UPDATE 2-EBRD to sell Turkey bourse stake after former Halkbank exec named CEO -sources

* European investment bank had opposed Atilla appointment

* U.S. accused Halkbank of Iran sanctions violations

* EBRD, with 10% stake, the only major foreign owner (Adds details on possible sale, Syria context, risk to investments)

ANKARA, Oct 30 (Reuters) - The European Bank for Reconstruction and Development will sell its 10% stake in the Istanbul exchange after a former Halkbank executive who was jailed in the United States was named as the bourse’s CEO, two people familiar with the plans said.

The EBRD has told Turkish authorities of its decision to sell as soon as possible, the two sources told Reuters on Wednesday.

A sale would see Borsa Istanbul’s only major foreign owner depart just as Turkey’s relations with the West are strained by its military incursion into northeastern Syria, which drew international condemnation this month.

The EBRD declined to comment. Borsa Istanbul was not immediately available to comment.

Last week Reuters reported that the EBRD opposed Ankara’s decision to name Hakan Atilla, the former deputy general manager at state-owned Halkbank, as chief executive of the exchange operator.

The sources, who requested anonymity, said the appointment was the latest concern EBRD has had with the direction of the bourse and it convinced it to sell its stake, the second-biggest behind that of Turkey’s sovereign wealth fund.

“The EBRD informed the Turkish authorities that, because of Hakan Atilla, it will sell its entire 10% stake as soon as possible,” one of the sources said.

Atilla was sentenced in 2018 to 32 months in a U.S. prison following his conviction for helping Iran evade U.S. sanctions. At the time, Turkish President Tayyip Erdogan condemned the case as a political attack on his government.

Atilla was released and returned to Turkey in July, and last week Finance Minister Berat Albayrak, Erdogan’s son-in-law, named him CEO of the exchange.

The appointment came days after U.S. federal prosecutors charged Halkbank with taking part in a multi-billion-dollar scheme to evade U.S. sanctions on Iran. The state-owned lender said the charges were an extension of U.S. sanctions over the Syria incursion.

After Atilla’s appointment, the EBRD’s managing director for communications, Jonathan Charles, said the EBRD was not consulted on the move, would press the matter with authorities, and “has the right to exit its investment.”

EBRD has for years urged Borsa Istanbul to do an initial public offering (IPO) with little traction. Last year the exchange, which has 378 listed companies, was the 15th largest in Europe, the Middle East and Africa.

A person close to EBRD said last week there was a risk the Atilla disagreement could affect the bank’s other investments in Turkey.

EBRD says it invested 11.5 billion euros ($12.8 billion) in 300 projects in the country in the last decade. Albayrak spoke at the bank’s ten-year anniversary event in Istanbul last month.

Under an agreement that was last amended in November 2018, EBRD can sell its bourse stake at the purchase price pending an IPO. Turkey’s wealth fund, which has a 80.6% stake, would be the likely buyer, according to an annual financial report. ($1 = 0.9000 euros) (Additional reporting by Jonathan Spicer and Can Sezer in Istanbul; Editing by Timothy Heritage and Louise Heavens)