Low-float stocks under scrutiny in fund crisis: How does the manipulation cycle work?

In the fund crisis affecting more than 455,000 investors in Turkey, the concentration of certain investment funds in low-float stocks and the price movements occurring in these shares have become the center of the debate. Following the Capital Markets Board's (SPK) decision on September 17 to liquidate 131 funds belonging to seven portfolio management companies, eyes have turned to the value at which the funds' assets can be converted into cash.

The SPK announced that it had observed in the last quarter of 2025 that some funds were causing price movements in stocks with low actual float that "cannot be explained by economic reality and company sizes." The Board announced that one of the objectives of the regulations that came into effect on August 28 was to limit the possibility of manipulation through funds.

Following the new regulations, liquidity crunches were experienced in some funds; it was reported that investors' redemption requests for participation shares could not be met on time. During the same period, the SPK filed criminal complaints against 38 individuals for transaction-based market fraud due to transactions in Katılımevim, Gündoğdu Gıda, and Destek Finans stocks.

HOW DOES THE CYCLE FORM IN LOW-FLOAT STOCKS?

Not all shares of a company are actively traded on the stock exchange. The portion that can be bought and sold in the market, excluding shares held by controlling partners or major shareholders, is defined as "actual float." When the actual float is low, the amount of stock in the market remains limited, so large purchases can have a stronger impact on the price.

According to a report by DW Türkçe, new investors seeing high returns turning to the fund was the second step fueling the cycle. Orhangazi summarized this mechanism with the words, "New money inflows lead to stock purchases, these purchases lead to an increase in stock prices, which in turn leads to an increase in fund returns, the arrival of new investors, and new money inflows."

However, the purchase of a low-float stock by a fund or a large purchase driving up the price does not in itself mean manipulation. What is decisive in terms of capital market legislation is whether the transactions were made with the intention of creating a false or misleading impression regarding price, supply, or demand.

WHY DID THE PAPER VALUE TURN INTO A PAYMENT PROBLEM?

The fragile point of the crisis emerges in the difference between the asset value of the funds as seen on the screen and the actual cash value that can be obtained from the sale of these assets. It is not always possible to sell a large amount of shares in a low-liquidity stock at the last transaction price. When the fund starts selling, there may be insufficient buyers, and the price can decline rapidly.

It is stated that the total size of the funds under liquidation is approximately 891 billion liras. However, according to experts, this amount does not represent the actual cash value that will be obtained at the end of the liquidation. At what price the shares can be sold, or even whether all assets can be sold at all, is one of the most critical uncertainties of the liquidation process.

With the regulation introduced by the SPK on August 28, limits between 2 percent and 8 percent were imposed on the positions that free funds can take in a company's actual floating shares, depending on the company's actual float ratio. Following the regulation, capital outflows and cash needs increased in some funds.

Pusula Portföy announced in a statement to the Public Disclosure Platform (KAP) on September 15 that a default had occurred in redemption payments for some of its funds. One day later, Tera Portföy also announced that a similar default had occurred in redemption payments in its Money Market Fund.

The fact that funds sold off their more easily tradable assets to generate cash also contributed to the spread of the decline in Borsa İstanbul to the general market. Thus, even though there were assets in the funds' portfolios, the inability to convert these assets into cash quickly enough and at the displayed prices turned the liquidity problem into a payment crisis.

The SPK extended the liquidation period, which was initially set at three months, to six months. The Board announced that this step was taken to ensure that fund assets could be sold under the most appropriate conditions possible, taking market conditions into account.

While Minister of Treasury and Finance Mehmet Şimşek stated that the problems were related to a limited number of funds and that they did not see a systemic risk, Orhangazi emphasizes that the risk of contagion cannot be definitively assessed from the outside without knowing the funds' relationships with the financial system and payment chains. The main question for the process from now on will be at what real value the assets to be liquidated will be converted into cash and how much payment can be made to investors.