerage firms contain provisions relating to a more limited field of activity, broader areas such as execution brokerage, limited custody, and portfolio management arise for partially authorized brokerage firms. For broadly authorized brokerage firms, the scope of the agreement becomes more complex due to activities such as portfolio brokerage, general custody, and underwriting, and the protection of client assets, collateralization, pricing, conflicts of interest, and notification obligations play a more critical role.

Accordingly, when framework agreements for investment services are prepared or negotiated, it is not sufficient for the agreement to meet only the operational needs of the brokerage firm. The agreement must also be structured in compliance with the activity authorizations under capital markets legislation, investor protection principles, the regime governing general terms and conditions, client classification, product-based risks, and custody and collateral provisions. Otherwise, instead of providing legal certainty for the investment institution, the broad scope of the framework agreement may give rise to the risk of disputes due to exceeding the limits of activity authorization, insufficient client disclosure, or provisions that conflict with investor protection principles.