MiFID implementation and MPBR

MiFID implementation
and MPBR
February 2007
Contents
Page
1.
Setting the scene
1
2.
MiFID
1
3.
Scope and non scope business
3
4.
MiFID implementation in the UK
4
5.
MPBR
8
6.
Removal of specific requirements
8
7.
Gold plating
10
8.
Further regulatory changes
11
9.
Implications of MPBR
12
10.
The FSA’s approach, and TCF
14
Appendix 1
MiFID, the Implementing Directive and the Implementing Regulation
Appendix 2
MiFID scope and non-scope business
Appendix 3
Ongoing FSA work
Appendix 4
Ongoing CESR Work Programme re MiFID
1.
Setting the scene
1.1
It is important not only for lawyers and compliance people but also for senior
managers and product development people to understand about MiFID implementation
and the new FSA regulations for 2007 generally. I can sympathise with those who are
finding it somewhat difficult to find logic in some of the new proposals.
1.2
This paper sets out some high level comments on the reasoning behind the current
FSA proposals. It is intended to provide some of the context so as to enable readers
then to consider some of the specific consequences of implementation of the new rules
for their business. It covers principally the proposals which are most fully developed
notably regarding conduct of business and systems and controls (leaving aside much
of the market facing issues on which proposals are far from settled both at the EU
level and in the UK, and non MiFID scope business issues on which FSA proposals
are yet to be issued for consultation).
2.
MiFID
2.1
When referring to “MiFID”, we are referring not just to one of the high level EU
Directives. We now have three levels to consider:
Level 1 – the MiFID Directive1
Level 2 –
−
the Implementing Directive2 concerning organisational requirements
and operating conditions for investment firms and defined terms for
the purposes of the MiFID Directive
−
the Implementing Regulation3 as regards record keeping obligations
for investment firms, transaction reporting, market transparency,
admission of financial instruments to trading, and defined terms for the
purposes of the MiFID Directive.
1
Directive 2004/39/EC of 21 April 2004 on Markets in Financial Instruments (amending the Investment
Services Directive)
2 Commission Directive 2006/73/EC of 10 August 2006 implementing the MiFID Directive as regards
organisational requirements and operating conditions for investment firms and defined terms for the purpose
of that Directive
3 Commission Regulation (EC) No 1287/2006 of 10th August 2006 implementing the MiFID Directive as
regards record keeping obligations for investment firms, transaction reporting, market transparency,
admission of financial instruments to trading, and defined terms for the purposes of that Directive.
1
The Regulation has direct and general application in each Member State and, if
there is any conflict with national laws, the Regulation will prevail. A
Directive, such as the Implementing Directive needs to be implemented in
national legislation (in the UK mostly through the FSA rules).
Level 3 – CESR’s work (to which I refer in greater detail later) is ongoing.
2.2
Appendix 1 to this paper sets out the MiFID Directive and the relevant text from the
level 2 Implementing Directive and Implementing Regulation relating to particular
articles is set out in italics following each of the main Directive provisions. I hope you
will find the Appendix 1 annotated text helpful. Once all the relevant provisions for a
particular topic are put together in this way, I think you will find it easier to see what
the MiFID provisions are addressing and it becomes easier to see how the FSA draft
rules follow through on implementing those provisions.
2.3
The MiFID Directive itself is not overly-specific. It sets out some high level aims.
One aim underlying that regime is to ensure that a high level of investor protection is
applied in a uniform manner through the introduction of clear standards and
requirements governing the relationship between an investment firm and its clients.
These should be designed so as to provide the necessary degree of harmonisation
needed to offer investors a high level of protection4. Also there is a perceived need to
introduce a comprehensive regulatory system governing the execution of transactions
in financial instruments, irrespective of the trading methods used to conclude those
transactions, so as to ensure a high quality of execution of investor transactions and to
uphold the integrity and overall efficiency of the financial system5.
2.4
Flexibility and proportionate regulation is obviously contemplated. It is acknowledged
that, in relation to the protection of investors by providing information or the seeking
information from investors, the retail or professional nature of the client or potential
client concerned should be taken into account – therefore the rules can vary depending
on the type of client. Further, it is clear that that implementing provisions can be
adjusted to the specificities of the particular market and the legal system in each
member state.
2.5
However, what becomes particularly clear, once you see the consolidated version of
all level 1 and 2 text, is that arguably additional provisions which are being introduced
by way of Level 2 provisions, an issue which is likely to be amplified by level 3 CESR
guidance. The MiFID Directive, the Implementing Directive and the Implementing
Regulation together contain numerous various specific provisions which will need
careful consideration if we are to comply with them in the UK.
4
5
Recital 2 of the MiFID Directive
Recital 5 of the MiFID Directive
2
2.6
Further, MiFID is only part of the EU relevant context. MiFID has to be considered in
the context of the range of EU Directives regarding financial services. For example,
firms subject to MiFID are also subject to the Capital Requirements Directive (CRD)
and both of these Directives deal with organisational and internal control
requirements. For present purposes though, let us assume we are looking at the MiFID
requirements together with their implementing provisions, as they are now
summarised in Appendix 1.
3.
Scope and non scope business
3.1
To understand how the MiFID requirements will impact in the UK, the first task is to
understand the real scope of MiFID, and what is non-MiFID scope business. It is
worth remembering that MiFID is the ISD replacement – it is not a replacement for all
conduct of all financial business. Appendix 2 sets out a table which seeks to identify
the scope and non-scope business.
3.2
As the replacement for the Investment Services Directive (ISD) the MiFID Directive
essentially covers the same territory as the ISD but:
regards investment advice as a core service within the scope of the Directive (it was
previously an ancillary service);
introduces a new regulated activity of operating a multilateral trading facility (“MTF”); and
extends the instruments to which the services relate to include a wider range of derivatives
including non-financial derivatives.
3.3
But the scope/non scope issues are more tricky than might therefore be supposed.
There are essentially three issues to consider:
whether the firm is within the MiFID scope. (It is important to note that in addition to the
exempted businesses under Article 2, the UK is taking advantage of the Article 3 optional
exemption. This should take out of scope much of the IFA community.);
if the firm is within scope, then to look at the firm’s activities to see which services and
activities are within MiFID services and activities; and
as part of this second exercise, to consider whether any such services and activities relate to
financial instruments as defined for MiFID purposes– and note that the definition now within
the FSA’s Glossary encompasses not only the original list from Annex 1 of MiFID but this list
as expanded by the MiFID Regulation.
3
3.4
But this is not the end of the exercise. Whilst it might be that a particular firm can, at
first glance, view MiFID as being irrelevant, for example because that type of business
is exempt, it is likely that MiFID will affect that business in some way. For example,
for a CIS operator, MiFID may at first glance appear to be irrelevant because a CIS
operator is outside scope but MiFID will be relevant in various ways; associated PEP
and ISA managers will be in scope; associated investment management companies
managing CIS funds and other segregated mandates will be in scope; CIS units are
financial instruments for the purposes of MiFID and so distribution arrangements may
well be affected.
3.5
Also, establishing that a certain type of business is MiFID or non-MiFID business
may not actually mean that this determines whether or not MiFID provisions apply.
The FSA themselves note that MiFID cuts an awkward line through a slice of the retail
market. The FSA are conscious of the level playing field issues, competition concerns
and possible consumer confusion which might result from this MiFID/non-MiFID
scope divide. For example, consumers might be confused by different suitability
requirements applying. The FSA is therefore taking the view that some of the MiFID
provisions will be copied across in order to maintain a consistent approach. The most
notable example of this (because it is such a fundamental matter which determines
many consequential matters) is that the new client classification arrangements, which
are MiFID driven, will apply to all types of business.
4.
MiFID implementation in the UK
4.1
To look at it from the UK perspective, you might have thought that MiFID
implementation could be relatively straightforward for a variety of reasons:
The MiFID provisions set out measures to protect investors which should be adapted for the
particularities of each category of client. We are used to this, so we might have hoped that we
should just need to adapt to the new client categories.
The EU now think we need to include investment advice as an investment service requiring
authorisation. We already regulate investment advice.
The EU now see a need for comprehensive regulatory regime governing the execution of
transactions in financial instruments. We already have regulations in this area and so it should
be a case of adapting/building on the system we already have. (Indeed best execution is a
good example where possible changes were already proposed for the UK which transpire to be
not dissimilar from the MiFID requirements.)
The principles which are set out in the MiFID Directive are, to some extent, comparable with,
and expand upon, our existing Principles of Business. Take Article 19 – It requires a firm “to
act honestly, fairly and professionally in accordance with the best interest of its clients.” This
4
is comparable with Principles 1 and 2 of the FSA Principles for Business which require a firm
“to conduct its business with integrity”, and “to conduct its business with due skill, care and
diligence”. (The existing FSA Principles for Business are not expected to change. They will
remain in place.)
4.2
However, the task of implementing MiFID in the UK has perhaps transpired to be
more difficult than we might have wished – or expected. Given that the MiFID
Directive itself is light on specifics, there should have been considerable scope to
continue much of the UK regulatory regime we have already established. However,
due, in large part, to the additional levels of the MiFID provisions from the EU, as
mentioned above, the requirements have become more specific and it is now quite
difficult to work through the detail.
4.3
The FSA have adopted a copy out approach for MiFID, and included this as part of an
initiative to introduce a much simpler set of FSA rules. One aim is to offer more
flexibility and make it easier to respond to new conditions in the markets and new
types of financial instruments more quickly.
4.4
As ever, the devil is in the detail. The MiFID required approach looks familiar in
many respects but the MiFID required provisions are very slightly different from those
which currently apply in the UK in a great number of respects. The following
paragraphs give a few examples.
4.5
Client classification is very similar but not quite. And the applicable provisions will
change, particularly for professional investors. For existing clients, it might have
appeared at first glance attractive simply to use the “easy mapping across” which is
facilitated by the FSA provisions but, in practical terms, this may not be quite so
attractive.
4.6
Outsourcing: The MiFID Implementing Directive defines “outsourcing” very simply,
as an arrangement of any form between an investment firm and a service provider by
which that service provider performs a process, a service or an activity which would
otherwise be undertaken by the investment firm itself6.
The MiFID requirements are not far off what one would expect to cover the usual
commercial contract concerns for an outsourcing but they involve new formalised
requirements which will need to be considered– for UK purposes, set out in the revised
SYSC Chapter 8 Rules and Guidance.
A further statement of the FSA’s policy in relation to the outsourcing of retail portfolio
management to service providers located in third countries is awaited. CP06/19 sets
6
Article 2(6) (Implementing Directive)
5
out the FSA’s proposals to implement the conditions in Article 15 of the Implementing
Directive for such an outsourcing. (The FSA have in fact indicated that they would
prefer no restrictions on outsourcing to such third country providers but all interested
parties have agreed that some provisions are needed in order to comply with MiFID.)
A further difficulty on the horizon is that apparently CESR are proposing to base their
further work on MiFID outsourcing arrangements on the CEBS Guidelines on
Outsourcing7. It is acknowledged that there will be differences in some of the
guidelines because of the different kinds of business involved, and because CEBS
Standards are aimed at prudential supervision rather than conduct of business, which is
MiFID’s focus. We will need to await the CESR formulation of the guidelines before
concluding if it causes a major problem, for example, regarding notifications of
outsourcings.
4.7
Conflicts of interest: We have long had provisions regarding management of conflicts
of interest but note that disclosure will no longer be enough.
Article 13.3 and Article 18 require an investment firm to maintain and operate
effective organisational and administrative arrangements with a view to taking all
reasonable steps designed to prevent conflicts of interest from adversely affecting the
interests of the clients. These new requirements may require a slightly more active
approach than has previously been taken. Firms will need to identify the types of
conflict of interest whose existence may entail a material risk of damage to the
interests of a client.
MiFID places more emphasis on more active procedures and measures for managing a
conflict which are designed to prevent the risk of material damage to the interests of
clients. Disclosure is not simply one choice of various measures in managing a
conflict. A firm has to have arrangements in place to manage conflicts such that it is
reasonably confident that the material risks of damage to the client’s interests are
prevented. If not so presented, a firm needs to consider disclosure in addition to the
application of the procedures. Firms therefore need to prepare a new summary of their
conflict policies which will be available to retail clients.
4.8
The slides include one which sets out some key issues arising from NEWCOB and
principles based regulation and identifies in the last column whether or not there is a
MiFID aspect. This table does not pretend to be comprehensive but simply to
highlight the way in which NEWCOB has developed and the extent to which it is in
fact derived from MiFID requirements. It is intended to be illustrative. As you will
see, there are very few marked a clear “yes”, meaning a new MiFID point which is
introduced as a new proposal for UK regulation.
7 CEBS Guidelines on Outsourcing 14 December 2006 (See also CEBS Consultation Paper: Standards on
Outsourcing: 6 April 2006)
6
There are various aspects where we will need to adjust (as mentioned above). There
are various points where we will need new procedures, such as making clear that
financial promotions must be identifiable as such and adjusting to the new less
prescriptive requirements, for example, for past disclosure. The new areas within
MiFID are relatively limited, but are significant for us.
4.9
The most notable new provision concerns the notion of “appropriateness”.
The main area of UK concern has been the attack on the area of execution only
business and there has been a limited rescue of this. This is an important area for the
UK given the extent of our execution only business models.
Where applicable, the appropriateness rule will require the client to be asked to
provide information regarding his knowledge and experience in the investment field
relevant to the specific type of product or service offered or demanded so as to enable
the firm to assess whether the service or product envisaged is appropriate for the
client. As finalised in the MiFID Directive, the appropriateness test will be required
for complex products and, where services are provided at the firm’s initiative, for noncomplex products. (And it is assumed that a professional client would meet the test. )
MiFID defines non-complex products as covering shares admitted to trading on a
regulated market or equivalent non-EEA market; money market instruments;
bonds/other forms of securitised debt (excluding those which embed a derivative);
UCITS; and other non-complex MiFID instruments. The level 2 implementing
Directive then provides criteria for “other non-complex” instruments that are not
specifically mentioned in MiFID. These criteria are that the instrument must, in
summary, be liquid, transparent in price, and not involve a contingent liability, and
there must be adequately comprehensible information publicly available.
Complex instruments include MiFID derivatives, warrants, some structured products
and other financial contracts for differences – including financial spread betting
contracts.
We are assuming that, in addition to UCITS funds which are specifically named as
non-complex products, other forms of investment funds may well meet the criteria for
non-complex status. This should be the case with NURS funds but the borderline on
the “less regulated” fund products will need to be assessed on a case-by-case basis.
It will be interesting to see the effect, in practice, of the new appropriateness
requirement.
4.10
The FSA seems conscious that, where it thinks that the MiFID required regulation is
excessive or inappropriate, the adjustments should have limited applicability, i.e. only
7
apply to MiFID business. This however gives rise to another problem. One particular
concern is that the appropriateness rule, or similarly the additional requirements for
inducements, as a result of being limited by the FSA to applicability only to MiFID
business for MiFID scope firms, will create an unnecessary advantage for insurance
products as against MiFID instrument products – there is a level playing field issue
which they have noted. The FSA is thankfully pursuing its own, wider agenda.
MiFID is only one part of its work load.
5.
MPBR
5.1
We should perhaps better express the FSA’s current initiatives as “incorporating
MiFID within the FSA’s new regime”.
5.2
The FSA are implementing MiFID as part of a wider FSA initiative on improving its
rules. The general banner from the FSA is “more principles based regulation” or
“MPBR”. And its implications are not yet clear.
5.3
There is no straightforward copy out of MiFID which is the end of the story. And
regrettably there is an unfinished story. We are still awaiting several chapters of the
FSA’s MPBR book. (In part, I would also suggest that there is a re-run of an old
story.) The following paragraphs seek to give a few illustrations of what I mean.
6.
Removal of specific requirements
6.1
The FSA are simplifying their Rule Book and this involves the removal of various
specific requirements. One good example of this is provided by the new rules relating
to financial promotions, now to be called “FINPROM”. (FINPROM includes the
MiFID “marketing communications” requirements.)
6.2
Under MiFID, as copied out in NEWCOB:
“A firm must ensure that all information addressed by it to a client in relation to a
relevant business is fair, clear and not misleading”.
The order of the words “clear, fair and not misleading” may have become “fair, clear
and not misleading” but we already have the “fair, clear and not misleading” wording
clearly set out in our existing Conduct of Business Sourcebook. Indeed in the old
familiar grey IMRO volume, the chapter on the issue and approval of investment
advertisements started:
“Where a firm issues or approves an investment advertisement it must:
(i)
apply appropriate expertise; and
8
(ii)
be able to show that it believes on reasonable grounds that the advertisement
is fair and not misleading.”
We may now have grandiose terms like “real time communications” and “non-real
time communications” and “financial promotions”, and “marketing communications,”
rather than advertisements, but the basic idea of the regulation is unchanged.
6.3
One major concern is the removal of the “reasonable steps” wording which appears in
the current COB 2.1. MiFID has an absolute requirement, but one hopes that
“reasonable steps” might be implicit to some extent.
6.4
Generally there will be fewer specific requirements for financial promotions. This
should avoid some “over compliance” of advertisements. Often there is a wish from
compliance departments to have disclosures about all topics that may possibly be
relevant. For example, to cover the risks of the eligible markets inserting a long
paragraph where in fact the issue of investing in eligible markets is negligible –
perhaps less than 1% of the relevant portfolio- and so stressing the eligible markets
risks is disproportionate and could give the customer a rather misleading impression of
the product. There has been an increasing risk of us adopting the US approach of
including more and more risk warnings. This can have various unhelpful results.
Lengthy risk warnings can, for example, mislead or otherwise bamboozle the reader,
or simply be ignored. Hopefully, with fewer specific requirements, people will be
encouraged to write a fair description of the product or service concerned and set out a
short summary of the relevant risks. This should give better results. Often less is
more.
6.5
Essentially the key messages (in COBS 4.3.2) will be that:
6.6
(a)
the document must be accurate and sufficient for the purpose;
(b)
it must be presented in such a way that it can be understood. Common sense
must be applied regarding the test for the “average person” for whom you need
to ensure it is likely to be understood;
(c)
it needs to set out the relevant risks – give a fair and prominent indication of
the relevant risks; and
(d)
there should be no disguising of anything.
From the UK perspective, I would suggest that we are therefore, to a great extent,
reverting to the previous approach regarding advertisements. Firms need to decide
whether a particular piece of information is fair, clear and not misleading in the
particular context. With luck, there will be less reliance upon simply complying with
9
the specifics of the FINPROM Rules in COBS. I think that this result provides the
opportunity for a positive improvement. Hopefully more original thought will be
given to particular issues.
7.
Gold plating
7.1
In some cases the FSA obviously consider that the MiFID requirements are
inadequate. One such area is disclosure of information.
7.2
Aside from provisions regarding marketing communications, MiFID does cover the
information topic in various ways.
Article 27 sets out the conditions with which information must comply in order to be fair,
clear and not misleading (covering all information, including marketing communications).
Article 28 concerns information concerning client categorisation.
Article 29 is a general requirement for information to clients so that firms must in good time
before a retail client or potential retail client is bound by any agreement for the provision of
investment services or ancillary services or before the provision of those services (which I
raise earlier) provide that a person with the terms of any such agreement and the Article 30
information relating to that agreement or to those investment or ancillary services.
Article 30 relations to information about the investment firm and its services to the retail
clients and potential retail clients.
Article 31 concerns information about financial instruments.
Article 32 concerns information requirements concerning safeguarding of client financial
instruments or client funds.
Article 33 concerns information about costs and associated charges.
Article 34, which is relevant to CIS operators, concerns the simplified prospectus for a UCITS
fund which is deemed to be sufficient information for Article 28(19)(3) of the MiFID
Directive – though the second and fourth indents must be checked.
7.3
However, for the FSA, this is still insufficient. The FSA want to keep their existing
materials and develop these for the initial disclosure document (IDD), the menu, the
requirement to provide key features and to continue their work on depolarisation.
7.4
In order to keep these provisions and develop them, the Article 4 gold-plating
procedures will need to be followed and these procedures have yet to be finalised. The
10
FSA have initiated them and certainly intend to use them though quite how the process
will work is still not yet clear.
7.5
The FSA’s decision to exercise the gold-plating procedure in part follows from our
history of regulation in the advisory area (particularly with polarisation and, more
recently, de-polarisation). In part, it also derives from a view that work which has
been started with a view to improving regulation of customer disclosure should be
continued. The UK should not simply quit and go back to the first starting point (It is
worth remembering that probably many other EU countries are starting from scratch in
implementing some of the new disclosure provisions listed in the MiFID Directive.
The FSA have the history of regulation of disclosure. Whilst they are now introducing
the specific MiFID requirements as well, they still wish to build upon, and indeed
continue, recent FSA work in this area.
8.
Further regulatory changes
8.1
In view of the wider FSA agenda, I would recommend that you should read the
Consultation Paper 06/19 version of NEWCOB, rather than the version of COBS
issued in January with the FSA’s Policy Statement on MiFID implementation. You
will see that this issued version for MiFID compliant COBS has many blanks!
Although removing certain specific requirements, the FSA retain many provisions
which are additional to pure MiFID implementation.
8.2
The NEWCOB Policy Statement in Quarter 2 should provide the next helpful
summary statement of the ongoing process in the FSA’s move towards more principles
based regulation of conduct of business. The independent consideration of new
regulations by the FSA will provide a continuing story. The UK regulator is
continuing its own independent work - and pursuing its own broad agenda. To take
one example – the reform of the approved person regime (CP05/10 and PS 07/4) had
three elements only one of which was MiFID related.
8.3
So we should be under no misapprehension. MiFID is a major relevant issue but not
the main driver for the FSA. There will be further UK reform work to be done
regarding depolarisation, the menu, the initial disclosure document and basic advice.
There will be the deferred matters CP in Quarter 2, including a review of non-MiFID
projections regime. There will be a financial promotions general review which will
not start until post-November 2007. To give an idea as to the ongoing process,
Appendix 3 outlines the ongoing FSA work.
8.4
And, indeed, the FSA is going to have to continue to accommodate EU initiatives. As
mentioned at paragraph 2.1 above, the Level 3 work by CESR is continuing.
Appendix 4 sets out a summary of the ongoing CESR work. As you will see, it is an
extensive programme, with a lengthy time frame.
11
8.5
Whilst we may therefore have made further progress on some of the basic COBS
work, much work is still in process.
9.
Implications of MPBR
9.1
Leaving aside the inevitable further involvement of regulation driven by the FSA, and
from the EU, we do now have a very clear view from the FSA that they regard more
principles based regulation as being their general approach, and key to their approach
to any detailed implementation requirements. This is now very clear from the January
Policy Statement on MiFID implementation, and other recent FSA comments.
9.2
What general conclusions can we reach as to what MPBR generally may mean? The
FSA are already expressing some strong views. A recent statement by Dan Walters of
the FSA summarises the position quite succinctly:
“For my part, I would rather take the path, which no doubt has risks, of seeking a
proportionate regulatory regime that tries to build upon trust between the regulator
and the regulated, rather than one where it relies upon the illusory certitude of
detailed rules – which in reality is more likely to lead to escalating cycles of legalistic
gamesmanship to evade them.”8
9.3
I have never subscribed to the clever technical interpretation school. I agree entirely
with leaning towards a clear disincentive for others to take a technical path.
9.4
The hope with the more principles based approach is that:
more flexibility is available;
innovation is facilitated; and
common sense can prevail.
9.5
There are of course risks. These include the following potential problems:
Without comprehensive and specific rules, compliance departments will have a different, and
more difficult, task. This may be no bad thing.
The “tick box” mentality will no longer work. The FSA want us to focus on
outcomes, not simply the (shorter) NEWCOB requirements. But note that
fewer standards does not mean lower standards. It means giving thought as to
how to ensure high standards.
8
Dan Waters, Director of Retail Policy Division at the FSA, speech 8th December 2006
12
More records will be required.
Throughout the MiFID implementing provisions and the NEWCOBS
provisions there is reference to keeping records. These obligations will be
quite onerous and will take up immediate compliance, administration and
systems resources whilst they are being devised and introduced as appropriate
for each business. Indeed there may well need to be various new series of
records generated, in addition to those set out in the record keeping rules, in
order to provide appropriate evidence of a firm following its new procedures
which are designed to compliance with a particular principle/rule. For
example, something may be developed along the lines of verification notes for
FINPROM documents rather than the tick-box sign-off forms.
Uncertainty is certainly a risk.
I share various commentators’ concern that the idea of using industry codes on
FSA guidance may potentially lead to a muddle. The guidance will not have
the force of law. The provisions will appear in various places. There is clear
scope for confusion.
Retrospective enforcement is a real concern.
Perhaps this is, in reality, not a new concern. We already have the Principles
for Business. If you look at the FSA statistics as to their enforcement actions
in the past, many of these have relied on breach of Principle allegations in
addition to, or in place of, breach of specific rules. Looking at any Principles
breach, there is always a concern that the enforcers may take a retrospective
review. (Those particularly concerned about this area will be interested to see
the FSA’s Consultation Paper on review of the Enforcement and Decision
Making Manuals which was issued in January.9 The review is designed not
only to streamline and simplify these manuals but also to take account of the
FSA’s strategic move to a more principles based approach to regulation.)
10.
The FSA’s approach, and TCF
10.1
Balancing the advantages with the potential risks is not straightforward. Has the FSA
got the balance right?
10.2
I would submit that those who are interested in the potential advantages are often less
interested in the risks and vice versa. So, I suspect that whether you think that the
balance is right will depend on your viewpoint.
9
CP 07/2
13
10.3
Overall, it would appear to me that the risks either exist and/or are probably worth
running in order to have the chance of achieving the potential advantages. It should
always be preferable to advocate a regulatory regime which is flexible and facilitates
innovation.
10.4
The task for firms is to introduce new processes which are designed to secure the
purpose of the principles based regulation – to take, to use a much overused phrase, a
“purposive” approach. In this connection:
(a)
It is important that senior management play their part and take due
responsibility.
(b)
It is vital that common sense prevails. The FSA have indicated that a common
sense approach should apply regarding the provisions on financial promotions
and this common sense approach should prevail generally.
(c)
Be aware that a real driver for the FSA is, in fact, treating customers fairly.
10.5
The FSA are now justifying MPBR by explaining that its aim is to further their TCF
initiatives. The FSA expect senior managers to be able to explain to the FSA how
adoption of the new Rules will enhance the firm’s ability to treat customers fairly.
10.6
Determining the processes to reach the necessary “outcomes” will be for a firm to
decide. In order to demonstrate how one arrives at an outcome, there will be a need to
be able to articulate (record) the firm’s thinking. The FSA, from the enforcement
viewpoint, need to be able to ensure whether a reasonable firm, applying its mind to
the issues and circumstances, could reasonably have predicted at the outset that a
breach of rules/principles would result. The onus is clearly on the senior management
of firms to make sure that they address their minds to the real issues behind the
principles in order to achieve the outcomes. The task for compliance teams is to
ensure that those issues have been addressed, and to devise processes which enable
them to document how the outcomes have been reached.
10.7
There will be no one right answer in future. But in truth there never really has been.
Specific regulation has always been illusory – a perception rather than a reality.
10.8
I would hope that MPBR will achieve a “back to basics” result. Those who embrace
the new MPBR approach should have new scope to work out their own solutions to
problems of how to comply with the principles as they apply to their own particular
circumstances.
Kirstene Baillie
Field Fisher Waterhouse LLP
27 February 2007
14
Appendix 1
MiFID, the Implementing Directive and the Implementing Regulation
MiFID Directive (with related Implementing Directive and Implementing Regulation
provisions)
The following sets out the text of the MiFID Directive in full.
In respect of each of the articles, where applicable, there follows
a)
in italics in a grey box the corresponding provisions of the Implementing Directive
expanding on the organisational requirements and operating conditions for investment
firms and defined terms for the purposes of the MiFID Directive.
b)
in italics in a grey box the relevant provisions of the MiFID Regulation as regards record
keeping obligations for investment firms, transaction reporting, market transparency,
admission of financial instruments to trading, and defined terms for the purposes of the
MiFID Directive (For the avoidance of confusion, Articles of the Regulation are, in this
document, referred to as Regulations).
The Regulation comes into force on 1st November 2007 (except in respect of Regulation
11 and Regulation 34(5) and (6) which come into force from 1st June 2007 because they
relate to publication of certain matters by the regulators from July).
Regulation 41 states that the Regulation shall be binding in its entirety and directly
applicable in all member states must adopt and publish by 31 January must have adopted
and published by 31 January 2007 at the latest the laws regulations and administrative
revisions necessary to comply with the implementing directive. They must communicate
to the Commission the text of those provisions and a correlation table between those
provisions and the implementing directive. Member states shall apply those provisions
from 1st November 2007. When member states adopt these provisions they shall contain
a reference to the implementing directive or be accompanied by such reference on the
occasion of their official publication (member states shall determine how such reference is
to be made)
Index
Title I : Definitions and Scope
Page
Title I : Definitions and Scope ........................................................................................................ 9
Article 1 : Scope...............................................................................................................................9
Article 2 : Exemptions ...................................................................................................................10
Article 3 : Optional exemptions....................................................................................................11
Article 4 : Definitions .....................................................................................................................12
Title II...............................................................................................................................................20
AUTHORISATION AND OPERATING CONDITIONS FOR INVESTMENT FIRMS.......................20
Chapter I..........................................................................................................................................20
CONDITIONS AND PROCEDURES FOR AUTHORISATION .......................................................20
Article 5 : Requirement for authorisation....................................................................................20
Article 6 : Scope of authorisation ................................................................................................21
Article 7 : Procedures for granting and refusing requests for authorisation..........................21
Article 8 : Withdrawal of authorisations ......................................................................................22
Article 9 : Persons who effectively direct the business ............................................................22
Article 10 : Shareholders and members with qualifying holdings ..........................................23
Article 11 : Membership of an authorised Investor Compensation Scheme ..........................24
Article 12 : Initial capital endowment..........................................................................................24
Article 13 : Organisational requirements ....................................................................................24
Article 14 : Trading process and finalisation of transaction in an MTF ...................................39
Article 15 : Relations with third countries...................................................................................40
Chapter II : OPERATING CONDITIONS FOR INVESTMENT FIRMS...........................................41
Section 1 : General provisions .....................................................................................................41
Article 16 : Regular review of conditions for initial authorisation ............................................41
Article 17 - General obligation in respect of on-going supervision .........................................41
Article 18 : Conflicts of interest....................................................................................................41
Section 2 : Provisions to ensure investor protection ................................................................43
Article 19 : Conduct of business obligations when providing investment services to clients
.........................................................................................................................................................43
Article 20 : Provision of services through the medium of another investment firm ..............59
Article 21 : Obligation to execute orders on terms most favourable to the client ..................59
Article 22 : Client order handling rules........................................................................................63
Article 23 : Obligations of investment firms when appointing tied agents .............................65
Article 24 : Transactions executed with eligible counterparties...............................................67
Section 3 : Market transparency and integrity..........................................................................68
Article 25 : Obligation to uphold integrity of markets, report transactions and maintain
records ............................................................................................................................................68
Article 26 : Monitoring of compliance with the rules of the MTF and with other legal
obligations......................................................................................................................................73
Article 27 : Obligation for investment firms to make public firm quotes.................................73
Article 28 : Post-trade disclosure by investment firms .............................................................81
Article 29 : Pre-trade transparency requirements for MTFs......................................................87
Article 30 : Post-trade transparency requirements for MTFs....................................................94
Chapter III : RIGHTS OF INVESTMENT FIRMS ............................................................................99
Article 31 : Freedom to provide investment services and activities ........................................99
Article 32 : Establishment of a branch ......................................................................................100
Article 33 : Access to regulated markets ..................................................................................102
Article 34 : Access to central counterparty, clearing and settlement facilities and right to
designate settlement system......................................................................................................102
Article 35 : Provisions regarding central counterparty, clearing and settlement
arrangements in respect of MTFs ..............................................................................................103
Title III : REGULATED MARKETS ...............................................................................................103
Article 36 : Authorisation and applicable law ...........................................................................103
Article 37 : Requirements for the management of the regulated market...............................104
Article 38 : Requirements relating to persons exercising significant influence over the
management of the regulated market........................................................................................104
i
Article 39 : Organisational requirements ..................................................................................105
Article 40 : Admission of financial instruments to trading......................................................105
Article 41 : Suspension and removal of instruments from trading ........................................107
Article 42 : Access to the regulated market ..............................................................................107
Article 43 : Monitoring of compliance with the rules of the regulated market and with other
legal obligations...........................................................................................................................109
Article 44 : Pre-trade transparency requirements for regulated markets ..............................109
Article 45 : Post-trade transparency requirements for regulated markets ............................115
Article 46 : Provisions regarding central counterparty and clearing and settlement
arrangements ...............................................................................................................................121
Article 47 : List of regulated markets.........................................................................................122
Title IV : COMPETENT AUTHORITIES........................................................................................122
Chapter 1 : DESIGNATION, POWERS AND REDRESS PROCEDURES ..................................122
Article 48 : Designation of competent authorities....................................................................122
Article 49 : Cooperation between authorities in the same Member State..............................122
Article 50 : Powers to be made available to competent authorities .......................................123
Article 51 : Administrative sanctions.........................................................................................124
Article 52 : Right of appeal..........................................................................................................124
Article 53 : Extra-judicial mechanism for investors’ complaints ............................................124
Article 54 : Professional secrecy ...............................................................................................124
Article 55 : Relations with auditors............................................................................................125
Chapter II : COOPERATION BETWEEN COMPETENT AUTHORITIES OF DIFFERENT
MEMBER STATES........................................................................................................................126
Article 56 : Obligation to cooperate ...........................................................................................126
Article 57 : Cooperation in supervisory activities, on-the-spot verifications or in
investigations...............................................................................................................................127
Article 58 : Exchange of information .........................................................................................127
Article 59 : Refusal to cooperate................................................................................................128
Chapter III : COOPERATION WITH THIRD COUNTRIES...........................................................131
Title V : FINAL PROVISIONS.......................................................................................................131
ANNEX 1 : LIST OF SERVICES AND ACTIVITIES AND FINANCIAL INSTRUMENTS.............137
Section A : Investment services and activities.........................................................................137
Section B : Ancillary services ....................................................................................................137
Section C : Financial Instruments..............................................................................................138
ANNEX II : PROFESSIONAL CLIENTS FOR THE PURPOSE OF THIS DIRECTIVE ................141
I.
Categories of client who are considered to be professionals........................................141
II.
Clients who may be treated as professionals on request ..........................................142
ii
DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
of 21 April 2004
on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC
and Directive 2000/12/EC of the European Parliament and of the Council and repealing
Council Directive 93/22/EEC
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and in particular Article 47(2)
thereof,
Having regard to the proposal from the Commission (1),
Having regard to the Opinion of the European Economic and Social Committee (2),
Having regard to the opinion of the European Central Bank (3),
Acting in accordance with the procedure laid down in Article 251 of the Treaty (4),
Whereas:
(1)
Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field
(5) sought to establish the conditions under which authorised investment firms and banks
could provide specified services or establish branches in other Member States on the
basis of home country authorisation and supervision. To this end, that Directive aimed to
harmonise the initial authorisation and operating requirements for investment firms
including conduct of business rules. It also provided for the harmonisation of some
conditions governing the operation of regulated markets.
(2)
In recent years more investors have become active in the financial markets and are
offered an even more complex wide-ranging set of services and instruments. In view of
these developments the legal framework of the Community should encompass the full
range of investor-oriented activities. To this end, it is necessary to provide for the degree
of harmonisation needed to offer investors a high level of protection and to allow
investment firms to provide services throughout the Community, being a Single Market, on
the basis of home country supervision. In view of the preceding, Directive 93/22/EEC
should be replaced by a new Directive.
(3)
Due to the increasing dependence of investors on personal recommendations, it is
appropriate to include the provision of investment advice as an investment service
requiring authorisation.
(4)
It is appropriate to include in the list of financial instruments certain commodity derivatives
and others which are constituted and traded in such a manner as to give rise to regulatory
issues comparable to traditional financial instruments.
(5)
It is necessary to establish a comprehensive regulatory regime governing the execution of
transactions in financial instruments irrespective of the trading methods used to conclude
those transactions so as to ensure a high quality of execution of investor transactions and
to uphold the integrity and overall efficiency of the financial system. A coherent and risksensitive framework for regulating the main types of order-execution arrangement
currently active in the European financial marketplace should be provided for. It is
necessary to recognise the emergence of a new generation of organised trading systems
alongside regulated markets which should be subjected to obligations designed to
preserve the efficient and orderly functioning of financial markets. With a view to
establishing a proportionate regulatory framework provision should be made for the
inclusion of a new investment service which relates to the operation of an MTF.
1
(6)
Definitions of regulated market and MTF should be introduced and closely aligned with
each other to reflect the fact that they represent the same organised trading functionality.
The definitions should exclude bilateral systems where an investment firm enters into
every trade on own account and not as a riskless counterparty interposed between the
buyer and seller. The term ' system' encompasses all those markets that are composed of
a set of rules and a trading platform as well as those that only function on the basis of a
set of rules. Regulated markets and MTFs are not obliged to operate a 'technical' system
for matching orders. A market which is only composed of a set of rules that governs
aspects related to membership, admission of instruments to trading, trading between
members, reporting and, where applicable, transparency obligations is a regulated market
or an MTF within the meaning of this Directive and the transactions concluded under those
rules are considered to be concluded under the systems of a regulated market or an MTF.
The term 'buying and selling interests' is to be understood in a broad sense and includes
orders, quotes and indications of interest. The requirement that the interests be brought
together in the system by means of non-discretionary rules set by the system operator
means that they are brought together under the system's rules or by means of the
system's protocols or internal operating procedures (including procedures embodied in
computer software). The term 'non-discretionary rules' means that these rules leave the
investment firm operating an MTF with no discretion as to how interests may interact. The
definitions require that interests be brought together in such a way as to result in a
contract, meaning that execution takes place under the system's rules or by means of the
system's protocols or internal operating procedures.
(7)
The purpose of this Directive is to cover undertakings the regular occupation or business
of which is to provide investment services and/or perform investment activities on a
professional basis. Its scope should not therefore cover any person with a different
professional activity.
(8)
Persons administering their own assets and undertakings, who do not provide investment
services and/or perform investment activities other than dealing on own account unless
they are market makers or they deal on own account outside a regulated market or an
MTF on an organised, frequent and systematic basis, by providing a system accessible to
third parties in order to engage in dealings with them should not be covered by the scope
of this Directive.
(9)
References in the text to persons should be understood as including both natural and legal
persons.
(10)
Insurance or assurance undertakings the activities of which are subject to appropriate
monitoring by the competent prudential-supervision authorities and which are subject to
Council Directive 64/225/EEC of 25 February 1964 on the abolition of restrictions on
freedom of establishment and freedom to provide services in respect of reinsurance and
retrocession (6), First Council Directive 73/239/EEC of 24 July 1973 on the coordination of
laws, regulations and administrative provisions relating to the taking up and pursuit of
direct insurance other than life assurance (7) and Council Directive 2002/83/EC of 5
November 2002 concerning life assurance (8) should be excluded.
(11)
Persons who do not provide services for third parties but whose business consists in
providing investment services solely for their parent undertakings, for their subsidiaries, or
for other subsidiaries of their parent undertakings should not be covered by this Directive.
(12)
Persons who provide investment services only on an incidental basis in the course of
professional activity should also be excluded from the scope of this Directive, provided that
activity is regulated and the relevant rules do not prohibit the provision, on an incidental
basis, of investment services.
(13)
Persons who provide investment services consisting exclusively in the administration of
employee-participation schemes and who therefore do not provide investment services for
third parties should not be covered by this Directive.
2
(14)
It is necessary to exclude from the scope of this Directive central banks and other bodies
performing similar functions as well as public bodies charged with or intervening in the
management of the public debt, which concept covers the investment thereof, with the
exception of bodies that are partly or wholly State-owned the role of which is commercial
or linked to the acquisition of holdings.
(15)
It is necessary to exclude from the scope of this Directive collective investment
undertakings and pension funds whether or not coordinated at Community level, and the
depositaries or managers of such undertakings, since they are subject to specific rules
directly adapted to their activities.
(16)
In order to benefit from the exemptions from this Directive the person concerned should
comply on a continuous basis with the conditions laid down for such exemptions. In
particular, if a person provides investment services or performs investment activities and is
exempted from this Directive because such services or activities are ancillary to his main
business, when considered on a group basis, he should no longer be covered by the
exemption related to ancillary services where the provision of those services or activities
ceases to be ancillary to his main business.
(17)
Persons who provide the investment services and/or perform investment activities covered
by this Directive should be subject to authorisation by their home Member States in order
to protect investors and the stability of the financial system.
(18)
Credit institutions that are authorised under Directive 2000/12/EC of the European
Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the
business of credit institutions (9) should not need another authorisation under this
Directive in order to provide investment services or perform investment activities. When a
credit institution decides to provide investment services or perform investment activities
the competent authorities, before granting an authorisation, should verify that it complies
with the relevant provisions of this Directive.
(19)
In cases where an investment firm provides one or more investment services not covered
by its authorisation, or performs one or more investment activities not covered by its
authorisation, on a non-regular basis it should not need an additional authorisation under
this Directive.
(20)
For the purposes of this Directive, the business of the reception and transmission of orders
should also include bringing together two or more investors thereby bringing about a
transaction between those investors.
(21)
In the context of the forthcoming revision of the Capital Adequacy framework in Basel II,
Member States recognise the need to re-examine whether or not investment firms who
execute client orders on a matched principal basis are to be regarded as acting as
principals, and thereby be subject to additional regulatory capital requirements.
(22)
The principles of mutual recognition and of home Member State supervision require that
the Member States' competent authorities should not grant or should withdraw
authorisation where factors such as the content of programmes of operations, the
geographical distribution or the activities actually carried on indicate clearly that an
investment firm has opted for the legal system of one Member State for the purpose of
evading the stricter standards in force in another Member State within the territory of which
it intends to carry on or does carry on the greater part of its activities. An investment firm
which is a legal person should be authorised in the Member State in which it has its
registered office. An investment firm which is not a legal person should be authorised in
the Member State in which it has its head office. In addition, Member States should require
that an investment firm's head office must always be situated in its home Member State
and that it actually operates there.
(23)
An investment firm authorised in its home Member State should be entitled to provide
investment services or perform investment activities throughout the Community without the
3
need to seek a separate authorisation from the competent authority in the Member State in
which it wishes to provide such services or perform such activities.
(24)
Since certain investment firms are exempted from certain obligations imposed by Council
Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and
credit institutions (10), they should be obliged to hold either a minimum amount of capital
or professional indemnity insurance or a combination of both. The adjustments of the
amounts of that insurance should take into account adjustments made in the framework of
Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002
on insurance mediation (11). This particular treatment for the purposes of capital
adequacy should be without prejudice to any decisions regarding the appropriate
treatment of these firms under future changes to Community legislation on capital
adequacy.
(25)
Since the scope of prudential regulation should be limited to those entities which, by virtue
of running a trading book on a professional basis, represent a source of counterparty risk
to other market participants, entities which deal on own account in financial instruments,
including those commodity derivatives covered by this Directive, as well as those that
provide investment services in commodity derivatives to the clients of their main business
on an ancillary basis to their main business when considered on a group basis, provided
that this main business is not the provision of investment services within the meaning of
this Directive, should be excluded from the scope of this Directive.
(26)
In order to protect an investor's ownership and other similar rights in respect of securities
and his rights in respect of funds entrusted to a firm those rights should in particular be
kept distinct from those of the firm. This principle should not, however, prevent a firm from
doing business in its name but on behalf of the investor, where that is required by the very
nature of the transaction and the investor is in agreement, for example stock lending.
(27)
Where a client, in line with Community legislation and in particular Directive 2002/47/EC of
the European Parliament and of the Council of 6 June 2002 on financial collateral
arrangements (12), transfers full ownership of financial instruments or funds to an
investment firm for the purpose of securing or otherwise covering present or future, actual
or contingent or prospective obligations, such financial instruments or funds should
likewise no longer be regarded as belonging to the client.
(28)
The procedures for the authorisation, within the Community, of branches of investment
firms authorised in third countries should continue to apply to such firms. Those branches
should not enjoy the freedom to provide services under the second paragraph of Article 49
of the Treaty or the right of establishment in Member States other than those in which they
are established. In view of cases where the Community is not bound by any bilateral or
multilateral obligations it is appropriate to provide for a procedure intended to ensure that
Community investment firms receive reciprocal treatment in the third countries concerned.
(29)
The expanding range of activities that many investment firms undertake simultaneously
has increased potential for conflicts of interest between those different activities and the
interests of their clients. It is therefore necessary to provide for rules to ensure that such
conflicts do not adversely affect the interests of their clients.
(30)
A service should be considered to be provided at the initiative of a client unless the client
demands it in response to a personalised communication from or on behalf of the firm to
that particular client, which contains an invitation or is intended to influence the client in
respect of a specific financial instrument or specific transaction. A service can be
considered to be provided at the initiative of the client notwithstanding that the client
demands it on the basis of any communication containing a promotion or offer of financial
instruments made by any means that by its very nature is general and addressed to the
public or a larger group or category of clients or potential clients.
(31)
One of the objectives of this Directive is to protect investors. Measures to protect investors
should be adapted to the particularities of each category of investors (retail, professional
4
and counterparties).
(32)
By way of derogation from the principle of home country authorisation, supervision and
enforcement of obligations in respect of the operation of branches, it is appropriate for the
competent authority of the host Member State to assume responsibility for enforcing
certain obligations specified in this Directive in relation to business conducted through a
branch within the territory where the branch is located, since that authority is closest to the
branch, and is better placed to detect and intervene in respect of infringements of rules
governing the operations of the branch.
(33)
It is necessary to impose an effective 'best execution' obligation to ensure that investment
firms execute client orders on terms that are most favourable to the client. This obligation
should apply to the firm which owes contractual or agency obligations to the client.
(34)
Fair competition requires that market participants and investors be able to compare the
prices that trading venues (i.e. regulated markets, MTFs and intermediaries) are required
to publish. To this end, it is recommended that Member States remove any obstacles
which may prevent the consolidation at European level of the relevant information and its
publication.
(35)
When establishing the business relationship with the client the investment firm might ask
the client or potential client to consent at the same time to the execution policy as well as
to the possibility that his orders may be executed outside a regulated market or an MTF.
(36)
Persons who provide investment services on behalf of more than one investment firm
should not be considered as tied agents but as investment firms when they fall under the
definition provided in this Directive, with the exception of certain persons who may be
exempted.
(37)
This Directive should be without prejudice to the right of tied agents to undertake activities
covered by other Directives and related activities in respect of financial services or
products not covered by this Directive, including on behalf of parts of the same financial
group.
(38)
The conditions for conducting activities outside the premises of the investment firm (doorto-door selling) should not be covered by this Directive.
(39)
Member States' competent authorities should not register or should withdraw the
registration where the activities actually carried on indicate clearly that a tied agent has
opted for the legal system of one Member State for the purpose of evading the stricter
standards in force in another Member State within the territory of which it intends to carry
on or does carry on the greater part of its activities.
(40)
For the purposes of this Directive eligible counterparties should be considered as acting as
clients.
(41)
For the purposes of ensuring that conduct of business rules (including rules on best
execution and handling of client orders) are enforced in respect of those investors most in
need of these protections, and to reflect well-- established market practice throughout the
Community, it is appropriate to clarify that conduct of business rules may be waived in the
case of transactions entered into or brought about between eligible counterparties.
(42)
In respect of transactions executed between eligible counterparties, the obligation to
disclose client limit orders should only apply where the counter party is explicitly sending a
limit order to an investment firm for its execution.
(43)
Member States shall protect the right to privacy of natural persons with respect to the
processing of personal data in accordance with Directive 95/46/EC of the European
Parliament and of the Council of 24 October 1995 on the protection of individuals with
regard to the processing of personal data and of the free movement of such data. (13)
5
(44)
With the two-fold aim of protecting investors and ensuring the smooth operation of
securities markets, it is necessary to ensure that transparency of transactions is achieved
and that the rules laid down for that purpose apply to investment firms when they operate
on the markets. In order to enable investors or market participants to assess at any time
the terms of a transaction in shares that they are considering and to verify afterwards the
conditions in which it was carried out, common rules should be established for the
publication of details of completed transactions in shares and for the disclosure of details
of current opportunities to trade in shares. These rules are needed to ensure the effective
integration of Member State equity markets, to promote the efficiency of the overall price
formation process for equity instruments, and to assist the effective operation of 'best
execution' obligations. These considerations require a comprehensive transparency
regime applicable to all transactions in shares irrespective of their execution by an
investment firm on a bilateral basis or through regulated markets or MTFs. The obligations
for investment firms under this Directive to quote a bid and offer price and to execute an
order at the quoted price do not relieve investment firms of the obligation to route an order
to another execution venue when such internalisation could prevent the firm from
complying with 'best execution' obligations.
(45)
Member States should be able to apply transaction reporting obligations of the Directive to
financial instruments that are not admitted to trading on a regulated market.
(46)
A Member State may decide to apply the pre- and post-trade transparency requirements
laid down in this Directive to financial instruments other than shares. In that case those
requirements should apply to all investment firms for which that Member State is the home
Member State for their operations within the territory of that Member State and those
carried out cross-border through the freedom to provide services. They should also apply
to the operations carried out within the territory of that Member State by the branches
established in its territory of investment firms authorised in another Member State.
(47)
Investment firms should all have the same opportunities of joining or having access to
regulated markets throughout the Community. Regardless of the manner in which
transactions are at present organised in the Member States, it is important to abolish the
technical and legal restrictions on access to regulated markets.
(48)
In order to facilitate the finalisation of cross-border transactions, it is appropriate to provide
for access to clearing and settlement systems throughout the Community by investment
firms, irrespective of whether transactions have been concluded through regulated
markets in the Member State concerned. Investment firms which wish to participate
directly in other Member States' settlement systems should comply with the relevant
operational and commercial requirements for membership and the prudential measures to
uphold the smooth and orderly functioning of the financial markets.
(49)
The authorisation to operate a regulated market should extend to all activities which are
directly related to the display, processing, execution, confirmation and reporting of orders
from the point at which such orders are received by the regulated market to the point at
which they are transmitted for subsequent finalisation, and to activities related to the
admission of financial instruments to trading. This should also include transactions
concluded through the medium of designated market makers appointed by the regulated
market which are undertaken under its systems and in accordance with the rules that
govern those systems. Not all transactions concluded by members or participants of the
regulated market or MTF are to be considered as concluded within the systems of a
regulated market or MTF. Transactions which members or participants conclude on a
bilateral basis and which do not comply with all the obligations established for a regulated
market or an MTF under this Directive should be considered as transactions concluded
outside a regulated market or an MTF for the purposes of the definition of systematic
internaliser. In such a case the obligation for investment firms to make public firm quotes
should apply if the conditions established by this Directive are met.
(50)
Systematic internalisers might decide to give access to their quotes only to retail clients,
6
only to professional clients, or to both. They should not be allowed to discriminate within
those categories of clients.
(51)
Article 27 does not oblige systematic internalisers to publish firm quotes in relation to
transactions above standard market size.
(52)
Where an investment firm is a systematic internaliser both in shares and in other financial
instruments, the obligation to quote should only apply in respect of shares without
prejudice to Recital 46.
(53)
It is not the intention of this Directive to require the application of pre-trade transparency
rules to transactions carried out on an OTC basis, the characteristics of which include that
they are ad-hoc and irregular and are carried out with wholesale counterparties and are
part of a business relationship which is itself characterised by dealings above standard
market size, and where the deals are carried out outside the systems usually used by the
firm concerned for its business as a systematic internaliser.
(54)
The standard market size for any class of share should not be significantly
disproportionate to any share included in that class.
(55)
Revision of Directive 93/6/EEC should fix the minimum capital requirements with which
regulated markets should comply in order to be authorised, and in so doing should take
into account the specific nature of the risks associated with such markets.
(56)
Operators of a regulated market should also be able to operate an MTF in accordance
with the relevant provisions of this Directive.
(57)
The provisions of this Directive concerning the admission of instruments to trading under
the rules enforced by the regulated market should be without prejudice to the application
of Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on
the admission of securities to official stock exchange listing and on information to be
published on those securities (14). A regulated market should not be prevented from
applying more demanding requirements in respect of the issuers of securities or
instruments which it is considering for admission to trading than are imposed pursuant to
this Directive.
(58)
Member States should be able to designate different competent authorities to enforce the
wide-ranging obligations laid down in this Directive. Such authorities should be of a public
nature guaranteeing their independence from economic actors and avoiding conflicts of
interest. In accordance with national law, Member States should ensure appropriate
financing of the competent authority. The designation of public authorities should not
exclude delegation under the responsibility of the competent authority.
(59)
Any confidential information received by the contact point of one Member State through
the contact point of another Member State should not be regarded as purely domestic.
(60)
It is necessary to enhance convergence of powers at the disposal of competent authorities
so as to pave the way towards an equivalent intensity of enforcement across the
integrated financial market. A common minimum set of powers coupled with adequate
resources should guarantee supervisory effectiveness.
(61)
With a view to protecting clients and without prejudice to the right of customers to bring
their action before the courts, it is appropriate that Member States encourage public or
private bodies established with a view to settling disputes out-of-court, to cooperate in
resolving cross-border disputes, taking into account Commission Recommendation
98/257/EC of 30 March 1998 on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes (15). When implementing provisions on
complaints and redress procedures for out-of-court settlements, Member States should be
encouraged to use existing cross-border cooperation mechanisms, notably the Financial
Services Complaints Network (FIN-Net).
7
(62)
Any exchange or transmission of information between competent authorities, other
authorities, bodies or persons should be in accordance with the rules on transfer of
personal data to third countries as laid down in Directive 95/46/EC.
(63)
It is necessary to reinforce provisions on exchange of information between national
competent authorities and to strengthen the duties of assistance and cooperation which
they owe to each other. Due to increasing cross--border activity, competent authorities
should provide each other with the relevant information for the exercise of their functions,
so as to ensure the effective enforcement of this Directive, including in situations where
infringements or suspected infringements may be of concern to authorities in two or more
Member States. In the exchange of information, strict professional secrecy is needed to
ensure the smooth transmission of that information and the protection of particular rights.
(64)
At its meeting on 17 July 2000, the Council set up the Committee of Wise Men on the
Regulation of European Securities Markets. In its final report, the Committee of Wise Men
proposed the introduction of new legislative techniques based on a four-level approach,
namely framework principles, implementing measures, cooperation and enforcement.
Level 1, the Directive, should confine itself to broad general 'framework' principles while
Level 2 should contain technical implementing measures to be adopted by the
Commission with the assistance of a committee.
(65)
The Resolution adopted by the Stockholm European Council of 23 March 2001 endorsed
the final report of the Committee of Wise Men and the proposed four-level approach to
make the regulatory process for Community securities legislation more efficient and
transparent.
(66)
According to the Stockholm European Council, Level 2 implementing measures should be
used more frequently, to ensure that technical provisions can be kept up to date with
market and supervisory developments, and deadlines should be set for all stages of Level
2 work.
(67)
The Resolution of the European Parliament of 5 February 2002 on the implementation of
financial services legislation also endorsed the Committee of Wise Men's report, on the
basis of the solemn declaration made before Parliament the same day by the Commission
and the letter of 2 October 2001 addressed by the Internal Market Commissioner to the
chairman of Parliament's Committee on Economic and Monetary Affairs with regard to the
safeguards for the European Parliament's role in this process.
(68)
The measures necessary for the implementation of this Directive should be adopted in
accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the
procedures for the exercise of implementing powers conferred on the Commission (16).
(69)
The European Parliament should be given a period of three months from the first
transmission of draft implementing measures to allow it to examine them and to give its
opinion. However, in urgent and duly justified cases, this period could be shortened. If,
within that period, a resolution is passed by the European Parliament, the Commission
should re-examine the draft measures.
(70)
With a view to taking into account further developments in the financial markets the
Commission should submit reports to the European Parliament and the Council on the
application of the provisions concerning professional indemnity insurance, the scope of the
transparency rules and the possible authorisation of specialised dealers in commodity
derivatives as investment firms.
(71)
The objective of creating an integrated financial market, in which investors are effectively
protected and the efficiency and integrity of the overall market are safeguarded, requires
the establishment of common regulatory requirements relating to investment firms
wherever they are authorised in the Community and governing the functioning of regulated
markets and other trading systems so as to prevent opacity or disruption on one market
8
from undermining the efficient operation of the European financial system as a whole.
Since this objective may be better achieved at Community level, the Community may
adopt measures in accordance with the principle of subsidiary as set out in Article 5 of the
Treaty. In accordance with the principle of proportionality, as set out in that Article, this
Directive does not go beyond what is necessary in order to achieve this objective,
HAVE ADOPTED THIS DIRECTIVE:
Title I : Definitions and Scope
Article 1 : Scope
1.
This Directive shall apply to investment firms and regulated markets.
2.
The following provisions shall also apply to credit institutions authorised under Directive
2000/12/EC, when providing one or more investment services and/or performing
investment activities:
-
Articles 2(2), 11, 13 and 14,
-
Chapter II of Title II excluding Article 23(2) second subparagraph,
-
Chapter III of Title II excluding Articles 31(2) to 31(4) and 32(2) to 32(6), 32(8) and
32(9),
-
Articles 48 to 53, 57, 61 and 62, and
-
Article 71(1).
Article 4
Additional requirements on investment firms in certain cases
1. Member States may retain or impose requirements additional to those in this Directive only in
those exceptional cases where such requirements are objectively justified and proportionate so as
to address specific risks to investor protection or to market integrity that are not adequately
addressed by this Directive, and provided that one of the following conditions is met:
(a) the specific risks addressed by the requirements are of particular importance in the
circumstances of the market structure of that Member State;
(b) the requirement addresses risks or issues that emerge or become evident after the date of
application of this Directive and that are not otherwise regulated by or under Community
measures.
2. Any requirements imposed under paragraph 1 shall not restrict or otherwise affect the rights of
investment firms under Articles 31 and 32 of Directive 2004/39/EC.
3. Member States shall notify to the Commission:
(a) any requirement which it intends to retain in accordance with paragraph 1 before the date of
transposition of this Directive; and
(b) any requirement which it intends to impose in accordance with paragraph 1 at least one
month before the date appointed for that requirement to come into force.
9
In each case, the notification shall include a justification for that requirement.
The Commission shall communicate to Member States and make public on its website the
notifications it receives in accordance with this paragraph.
4. By 31 December 2009 the Commission shall report to the European Parliament and the Council
on the application of this Article.
Article 2 : Exemptions
1.
This Directive shall not apply to:
(a)
insurance undertakings as defined in Article 1 of Directive 73/239/EEC or
assurance undertakings as defined in Article 1 of Directive 2002/83/EC or
undertakings carrying on the reinsurance and retrocession activities referred to in
Directive 64/225/EEC;
(b)
persons which provide investment services exclusively for their parent
undertakings, for their subsidiaries or for other subsidiaries of their parent
undertakings;
(c)
persons providing an investment service where that service is provided in an
incidental manner in the course of a professional activity and that activity is
regulated by legal or regulatory provisions or a code of ethics governing the
profession which do not exclude the provision of that service;
(d)
persons who do not provide any investment services or activities other than
dealing on own account unless they are market makers or deal on own account
outside a regulated market or an MTF on an organised, frequent and systematic
basis by providing a system accessible to third parties in order to engage in
dealings with them;
(e)
persons which provide investment services consisting exclusively in the
administration of employee-participation schemes;
(f)
persons which provide investment services which only involve both administration
of employee-participation schemes and the provision of investment services
exclusively for their parent undertakings, for their subsidiaries or for other
subsidiaries of their parent undertakings;
(g)
the members of the European System of Central Banks and other national bodies
performing similar functions and other public bodies charged with or intervening in
the management of the public debt;
(h)
collective investment undertakings and pension funds whether coordinated at
Community level or not and the depositaries and managers of such undertakings;
(i)
persons dealing on own account in financial instruments, or providing investment
services in commodity derivatives or derivative contracts included in Annex I,
Section C 10 to the clients of their main business, provided this is an ancillary
activity to their main business, when considered on a group basis, and that main
business is not the provision of investment services within the meaning of this
Directive or banking services under Directive 2000/12/EC;
10
(j)
persons providing investment advice in the course of providing another
professional activity not covered by this Directive provided that the provision of
such advice is not specifically remunerated;
(k)
persons whose main business consists of dealing on own account in commodities
and/or commodity derivatives. This exception shall not apply where the persons
that deal on own account in commodities and/or commodity derivatives are part of
a group the main business of which is the provision of other investment services
within the meaning of this Directive or banking services under Directive
2000/12/EC;
(l)
firms which provide investment services and/or perform investment activities
consisting exclusively in dealing on own account on markets in financial futures or
options or other derivatives and on cash markets for the sole purpose of hedging
positions on derivatives markets or which deal for the accounts of other members
of those markets or make prices for them and which are guaranteed by clearing
members of the same markets, where responsibility for ensuring the performance
of contracts entered into by such firms is assumed by clearing members of the
same markets;
(m)
associations set up by Danish and Finnish pension funds with the sole aim of
managing the assets of pension funds that are members of those associations;
(n)
'agenti di cambio' whose activities and functions are governed by Article 201 of
Italian Legislative Decree No 58 of 24 February 1998.
2.
The rights conferred by this Directive shall not extend to the provision of services as
counterparty in transactions carried out by public bodies dealing with public debt or by
members of the European System of Central Banks performing their tasks as provided for
by the Treaty and the Statute of the European System of Central Banks and of the
European Central Bank or performing equivalent functions under national provisions.
3.
In order to take account of developments on financial markets, and to ensure the uniform
application of this Directive, the Commission, acting in accordance with the procedure
referred to in Article 64(2), may, in respect of exemptions (c) (i), and (k) define the criteria
for determining when an activity is to be considered as ancillary to the main business on a
group level as well as for determining when an activity is provided in an incidental manner.
Article 3 : Optional exemptions
1.
Member States may choose1 not to apply this Directive to any persons for which they are
the home Member State that:
-
are not allowed to hold clients' funds or securities and which for that reason are
not allowed at any time to place themselves in debit with their clients, and
-
are not allowed to provide any investment service except the reception and
transmission of orders in transferable securities and units in collective investment
undertakings and the provision of investment advice in relation to such financial
instruments, and
1 The UK has chosen to exercise this optional exemption and so this should be of assistance to many
financial advisers
11
-
in the course of providing that service, are allowed to transmit orders only to:
(i)
investment firms authorised in accordance with this Directive;
(ii)
credit institutions authorised in accordance with Directive 2000/12/EC;
(iii)
branches of investment firms or of credit institutions which are authorised
in a third country and which are subject to and comply with prudential
rules considered by the competent authorities to be at least as stringent
as those laid down in this Directive, in Directive 2000/12/EC or in Directive
93/6/EEC;
(iv)
collective investment undertakings authorised under the law of a Member
State to market units to the public and to the managers of such
undertakings;
(v)
investment companies with fixed capital, as defined in Article 15(4) of
Second Council Directive 77/91/EEC of 13 December 1976 on
coordination of safeguards which, for the protection of the interests of
members and others, are required by Member States of companies within
the meaning of the second paragraph of Article 58 of the Treaty, in
respect of the formation of public limited liability companies and the
maintenance and alteration of their capital, with a view to making such
safeguards equivalent (17), the securities of which are listed or dealt in on
a regulated market in a Member State;
provided that the activities of those persons are regulated at national level.
2.
Persons excluded from the scope of this Directive according to paragraph 1 cannot benefit
from the freedom to provide services and/or activities or to establish branches as provided
for in Articles 31 and 32 respectively.
Article 4 : Definitions
1.
For the purposes of this Directive, the following definitions shall apply:
1)
'Investment firm' means any legal person whose regular occupation or business is the
provision of one or more investment services to third parties and/or the performance of
one or more investment activities on a professional basis;
Member States may include in the definition of investment firms undertakings which are
not legal persons, provided that:
(a)
their legal status ensures a level of protection for third parties' interests equivalent
to that afforded by legal persons, and
(b)
they are subject to equivalent prudential supervision appropriate to their legal
form.
However, where a natural person provides services involving the holding of third
parties' funds or transferable securities, he may be considered as an investment
firm for the purposes of this Directive only if, without prejudice to the other
requirements imposed in this Directive and in Directive 93/6/EEC, he complies
with the following conditions:
12
2)
(a)
the ownership rights of third parties in instruments and funds must be
safeguarded, especially in the event of the insolvency of the firm or of its
proprietors, seizure, set-off or any other action by creditors of the firm or of
its proprietors;
(b)
the firm must be subject to rules designed to monitor the firm's solvency
and that of its proprietors;
(c)
the firm's annual accounts must be audited by one or more persons
empowered, under national law, to audit accounts;
(d)
where the firm has only one proprietor, he must make provision for the
protection of investors in the event of the firm's cessation of business
following his death, his incapacity or any other such event;
'Investment services and activities' means any of the services and activities listed in
Section A of Annex I relating to any of the instruments listed in Section C of Annex I;
The Commission shall determine, acting in accordance with the procedure referred to in
Article 64(2):
-
the derivative contracts mentioned in Section C 7 of Annex I that have the
characteristics of other derivative financial instruments, having regard to whether,
inter alia, they are cleared and settled through recognised clearing houses or are
subject to regular margin calls
-
the derivative contracts mentioned in Section C 10 of Annex I that have the
characteristics of other derivative financial instruments, having regard to whether,
inter alia, they are traded on a regulated market or an MTF, are cleared and
settled through recognised clearing houses or are subject to regular margin calls;
Regulations 38 and 39 provide details of characteristics of other derivative
financial instruments and derivatives within Section C10 of Annex 1 to the
Directive respectively – see Annex 1.
3)
'Ancillary service' means any of the services listed in Section B of Annex I;
4)
'Investment advice' means the provision of personal recommendations to a client, either
upon its request or at the initiative of the investment firm, in respect of one or more
transactions relating to financial instruments;
Defined terms for the purposes of Directive 2004/39/EC
Article 52
(Article 4(1)(4) of Directive 2004/39/EC)
Investment advice
For the purposes of the definition of 'investment advice' in Article 4(1)(4) of Directive 2004/39/EC,
a personal recommendation is a recommendation that is made to a person in his capacity as an
investor or potential investor, or in his capacity as an agent for an investor or potential investor.
That recommendation must be presented as suitable for that person, or must be based on a
consideration of the circumstances of that person, and must constitute a recommendation to take
one of the following sets of steps:
13
(a) to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial
instrument;
(b) to exercise or not to exercise any right conferred by a particular financial instrument to buy,
sell, subscribe for, exchange, or redeem a financial instrument.
A recommendation is not a personal recommendation if it is issued exclusively through distribution
channels or to the public.
5)
'Execution of orders on behalf of clients' means acting to conclude agreements to buy or
sell one or more financial instruments on behalf of clients;
6)
'Dealing on own account' means trading against proprietary capital resulting in the
conclusion of transactions in one or more financial instruments;
7)
'Systematic internaliser' means an investment firm which, on an organised, frequent and
systematic basis, deals on own account by executing client orders outside a regulated
market or an MTF;
Pre-trade transparency for systematic internalisers
Regulation 21
(Article 4(1)(7) of Directive 2004/39/EC)
Criteria for determining whether an investment firm is a systematic internaliser
1. Where an investment firm deals on own account by executing client orders outside a regulated
market or an MTF, it shall be treated as a systematic internaliser if it meets the following criteria
indicating that it performs that activity on an organised, frequent and systematic basis:
(a) the activity has a material commercial role for the firm, and is carried on in accordance with
non-discretionary rules and procedures;
(b) the activity is carried on by personnel, or by means of an automated technical system,
assigned to that purpose, irrespective of whether those personnel or that system are used
exclusively for that purpose;
(c) the activity is available to clients on a regular or continuous basis.
2. An investment firm shall cease to be a systematic internaliser in one or more shares if it ceases
to carry on the activity specified in paragraph 1 in respect of those shares, provided that it has
announced in advance that it intends to cease that activity using the same publication channels for
that announcement as it uses to publish its quotes or, where that is not possible, using a channel
which is equally accessible to its clients and other market participants.
3. The activity of dealing on own account by executing client orders shall not be treated as
performed on an organised, frequent and systematic basis where the following conditions apply:
(a) the activity is performed on an ad hoc and irregular bilateral basis with wholesale
counterparties as part of business relationships which are themselves characterised by
dealings above standard market size;
(b) the transactions are carried out outside the systems habitually used by the firm concerned
for any business that it carries out in the capacity of a systematic internaliser.
14
4. Each competent authority shall ensure the maintenance and publication of a list of all systematic
internalisers, in respect of shares admitted to trading on a regulated market, which it has
authorised as investment firms.
It shall ensure that the list is current by reviewing it at least annually.
The list shall be made available to the Committee of European Securities Regulators. It shall be
considered as published when it is published by the Committee of European Securities Regulators
in accordance with Article 34(5).
8)
'Market maker' means a person who holds himself out on the financial markets on a
continuous basis as being willing to deal on own account by buying and selling financial
instruments against his proprietary capital at prices defined by him;
9)
'Portfolio management' means managing portfolios in accordance with mandates given by
clients on a discretionary client-by-client basis where such portfolios include one or more
financial instruments;
10)
'Client' means any natural or legal person to whom an investment firm provides investment
and/or ancillary services;
11)
'Professional client' means a client meeting the criteria laid down in Annex II;
12)
'Retail client' means a client who is not a professional client;
13)
'Market operator' means a person or persons who manages and/or operates the business
of a regulated market. The market operator may be the regulated market itself;
14)
'Regulated market' means a multilateral system operated and/or managed by a market
operator, which brings together or facilitates the bringing together of multiple third-party
buying and selling interests in financial instruments - in the system and in accordance with
its nondiscretionary rules - in a way that results in a contract, in respect of the financial
instruments admitted to trading under its rules and/or systems, and which is authorised
and functions regularly and in accordance with the provisions of Title III;
15)
'Multilateral trading facility (MTF)' means a multilateral system, operated by an investment
firm or a market operator, which brings together multiple third-party buying and selling
interests in financial instruments - in the system and in accordance with non-discretionary
rules - in a way that results in a contract in accordance with the provisions of Title II;
16)
'Limit order' means an order to buy or sell a financial instrument at its specified price limit
or better and for a specified size;
17)
'Financial instrument' means those instruments specified in Section C of Annex I;
18)
'Transferable securities' means those classes of securities which are negotiable on the
capital market, with the exception of instruments of payment, such as:
(a)
shares in companies and other securities equivalent to shares in companies,
partnerships or other entities, and depositary receipts in respect of shares;
(b)
bonds or other forms of securitised debt, including depositary receipts in respect
of such securities;
15
(c)
any other securities giving the right to acquire or sell any such transferable
securities or giving rise to a cash settlement determined by reference to
transferable securities, currencies, interest rates or yields, commodities or other
indices or measures;
19)
'Money-market instruments' means those classes of instruments which are normally dealt
in on the money market, such as treasury bills, certificates of deposit and commercial
papers and excluding instruments of payment;
20)
'Home Member State' means:
(a)
(b)
in the case of investment firms:
(i)
if the investment firm is a natural person, the Member State in which its
head office is situated;
(ii)
if the investment firm is a legal person, the Member State in which its
registered office is situated;
(iii)
if the investment firm has, under its national law, no registered office, the
Member State in which its head office is situated;
in the case of a regulated market, the Member State in which the regulated market
is registered or, if under the law of that Member State it has no registered office,
the Member State in which the head office of the regulated market is situated;
21)
'Host Member State' means the Member State, other than the home Member State, in
which an investment firm has a branch or performs services and/or activities or the
Member State in which a regulated market provides appropriate arrangements so as to
facilitate access to trading on its system by remote members or participants established in
that same Member State;
22)
'Competent authority' means the authority, designated by each Member State in
accordance with Article 48, unless otherwise specified in this Directive;
23)
'Credit institutions' means credit institutions as defined under Directive 2000/12/EC;
24)
'UCITS management company' means a management company as defined in Council
Directive 85/611/EEC of 20 December 1985, on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable
securities (UCITS) (18);
25)
'Tied agent' means a natural or legal person who, under the full and unconditional
responsibility of only one investment firm on whose behalf it acts, promotes investment
and/or ancillary services to clients or prospective clients, receives and transmits
instructions or orders from the client in respect of investment services or financial
instruments, places financial instruments and/or provides advice to clients or prospective
clients in respect of those financial instruments or services;
26)
'Branch' means a place of business other than the head office which is a part of an
investment firm, which has no legal personality and which provides investment services
and/or activities and which may also perform ancillary services for which the investment
firm has been authorised; all the places of business set up in the same Member State by
an investment firm with headquarters in another Member State shall be regarded as a
single branch;
16
27)
'Qualifying holding' means any direct or indirect holding in an investment firm which
represents 10% or more of the capital or of the voting rights, as set out in Article 92 of
Directive 2001/34/EC, or which makes it possible to exercise a significant influence over
the management of the investment firm in which that holding subsists;
28)
'Parent undertaking' means a parent undertaking as defined in Articles 1 and 2 of Seventh
Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts (19);
29)
'Subsidiary' means a subsidiary undertaking as defined in Articles 1 and 2 of Directive
83/349/EEC, including any subsidiary of a subsidiary undertaking of an ultimate parent
undertaking;
30)
'Control' means control as defined in Article 1 of Directive 83/349/EEC;
31)
'Close links' means a situation in which two or more natural or legal persons are linked by:
(a)
participation which means the ownership, direct or by way of control, of 20% or
more of the voting rights or capital of an undertaking,
(b)
control which means the relationship between a parent undertaking and a
subsidiary, in all the cases referred to in Article 1(1) and (2) of Directive
83/349/EEC, or a similar relationship between any natural or legal person and an
undertaking, any subsidiary undertaking of a subsidiary undertaking also being
considered a subsidiary of the parent undertaking which is at the head of those
undertakings.
A situation in which two or more natural or legal persons are permanently linked to one
and the same person by a control relationship shall also be regarded as constituting a
close link between such persons.
2.
In order to take account of developments on financial markets, and to ensure the uniform
application of this Directive, the Commission, acting in accordance with the procedure
referred to in Article 64(2), may clarify the definitions laid down in paragraph 1 of this
Article.
Article 2
Definitions
For the purposes of the Implementing Directive, the following definitions shall apply:
(1) 'distribution channels' means distribution channels within the meaning of Article 1(7) of
Commission Directive 2003/125/EC;
(2) 'durable medium' means any instrument which enables a client to store information addressed
personally to that client in a way accessible for future reference for a period of time adequate for
the purposes of the information and which allows the unchanged reproduction of the information
stored;
(3) 'relevant person' in relation to an investment firm, means any of the following:
(a) a director, partner or equivalent, manager or tied agent of the firm;
(b) a director, partner or equivalent, or manager of any tied agent of the firm;
(c) an employee of the firm or of a tied agent of the firm, as well as any other natural person
whose services are placed at the disposal and under the control of the firm or a tied agent of
17
the firm and who is involved in the provision by the firm of investment services and activities;
(d) a natural person who is directly involved in the provision of services to the investment firm or
to its tied agent under an outsourcing arrangement for the purpose of the provision by the
firm of investment services and activities;
(4) 'financial analyst' means a relevant person who produces the substance of investment
research;
(5) 'group', in relation to an investment firm, means the group of which that firm forms a part,
consisting of a parent undertaking, its subsidiaries and the entities in which the parent undertaking
or its subsidiaries hold a participation, as well as undertakings linked to each other by a
relationship within the meaning of Article 12(1) of Council Directive 83/349/EEC on consolidated
accounts;
(6) 'outsourcing' means an arrangement of any form between an investment firm and a service
provider by which that service provider performs a process, a service or an activity which would
otherwise be undertaken by the investment firm itself;
(7) 'person with whom a relevant person has a family relationship' means any of the following:
(a) the spouse of the relevant person or any partner of that person considered by national law
as equivalent to a spouse;
(b) a dependent child or stepchild of the relevant person;
(c) any other relative of the relevant person who has shared the same household as that
person for at least one year on the date of the personal transaction concerned;
(8) 'securities financing transaction' has the meaning given in Commission Regulation (EC) No
1287/2006;
(9) 'senior management' means the person or persons who effectively direct the business of the
investment firm as referred to in Article 9(1) of Directive 2004/39/EC.
Regulation 2
For the purposes of this Regulation, the following definitions shall apply2:
(1) 'commodity' means any goods of a fungible nature that are capable of being delivered,
including metals and their ores and alloys, agricultural products, and energy such as electricity;
(2) 'issuer' means an entity which issues transferable securities and, where appropriate, other
financial instruments;
(3) 'Community issuer' means an issuer which has its registered office in the Community;
(4) 'third country issuer' means an issuer which is not a Community issuer;
2 Regulation 40
Re-examinations
1. At least once every two years, and after consulting the Committee of European Securities Regulators, the
Commission shall re-examine the definition of 'transaction' for the purposes of this Regulation, the Tables
included in Annex II, as well as the criteria for determination of liquid shares contained in Regulation 22.
18
(5) 'normal trading hours' for a trading venue or an investment firm means those hours which the
trading venue or investment firm establishes in advance and makes public as its trading hours;
(6) 'portfolio trade' means a transaction in more than one security where those securities are
grouped and traded as a single lot against a specific reference price;
(7) 'relevant competent authority' for a financial instrument means the competent authority of the
most relevant market in terms of liquidity for that financial instrument;
(8) 'trading venue' means a regulated market, MTF or systematic internaliser acting in its capacity
as such, and, where appropriate, a system outside the Community with similar functions to a
regulated market or MTF;
(9) 'turnover', in relation to a financial instrument, means the sum of the results of multiplying the
number of units of that instrument exchanged between buyers and sellers in a defined period of
time, pursuant to transactions taking place on a trading venue or otherwise, by the unit price
applicable to each such transaction;
(10) 'securities financing transaction' means an instance of stock lending or stock borrowing or the
lending or borrowing of other financial instruments, a repurchase or reverse repurchase
transaction, or a buy-sell back or sell-buy back transaction.
Regulation 3
Transactions related to an individual share in a portfolio trade and volume weighted
average price transactions
1. A transaction related to an individual share in a portfolio trade shall be considered, for the
purposes of Regulation 18(1)(b)(ii), as a transaction subject to conditions other than the current
market price.
It shall also be considered, for the purposes of Regulation 27(1)(b), as a transaction where the
exchange of shares is determined by factors other than the current market valuation of the share.
2. A volume weighted average price transaction shall be considered, for the purposes of
Regulation 18(1)(b)(ii), as a transaction subject to conditions other than the current market price
and, for the purposes of Regulation 25, as an order subject to conditions other than the current
market price.
It shall also be considered, for the purposes of Regulation 27(1)(b), as a transaction where the
exchange of shares is determined by factors other than the current market valuation of the share.
Regulation 4
References to trading day
1. A reference to a trading day in relation to a trading venue, or in relation to post-trade information
to be made public under Article 30 or 45 of Directive 2004/39/EC in relation to a share, shall be a
reference to any day during which the trading venue concerned is open for trading.
A reference to the opening of the trading day shall be a reference to the commencement of the
normal trading hours of the trading venue.
A reference to noon on the trading day shall be a reference to noon in the time zone where the
trading venue is established.
A reference to the end of the trading day shall be a reference to the end of its normal trading
hours.
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2. A reference to a trading day in relation to the most relevant market in terms of liquidity for a
share, or in relation to post-trade information to be made public under Article 28 of Directive
2004/39/EC in relation to a share, shall be a reference to any day of normal trading on trading
venues in that market.
A reference to the opening of the trading day shall be a reference to the earliest commencement of
normal trading in that share on trading venues in that market.
A reference to noon on the trading day shall be a reference to noon in the time zone of that
market.
A reference to the end of the trading day shall be a reference to the latest cessation of normal
trading in that share on trading venues in that market.
3. A reference to a trading day in relation to a spot contract, within the meaning of Regulation
38(2), shall be a reference to any day of normal trading of that contract on trading venues.
Article 5
References to transaction
For the purposes of this Regulation, a reference to a transaction is a reference only to the
purchase and sale of a financial instrument. For the purposes of this Regulation, other than
Chapter II, the purchase and sale of a financial instrument does not include any of the following:
(a) securities financing transactions;
(b) the exercise of options or of covered warrants;
(c) primary market transactions (such as issuance, allotment or subscription) in financial
instruments falling within Article 4(1)(18)(a) and (b) of Directive 2004/39/EC.
Title II
AUTHORISATION AND OPERATING CONDITIONS FOR INVESTMENT FIRMS
Chapter I
CONDITIONS AND PROCEDURES FOR AUTHORISATION
Article 5 : Requirement for authorisation
1.
Each Member State shall require that the performance of investment services or activities
as a regular occupation or business on a professional basis be subject to prior
authorisation in accordance with the provisions of this Chapter. Such authorisation shall be
granted by the home Member State competent authority designated in accordance with
Article 48.
2.
By way of derogation from paragraph 1, Member States shall allow any market operator to
operate an MTF, subject to the prior verification of their compliance with the provisions of
this Chapter, excluding Articles 11 and 15.
3.
Member States shall establish a register of all investment firms. This register shall be
publicly accessible and shall contain information on the services and/or activities for which
the investment firm is authorised. It shall be updated on a regular basis.
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4.
5.
Each Member State shall require that:
-
any investment firm which is a legal person have its head office in the same
Member State as its registered office,
-
any investment firm which is not a legal person or any investment firm which is a
legal person but under its national law has no registered office have its head office
in the Member State in which it actually carries on its business.
In the case of investment firms which provide only investment advice or the service of
reception and transmission of orders under the conditions established in Article 3, Member
States may allow the competent authority to delegate administrative, preparatory or
ancillary tasks related to the granting of an authorisation, in accordance with the conditions
laid down in Article 48(2).
Article 6 : Scope of authorisation
1.
The home Member State shall ensure that the authorisation specifies the investment
services or activities which the investment firm is authorised to provide. The authorisation
may cover one or more of the ancillary services set out in Section B of Annex I.
Authorisation shall in no case be granted solely for the provision of ancillary services.
2.
An investment firm seeking authorisation to extend its business to additional investment
services or activities or ancillary services not foreseen at the time of initial authorisation
shall submit a request for extension of its authorisation.
3.
The authorisation shall be valid for the entire Community and shall allow an investment
firm to provide the services or perform the activities, for which it has been authorised,
throughout the Community, either through the establishment of a branch or the free
provision of services.
Article 7 : Procedures for granting and refusing requests for authorisation
1.
The competent authority shall not grant authorisation unless and until such time as it is
fully satisfied that the applicant complies with all requirements under the provisions
adopted pursuant to this Directive.
2.
The investment firm shall provide all information, including a programme of operations
setting out inter alia the types of business envisaged and the organisational structure,
necessary to enable the competent authority to satisfy itself that the investment firm has
established, at the time of initial authorisation, all the necessary arrangements to meet its
obligations under the provisions of this Chapter.
3.
An applicant shall be informed, within six months of the submission of a complete
application, whether or not authorisation has been granted.
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Article 8 : Withdrawal of authorisations
The competent authority may withdraw the authorisation issued to an investment firm where such
an investment firm:
(a)
does not make use of the authorisation within 12 months, expressly renounces the
authorisation or has provided no investment services or performed no investment activity
for the preceding six months, unless the Member State concerned has provided for
authorisation to lapse in such cases;
(b)
has obtained the authorisation by making false statements or by any other irregular
means;
(c)
no longer meets the conditions under which authorisation was granted, such as
compliance with the conditions set out in Directive 93/6/EEC;
(d)
has seriously and systematically infringed the provisions adopted pursuant to this Directive
governing the operating conditions for investment firms;
(e)
falls within any of the cases where national law, in respect of matters outside the scope of
this Directive, provides for withdrawal.
Article 9 : Persons who effectively direct the business
1.
Member States shall require the persons who effectively direct the business of an
investment firm to be of sufficiently good repute and sufficiently experienced as to ensure
the sound and prudent management of the investment firm.
Where the market operator that seeks authorisation to operate an MTF and the persons
that effectively direct the business of the MTF are the same as those that effectively direct
the business of the regulated market, those persons are deemed to comply with the
requirements laid down in the first subparagraph.
2.
Member States shall require the investment firm to notify the competent authority of any
changes to its management, along with all information needed to assess whether the new
staff appointed to manage the firm are of sufficiently good repute and sufficiently
experienced.
3.
The competent authority shall refuse authorisation if it is not satisfied that the persons who
will effectively direct the business of the investment firm are of sufficiently good repute or
sufficiently experienced, or if there are objective and demonstrable grounds for believing
that proposed changes to the management of the firm pose a threat to its sound and
prudent management.
4.
Member States shall require that the management of investment firms is undertaken by at
least two persons meeting the requirements laid down in paragraph 1.
By way of derogation from the first subparagraph, Member States may grant authorisation
to investment firms that are natural persons or to investment firms that are legal persons
managed by a single natural person in accordance with their constitutive rules and
national laws. Member States shall nevertheless require that alternative arrangements be
in place which ensure the sound and prudent management of such investment firms.
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Article 10 : Shareholders and members with qualifying holdings
1.
The competent authorities shall not authorise the performance of investment services or
activities by an investment firm until they have been informed of the identities of the
shareholders or members, whether direct or indirect, natural or legal persons, that have
qualifying holdings and the amounts of those holdings.
The competent authorities shall refuse authorisation if, taking into account the need to
ensure the sound and prudent management of an investment firm, they are not satisfied
as to the suitability of the shareholders or members that have qualifying holdings.
Where close links exist between the investment firm and other natural or legal persons,
the competent authority shall grant authorisation only if those links do not prevent the
effective exercise of the supervisory functions of the competent authority.
2.
The competent authority shall refuse authorisation if the laws, regulations or administrative
provisions of a third country governing one or more natural or legal persons with which the
undertaking has close links, or difficulties involved in their enforcement, prevent the
effective exercise of its supervisory functions.
3.
Member States shall require any natural or legal person that proposes to acquire or sell,
directly or indirectly, a qualifying holding in an investment firm, first to notify, in accordance
with the second subparagraph, the competent authority of the size of the resulting holding.
Such persons shall likewise be required to notify the competent authority if they propose to
increase or reduce their qualifying holding, if in consequence the proportion of the voting
rights or of the capital that they hold would reach or fall below or exceed 20%, 33% or 50%
or the investment firm would become or cease to be their subsidiary.
Without prejudice to paragraph 4, the competent authority shall have up to three months
from the date of the notification of a proposed acquisition provided for in the first
subparagraph to oppose such a plan if, in view of the need to ensure sound and prudent
management of the investment firm, it is not satisfied as to the suitability of the persons
referred to in the first subparagraph. If the competent authority does not oppose the plan, it
may fix a deadline for its implementation.
4.
If the acquirer of any holding referred to in paragraph 3 is an investment firm, a credit
institution, an insurance undertaking or a UCITS management company authorised in
another Member State, or the parent undertaking of an investment firm, credit institution,
insurance undertaking or a UCITS management company authorised in another Member
State, or a person controlling an investment firm, credit institution, insurance undertaking
or a UCITS management company authorised in another Member State, and if, as a result
of that acquisition, the undertaking would become the acquirer's subsidiary or come under
his control, the assessment of the acquisition shall be subject to the prior consultation
provided for in Article 60.
5.
Member States shall require that, if an investment firm becomes aware of any acquisitions
or disposals of holdings in its capital that cause holdings to exceed or fall below any of the
thresholds referred to in the first subparagraph of paragraph 3, that investment firm is to
inform the competent authority without delay.
At least once a year, investment firms shall also inform the competent authority of the
names of shareholders and members possessing qualifying holdings and the sizes of such
holdings as shown, for example, by the information received at annual general meetings of
shareholders and members or as a result of compliance with the regulations applicable to
companies whose transferable securities are admitted to trading on a regulated market.
23
6.
Member States shall require that, where the influence exercised by the persons referred to
in the first subparagraph of paragraph 1 is likely to be prejudicial to the sound and prudent
management of an investment firm, the competent authority take appropriate measures to
put an end to that situation.
Such measures may consist in applications for judicial orders and/or the imposition of
sanctions against directors and those responsible for management, or suspension of the
exercise of the voting rights attaching to the shares held by the shareholders or members
in question.
Similar measures shall be taken in respect of persons who fail to comply with the
obligation to provide prior information in relation to the acquisition or increase of a
qualifying holding. If a holding is acquired despite the opposition of the competent
authorities, the Member States shall, regardless of any other sanctions to be adopted,
provide either for exercise of the corresponding voting rights to be suspended, for the
nullity of the votes cast or for the possibility of their annulment.
Article 11 : Membership of an authorised Investor Compensation Scheme
The competent authority shall verify that any entity seeking authorisation as an investment firm
meets its obligations under Directive 97/9/EC of the European Parliament and of the Council of 3
March 1997 on investor-compensation schemes (20) at the time of authorisation.
Article 12 : Initial capital endowment
Member States shall ensure that the competent authorities do not grant authorisation unless the
investment firm has sufficient initial capital in accordance with the requirements of Directive
93/6/EEC having regard to the nature of the investment service or activity in question.
Pending the revision of Directive 93/6/EEC, the investment firms provided for in Article 67 shall be
subject to the capital requirements laid down in that Article.
Article 13 : Organisational requirements
1.
The home Member State shall require that investment firms comply with the organisational
requirements set out in paragraphs 2 to 8.
Article 5
(Article 13(2) to (8) of Directive 2004/39/EC)
General organisational requirements
1. Member States shall require investment firms to comply with the following requirements:
(a) to establish, implement and maintain decision-making procedures and an organisational
structure which clearly and in documented manner specifies reporting lines and allocates
functions and responsibilities;
(b) to ensure that their relevant persons are aware of the procedures which must be followed for
the proper discharge of their responsibilities;
(c) to establish, implement and maintain adequate internal control mechanisms designed to
24
secure compliance with decisions and procedures at all levels of the investment firm;
(d) to employ personnel with the skills, knowledge and expertise necessary for the discharge of
the responsibilities allocated to them;
(e) to establish, implement and maintain effective internal reporting and communication of
information at all relevant levels of the investment firm;
(f) to maintain adequate and orderly records of their business and internal organisation;
(g) to ensure that the performance of multiple functions by their relevant persons does not and
is not likely to prevent those persons from discharging any particular function soundly,
honestly, and professionally.
Member States shall ensure that, for those purposes, investment firms take into account the
nature, scale and complexity of the business of the firm, and the nature and range of investment
services and activities undertaken in the course of that business.
2. Member States shall require investment firms to establish, implement and maintain systems and
procedures that are adequate to safeguard the security, integrity and confidentiality of information,
taking into account the nature of the information in question.
3. Member States shall require investment firms to establish, implement and maintain an adequate
business continuity policy aimed at ensuring, in the case of an interruption to their systems and
procedures, the preservation of essential data and functions, and the maintenance of investment
services and activities, or, where that is not possible, the timely recovery of such data and
functions and the timely resumption of their investment services and activities.
4. Member States shall require investment firms to establish, implement and maintain accounting
policies and procedures that enable them, at the request of the competent authority, to deliver in a
timely manner to the competent authority financial reports which reflect a true and fair view of their
financial position and which comply with all applicable accounting standards and rules.
5. Member States shall require investment firms to monitor and, on a regular basis, to evaluate the
adequacy and effectiveness of their systems, internal control mechanisms and arrangements
established in accordance with paragraphs 1 to 4, and to take appropriate measures to address
any deficiencies.
2.
An investment firm shall establish adequate policies and procedures sufficient to ensure
compliance of the firm including its managers, employees and tied agents with its
obligations under the provisions of this Directive as well as appropriate rules governing
personal transactions by such persons.
Article 6
(Article 13(2) of Directive 2004/39/EC)
Compliance
1. Member States shall ensure that investment firms establish, implement and maintain adequate
policies and procedures designed to detect any risk of failure by the firm to comply with its
obligations under Directive 2004/39/EC, as well as the associated risks, and put in place adequate
measures and procedures designed to minimise such risk and to enable the competent authorities
to exercise their powers effectively under that Directive.
Member States shall ensure that, for those purposes, investment firms take into account the
nature, scale and complexity of the business of the firm, and the nature and range of investment
services and activities undertaken in the course of that business.
25
2. Member States shall require investment firms to establish and maintain a permanent and
effective compliance function which operates independently and which has the following
responsibilities:
(a) to monitor and, on a regular basis, to assess the adequacy and effectiveness of the
measures and procedures put in place in accordance with the first subparagraph of
paragraph 1, and the actions taken to address any deficiencies in the firm's compliance with
its obligations;
(b) to advise and assist the relevant persons responsible for carrying out investment services
and activities to comply with the firm's obligations under Directive 2004/39/EC.
3. In order to enable the compliance function to discharge its responsibilities properly and
independently, Member States shall require investment firms to ensure that the following
conditions are satisfied:
(a) the compliance function must have the necessary authority, resources, expertise and access
to all relevant information;
(b) a compliance officer must be appointed and must be responsible for the compliance function
and for any reporting as to compliance required by Article 9(2);
(c) the relevant persons involved in the compliance function must not be involved in the
performance of services or activities they monitor;
(d) the method of determining the remuneration of the relevant persons involved in the
compliance function must not compromise their objectivity and must not be likely to do so.
However, an investment firm shall not be required to comply with point (c) or point (d) if it is able to
demonstrate that in view of the nature, scale and complexity of its business, and the nature and
range of investment services and activities, the requirement under that point is not proportionate
and that its compliance function continues to be effective.
Article 9
(Article 13(2) of Directive 2004/39/EC)
Responsibility of senior management
1. Member States shall require investment firms, when allocating functions internally, to ensure
that senior management, and, where appropriate, the supervisory function, are responsible for
ensuring that the firm complies with its obligations under Directive 2004/39/EC.
In particular, senior management and, where appropriate, the supervisory function shall be
required to assess and periodically to review the effectiveness of the policies, arrangements and
procedures put in place to comply with the obligations under Directive 2004/39/EC and to take
appropriate measures to address any deficiencies.
2. Member States shall require investment firms to ensure that their senior management receive
on a frequent basis, and at least annually, written reports on the matters covered by Articles 6, 7
and 8 indicating in particular whether the appropriate remedial measures have been taken in the
event of any deficiencies.
3. Member States shall require investment firms to ensure that the supervisory function, if any,
receives on a regular basis written reports on the same matters.
4. For the purposes of this Article, 'supervisory function' means the function within an investment
firm responsible for the supervision of its senior management.
26
Article 10
(Article 13(2) of Directive 2004/39/EC)
Complaints handling
Member States shall require investment firms to establish, implement and maintain effective and
transparent procedures for the reasonable and prompt handling of complaints received from retail
clients or potential retail clients, and to keep a record of each complaint and the measures taken
for its resolution.
Article 11
(Article 13(2) of Directive 2004/39/EC)
Meaning of personal transaction
For the purposes of Article 12 and Article 25, personal transaction means a trade in a financial
instrument effected by or on behalf of a relevant person, where at least one of the following criteria
are met:
(a) that relevant person is acting outside the scope of the activities he carries out in that capacity;
(b) the trade is carried out for the account of any of the following persons:
(i)
the relevant person;
(ii)
any person with whom he has a family relationship, or with whom he has close links;
(iii) a person whose relationship with the relevant person is such that the relevant person
has a direct or indirect material interest in the outcome of the trade, other than a fee
or commission for the execution of the trade.
Article 12
(Article 13(2) of Directive 2004/39/EC)
Personal transactions
1. Member States shall require investment firms to establish, implement and maintain adequate
arrangements aimed at preventing the following activities in the case of any relevant person who is
involved in activities that may give rise to a conflict of interest, or who has access to inside
information within the meaning of Article 1(1) of Directive 2003/6/EC or to other confidential
information relating to clients or transactions with or for clients by virtue of an activity carried out by
him on behalf of the firm:
(a) entering into a personal transaction which meets at least one of the following criteria:
(i) that person is prohibited from entering into it under Directive 2003/6/EC;
(ii) it involves the misuse or improper disclosure of that confidential information;
(iii) it conflicts or is likely to conflict with an obligation of the investment firm under Directive
2004/39/EC;
(b) advising or procuring, other than in the proper course of his employment or contract for
27
services, any other person to enter into a transaction in financial instruments which, if a
personal transaction of the relevant person, would be covered by point (a) or Article
25(2)(a) or (b) or Article 47(3);
(c) without prejudice to Article 3(a) of Directive 2003/6/EC, disclosing, other than in the normal
course of his employment or contract for services, any information or opinion to any other
person if the relevant person knows, or reasonably ought to know, that as a result of that
disclosure that other person will or would be likely to take either of the following steps:
(i)
to enter into a transaction in financial instruments which, if a personal transaction of
the relevant person, would be covered by point (a) or Article 25(2)(a) or (b) or Article
47(3);
(ii)
to advise or procure another person to enter into such a transaction.
2. The arrangements required under paragraph 1 must in particular be designed to ensure that:
(a) each relevant person covered by paragraph 1 is aware of the restrictions on personal
transactions, and of the measures established by the investment firm in connection with
personal transactions and disclosure, in accordance with paragraph 1;
(b) the firm is informed promptly of any personal transaction entered into by a relevant person,
either by notification of that transaction or by other procedures enabling the firm to identify
such transactions;
In the case of outsourcing arrangements the investment firm must ensure that the firm to
which the activity is outsourced maintains a record of personal transactions entered into by
any relevant person and provides that information to the investment firm promptly on
request.
(c) a record is kept of the personal transaction notified to the firm or identified by it, including
any authorisation or prohibition in connection with such a transaction.
3.
Paragraphs 1 and 2 shall not apply to the following kinds of personal transaction:
(a) personal transactions effected under a discretionary portfolio management service where
there is no prior communication in connection with the transaction between the portfolio
manager and the relevant person or other person for whose account the transaction is
executed;
(b) personal transactions in units in collective undertakings that comply with the conditions
necessary to enjoy the rights conferred by Directive 85/611/EEC or are subject to
supervision under the law of a Member State which requires an equivalent level of risk
spreading in their assets, where the relevant person and any other person for whose
account the transactions are effected are not involved in the management of that
undertaking.
3.
An investment firm shall maintain and operate effective organisational and administrative
arrangements with a view to taking all reasonable steps designed to prevent conflicts of
interest as defined in Article 18 from adversely affecting the interests of its clients.
Article 25
(Article 13(3) of Directive 2004/39/EC)
Additional organisational requirements where a firm produces and disseminates
investment research
1. Member States shall require investment firms which produce, or arrange for the production of,
investment research that is intended or likely to be subsequently disseminated to clients of the
28
firm or to the public, under their own responsibility or that of a member of their group, to ensure
the implementation of all the measures set out in Article 22(3) in relation to the financial
analysts involved in the production of the investment research and other relevant persons
whose responsibilities or business interests may conflict with the interests of the persons to
whom the investment research is disseminated.
2. Member States shall require investment firms covered by paragraph 1 to have in place
arrangements designed to ensure that the following conditions are satisfied:
(a) financial analysts and other relevant persons must not undertake personal transactions or
trade, other than as market makers acting in good faith and in the ordinary course of
market making or in the execution of an unsolicited client order, on behalf of any other
person, including the investment firm, in financial instruments to which investment
research relates, or in any related financial instruments, with knowledge of the likely timing
or content of that investment research which is not publicly available or available to clients
and cannot readily be inferred from information that is so available, until the recipients of
the investment research have had a reasonable opportunity to act on it;
(b) in circumstances not covered by point (a), financial analysts and any other relevant
persons involved in the production of investment research must not undertake personal
transactions in financial instruments to which the investment research relates, or in any
related financial instruments, contrary to current recommendations, except in exceptional
circumstances and with the prior approval of a member of the firm's legal or compliance
function;
(c) the investment firms themselves, financial analysts, and other relevant persons involved in
the production of the investment research must not accept inducements from those with a
material interest in the subject-matter of the investment research;
(d) the investment firms themselves, financial analysts, and other relevant persons involved in
the production of the investment research must not promise issuers favourable research
coverage;
(e) issuers, relevant persons other than financial analysts, and any other persons must not
before the dissemination of investment research be permitted to review a draft of the
investment research for the purpose of verifying the accuracy of factual statements made
in that research, or for any other purpose other than verifying compliance with the firm's
legal obligations, if the draft includes a recommendation or a target price.
For the purposes of this paragraph, 'related financial instrument' means a financial instrument
the price of which is closely affected by price movements in another financial instrument which
is the subject of investment research, and includes a derivative on that other financial
instrument.
3. Member States shall exempt investment firms which disseminate investment research
produced by another person to the public or to clients from complying with paragraph 1 if the
following criteria are met:
(a) the person that produces the investment research is not a member of the group to which
the investment firm belongs;
(b) the investment firm does not substantially alter the recommendations within the investment
research;
(c) the investment firm does not present the investment research as having been produced by
it;
(d) the investment firm verifies that the producer of the research is subject to requirements
equivalent to the requirements under this Directive in relation to the production of that
research, or has established a policy setting such requirements.
29
4.
An investment firm shall take reasonable steps to ensure continuity and regularity in the
performance of investment services and activities. To this end the investment firm shall
employ appropriate and proportionate systems, resources and procedures.
5.
An investment firm shall ensure, when relying on a third party for the performance of
operational functions which are critical for the provision of continuous and satisfactory
service to clients and the performance of investment activities on a continuous and
satisfactory basis, that it takes reasonable steps to avoid undue additional operational risk.
Outsourcing of important operational functions may not be undertaken in such a way as to
impair materially the quality of its internal control and the ability of the supervisor to
monitor the firm's compliance with all obligations.
Outsourcing
Article 13
(Article 13(2) and first subparagraph of Article 13(5) of Directive 2004/39/EC)
Meaning of critical and important operational functions
1. For the purposes of the first subparagraph of Article 13(5) of Directive 2004/39/EC, an
operational function shall be regarded as critical or important if a defect or failure in its
performance would materially impair the continuing compliance of an investment firm with the
conditions and obligations of its authorisation or its other obligations under Directive
2004/39/EC, or its financial performance, or the soundness or the continuity of its investment
services and activities.
2. Without prejudice to the status of any other function, the following functions shall not be
considered as critical or important for the purposes of paragraph 1:
(a) the provision to the firm of advisory services, and other services which do not form part of
the investment business of the firm, including the provision of legal advice to the firm, the
training of personnel of the firm, billing services and the security of the firm's premises and
personnel;
(b) the purchase of standardised services, including market information services and the
provision of price feeds.
Article 14
(Article 13(2) and first subparagraph of Article 13(5) of Directive 2004/39/EC)
Conditions for outsourcing critical or important operational functions or investment
services or activities
1. Member States shall ensure that, when investment firms outsource critical or important
operational functions or any investment services or activities, the firms remain fully responsible for
discharging all of their obligations under Directive 2004/39/EC and comply, in particular, with the
following conditions:
(a) the outsourcing must not result in the delegation by senior management of its
responsibility;
(b) the relationship and obligations of the investment firm towards its clients under the terms
of Directive 2004/39/EC must not be altered;
(c) the conditions with which the investment firm must comply in order to be authorised in
accordance with Article 5 of Directive 2004/39/EC, and to remain so, must not be
30
undermined;
(d) none of the other conditions subject to which the firm's authorisation was granted must be
removed or modified.
2. Member States shall require investment firms to exercise due skill, care and diligence when
entering into, managing or terminating any arrangement for the outsourcing to a service
provider of critical or important operational functions or of any investment services or activities.
Investment firms shall in particular take the necessary steps to ensure that the following conditions
are satisfied:
(a) the service provider must have the ability, capacity, and any authorisation required by law
to perform the outsourced functions, services or activities reliably and professionally;
(b) the service provider must carry out the outsourced services effectively, and to this end the
firm must establish methods for assessing the standard of performance of the service
provider;
(c) the service provider must properly supervise the carrying out of the outsourced functions,
and adequately manage the risks associated with the outsourcing;
(d) appropriate action must be taken if it appears that the service provider may not be carrying
out the functions effectively and in compliance with applicable laws and regulatory
requirements;
(e) the investment firm must retain the necessary expertise to supervise the outsourced
functions effectively and manage the risks associated with the outsourcing and must
supervise those functions and manage those risks;
(f)
the service provider must disclose to the investment firm any development that may have
a material impact on its ability to carry out the outsourced functions effectively and in
compliance with applicable laws and regulatory requirements;
(g) the investment firm must be able to terminate the arrangement for outsourcing where
necessary without detriment to the continuity and quality of its provision of services to
clients;
(h) the service provider must cooperate with the competent authorities of the investment firm
in connection with the outsourced activities;
(i)
the investment firm, its auditors and the relevant competent authorities must have effective
access to data related to the outsourced activities, as well as to the business premises of
the service provider; and the competent authorities must be able to exercise those rights
of access;
(j)
the service provider must protect any confidential information relating to the investment
firm and its clients;
(k) the investment firm and the service provider must establish, implement and maintain a
contingency plan for disaster recovery and periodic testing of backup facilities, where that
is necessary having regard to the function, service or activity that has been outsourced.
3. Member States shall require the respective rights and obligations of the investment firms and
of the service provider to be clearly allocated and set out in a written agreement.
4.
Member States shall provide that, where the investment firm and the service provider are
members of the same group, the investment firm may, for the purposes of complying with this
Article and Article 15, take into account the extent to which the firm controls the service
provider or has the ability to influence its actions.
31
5. Member States shall require investment firms to make available on request to the competent
authority all information necessary to enable the authority to supervise the compliance of the
performance of the outsourced activities with the requirements of this Directive.
Article 15
(Article 13(2) and first subparagraph of Article 13(5) of Directive 2004/39/EC)
Service providers located in third countries
1. In addition to the requirements set out in Article 14, Member States shall require that, where an
investment firm outsources the investment service of portfolio management provided to retail
clients to a service provider located in a third country, that investment firm ensures that the
following conditions are satisfied:
(a) the service provider must be authorised or registered in its home country to provide that
service and must be subject to prudential supervision;
(b) there must be an appropriate cooperation agreement between the competent authority of the
investment firm and the supervisory authority of the service provider.
2. Where one or both of those conditions mentioned in paragraph 1 are not satisfied, an
investment firm may outsource investment services to a service provider located in a third country
only if the firm gives prior notification to its competent authority about the outsourcing arrangement
and the competent authority does not object to that arrangement within a reasonable time
following receipt of that notification.
3. Without prejudice to paragraph 2, Member States shall publish or require competent authorities
to publish a statement of policy in relation to outsourcing covered by paragraph 2. That statement
shall set out examples of cases where the competent authority would not, or would be likely not to,
object to an outsourcing under paragraph 2 where one or both of the conditions in points (a) and
(b) of paragraph 1 are not met. It shall include a clear explanation as to why the competent
authority considers that in such cases outsourcing would not impair the ability of investment firms
to fulfil their obligations under Article 14.
4. Nothing in this article limits the obligations on investment firms to comply with the requirements
in Article 14.
5. Competent authorities shall publish a list of the supervisory authorities in third countries with
which they have cooperation agreements that are appropriate for the purposes of point (b) of
paragraph 1.
Article 7
(second subparagraph of Article 13(5) of Directive 2004/39/EC)
Risk management
1. Member States shall require investment firms to take the following actions:
(a) to establish, implement and maintain adequate risk management policies and procedures
which identify the risks relating to the firm's activities, processes and systems, and where
appropriate, set the level of risk tolerated by the firm;
(b) to adopt effective arrangements, processes and mechanisms to manage the risks relating to
the firm's activities, processes and systems, in light of that level of risk tolerance;
(c) to monitor the following:
32
(i) the adequacy and effectiveness of the investment firm's risk management policies and
procedures;
(ii) the level of compliance by the investment firm and its relevant persons with the
arrangements, processes and mechanisms adopted in accordance with point (b);
(iii) the adequacy and effectiveness of measures taken to address any deficiencies in those
policies, procedures, arrangements, processes and mechanisms, including failures by the
relevant persons to comply with such arrangements, processes and mechanisms or follow
such policies and procedures.
2. Member States shall require investment firms, where appropriate and proportionate in view of
the nature, scale and complexity of their business and the nature and range of the investment
services and activities undertaken in the course of that business, to establish and maintain a risk
management function that operates independently and carries out the following tasks:
(a) implementation of the policy and procedures referred to in paragraph 1;
(b) provision of reports and advice to senior management in accordance with Article 9(2).
Where an investment firm is not required under the first subparagraph to establish and maintain a
risk management function that functions independently, it must nevertheless be able to
demonstrate that the policies and procedures which it is has adopted in accordance with
paragraph 1 satisfy the requirements of that paragraph and are consistently effective.
Article 8
(second subparagraph of Article 13(5) of Directive 2004/39/EC)
Internal audit
Member States shall require investment firms, where appropriate and proportionate in view of the
nature, scale and complexity of their business and the nature and range of investment services
and activities undertaken in the course of that business, to establish and maintain an internal audit
function which is separate and independent from the other functions and activities of the
investment firm and which has the following responsibilities:
(a) to establish, implement and maintain an audit plan to examine and evaluate the adequacy and
effectiveness of the investment firm's systems, internal control mechanisms and arrangements;
(b) to issue recommendations based on the result of work carried out in accordance with point (a);
(c) to verify compliance with those recommendations;
(d) to report in relation to internal audit matters in accordance with Article 9(2).
6.
An investment firm shall arrange for records to be kept of all services and transactions
undertaken by it which shall be sufficient to enable the competent authority to monitor
compliance with the requirements under this Directive, and in particular to ascertain that
the investment firm has complied with all obligations with respect to clients or potential
clients.
Record-keeping
Article 51
(Article 13(6) of Directive 2004/39(EC)
33
Retention of records
1. Member States shall require investment firms to retain all the records required under Directive
2004/39/EC and its implementing measures for a period of at least five years.
Additionally, records which set out the respective rights and obligations of the investment firm and
the client under an agreement to provide services, or the terms on which the firm provides services
to the client, shall be retained for at least the duration of the relationship with the client.
However, competent authorities may, in exceptional circumstances, require investment firms to
retain any or all of those records for such longer period as is justified by the nature of the
instrument or transaction, if that is necessary to enable the authority to exercise its supervisory
functions under Directive 2004/39/EC.
Following the termination of the authorisation of an investment firm, Member States or competent
authorities may require the firm to retain records for the outstanding term of the five year period
required under the first subparagraph.
2. The records shall be retained in a medium that allows the storage of information in a way
accessible for future reference by the competent authority, and in such a form and manner that the
following conditions are met:
(a) the competent authority must be able to access them readily and to reconstitute each key
stage of the processing of each transaction;
(b) it must be possible for any corrections or other amendments, and the contents of the records
prior to such corrections or amendments, to be easily ascertained;
(c) it must not be possible for the records otherwise to be manipulated or altered.
3. The competent authority of each Member State shall draw up and maintain a list of the minimum
records investment firms are required to keep under Directive 2004/39/EC and its implementing
measures.
4. Record-keeping obligations under Directive 2004/39/EC and in this Directive are without
prejudice to the right of Member States to impose obligations on investment firms relating to the
recording of telephone conversations or electronic communications involving client orders.
5. Before 31 December 2009 the Commission shall, in the light of discussions with the Committee
of European Securities Regulators, report to the European Parliament and the Council on the
continued appropriateness of the provisions of paragraph 4.
Article 23
(Article 13(6) of Directive 2004/39/EC)
Record of services or activities giving rise to detrimental conflict of interest
Member States shall require investment firms to keep and regularly to update a record of the kinds
of investment or ancillary service or investment activity carried out by or on behalf of the firm in
which a conflict of interest entailing a material risk of damage to the interests of one or more clients
has arisen or, in the case of an ongoing service or activity, may arise.
Regulation 7
(Article 13(6) of Directive 2004/39/EC)
34
Record-keeping of client orders and decisions to deal
An investment firm shall, in relation to every order received from a client, and in relation to every
decision to deal taken in providing the service of portfolio management, immediately make a
record of the following details, to the extent they are applicable to the order or decision to deal in
question:
(a) the name or other designation of the client;
(b) the name or other designation of any relevant person acting on behalf of the client;
(c) the details specified in points 4, 6 and 16 to 19, of Table 1 of Annex I;
(d) the nature of the order if other than buy or sell;
(e) the type of the order;
(f) any other details, conditions and particular instructions from the client that specify how the order
must be carried out;
(g) the date and exact time of the receipt of the order, or of the decision to deal, by the investment
firm.
Regulation 8
(Article 13(6) of Directive 2004/39/EC)
Record-keeping of transactions
1. Immediately after executing a client order, or, in the case of investment firms that transmit
orders to another person for execution, immediately after receiving confirmation that an order has
been executed, investment firms shall record the following details of the transaction in question:
(a) the name or other designation of the client;
(b) the details specified in points 2, 3, 4, 6 and 16 to 21, of Table 1 of Annex I;
(c) the total price, being the product of the unit price and the quantity;
(d) the nature of the transaction if other than buy or sell;
(e) the natural person who executed the transaction or who is responsible for the execution.
2. If an investment firm transmits an order to another person for execution, the investment firm
shall immediately record the following details after making the transmission:
(a) the name or other designation of the client whose order has been transmitted;
(b) the name or other designation of the person to whom the order was transmitted;
(c) the terms of the order transmitted;
(d) the date and exact time of transmission.
7.
An investment firm shall, when holding financial instruments belonging to clients, make
adequate arrangements so as to safeguard clients' ownership rights, especially in the
event of the investment firm's insolvency, and to prevent the use of a client's instruments
35
on own account except with the client's express consent.
8.
An investment firm shall, when holding funds belonging to clients, make adequate
arrangements to safeguard the clients' rights and, except in the case of credit institutions,
prevent the use of client funds for its own account.
Safeguarding of client assets
Article 16
(Article 13(7) and (8) of Directive 2004/39/EC)
Safeguarding of client financial instruments and funds
1. Member States shall require that, for the purposes of safeguarding clients' rights in relation to
financial instruments and funds belonging to them, investment firms comply with the following
requirements:
(a) they must keep such records and accounts as are necessary to enable them at any time and
without delay to distinguish assets held for one client from assets held for any other client, and
from their own assets;
(b) they must maintain their records and accounts in a way that ensures their accuracy, and in
particular their correspondence to the financial instruments and funds held for clients;
(c) they must conduct, on a regular basis, reconciliations between their internal accounts and
records and those of any third parties by whom those assets are held;
(d) they must take the necessary steps to ensure that any client financial instruments deposited
with a third party, in accordance with Article 17, are identifiable separately from the financial
instruments belonging to the investment firm and from financial instruments belonging to that third
party, by means of differently titled accounts on the books of the third party or other equivalent
measures that achieve the same level of protection;
(e) they must take the necessary steps to ensure that client funds deposited, in accordance with
Article 18, in a central bank, a credit institution or a bank authorised in a third country or a
qualifying money market fund are held in an account or accounts identified separately from any
accounts used to hold funds belonging to the investment firm;
(f) they must introduce adequate organisational arrangements to minimise the risk of the loss or
diminution of client assets, or of rights in connection with those assets, as a result of misuse of the
assets, fraud, poor administration, inadequate record-keeping or negligence.
2. If, for reasons of the applicable law, including in particular the law relating to property or
insolvency, the arrangements made by investment firms in compliance with paragraph 1 to
safeguard clients' rights are not sufficient to satisfy the requirements of Article 13(7) and (8) of
Directive 2004/39/EC, Member States shall prescribe the measures that investment firms must
take in order to comply with those obligations.
3. If the applicable law of the jurisdiction in which the client funds or financial instruments are held
prevents investment firms from complying with points (d) or (e) of paragraph 1, Member States
shall prescribe requirements which have an equivalent effect in terms of safeguarding clients'
rights.
Article 17
(Article 13(7) of Directive 2004/39/EC)
Depositing client financial instruments
36
1. Member States shall permit investment firms to deposit financial instruments held by them on
behalf of their clients into an account or accounts opened with a third party provided that the firms
exercise all due skill, care and diligence in the selection, appointment and periodic review of the
third party and of the arrangements for the holding and safekeeping of those financial instruments.
In particular, Member States shall require investment firms to take into account the expertise and
market reputation of the third party as well as any legal requirements or market practices related to
the holding of those financial instruments that could adversely affect clients' rights.
2. Member States shall ensure that, if the safekeeping of financial instruments for the account of
another person is subject to specific regulation and supervision in a jurisdiction where an
investment firm proposes to deposit client financial instruments with a third party, the investment
firm does not deposit those financial instruments in that jurisdiction with a third party which is not
subject to such regulation and supervision.
3. Member States shall ensure that investment firms do not deposit financial instruments held on
behalf of clients with a third party in a third country that does not regulate the holding and
safekeeping of financial instruments for the account of another person unless one of the following
conditions is met:
(a) the nature of the financial instruments or of the investment services connected with those
instruments requires them to be deposited with a third party in that third country;
(b) where the financial instruments are held on behalf of a professional client, that client requests
the firm in writing to deposit them with a third party in that third country.
Article 18
(Article 13(8) of Directive 2004/39/EC)
Depositing client funds
1. Member States shall require investment firms, on receiving any client funds, promptly to place
those funds into one or more accounts opened with any of the following:
(a) a central bank;
(b) a credit institution authorised in accordance with Directive 2000/12/EC;
(c) a bank authorised in a third country;
(d) a qualifying money market fund.
The first subparagraph shall not apply to a credit institution authorised under Directive 2006/48/EC
of the European Parliament and of the Council of 14 June 2006 relating to the taking up and
pursuit of the business of credit institutions (recast) (10) 0 in relation to deposits within the
meaning of that Directive held by that institution.
2. For the purposes of point (d) of paragraph 1, and of Article 16(1)(e), a 'qualifying money market
fund' means a collective investment undertaking authorised under Directive 85/611/EEC, or which
is subject to supervision and, if applicable, authorised by an authority under the national law of a
Member State, and which satisfies the following conditions:
(a) its primary investment objective must be to maintain the net asset value of the undertaking
either constant at par (net of earnings), or at the value of the investors' initial capital plus earnings;
(b) it must, with a view to achieving that primary investment objective, invest exclusively in high
quality money market instruments with a maturity or residual maturity of no more than 397 days, or
37
regular yield adjustments consistent with such a maturity, and with a weighted average maturity of
60 days. It may also achieve this objective by investing on an ancillary basis in deposits with credit
institutions;
(c) it must provide liquidity through same day or next day settlement.
For the purposes of point (b), a money market instrument shall be considered to be of high quality
if it has been awarded the highest available credit rating by each competent rating agency which
has rated that instrument. An instrument that is not rated by any competent rating agency shall not
be considered to be of high quality.
For the purposes of the second subparagraph, a rating agency shall be considered to be
competent if it issues credit ratings in respect of money market funds regularly and on a
professional basis and is an eligible ECAI within the meaning of Article 81(1) of Directive
2006/48/EC.
3. Member States shall require that, where investment firms do not deposit client funds with a
central bank, they exercise all due skill, care and diligence in the selection, appointment and
periodic review of the credit institution, bank or money market fund where the funds are placed
and the arrangements for the holding of those funds.
Member States shall ensure, in particular, that investment firms take into account the expertise
and market reputation of such institutions or money market funds with a view to ensuring the
protection of clients' rights, as well as any legal or regulatory requirements or market practices
related to the holding of client funds that could adversely affect clients' rights.
Member States shall ensure that clients have the right to oppose the placement of their funds in a
qualifying money market fund.
Article 19
(Article 13(7) of Directive 2004/39/EC)
Use of client financial instruments
1. Member States shall not allow investment firms to enter into arrangements for securities
financing transactions in respect of financial instruments held by them on behalf of a client, or
otherwise use such financial instruments for their own account or the account of another client of
the firm, unless the following conditions are met:
(a) the client must have given his prior express consent to the use of the instruments on specified
terms, as evidenced, in the case of a retail client, by his signature or equivalent alternative
mechanism;
(b) the use of that client's financial instruments must be restricted to the specified terms to which
the client consents.
2. Member States may not allow investment firms to enter into arrangements for securities
financing transactions in respect of financial instruments which are held on behalf of a client in an
omnibus account maintained by a third party, or otherwise use financial instruments held in such
an account for their own account or for the account of another client unless, in addition to the
conditions set out in paragraph 1, at least one of the following conditions is met:
(a) each client whose financial instruments are held together in an omnibus account must have
given prior express consent in accordance with point (a) of paragraph 1;
(b) the investment firm must have in place systems and controls which ensure that only financial
instruments belonging to clients who have given prior express consent in accordance with point (a)
of paragraph 1 are so used.
38
The records of the investment firm shall include details of the client on whose instructions the use
of the financial instruments has been effected, as well as the number of financial instruments used
belonging to each client who has given his consent, so as to enable the correct allocation of any
loss.
Article 20
(Article 13(7) and (8) of Directive 2004/39/EC)
Reports by external auditors
Member States shall require investment firms to ensure that their external auditors report at least
annually to the competent authority of the home Member State of the firm on the adequacy of the
firm's arrangements under Articles 13(7) and (8) of Directive 2004/39/EC and this Section.
9.
In the case of branches of investment firms, the competent authority of the Member State
in which the branch is located shall, without prejudice to the possibility of the competent
authority of the home Member State of the investment firm to have direct access to those
records, enforce the obligation laid down in paragraph 6 with regard to transactions
undertaken by the branch.
10.
In order to take account of technical developments on financial markets and to ensure the
uniform application of paragraphs 2 to 9, the Commission shall adopt, in accordance with
the procedure referred to in Article 64(2), implementing measures which specify the
concrete organisational requirements to be imposed on investment firms performing
different investment services and/or activities and ancillary services or combinations
thereof.
Article 14 : Trading process and finalisation of transaction in an MTF
1.
Member States shall require that investment firms or market operators operating an MTF,
in addition to meeting the requirements laid down in Article 13, establish transparent and
non-discretionary rules and procedures for fair and orderly trading and establish objective
criteria for the efficient execution of orders.
2.
Member States shall require that investment firms or market operators operating an MTF
establish transparent rules regarding the criteria for determining the financial instruments
that can be traded under its systems.
Member States shall require that, where applicable, investment firms or market operators
operating an MTF provide, or are satisfied that there is access to, sufficient publicly
available information to enable its users to form an investment judgement, taking into
account both the nature of the users and the types of instruments traded.
3.
Member States shall ensure that Articles 19, 21 and 22 are not applicable to the
transactions concluded under the rules governing an MTF between its members or
participants or between the MTF and its members or participants in relation to the use of
the MTF. However, the members of or participants in the MTF shall comply with the
obligations provided for in Articles 19, 21 and 22 with respect to their clients when, acting
on behalf of their clients, they execute their orders through the systems of an MTF.
4.
Member States shall require that investment firms or market operators operating an MTF
establish and maintain transparent rules, based on objective criteria, governing access to
its facility. These rules shall comply with the conditions established in Article 42(3).
5.
Member States shall require that investment firms or market operators operating an MTF
clearly inform its users of their respective responsibilities for the settlement of the
transactions executed in that facility. Member States shall require that investment firms or
39
market operators operating an MTF have put in place the necessary arrangements to
facilitate the efficient settlement of the transactions concluded under the systems of the
MTF.
6.
Where a transferable security, which has been admitted to trading on a regulated market,
is also traded on an MTF without the consent of the issuer, the issuer shall not be subject
to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that
MTF.
7.
Member States shall require that any investment firm or market operator operating an MTF
comply immediately with any instruction from its competent authority pursuant to Article
50(1) to suspend or remove a financial instrument from trading.
Article 15 : Relations with third countries
1.
Member States shall inform the Commission of any general difficulties which their
investment firms encounter in establishing themselves or providing investment services
and/or performing investment activities in any third country.
2.
Whenever it appears to the Commission, on the basis of information submitted to it under
paragraph 1, that a third country does not grant Community investment firms effective
market access comparable to that granted by the Community to investment firms from that
third country, the Commission may submit proposals to the Council for an appropriate
mandate for negotiation with a view to obtaining comparable competitive opportunities for
Community investment firms. The Council shall act by a qualified majority.
3.
Whenever it appears to the Commission, on the basis of information submitted to it under
paragraph 1, that Community investment firms in a third country are not granted national
treatment affording the same competitive opportunities as are available to domestic
investment firms and that the conditions of effective market access are not fulfilled, the
Commission may initiate negotiations in order to remedy the situation.
In the circumstances referred to in the first subparagraph, the Commission may decide, in
accordance with the procedure referred to in Article 64(2), at any time and in addition to
the initiation of negotiations, that the competent authorities of the Member States must
limit or suspend their decisions regarding requests pending or future requests for
authorisation and the acquisition of holdings by direct or indirect parent undertakings
governed by the law of the third country in question. Such limitations or suspensions may
not be applied to the setting-up of subsidiaries by investment firms duly authorised in the
Community or by their subsidiaries, or to the acquisition of holdings in Community
investment firms by such firms or subsidiaries. The duration of such measures may not
exceed three months.
Before the end of the three-month period referred to in the second subparagraph and in
the light of the results of the negotiations, the Commission may decide, in accordance with
the procedure referred to in Article 64(2), to extend these measures.
4.
Whenever it appears to the Commission that one of the situations referred to in
paragraphs 2 and 3 obtains, the Member States shall inform it at its request:
(a)
of any application for the authorisation of any firm which is the direct or indirect
subsidiary of a parent undertaking governed by the law of the third country in
question;
(b)
whenever they are informed in accordance with Article 10(3) that such a parent
undertaking proposes to acquire a holding in a Community investment firm, in
consequence of which the latter would become its subsidiary.
40
That obligation to provide information shall lapse whenever agreement is reached with the
third country concerned or when the measures referred to in the second and third
subparagraphs of paragraph 3 cease to apply.
5.
Measures taken under this Article shall comply with the Community's obligations under
any international agreements, bilateral or multilateral, governing the taking-up or pursuit of
the business of investment firms.
Chapter II : OPERATING CONDITIONS FOR INVESTMENT FIRMS
Section 1 : General provisions
Article 16 : Regular review of conditions for initial authorisation
1.
Member States shall require that an investment firm authorised in their territory comply at
all times with the conditions for initial authorisation established in Chapter I of this Title.
2.
Member States shall require competent authorities to establish the appropriate methods to
monitor that investment firms comply with their obligation under paragraph 1. They shall
require investment firms to notify the competent authorities of any material changes to the
conditions for initial authorisation.
3.
In the case of investment firms which provide only investment advice, Member States may
allow the competent authority to delegate administrative, preparatory or ancillary tasks
related to the review of the conditions for initial authorisation, in accordance with the
conditions laid down in Article 48(2).
Article 17 - General obligation in respect of on-going supervision
1.
Member States shall ensure that the competent authorities monitor the activities of
investment firms so as to assess compliance with the operating conditions provided for in
this Directive. Member States shall ensure that the appropriate measures are in place to
enable the competent authorities to obtain the information needed to assess the
compliance of investment firms with those obligations.
2.
In the case of investment firms which provide only investment advice, Member States may
allow the competent authority to delegate administrative, preparatory or ancillary tasks
related to the regular monitoring of operational requirements, in accordance with the
conditions laid down in Article 48(2).
Article 18 : Conflicts of interest
1.
Member States shall require investment firms to take all reasonable steps to identify
conflicts of interest between themselves, including their managers, employees and tied
agents, or any person directly or indirectly linked to them by control and their clients or
between one client and another that arise in the course of providing any investment and
ancillary services, or combinations thereof.
2.
Where organisational or administrative arrangements made by the investment firm in
accordance with Article 13(3) to manage conflicts of interest are not sufficient to ensure,
with reasonable confidence, that risks of damage to client interests will be prevented, the
investment firm shall clearly disclose the general nature and/or sources of conflicts of
interest to the client before undertaking business on its behalf.
41
3.
In order to take account of technical developments on financial markets and to ensure
uniform application of paragraphs 1 and 2, the Commission shall adopt, in accordance
with the procedure referred to in Article 64(2), implementing measures to:
(a)
define the steps that investment firms might reasonably be expected to take to
identify, prevent, manage and/or disclose conflicts of interest when providing
various investment and ancillary services and combinations thereof;
(b)
establish appropriate criteria for determining the types of conflict of interest whose
existence may damage the interests of the clients or potential clients of the
investment firm.
Conflicts of interest
Article 21
(Articles 13(3) and 18 of Directive 2004/39/EC)
Conflicts of interest potentially detrimental to a client
Member States shall ensure that, for the purposes of identifying the types of conflict of interest that
arise in the course of providing investment and ancillary services or a combination thereof and
whose existence may damage the interests of a client, investment firms take into account, by way
of minimum criteria, the question of whether the investment firm or a relevant person, or a person
directly or indirectly linked by control to the firm, is in any of the following situations, whether as a
result of providing investment or ancillary services or investment activities or otherwise:
(a) the firm or that person is likely to make a financial gain, or avoid a financial loss, at the
expense of the client;
(b) the firm or that person has an interest in the outcome of a service provided to the client or of a
transaction carried out on behalf of the client, which is distinct from the client's interest in that
outcome;
(c) the firm or that person has a financial or other incentive to favour the interest of another client
or group of clients over the interests of the client;
(d) the firm or that person carries on the same business as the client;
(e) the firm or that person receives or will receive from a person other than the client an
inducement in relation to a service provided to the client, in the form of monies, goods or
services, other than the standard commission or fee for that service.
Article 22
(Articles 13(3) and 18(1) of Directive 2004/39/EC)
Conflicts of interest policy
1. Member States shall require investment firms to establish, implement and maintain an effective
conflicts of interest policy set out in writing and appropriate to the size and organisation of the firm
and the nature, scale and complexity of its business.
Where the firm is a member of a group, the policy must also take into account any circumstances,
of which the firm is or should be aware, which may give rise to a conflict of interest arising as a
result of the structure and business activities of other members of the group.
2. The conflicts of interest policy established in accordance with paragraph 1 shall include the
42
following content:
(a) it must identify, with reference to the specific investment services and activities and ancillary
services carried out by or on behalf of the investment firm, the circumstances which constitute
or may give rise to a conflict of interest entailing a material risk of damage to the interests of
one or more clients;
(b) it must specify procedures to be followed and measures to be adopted in order to manage
such conflicts.
3. Member States shall ensure that the procedures and measures provided for in paragraph 2(b)
are designed to ensure that relevant persons engaged in different business activities involving a
conflict of interest of the kind specified in paragraph 2(a) carry on those activities at a level of
independence appropriate to the size and activities of the investment firm and of the group to
which it belongs, and to the materiality of the risk of damage to the interests of clients.
For the purposes of paragraph 2(b), the procedures to be followed and measures to be adopted
shall include such of the following as are necessary and appropriate for the firm to ensure the
requisite degree of independence:
(a) effective procedures to prevent or control the exchange of information between relevant
persons engaged in activities involving a risk of a conflict of interest where the exchange of
that information may harm the interests of one or more clients;
(b) the separate supervision of relevant persons whose principal functions involve carrying out
activities on behalf of, or providing services to, clients whose interests may conflict, or who
otherwise represent different interests that may conflict, including those of the firm;
(c) the removal of any direct link between the remuneration of relevant persons principally
engaged in one activity and the remuneration of, or revenues generated by, different relevant
persons principally engaged in another activity, where a conflict of interest may arise in relation
to those activities;
(d) measures to prevent or limit any person from exercising inappropriate influence over the way
in which a relevant person carries out investment or ancillary services or activities;
(e) measures to prevent or control the simultaneous or sequential involvement of a relevant
person in separate investment or ancillary services or activities where such involvement may
impair the proper management of conflicts of interest.
If the adoption or the practice of one or more of those measures and procedures does not ensure
the requisite degree of independence, Member States shall require investment firms to adopt such
alternative or additional measures and procedures as are necessary and appropriate for those
purposes.
4. Member States shall ensure that disclosure to clients, pursuant to Article 18(2) of Directive
2004/39/EC, is made in a durable medium and includes sufficient detail, taking into account the
nature of the client, to enable that client to take an informed decision with respect to the
investment or ancillary service in the context of which the conflict of interest arises.
Section 2 : Provisions to ensure investor protection
Article 19 : Conduct of business obligations when providing investment services to clients
1.
Member States shall require that, when providing investment services and/or, where
appropriate, ancillary services to clients, an investment firm act honestly, fairly and
professionally in accordance with the best interests of its clients and comply, in particular,
43
with the principles set out in paragraphs 2 to 8.
Inducements
Article 26
(Article 19(1) of Directive 2004/39/EC)
Inducements
Member States shall ensure that investment firms are not regarded as acting honestly, fairly and
professionally in accordance with the best interests of a client if, in relation to the provision of an
investment or ancillary service to the client, they pay or are paid any fee or commission, or provide
or are provided with any non-monetary benefit, other than the following:
(a) a fee, commission or non-monetary benefit paid or provided to or by the client or a person on
behalf of the client;
(b) a fee, commission or non-monetary benefit paid or provided to or by a third party or a person
acting on behalf of a third party, where the following conditions are satisfied:
(i)
the existence, nature and amount of the fee, commission or benefit, or, where the
amount cannot be ascertained, the method of calculating that amount, must be clearly
disclosed to the client, in a manner that is comprehensive, accurate and
understandable, prior to the provision of the relevant investment or ancillary service;
(ii)
the payment of the fee or commission, or the provision of the non-monetary benefit must
be designed to enhance the quality of the relevant service to the client and not impair
compliance with the firm's duty to act in the best interests of the client;
(c) proper fees which enable or are necessary for the provision of investment services, such as
custody costs, settlement and exchange fees, regulatory levies or legal fees, and which, by their
nature, cannot give rise to conflicts with the firm's duties to act honestly, fairly and professionally in
accordance with the best interests of its clients.
Member States shall permit an investment firm, for the purposes of point (b)(i), to disclose the
essential terms of the arrangements relating to the fee, commission or non-monetary benefit in
summary form, provided that it undertakes to disclose further details at the request of the client
and provided that it honours that undertaking.
2.
All information, including marketing communications, addressed by the investment firm to
clients or potential clients shall be fair, clear and not misleading. Marketing
communications shall be clearly identifiable as such.
Article 24
(Article 19(2) of Directive 2004/39/EC)
Investment research
1. For the purposes of Article 25, 'investment research' means research or other information
recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or
several financial instruments or the issuers of financial instruments, including any opinion as to the
present or future value or price of such instruments, intended for distribution channels or for the
public, and in relation to which the following conditions are met:
(a) it is labelled or described as investment research or in similar terms, or is otherwise presented
as an objective or independent explanation of the matters contained in the recommendation;
(b) if the recommendation in question were made by an investment firm to a client, it would not
44
constitute the provision of investment advice for the purposes of Directive 2004/39/EC.
2. A recommendation of the type covered by Article 1(3) of Directive 2003/125/EC but relating to
financial instruments as defined in Directive 2004/39/EC that does not meet the conditions set out
in paragraph 1 shall be treated as a marketing communication for the purposes of Directive
2004/39/EC and Member States shall require any investment firm that produces or disseminates
the recommendation to ensure that it is clearly identified as such.
Additionally, Member States shall require those firms to ensure that any such recommendation
contains a clear and prominent statement that (or, in the case of an oral recommendation, to the
effect that) it has not been prepared in accordance with legal requirements designed to promote
the independence of investment research, and that it is not subject to any prohibition on dealing
ahead of the dissemination of investment research.
Information to clients and potential clients
Article 27
(Article 19(2) of Directive 2004/39/EC)
Conditions with which information must comply in order to be fair, clear and not misleading
1. Member States shall require investment firms to ensure that all information they address to, or
disseminate in such a way that it is likely to be received by, retail clients or potential retail clients,
including marketing communications, satisfies the conditions laid down in paragraphs 2 to 8.
2. The information referred to in paragraph 1 shall include the name of the investment firm.
It shall be accurate and in particular shall not emphasise any potential benefits of an investment
service or financial instrument without also giving a fair and prominent indication of any relevant
risks.
It shall be sufficient for, and presented in a way that is likely to be understood by, the average
member of the group to whom it is directed, or by whom it is likely to be received.
It shall not disguise, diminish or obscure important items, statements or warnings.
3. Where the information compares investment or ancillary services, financial instruments, or
persons providing investment or ancillary services, the following conditions shall be satisfied:
(a) the comparison must be meaningful and presented in a fair and balanced way;
(b) the sources of the information used for the comparison must be specified;
(c) the key facts and assumptions used to make the comparison must be included.
4. Where the information contains an indication of past performance of a financial instrument, a
financial index or an investment service, the following conditions shall be satisfied:
(a) that indication must not be the most prominent feature of the communication;
(b) the information must include appropriate performance information which covers the
immediately preceding 5 years, or the whole period for which the financial instrument has been
offered, the financial index has been established, or the investment service has been provided
if less than five years, or such longer period as the firm may decide, and in every case that
performance information must be based on complete 12-month periods;
(c) the reference period and the source of information must be clearly stated;
45
(d) the information must contain a prominent warning that the figures refer to the past and that
past performance is not a reliable indicator of future results;
(e) where the indication relies on figures denominated in a currency other than that of the Member
State in which the retail client or potential retail client is resident, the currency must be clearly
stated, together with a warning that the return may increase or decrease as a result of
currency fluctuations;
(f) where the indication is based on gross performance, the effect of commissions, fees or other
charges must be disclosed.
5. Where the information includes or refers to simulated past performance, it must relate to a
financial instrument or a financial index, and the following conditions shall be satisfied:
(a) the simulated past performance must be based on the actual past performance of one or more
financial instruments or financial indices which are the same as, or underlie, the financial
instrument concerned;
(b) in respect of the actual past performance referred to in point (a), the conditions set out in
points (a) to (c), (e) and (f) of paragraph 4 must be complied with;
(c) the information must contain a prominent warning that the figures refer to simulated past
performance and that past performance is not a reliable indicator of future performance.
6. Where the information contains information on future performance, the following conditions shall
be satisfied:
(a) the information must not be based on or refer to simulated past performance;
(b) it must be based on reasonable assumptions supported by objective data;
(c) where the information is based on gross performance, the effect of commissions, fees or other
charges must be disclosed;
(d) it must contain a prominent warning that such forecasts are not a reliable indicator of future
performance.
7. Where the information refers to a particular tax treatment, it shall prominently state that the tax
treatment depends on the individual circumstances of each client and may be subject to change in
the future.
8. The information shall not use the name of any competent authority in such a way that would
indicate or suggest endorsement or approval by that authority of the products or services of the
investment firm.
3.
Appropriate information shall be provided in a comprehensible form to clients or potential
clients about:
-
the investment firm and its services,
Article 30
(first indent of Article 19(3) of Directive 2004/39/EC)
Information about the investment firm and its services for retail clients and potential retail
clients
1. Member States shall require investment firms to provide retail clients or potential retail clients
with the following general information, where relevant:
46
(a) the name and address of the investment firm, and the contact details necessary to enable
clients to communicate effectively with the firm;
(b) the languages in which the client may communicate with the investment firm, and receive
documents and other information from the firm;
(c) the methods of communication to be used between the investment firm and the client
including, where relevant, those for the sending and reception of orders;
(d) a statement of the fact that the investment firm is authorised and the name and contact
address of the competent authority that has authorised it;
(e) where the investment firm is acting through a tied agent, a statement of this fact specifying the
Member State in which that agent is registered;
(f) the nature, frequency and timing of the reports on the performance of the service to be
provided by the investment firm to the client in accordance with Article 19(8) of Directive
2004/39/EC;
(g) if the investment firm holds client financial instruments or client funds, a summary description
of the steps which it takes to ensure their protection, including summary details of any relevant
investor compensation or deposit guarantee scheme which applies to the firm by virtue of its
activities in a Member State;
(h) a description, which may be provided in summary form, of the conflicts of interest policy
maintained by the firm in accordance with Article 22;
(i) at any time that the client requests it, further details of that conflicts of interest policy in a
durable medium or by means of a website (where that does not constitute a durable medium)
provided that the conditions specified in Article 3(2) are satisfied.
2. Member States shall ensure that, when providing the service of portfolio management,
investment firms establish an appropriate method of evaluation and comparison such as a
meaningful benchmark, based on the investment objectives of the client and the types of financial
instruments included in the client portfolio, so as to enable the client for whom the service is
provided to assess the firm's performance.
3. Member States shall require that where investment firms propose to provide portfolio
management services to a retail client or potential retail client, they provide the client, in addition to
the information required under paragraph 1, with such of the following information as is applicable:
(a) information on the method and frequency of valuation of the financial instruments in the client
portfolio;
(b) details of any delegation of the discretionary management of all or part of the financial
instruments or funds in the client portfolio;
(c) a specification of any benchmark against which the performance of the client portfolio will be
compared;
(d) the types of financial instrument that may be included in the client portfolio and types of
transaction that may be carried out in such instruments, including any limits;
(e) the management objectives, the level of risk to be reflected in the manager's exercise of
discretion, and any specific constraints on that discretion.
Article 32
(first indent of Article 19(3) of Directive 2004/39/EC)
47
Information requirements concerning safeguarding of client financial instruments or client
funds
1. Member States shall ensure that, where investment firms hold financial instruments or funds
belonging to retail clients, they provide those retail clients or potential retail clients with such of the
information specified in paragraphs 2 to 7 as is relevant.
2. The investment firm shall inform the retail client or potential retail client where the financial
instruments or funds of that client may be held by a third party on behalf of the investment firm and
of the responsibility of the investment firm under the applicable national law for any acts or
omissions of the third party and the consequences for the client of the insolvency of the third party.
3. Where financial instruments of the retail client or potential retail client may, if permitted by
national law, be held in an omnibus account by a third party, the investment firm shall inform the
client of this fact and shall provide a prominent warning of the resulting risks.
4. The investment firm shall inform the retail client or potential retail client where it is not possible
under national law for client financial instruments held with a third party to be separately
identifiable from the proprietary financial instruments of that third party or of the investment firm
and shall provide a prominent warning of the resulting risks.
5. The investment firm shall inform the client or potential client where accounts that contain
financial instruments or funds belonging to that client or potential client are or will be subject to the
law of a jurisdiction other than that of a Member State and shall indicate that the rights of the client
or potential client relating to those financial instruments or funds may differ accordingly.
6. An investment firm shall inform the client about the existence and the terms of any security
interest or lien which the firm has or may have over the client's financial instruments or funds, or
any right of set-off it holds in relation to those instruments or funds. Where applicable, it shall also
inform the client of the fact that a depository may have a security interest or lien over, or right of
set-off in relation to those instruments or funds.
7. An investment firm, before entering into securities financing transactions in relation to financial
instruments held by it on behalf of a retail client, or before otherwise using such financial
instruments for its own account or the account of another client, shall in good time before the use
of those instruments provide the retail client, in a durable medium, with clear, full and accurate
information on the obligations and responsibilities of the investment firm with respect to the use of
those financial instruments, including the terms for their restitution, and on the risks involved.
- financial instruments and proposed investment strategies; this should include appropriate
guidance on and warnings of the risks associated with investments in those instruments or
in respect of particular investment strategies,
Article 31
(second indent of Article 19(3) of Directive 2004/39/EC)
Information about financial instruments
1. Member States shall require investment firms to provide clients or potential clients with a
general description of the nature and risks of financial instruments, taking into account, in
particular, the client's categorisation as either a retail client or a professional client. That
description must explain the nature of the specific type of instrument concerned, as well as the
risks particular to that specific type of instrument in sufficient detail to enable the client to take
investment decisions on an informed basis.
2. The description of risks shall include, where relevant to the specific type of instrument
concerned and the status and level of knowledge of the client, the following elements:
48
(a) the risks associated with that type of financial instrument including an explanation of leverage
and its effects and the risk of losing the entire investment;
(b) the volatility of the price of such instruments and any limitations on the available market for
such instruments;
(c) the fact that an investor might assume, as a result of transactions in such instruments, financial
commitments and other additional obligations, including contingent liabilities, additional to the cost
of acquiring the instruments;
(d) any margin requirements or similar obligations, applicable to instruments of that type.
Member States may specify the precise terms, or the contents, of the description of risks required
under this paragraph.
3. If an investment firm provides a retail client or potential retail client with information about a
financial instrument that is the subject of a current offer to the public and a prospectus has been
published in connection with that offer in accordance with Directive 2003/71/EC, that firm shall
inform the client or potential client where that prospectus is made available to the public.
4. Where the risks associated with a financial instrument composed of two or more different
financial instruments or services are likely to be greater than the risks associated with any of the
components, the investment firm shall provide an adequate description of the components of that
instrument and the way in which its interaction increases the risks.
5. In the case of financial instruments that incorporate a guarantee by a third party, the information
about the guarantee shall include sufficient detail about the guarantor and the guarantee to enable
the retail client or potential retail client to make a fair assessment of the guarantee.
-
execution venues, and
-
costs and associated charges
Article 33
(fourth indent of Article 19(3) of Directive 2004/39/EC)
Information about costs and associated charges
Member States shall require investment firms to provide their retail clients and potential retail
clients with information on costs and associated charges that includes such of the following
elements as are relevant:
(a) the total price to be paid by the client in connection with the financial instrument or the
investment service or ancillary service, including all related fees, commissions, charges and
expenses, and all taxes payable via the investment firm or, if an exact price cannot be indicated,
the basis for the calculation of the total price so that the client can verify it;
(b) where any part of the total price referred to in point (a) is to be paid in or represents an amount
of foreign currency, an indication of the currency involved and the applicable currency conversion
rates and costs;
(c) notice of the possibility that other costs, including taxes, related to transactions in connection
with the financial instrument or the investment service may arise for the client that are not paid via
the investment firm or imposed by it;
(d) the arrangements for payment or other performance.
49
For the purposes of point (a), the commissions charged by the firm shall be itemised separately in
every case.
Article 34
(second and fourth indent of Article 19(3) of Directive 2004/39/EC)
Information drawn up in accordance with Directive 85/611/EEC
1. Member States shall ensure that in respect of units in a collective investment undertaking
covered by Directive 85/611/EEC, a simplified prospectus complying with Article 28 of that
Directive is regarded as appropriate information for the purposes of the second indent of Article
19(3) of Directive 2004/39/EC.
2. Member States shall ensure that in respect of units in a collective investment undertaking
covered by Directive 85/611/EEC, a simplified prospectus complying with Article 28 of that
Directive is regarded as appropriate information for the purposes of the fourth indent of Article
19(3) of Directive 2004/39/EC with respect to the costs and associated charges related to the
UCITS itself, including the exit and entry commissions.
so that they are reasonably able to understand the nature and risks of the investment service and
of the specific type of financial instrument that is being offered and, consequently, to take
investment decisions on an informed basis. This information may be provided in a standardised
format.
Article 28
(Article 19(3) of Directive 2004/39/EC)
Information concerning client categorisation
1. Member States shall ensure that investment firms notify new clients, and existing clients that the
investment firm has newly categorised as required by Directive 2004/39/EC, of their categorisation
as a retail client, a professional client or an eligible counterparty in accordance with that Directive.
2. Member States shall ensure that investment firms inform clients in a durable medium about any
right that client has to request a different categorisation and about any limitations to the level of
client protection that it would entail.
3. Member States shall permit investment firms, either on their own initiative or at the request of
the client concerned:
(a) to treat as a professional or retail client a client that might otherwise be classified as an eligible
counterparty pursuant to Article 24(2) of Directive 2004/39/EC;
(b) to treat as a retail client a client that is considered as a professional client pursuant to Section I
of Annex II to Directive 2004/39/EC.
Article 29
(Article 19(3) of Directive 2004/39/EC)
General requirements for information to clients
1. Member States shall require investment firms, in good time before a retail client or potential
retail client is bound by any agreement for the provision of investment services or ancillary
services or before the provision of those services, whichever is the earlier, to provide that client or
potential client with the following information:
50
(a) the terms of any such agreement;
(b) the information required by Article 30 relating to that agreement or to those investment or
ancillary services.
2. Member States shall require investment firms, in good time before the provision of investment
services or ancillary services to retail clients or potential retail clients, to provide the information
required under Articles 30 to 33.
3. Member States shall require investment firms to provide professional clients with the information
referred to in Article 32 (5) and (6) in good time before the provision of the service concerned.
4. The information referred to in paragraphs 1 to 3 shall be provided in a durable medium or by
means of a website (where that does not constitute a durable medium) provided that the
conditions specified in Article 3(2) are satisfied.
5. By way of exception to paragraphs 1 and 2, Member States shall permit investment firms, in the
following circumstances, to provide the information required under paragraph 1 to a retail client
immediately after that client is bound by any agreement for the provision of investment services or
ancillary services, and the information required under paragraph 2 immediately after starting to
provide the service:
(a) the firm was unable to comply with the time limits specified in paragraphs 1 and 2 because, at
the request of the client, the agreement was concluded using a means of distance communication
which prevents the firm from providing the information in accordance with paragraph 1 or 2;
(b) in any case where Article 3(3) of Directive 2002/65/EC of the European Parliament and of the
Council of 23 September 2002 concerning the distance marketing of consumer financial services
and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC (11) does not
otherwise apply, the investment firm complies with the requirements of that Article in relation to the
retail client or potential retail client, as if that client or potential client were a 'consumer' and the
investment firm were a 'supplier' within the meaning of that Directive.
6. Member State shall ensure that investment firms notify a client in good time about any material
change to the information provided under Articles 30 to 33 which is relevant to a service that the
firm is providing to that client. That notification shall be given in a durable medium if the information
to which it relates is given in a durable medium.
7. Member States shall require investment firms to ensure that information contained in a
marketing communication is consistent with any information the firm provides to clients in the
course of carrying on investment and ancillary services.
8. Member States shall ensure that, where a marketing communication contains an offer or
invitation of the following nature and specifies the manner of response or includes a form by which
any response may be made, it includes such of the information referred to in Articles 30 to 33 as is
relevant to that offer or invitation:
(a) an offer to enter into an agreement in relation to a financial instrument or investment service or
ancillary service with any person who responds to the communication;
(b) an invitation to any person who responds to the communication to make an offer to enter into
an agreement in relation to a financial instrument or investment service or ancillary service.
However, the first subparagraph shall not apply if, in order to respond to an offer or invitation
contained in the marketing communication, the potential retail client must refer to another
document or documents, which, alone or in combination, contain that information.
4.
When providing investment advice or portfolio management the investment firm shall
obtain the necessary information regarding the client's or potential client's knowledge and
51
experience in the investment field relevant to the specific type of product or service, his
financial situation and his investment objectives so as to enable the firm to recommend to
the client or potential client the investment services and financial instruments that are
suitable for him.
Assessment of suitability and appropriateness
Article 35
(Article 19(4) of Directive 2004/39/EC)
Assessment of suitability
1. Member States shall ensure that investment firms obtain from clients or potential clients such
information as is necessary for the firm to understand the essential facts about the client and to
have a reasonable basis for believing, giving due consideration to the nature and extent of the
service provided, that the specific transaction to be recommended, or entered into in the course of
providing a portfolio management service, satisfies the following criteria:
(a) it meets the investment objectives of the client in question;
(b) it is such that the client is able financially to bear any related investment risks consistent with
his investment objectives;
(c) it is such that the client has the necessary experience and knowledge in order to understand
the risks involved in the transaction or in the management of his portfolio.
2. Where an investment firm provides an investment service to a professional client it shall be
entitled to assume that, in relation to the products, transactions and services for which it is so
classified, the client has the necessary level of experience and knowledge for the purposes of
paragraph 1(c).
Where that investment service consists in the provision of investment advice to a professional
client covered by Section 1 of Annex II to Directive 2004/39/EC, the investment firm shall be
entitled to assume for the purposes of paragraph 1(b) that the client is able financially to bear any
related investment risks consistent with the investment objectives of that client.
3. The information regarding the financial situation of the client or potential client shall include,
where relevant, information on the source and extent of his regular income, his assets, including
liquid assets, investments and real property, and his regular financial commitments.
4. The information regarding the investment objectives of the client or potential client shall include,
where relevant, information on the length of time for which the client wishes to hold the investment,
his preferences regarding risk taking, his risk profile, and the purposes of the investment.
5. Where, when providing the investment service of investment advice or portfolio management,
an investment firm does not obtain the information required under Article 19(4) of Directive
2004/39/EC, the firm shall not recommend investment services or financial instruments to the
client or potential client.
5.
Member States shall ensure that investment firms, when providing investment services
other than those referred to in paragraph 4, ask the client or potential client to provide
information regarding his knowledge and experience in the investment field relevant to the
specific type of product or service offered or demanded so as to enable the investment
firm to assess whether the investment service or product envisaged is appropriate for the
client.
In case the investment firm considers, on the basis of the information received under the
previous subparagraph, that the product or service is not appropriate to the client or
potential client, the investment firm shall warn the client or potential client. This warning
52
may be provided in a standardised format.
In cases where the client or potential client elects not to provide the information referred to
under the first subparagraph, or where he provides insufficient information regarding his
knowledge and experience, the investment firm shall warn the client or potential client that
such a decision will not allow the firm to determine whether the service or product
envisaged is appropriate for him. This warning may be provided in a standardised format.
Article 36
(Article 19(5) of Directive 2004/39/EC)
Assessment of appropriateness
Member States shall require investment firms, when assessing whether an investment service as
referred to in Article 19(5) of Directive 2004/39/EC is appropriate for a client, to determine whether
that client has the necessary experience and knowledge in order to understand the risks involved
in relation to the product or investment service offered or demanded.
For those purposes, an investment firm shall be entitled to assume that a professional client has
the necessary experience and knowledge in order to understand the risks involved in relation to
those particular investment services or transactions, or types of transaction or product, for which
the client is classified as a professional client.
Article 37
(Article 19(4) and (5) of Directive 2004/39/EC)
Provisions common to the assessment of suitability or appropriateness
1. Member States shall ensure that the information regarding a client's or potential client's
knowledge and experience in the investment field includes the following, to the extent appropriate
to the nature of the client, the nature and extent of the service to be provided and the type of
product or transaction envisaged, including their complexity and the risks involved:
(a) the types of service, transaction and financial instrument with which the client is familiar;
(b) the nature, volume, and frequency of the client's transactions in financial instruments and the
period over which they have been carried out;
(c) the level of education, and profession or relevant former profession of the client or potential
client.
2. An investment firm shall not encourage a client or potential client not to provide information
required for the purposes of Article 19(4) and (5) of Directive 2004/39/EC.
3. An investment firm shall be entitled to rely on the information provided by its clients or potential
clients unless it is aware or ought to be aware that the information is manifestly out of date,
inaccurate or incomplete.
6.
Member States shall allow investment firms when providing investment services that only
consist of execution and/or the reception and transmission of client orders with or without
ancillary services to provide those investment services to their clients without the need to
obtain the information or make the determination provided for in paragraph 5 where all the
following conditions are met:
-
the above services relate to shares admitted to trading on a regulated market or in an
equivalent third country market, money market instruments, bonds or other forms of
securitised debt (excluding those bonds or securitised debt that embed a derivative),
53
UCITS and other non-complex financial instruments. A third country market shall be
considered as equivalent to a regulated market if it complies with equivalent
requirements to those established under Title III. The Commission shall publish a list of
those markets that are to be considered as equivalent. This list shall be updated
periodically,
Article 38
(first indent of Article 19(6) of Directive 2004/39/EC)
Provision of services in non-complex instruments
A financial instrument which is not specified in the first indent of Article 19(6) of Directive
2004/39/EC shall be considered as non-complex if it satisfies the following criteria:
(a) it does not fall within Article 4(1)(18)(c) of, or points (4) to (10) of Section C of Annex I to,
Directive 2004/39/EC;
(b) there are frequent opportunities to dispose of, redeem, or otherwise realise that instrument at
prices that are publicly available to market participants and that are either market prices or prices
made available, or validated, by valuation systems independent of the issuer;
(c) it does not involve any actual or potential liability for the client that exceeds the cost of
acquiring the instrument;
(d) adequately comprehensive information on its characteristics is publicly available and is likely to
be readily understood so as to enable the average retail client to make an informed judgment as to
whether to enter into a transaction in that instrument.
7.
-
the service is provided at the initiative of the client or potential client,
-
the client or potential client has been clearly informed that in the provision of this
service the investment firm is not required to assess the suitability of the instrument or
service provided or offered and that therefore he does not benefit from the
corresponding protection of the relevant conduct of business rules; this warning may
be provided in a standardised format,
-
the investment firm complies with its obligations under Article 18.
The investment firm shall establish a record that includes the document or documents
agreed between the firm and the client that set out the rights and obligations of the parties,
and the other terms on which the firm will provide services to the client. The rights and
duties of the parties to the contract may be incorporated by reference to other documents
or legal texts.
Article 39
(Article 19(1) and 19(7) of Directive 2004/39/EC)
Retail client agreement
Member States shall require an investment firm that provides an investment service other than
investment advice to a new retail client for the first time after the date of application of this
Directive to enter into a written basic agreement, in paper or another durable medium, with the
client setting out the essential rights and obligations of the firm and the client.
The rights and duties of the parties to the agreement may be incorporated by reference to other
documents or legal texts.
54
8.
The client must receive from the investment firm adequate reports on the service provided
to its clients. These reports shall include, where applicable, the costs associated with the
transactions and services undertaken on behalf of the client.
Reporting to clients
Article 40
(Article 19(8) of Directive 2004/39/EC)
Reporting obligations in respect of execution of orders other than for portfolio management
1. Member States shall ensure that where investment firms have carried out an order, other than
for portfolio management, on behalf of a client, they take the following action in respect of that
order:
(a) the investment firm must promptly provide the client, in a durable medium, with the essential
information concerning the execution of that order;
(b) in the case of a retail client, the investment firm must send the client a notice in a durable
medium confirming execution of the order as soon as possible and no later than the first
business day following execution or, if the confirmation is received by the investment firm from
a third party, no later than the first business day following receipt of the confirmation from the
third party.
Point (b) shall not apply where the confirmation would contain the same information as a
confirmation that is to be promptly dispatched to the retail client by another person.
Points (a) and (b) shall not apply where orders executed on behalf of clients relate to bonds
funding mortgage loan agreements with the said clients, in which case the report on the
transaction shall be made at the same time as the terms of the mortgage loan are communicated,
but no later than one month after the execution of the order.
2. In addition to the requirements under paragraph 1, Member States shall require investment
firms to supply the client, on request, with information about the status of his order.
3. Member States shall ensure that, in the case of orders for a retail clients relating to units or
shares in a collective investment undertaking which are executed periodically, investment firms
either take the action specified in point (b) of paragraph 1 or provide the retail client, at least once
every six months, with the information listed in paragraph 4 in respect of those transactions.
4. The notice referred to in point (b) of paragraph 1 shall include such of the following information
as is applicable and, where relevant, in accordance with Table 1 of Annex I to Regulation (EC) No
1287/2006:
(a) the reporting firm identification;
(b) the name or other designation of the client;
(c)
the trading day;
(d) the trading time;
(e) the type of the order;
(f)
the venue identification;
(g) the instrument identification;
(h) the buy/sell indicator;
55
(i)
the nature of the order if other than buy/sell;
(j)
the quantity;
(k) the unit price;
(l)
the total consideration;
(m) a total sum of the commissions and expenses charged and, where the retail client so
requests, an itemised breakdown;
(n) the client's responsibilities in relation to the settlement of the transaction, including the time
limit for payment or delivery as well as the appropriate account details where these details and
responsibilities have not previously been notified to the client;
(o) if the client's counterparty was the investment firm itself or any person in the investment firm's
group or another client of the investment firm, the fact that this was the case unless the order
was executed through a trading system that facilitates anonymous trading.
For the purposes of point (k), where the order is executed in tranches, the investment firm may
supply the client with information about the price of each tranche or the average price. Where the
average price is provided, the investment firm shall supply the retail client with information about
the price of each tranche upon request.
5. The investment firm may provide the client with the information referred to in paragraph 4 using
standard codes if it also provides an explanation of the codes used.
Article 41
(Article 19(8) of Directive 2004/39/EC)
Reporting obligations in respect of portfolio management
1. Member States shall require investments firms which provide the service of portfolio
management to clients to provide each such client with a periodic statement in a durable medium
of the portfolio management activities carried out on behalf of that client unless such a statement
is provided by another person.
2. In the case of retail clients, the periodic statement required under paragraph 1 shall include,
where relevant, the following information:
(a) the name of the investment firm;
(b) the name or other designation of the retail client's account;
(c) a statement of the contents and the valuation of the portfolio, including details of each financial
instrument held, its market value, or fair value if market value is unavailable and the cash
balance at the beginning and at the end of the reporting period, and the performance of the
portfolio during the reporting period;
(d) the total amount of fees and charges incurred during the reporting period, itemising at least
total management fees and total costs associated with execution, and including, where
relevant, a statement that a more detailed breakdown will be provided on request;
(e) a comparison of performance during the period covered by the statement with the investment
performance benchmark (if any) agreed between the investment firm and the client;
(f) the total amount of dividends, interest and other payments received during the reporting period
56
in relation to the client's portfolio;
(g) information about other corporate actions giving rights in relation to financial instruments held
in the portfolio;
(h) for each transaction executed during the period, the information referred to in Article 40(4)(c) to
(l) where relevant, unless the client elects to receive information about executed transactions
on a transaction-by-transaction basis, in which case paragraph 4 of this Article shall apply.
3. In the case of retail clients, the periodic statement referred to in paragraph 1 shall be provided
once every six months, except in the following cases:
(a) where the client so requests, the periodic statement must be provided every three months;
(b) in cases where paragraph 4 applies, the periodic statement must be provided at least once
every 12 months;
(c) where the agreement between an investment firm and a retail client for a portfolio management
service authorises a leveraged portfolio, the periodic statement must be provided at least once
a month.
Investment firms shall inform retail clients that they have the right to make requests for the
purposes of point (a).
However, the exception provided for in point (b) shall not apply in the case of transactions in
financial instruments covered by Article 4(1)(18)(c) of, or any of points 4 to 10 of Section C in
Annex I to, Directive 2004/39/EC.
4. Member States shall require investment firms, in cases where the client elects to receive
information about executed transactions on a transaction-by-transaction basis, to provide promptly
to the client, on the execution of a transaction by the portfolio manager, the essential information
concerning that transaction in a durable medium.
Where the client concerned is a retail client, the investment firm must send him a notice confirming
the transaction and containing the information referred to in Article 40(4) no later than the first
business day following that execution or, if the confirmation is received by the investment firm from
a third party, no later than the first business day following receipt of the confirmation from the third
party.
The second subparagraph shall not apply where the confirmation would contain the same
information as a confirmation that is to be promptly dispatched to the retail client by another
person.
Article 42
(Article 19(8) of Directive 2004/39/EC)
Additional reporting obligations for portfolio management or contingent liability
transactions
Member States shall ensure that where investment firms provide portfolio management
transactions for retail clients or operate retail client accounts that include an uncovered open
position in a contingent liability transaction, they also report to the retail client any losses
exceeding any predetermined threshold, agreed between the firm and the client, no later than the
end of the business day in which the threshold is exceeded or, in a case where the threshold is
exceeded on a non-business day, the close of the next business day.
Article 43
57
(Article 19(8) of Directive 2004/39/EC)
Statements of client financial instruments or client funds
1. Member States shall require investment firms that hold client financial instruments or client
funds to send at least once a year, to each client for whom they hold financial instruments or
funds, a statement in a durable medium of those financial instruments or funds unless such a
statement has been provided in any other periodic statement.
The first subparagraph shall not apply to a credit institution authorised under Directive 2000/12/EC
in respect of deposits within the meaning of that Directive held by that institution.
2. The statement of client assets referred to in paragraph 1 shall include the following information:
(a) details of all the financial instruments or funds held by the investment firm for the client at the
end of the period covered by the statement;
(b) the extent to which any client financial instruments or client funds have been the subject of
securities financing transactions;
(c) the extent of any benefit that has accrued to the client by virtue of participation in any securities
financing transactions, and the basis on which that benefit has accrued.
In cases where the portfolio of a client includes the proceeds of one or more unsettled
transactions, the information referred to in point (a) may be based either on the trade date or the
settlement date, provided that the same basis is applied consistently to all such information in the
statement.
3. Member States shall permit investment firms which hold financial instruments or funds and
which carry out the service of portfolio management for a client to include the statement of client
assets referred to in paragraph 1 in the periodic statement it provides to that client pursuant to
Article 41(1).
9.
In cases where an investment service is offered as part of a financial product which is
already subject to other provisions of Community legislation or common European
standards related to credit institutions and consumer credits with respect to risk
assessment of clients and/or information requirements, this service shall not be
additionally subject to the obligations set out in this Article.
10.
In order to ensure the necessary protection of investors and the uniform application of
paragraphs 1 to 8, the Commission shall adopt, in accordance with the procedure referred
to in Article 64(2), implementing measures to ensure that investment firms comply with the
principles set out therein when providing investment or ancillary services to their clients.
Those implementing measures shall take into account:
(a)
the nature of the service(s) offered or provided to the client or potential client,
taking into account the type, object, size and frequency of the transactions;
(b)
the nature of the financial instruments being offered or considered;
(c)
the retail or professional nature of the client or potential clients.
Article 3
Conditions applying to the provision of information
1. Where, for the purposes of this Directive, information is required to be provided in a durable
medium, Member States shall permit investment firms to provide that information in a durable
medium other than on paper only if:
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(a) the provision of that information in that medium is appropriate to the context in which the
business between the firm and the client is, or is to be, carried on; and
(b) the person to whom the information is to be provided, when offered the choice between
information on paper or in that other durable medium, specifically chooses the provision of the
information in that other medium.
2. Where, pursuant to Article 29, 30, 31, 32, 33 or 46(2) of this Directive, an investment firm
provides information to a client by means of a website and that information is not addressed
personally to the client, Member States shall ensure that the following conditions are satisfied:
(a) the provision of that information in that medium is appropriate to the context in which the
business between the firm and the client is, or is to be, carried on;
(b) the client must specifically consent to the provision of that information in that form;
(c) the client must be notified electronically of the address of the website, and the place on the
website where the information may be accessed;
(d) the information must be up to date;
(e) the information must be accessible continuously by means of that website for such period of
time as the client may reasonably need to inspect it.
3. For the purposes of this Article, the provision of information by means of electronic
communications shall be treated as appropriate to the context in which the business between the
firm and the client is, or is to be, carried on if there is evidence that the client has regular access to
the internet. The provision by the client of an e-mail address for the purposes of the carrying on of
that business shall be treated as such evidence.
Article 20 : Provision of services through the medium of another investment firm
Member States shall allow an investment firm receiving an instruction to perform investment or
ancillary services on behalf of a client through the medium of another investment firm to rely on
client information transmitted by the latter firm. The investment firm which mediates the
instructions will remain responsible for the completeness and accuracy of the information
transmitted.
The investment firm which receives an instruction to undertake services on behalf of a client in this
way shall also be able to rely on any recommendations in respect of the service or transaction that
have been provided to the client by another investment firm. The investment firm which mediates
the instructions will remain responsible for the appropriateness for the client of the
recommendations or advice provided.
The investment firm which receives client instructions or orders through the medium of another
investment firm shall remain responsible for concluding the service or transaction, based on any
such information or recommendations, in accordance with the relevant provisions of this Title.
Article 21 : Obligation to execute orders on terms most favourable to the client
1.
Member States shall require that investment firms take all reasonable steps to obtain,
when executing orders, the best possible result for their clients taking into account price,
costs, speed, likelihood of execution and settlement, size, nature or any other
consideration relevant to the execution of the order. Nevertheless, whenever there is a
specific instruction from the client the investment firm shall execute the order following the
59
specific instruction3.
Best execution
Article 44
(Articles 21(1) and 19(1) of Directive 2004/39/EC)
Best execution criteria
1. Member States shall ensure that, when executing client orders, investment firms take into
account the following criteria for determining the relative importance of the factors referred to in
Article 21(1) of Directive 2004/39/EC:
(a) the characteristics of the client including the categorisation of the client as retail or
professional;
(b) the characteristics of the client order;
(c) the characteristics of financial instruments that are the subject of that order;
(d) the characteristics of the execution venues to which that order can be directed.
For the purposes of this Article and Article 46, 'execution venue' means a regulated market, an
MTF, a systematic internaliser, or a market maker or other liquidity provider or an entity that
performs a similar function in a third country to the functions performed by any of the foregoing.
2. An investment firm satisfies its obligation under Article 21(1) of Directive 2004/39/EC to take all
reasonable steps to obtain the best possible result for a client to the extent that it executes an
order or a specific aspect of an order following specific instructions from the client relating to the
order or the specific aspect of the order.
3. Where an investment firm executes an order on behalf of a retail client, the best possible result
shall be determined in terms of the total consideration, representing the price of the financial
instrument and the costs related to execution, which shall include all expenses incurred by the
client which are directly related to the execution of the order, including execution venue fees,
clearing and settlement fees and any other fees paid to third parties involved in the execution of
the order.
For the purposes of delivering best execution where there is more than one competing venue to
execute an order for a financial instrument, in order to assess and compare the results for the
client that would be achieved by executing the order on each of the execution venues listed in the
firm's order execution policy that is capable of executing that order, the firm's own commissions
and costs for executing the order on each of the eligible execution venues shall be taken into
account in that assessment.
4. Member States shall require that investment firms do not structure or charge their commissions
in such a way as to discriminate unfairly between execution venues.
3 The provisions of the Directive and the Implementing Directive regarding best execution are usefully
described in CESR’s public consultation document entitled “Best Execution Under MiFID” published in
February 2007. It endeavours to set out selected key areas in which firms and regulators need clarity in
order to proceed: contents of execution policy and arrangements; disclosure to clients; client consent;
relationships between firms in chains of execution; review and monitoring; execution quality data. The
consultation period will close on 16 March 2007. The paper sets out CESR members’ agreed views on this
range of issues. The purpose of the consultation is to seek comments by those in the financial services
industry and of other stakeholders, with a view to CESR performing its role in promoting supervisory
convergence in respect of best execution consistent with its level 3 responsibilities.
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5. Before 1 November 2008 the Commission shall present a report to the European Parliament
and to the Council on the availability, comparability and consolidation of information concerning
the quality of execution of various execution venues.
Article 45
(Article 19(1) of Directive 2004/39/EC)
Duty of investment firms carrying out portfolio management and reception and
transmission of orders to act in the best interests of the client
1. Member States shall require investment firms, when providing the service of portfolio
management, to comply with the obligation under Article 19(1) of Directive 2004/39/EC to act in
accordance with the best interests of their clients when placing orders with other entities for
execution that result from decisions by the investment firm to deal in financial instruments on
behalf of its client.
2. Member States shall require investment firms, when providing the service of reception and
transmission of orders, to comply with the obligation under Article 19(1) of Directive 2004/39/EC to
act in accordance with the best interests of their clients when transmitting client orders to other
entities for execution.
3. Member States shall ensure that, in order to comply with paragraphs 1 or 2, investment firms
take the actions mentioned in paragraphs 4 to 6.
4. Investment firms shall take all reasonable steps to obtain the best possible result for their clients
taking into account the factors referred to in Article 21(1) of Directive 2004/39/EC. The relative
importance of these factors shall be determined by reference to the criteria set out in Article
44(1)and, for retail clients, to the requirement under Article 44(3).
An investment firm satisfies its obligations under paragraph 1 or 2, and is not required to take the
steps mentioned in this paragraph, to the extent that it follows specific instructions from its client
when placing an order with, or transmitting an order to, another entity for execution.
5. Investment firms shall establish and implement a policy to enable them to comply with the
obligation in paragraph 4. The policy shall identify, in respect of each class of instruments, the
entities with which the orders are placed or to which the investment firm transmits orders for
execution. The entities identified must have execution arrangements that enable the investment
firm to comply with its obligations under this Article when it places or transmits orders to that entity
for execution.
Investment firms shall provide appropriate information to their clients on the policy established in
accordance with this paragraph.
6. Investment firms shall monitor on a regular basis the effectiveness of the policy established in
accordance with paragraph 5 and, in particular, the execution quality of the entities identified in
that policy and, where appropriate, correct any deficiencies.
In addition, investment firms shall review the policy annually. Such a review shall also be carried
out whenever a material change occurs that affects the firm's ability to continue to obtain the best
possible result for their clients.
7. This Article shall not apply when the investment firm that provides the service of portfolio
management and/or reception and transmission of orders also executes the orders received or the
decisions to deal on behalf of its client's portfolio. In those cases Article 21 of Directive 2004/39/EC
applies.
2.
Member States shall require investment firms to establish and implement effective
arrangements for complying with paragraph 1. In particular Member States shall require
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investment firms to establish and implement an order execution policy to allow them to
obtain, for their client orders, the best possible result in accordance with paragraph 1.
3.
The order execution policy shall include, in respect of each class of instruments,
information on the different venues where the investment firm executes its client orders
and the factors affecting the choice of execution venue. It shall at least include those
venues that enable the investment firm to obtain on a consistent basis the best possible
result for the execution of client orders.
Member States shall require that investment firms provide appropriate information to their
clients on their order execution policy. Member States shall require that investment firms
obtain the prior consent of their clients to the execution policy.
Member States shall require that, where the order execution policy provides for the
possibility that client orders may be executed outside a regulated market or an MTF, the
investment firm shall, in particular, inform its clients about this possibility. Member States
shall require that investment firms obtain the prior express consent of their clients before
proceeding to execute their orders outside a regulated market or an MTF. Investment firms
may obtain this consent either in the form of a general agreement or in respect of
individual transactions.
4.
Member States shall require investment firms to monitor the effectiveness of their order
execution arrangements and execution policy in order to identify and, where appropriate,
correct any deficiencies. In particular, they shall assess, on a regular basis, whether the
execution venues included in the order execution policy provide for the best possible result
for the client or whether they need to make changes to their execution arrangements.
Member States shall require investment firms to notify clients of any material changes to
their order execution arrangements or execution policy.
Article 46
(Article 21(3) and (4) of Directive 2004/39/EC)
Execution policy
1. Member States shall ensure that investment firms review annually the execution policy
established pursuant to Article 21(2) of Directive 2004/39/EC, as well as their order execution
arrangements.
Such a review shall also be carried out whenever a material change occurs that affects the firm's
ability to continue to obtain the best possible result for the execution of its client orders on a
consistent basis using the venues included in its execution policy.
2. Investment firms shall provide retail clients with the following details on their execution policy in
good time prior to the provision of the service:
(a) an account of the relative importance the investment firm assigns, in accordance with the
criteria specified in Article 44(1), to the factors referred to in Article 21(1) of Directive
2004/39/EC, or the process by which the firm determines the relative importance of those
factors;
(b) a list of the execution venues on which the firm places significant reliance in meeting its
obligation to take all reasonable steps to obtain on a consistent basis the best possible result
for the execution of client orders;
(c) a clear and prominent warning that any specific instructions from a client may prevent the firm
from taking the steps that it has designed and implemented in its execution policy to obtain the
best possible result for the execution of those orders in respect of the elements covered by
those instructions.
62
That information shall be provided in a durable medium, or by means of a website (where that
does not constitute a durable medium) provided that the conditions specified in Article 3(2) are
satisfied.
5.
Member States shall require investment firms to be able to demonstrate to their clients, at
their request, that they have executed their orders in accordance with the firm's execution
policy.
6.
In order to ensure the protection necessary for investors, the fair and orderly functioning of
markets, and to ensure the uniform application of paragraphs 1, 3 and 4, the Commission
shall, in accordance with the procedure referred to in Article 64(2), adopt implementing
measures concerning:
(a)
the criteria for determining the relative importance of the different factors that,
pursuant to paragraph 1, may be taken into account for determining the best
possible result taking into account the size and type of order and the retail or
professional nature of the client;
(b)
factors that may be taken into account by an investment firm when reviewing its
execution arrangements and the circumstances under which changes to such
arrangements may be appropriate. In particular, the factors for determining which
venues enable investment firms to obtain on a consistent basis the best possible
result for executing the client orders;
(c)
the nature and extent of the information to be provided to clients on their execution
policies, pursuant to paragraph 3.
Article 22 : Client order handling rules
1.
Member States shall require that investment firms authorised to execute orders on behalf
of clients implement procedures and arrangements which provide for the prompt, fair and
expeditious execution of client orders, relative to other client orders or the trading interests
of the investment firm.
Client order handling
Article 47
(Articles 22(1) and 19(1) of Directive 2004/39/EC)
General principles
1. Member States shall require investment firms to satisfy the following conditions when carrying
out client orders:
(a) they must ensure that orders executed on behalf of clients are promptly and accurately
recorded and allocated;
(b) they must carry out otherwise comparable client orders sequentially and promptly unless the
characteristics of the order or prevailing market conditions make this impracticable, or the
interests of the client require otherwise;
(c) they must inform a retail client about any material difficulty relevant to the proper carrying out
of orders promptly upon becoming aware of the difficulty.
2. Where an investment firm is responsible for overseeing or arranging the settlement of an
executed order, it shall take all reasonable steps to ensure that any client financial instruments or
client funds received in settlement of that executed order are promptly and correctly delivered to
the account of the appropriate client.
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3. An investment firm shall not misuse information relating to pending client orders, and shall take
all reasonable steps to prevent the misuse of such information by any of its relevant persons.
Article 48
(Articles 22(1) and 19(1) of Directive 2004/39/EC)
Aggregation and allocation of orders
1. Member States shall not permit investment firms to carry out a client order or a transaction for
own account in aggregation with another client order unless the following conditions are met:
(a) it must be unlikely that the aggregation of orders and transactions will work overall to the
disadvantage of any client whose order is to be aggregated;
(b) it must be disclosed to each client whose order is to be aggregated that the effect of
aggregation may work to its disadvantage in relation to a particular order;
(c) an order allocation policy must be established and effectively implemented, providing in
sufficiently precise terms for the fair allocation of aggregated orders and transactions,
including how the volume and price of orders determines allocations and the treatment of
partial executions.
2. Member States shall ensure that where an investment firm aggregates an order with one or
more other client orders and the aggregated order is partially executed, it allocates the related
trades in accordance with its order allocation policy.
Article 49
(Articles 22(1) and 19(1) of Directive 2004/39/EC)
Aggregation and allocation of transactions for own account
1. Member States shall ensure that investment firms which have aggregated transactions for own
account with one or more client orders do not allocate the related trades in a way that is
detrimental to a client.
2. Member States shall require that, where an investment firm aggregates a client order with a
transaction for own account and the aggregated order is partially executed, it allocates the related
trades to the client in priority to the firm.
However, if the firm is able to demonstrate on reasonable grounds that without the combination it
would not have been able to carry out the order on such advantageous terms, or at all, it may
allocate the transaction for own account proportionally, in accordance with its order allocation
policy referred to in Article 48(1)(c).
3. Member States shall require investment firms, as part of the order allocation policy referred to in
Article 48(1)(c), to put in place procedures designed to prevent the reallocation, in a way that is
detrimental to the client, of transactions for own account which are executed in combination with
client orders.
These procedures or arrangements shall allow for the execution of otherwise comparable
client orders in accordance with the time of their reception by the investment firm.
2.
Member States shall require that, in the case of a client limit order in respect of shares
admitted to trading on a regulated market which are not immediately executed under
prevailing market conditions, investment firms are, unless the client expressly instructs
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otherwise, to take measures to facilitate the earliest possible execution of that order by
making public immediately that client limit order in a manner which is easily accessible to
other market participants. Member States may decide that investment firms comply with
this obligation by transmitting the client limit order to a regulated market and/or MTF.
Member States shall provide that the competent authorities may waive the obligation to
make public a limit order that is large in scale compared with normal market size as
determined under Article 44(2).
Regulation 31
(Article 22(2) of Directive 2004/39/EC)
Disclosure of client limit orders
An investment firm shall be considered to disclose client limit orders that are not immediately
executable if it transmits the order to a regulated market or MTF that operates an order book
trading system, or ensures that the order is made public and can be easily executed as soon as
market conditions allow.
Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis
at a reasonable cost.
3.
In order to ensure that measures for the protection of investors and fair and orderly
functioning of markets take account of technical developments in financial markets, and to
ensure the uniform application of paragraphs 1 and 2, the Commission shall adopt, in
accordance with the procedure referred to in Article 64(2), implementing measures which
define:
(a)
the conditions and nature of the procedures and arrangements which result in the
prompt, fair and expeditious execution of client orders and the situations in which
or types of transaction for which investment firms may reasonably deviate from
prompt execution so as to obtain more favourable terms for clients;
(b)
the different methods through which an investment firm can be deemed to have
met its obligation to disclose not immediately executable client limit orders to the
market.
Article 23 : Obligations of investment firms when appointing tied agents
1.
Member States may decide to allow an investment firm to appoint tied agents for the
purposes of promoting the services of the investment firm, soliciting business or receiving
orders from clients or potential clients and transmitting them, placing financial instruments
and providing advice in respect of such financial instruments and services offered by that
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investment firm.
2.
Member States shall require that where an investment firm decides to appoint a tied agent
it remains fully and unconditionally responsible for any action or omission on the part of
the tied agent when acting on behalf of the firm. Member States shall require the
investment firm to ensure that a tied agent discloses the capacity in which he is acting and
the firm which he is representing when contacting or before dealing with any client or
potential client.
Member States may allow, in accordance with Article 13(6), (7) and (8), tied agents
registered in their territory to handle clients' money and/or financial instruments on behalf
and under the full responsibility of the investment firm for which they are acting within their
territory or, in the case of a cross-border operation, in the territory of a Member State
which allows a tied agent to handle clients' money.
Member States shall require the investment firms to monitor the activities of their tied
agents so as to ensure that they continue to comply with this Directive when acting
through tied agents.
3.
Member States that decide to allow investment firms to appoint tied agents shall establish
a public register. Tied agents shall be registered in the public register in the Member State
where they are established.
Where the Member State in which the tied agent is established has decided, in
accordance with paragraph 1, not to allow the investment firms authorised by their
competent authorities to appoint tied agents, those tied agents shall be registered with the
competent authority of the home Member State of the investment firm on whose behalf it
acts.
Member States shall ensure that tied agents are only admitted to the public register if it
has been established that they are of sufficiently good repute and that they possess
appropriate general, commercial and professional knowledge so as to be able to
communicate accurately all relevant information regarding the proposed service to the
client or potential client.
Member States may decide that investment firms can verify whether the tied agents which
they have appointed are of sufficiently good repute and possess the knowledge as
referred to in the third subparagraph.
The register shall be updated on a regular basis. It shall be publicly available for
consultation.
4.
Member States shall require that investment firms appointing tied agents take adequate
measures in order to avoid any negative impact that the activities of the tied agent not
covered by the scope of this Directive could have on the activities carried out by the tied
agent on behalf of the investment firm.
Member States may allow competent authorities to collaborate with investment firms and
credit institutions, their associations and other entities in registering tied agents and in
monitoring compliance of tied agents with the requirements of paragraph 3. In particular,
tied agents may be registered by an investment firm, credit institution or their associations
and other entities under the supervision of the competent authority.
5.
Member States shall require that investment firms appoint only tied agents entered in the
public registers referred to in paragraph 3.
6.
Member States may reinforce the requirements set out in this Article or add other
requirements for tied agents registered within their jurisdiction.
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Article 24 : Transactions executed with eligible counterparties
1.
Member States shall ensure that investment firms authorised to execute orders on behalf
of clients and/or to deal on own account and/or to receive and transmit orders, may bring
about or enter into transactions with eligible counterparties without being obliged to comply
with the obligations under Articles 19, 21 and 22(1) in respect of those transactions or in
respect of any ancillary service directly related to those transactions.
2.
Member States shall recognise as eligible counterparties for the purposes of this Article
investment firms, credit institutions, insurance companies, UCITS and their management
companies, pension funds and their management companies, other financial institutions
authorised or regulated under Community legislation or the national law of a Member
State, undertakings exempted from the application of this Directive under Article 2(1)(k)
and (l), national governments and their corresponding offices including public bodies that
deal with public debt, central banks and supranational organisations.
Classification as an eligible counterparty under the first subparagraph shall be without
prejudice to the right of such entities to request, either on a general form or on a trade-bytrade basis, treatment as clients whose business with the investment firm is subject to
Articles 19, 21 and 22.
3.
Member States may also recognise as eligible counterparties other undertakings meeting
pre-determined proportionate requirements, including quantitative thresholds. In the event
of a transaction where the prospective counterparties are located in different jurisdictions,
the investment firm shall defer to the status of the other undertaking as determined by the
law or measures of the Member State in which that undertaking is established.
Member States shall ensure that the investment firm, when it enters into transactions in
accordance with paragraph 1 with such undertakings, obtains the express confirmation
from the prospective counterparty that it agrees to be treated as an eligible counterparty.
Member States shall allow the investment firm to obtain this confirmation either in the form
of a general agreement or in respect of each individual transaction.
Eligible counterparties
Article 50
(Article 24(3) of Directive 2004/39/EC)
Eligible counterparties
1. Member States may recognise an undertaking as an eligible counterparty if that undertaking
falls within a category of clients who are to be considered professional clients in accordance with
paragraphs 1, 2 and 3 of Section I of Annex II to Directive 2004/39/EC, excluding any category
which is explicitly mentioned in Article 24(2) of that Directive.
On request, Member States may also recognise as eligible counterparties undertakings which fall
within a category of clients who are to be considered professional clients in accordance with
Section II of Annex II to Directive 2004/39/EC. In such cases, however, the undertaking concerned
shall be recognised as an eligible counterparty only in respect of the services or transactions for
which it could be treated as a professional client.
2. Where, pursuant to the second subparagraph of Article 24 (2) of Directive 2004/39/EC, an
eligible counterparty requests treatment as a client whose business with an investment firm is
subject to Articles 19, 21 and 22 of that Directive, but does not expressly request treatment as a
retail client, and the investment firm agrees to that request, the firm shall treat that eligible
counterparty as a professional client.
However, where that eligible counterparty expressly requests treatment as a retail client, the
provisions in respect of requests of non-professional treatment specified in the second, third and
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fourth sub-paragraphs of Section I of Annex II to Directive 2004/39/EC shall apply.
4.
Member States may recognise as eligible counterparties third country entities equivalent to
those categories of entities mentioned in paragraph 2.
Member States may also recognise as eligible counterparties third country undertakings
such as those mentioned in paragraph 3 on the same conditions and subject to the same
requirements as those laid down at paragraph 3.
5.
In order to ensure the uniform application of paragraphs 2, 3 and 4 in the light of changing
market practice and to facilitate the effective operation of the single market, the
Commission may adopt, in accordance with the procedure referred to in Article 64(2),
implementing measures which define:
(a)
the procedures for requesting treatment as clients under paragraph 2;
(b)
the procedures for obtaining the express confirmation from prospective
counterparties under paragraph 3;
(c)
the predetermined proportionate requirements, including quantitative thresholds
that would allow an undertaking to be considered as an eligible counterparty under
paragraph 3.
Section 3 : Market transparency and integrity
Article 25 : Obligation to uphold integrity of markets, report transactions and maintain
records
1.
Without prejudice to the allocation of responsibilities for enforcing the provisions of
Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on
insider dealing and market manipulation (market abuse) (21), Member States shall ensure
that appropriate measures are in place to enable the competent authority to monitor the
activities of investment firms to ensure that they act honestly, fairly and professionally and
in a manner which promotes the integrity of the market.
2.
Member States shall require investment firms to keep at the disposal of the competent
authority, for at least five years, the relevant data relating to all transactions in financial
instruments which they have carried out, whether on own account or on behalf of a client.
In the case of transactions carried out on behalf of clients, the records shall contain all the
information and details of the identity of the client, and the information required under
Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial
system for the purpose of money laundering (22).
3.
Member States shall require investment firms which execute transactions in any financial
instruments admitted to trading on a regulated market to report details of such transactions
to the competent authority as quickly as possible, and no later than the close of the
following working day. This obligation shall apply whether or not such transactions were
carried out on a regulated market.
The competent authorities shall, in accordance with Article 58, establish the necessary
arrangements in order to ensure that the competent authority of the most relevant market
in terms of liquidity for those financial instruments also receives this information.
Chapter III
TRANSACTION REPORTING
68
Regulation 9
(Second subparagraph of Article 25(3) of Directive 2004/39/EC)
Determination of the most relevant market in terms of liquidity
1. The most relevant market in terms of liquidity for a financial instrument which is admitted to
trading on a regulated market, hereinafter 'the most relevant market', shall be determined in
accordance with paragraphs 2 to 8.
2. In the case of a share or other transferable security covered by Article 4(1)(18)(a) of Directive
2004/39/EC or of a unit in a collective investment undertaking, the most relevant market shall be
the Member State where the share or the unit was first admitted to trading on a regulated market.
3. In the case of a bond or other transferable security covered by Article 4(1)(18)(b) of Directive
2004/39/EC or of a money market instrument which, in either case, is issued by a subsidiary,
within the meaning of Seventh Council Directive 83/349/EEC of 13 June 1983 on consolidated
accounts (5), of an entity which has its registered office in a Member State, the most relevant
market shall be the Member State where the registered office of the parent entity is situated.
4. In the case of a bond or other transferable security covered by Article 4(1)(18)(b) of Directive
2004/39/EC or of a money market instrument which, in either case, is issued by a Community
issuer and which is not covered by paragraph 3 of this Article, the most relevant market shall be
the Member State where the registered office of the issuer is situated.
5. In the case of a bond or other transferable security covered by Article 4(1)(18)(b) of Directive
2004/39/EC or a money market instrument which, in either case, is issued by a third country issuer
and which is not covered by paragraph 3 of this Article, the most relevant market shall be the
Member State where that security was first admitted to trading on a regulated market.
6. In the case of a derivative contract or a financial contract for differences or a transferable
security covered by Article 4(1)(18) (c) of Directive 2004/39/EC, the most relevant market shall be:
(a) where the underlying security is a share or other transferable security covered by Article
4(1)(18)(a) of Directive 2004/39/EC which is admitted to trading on a regulated market, the
Member State deemed to be the most relevant market in terms of liquidity for the underlying
security, in accordance with paragraph 2;
(b) where the underlying security is a bond or other transferable security covered by Article
4(1)(18)(b) of Directive 2004/39/EC or a money market instrument which is admitted to trading
on a regulated market, the Member State deemed to be the most relevant market in terms of
liquidity for that underlying security, in accordance with paragraphs 3, 4 or 5;
(c) where the underlying is an index composed of shares all of which are traded on a particular
regulated market, the Member State where that regulated market is situated.
7. In any case not covered by paragraphs 2 to 6, the most relevant market shall be the Member
State where the regulated market that first admitted the transferable security or derivative contract
or financial contract for differences to trading is located.
8. Where a financial instrument covered by paragraphs 2, 5 or 7, or the underlying financial
instrument of a financial instrument covered by paragraph 6 to which one of paragraphs 2, 5 or 7 is
relevant, was first admitted to trading on more than one regulated market simultaneously, and all
those regulated markets share the same home Member State, that Member State shall be the
most relevant market.
Where the regulated markets concerned do not share the same home Member State, the most
relevant market in terms of liquidity for that instrument shall be the market where the turnover of
that instrument is highest.
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For the purposes of determining the most relevant market where the turnover of the instrument is
highest, each competent authority that has authorised one of the regulated markets concerned
shall calculate the turnover for that instrument in its respective market for the previous calendar
year, provided that the instrument was admitted to trading at the beginning of that year.
Where the turnover for the relevant financial instrument cannot be calculated by reason of
insufficient or non-existent data and the issuer has its registered office in a Member State, the
most relevant market shall be the market of the Member State where the registered office of the
issuer is situated.
However, where issuer does not have its registered office in a Member State, the most relevant
market for that instrument shall be the market where the turnover of the relevant instrument class
is the highest. For the purposes of determining that market, each competent authority that has
authorised one of the regulated markets concerned shall calculate the turnover for the instruments
of the same class in its respective market for the preceding calendar year.
The relevant classes of financial instrument are the following:
(a) shares;
(b) bonds or other forms of securitised debt;
(c) any other financial instruments.
Regulation 10
(Second subparagraph of Article 25(3) of Directive 2004/39/EC)
Alternative determination of most relevant market in terms of liquidity
1. A competent authority may, in January every year, notify the relevant competent authority for a
particular financial instrument that it intends to contest the determination, made in accordance with
Regulation 9, of the most relevant market for that instrument.
2. Within four weeks of the sending of the notification, both authorities shall calculate the turnover
for that financial instrument in their respective markets over the period of the previous calendar
year.
If the results of that calculation indicate that the turnover is higher in the market of the contesting
competent authority, that market shall be the most relevant market for that financial instrument.
Where that financial instrument is of a type specified in Regulation 9(6)(a) or (b), that market shall
also be the most relevant market for any derivative contract or financial contract for differences or
transferable security which is covered by Article 4(1)(18)(c) of Directive 2004/39/EC and in respect
of which that financial instrument is the underlying.
Regulation 11
(Article 25(3) of Directive 2004/39/EC)
List of financial instruments
The relevant competent authority for one or more financial instruments shall ensure that there is
established and maintained an updated list of those financial instruments. That list shall be made
available to the single competent authority designated as a contact point by each Member State in
accordance with Article 56 of Directive 2004/39/EC. That list shall be made available for the first
time on the first trading day in June 2007.
In order to assist competent authorities to comply with the first subparagraph, each regulated
70
market shall submit identifying reference data on each financial instrument admitted to trading in
an electronic and standardised format to its home competent authority. This information shall be
submitted for each financial instrument before trading commences in that particular instrument.
The home competent authority shall ensure the data is transmitted to the relevant competent
authority for the financial instrument concerned. The reference data shall be updated whenever
there are changes to the data with respect to an instrument. The requirements in this
subparagraph may be waived if the relevant competent authority for that financial instrument
obtains the relevant reference data by other means.
4.
The reports shall, in particular, include details of the names and numbers of the
instruments bought or sold, the quantity, the dates and times of execution and the
transaction prices and means of identifying the investment firms concerned.
5.
Member States shall provide for the reports to be made to the competent authority either
by the investment firm itself, a third party acting on its behalf or by a trade-matching or
reporting system approved by the competent authority or by the regulated market or MTF
through whose systems the transaction was completed. In cases where transactions are
reported directly to the competent authority by a regulated market, an MTF, or a tradematching or reporting system approved by the competent authority, the obligation on the
investment firm laid down in paragraph 3 may be waived.
Regulation 12
(Article 25(5) of Directive 2004/39/EC)
Reporting channels
1. The reports of transactions in financial instruments shall be made in an electronic form except
under exceptional circumstances, when they may be made in a medium which allows for the
storing of the information in a way accessible for future reference by the competent authorities
other than an electronic form, and the methods by which those reports are made shall satisfy the
following conditions:
(a) they ensure the security and confidentiality of the data reported;
(b) they incorporate mechanisms for identifying and correcting errors in a transaction report;
(c) they incorporate mechanisms for authenticating the source of the transaction report;
(d) they include appropriate precautionary measures to enable the timely resumption of reporting
in the case of system failure;
(e) they are capable of reporting the information required under Article 13 in the format required
by the competent authority and in accordance with this paragraph, within the time limits set out
in Article 25(3) of Directive 2004/39/EC.
2. A trade-matching or reporting system shall be approved by the competent authority for the
purposes of Article 25(5) of Directive 2004/39/EC if the arrangements for reporting transactions
established by that system comply with paragraph 1 of this Article and are subject to monitoring by
a competent authority in respect of their continuing compliance.
Regulation 13
(Article 25(3) and (5) of Directive 2004/39/EC)
Content of the transaction report
1. The reports of transactions referred to in Article 25(3) and (5) of Directive 2004/39/EC shall
71
contain the information specified in Table 1 of Annex I to this Regulation which is relevant to the
type of financial instrument in question and which the competent authority declares is not already
in its possession or is not available to it by other means.
2. For the purposes of the identification of a counterparty to the transaction which is a regulated
market, an MTF or other central counterparty, as specified in Table 1 of Annex I, each competent
authority shall make publicly available a list of identification codes of the regulated markets and
MTFs for which, in each case, it is the competent authority of the home Member State, and of any
entities which act as central counterparties for such regulated markets and MTFs.
3. Member States may require reports made in accordance with Article 25(3) and (5) of Directive
2004/39/EC to contain information related to the transactions in question which is additional to that
specified in Table 1 of Annex I where that information is necessary to enable the competent
authority to monitor the activities of investment firms to ensure that they act honestly, fairly and
professionally and in a manner that promotes the integrity of the market, and provided that one of
the following criteria is met:
(a) the financial instrument which is the subject of the report has characteristics which are specific
to an instrument of that kind and which are not covered by the information items specified in
that table;
(b) trading methods which are specific to the trading venue where the transaction took place
involve features which are not covered by the information items specified in that table.
4. Member States may also require a report of a transaction made in accordance with Article 25(3)
and (5) of Directive 2004/39/EC to identify the clients on whose behalf the investment firm has
executed that transaction.
Regulation 14
(Article 25(3) and (5) of Directive 2004/39/EC)
Exchange of information on transactions
1. The competent authorities shall establish arrangements designed to ensure that the information
received in accordance with Article 25(3) and (5) of Directive 2004/39/EC is made available to the
following:
(a) the relevant competent authority for the financial instrument in question;
(b) in the case of branches, the competent authority that has authorised the investment firm
providing the information, without prejudice to its right not to receive this information in
accordance with Article 25(6) of Directive 2004/39/EC;
(c) any other competent authority that requests the information for the proper discharge of its
supervisory duties under Article 25(1) of Directive 2004/39/EC.
2. The information to be made available in accordance with paragraph 1 shall contain the
information items described in Tables 1 and 2 of Annex I.
3. The information referred to in paragraph 1 shall be made available as soon as possible.
With effect from 1 November 2008 that information shall be made available no later than the close
of the next working day of the competent authority that received the information or the request
following the day on which the competent authority has received the information or the request.
4. The competent authorities shall coordinate the following:
(a) the design and establishment of arrangements for the exchange of transaction information
72
between the competent authorities as required by Directive 2004/39/EC and this Regulation;
(b) any future upgrading of the arrangements.
5. Before 1 February 2007, the competent authorities shall report to the Commission, which shall
inform the European Securities Committee, on the design of the arrangements to be established in
accordance with paragraph 1.
They shall also report to the Commission, which shall inform the European Securities Committee,
whenever significant changes to those arrangements are proposed.
6.
When, in accordance with Article 32(7), reports provided for under this Article are
transmitted to the competent authority of the host Member State, it shall transmit this
information to the competent authorities of the home Member State of the investment firm,
unless they decide that they do not want to receive this information.
7.
In order to ensure that measures for the protection of market integrity are modified to take
account of technical developments in financial markets, and to ensure the uniform
application of paragraphs 1 to 5, the Commission may adopt, in accordance with the
procedure referred to in Article 64(2), implementing measures which define the methods
and arrangements for reporting financial transactions, the form and content of these
reports and the criteria for defining a relevant market in accordance with paragraph 3.
Article 26 : Monitoring of compliance with the rules of the MTF and with other legal
obligations
1.
Member States shall require that investment firms and market operators operating an MTF
establish and maintain effective arrangements and procedures, relevant to the MTF, for
the regular monitoring of the compliance by its users with its rules. Investment firms and
market operators operating an MTF shall monitor the transactions undertaken by their
users under their systems in order to identify breaches of those rules, disorderly trading
conditions or conduct that may involve market abuse.
2.
Member States shall require investment firms and market operators operating an MTF to
report significant breaches of its rules or disorderly trading conditions or conduct that may
involve market abuse to the competent authority. Member States shall also require
investment firms and market operators operating an MTF to supply the relevant
information without delay to the authority competent for the investigation and prosecution
of market abuse and to provide full assistance to the latter in investigating and prosecuting
market abuse occurring on or through its systems.
Article 27 : Obligation for investment firms to make public firm quotes
1.
Member States shall require systematic internalisers in shares to publish a firm quote in
those shares admitted to trading on a regulated market for which they are systematic
internalisers and for which there is a liquid market. In the case of shares for which there is
not a liquid market, systematic internalisers shall disclose quotes to their clients on
request.
The provisions of this Article shall be applicable to systematic internalisers when dealing
for sizes up to standard market size. Systematic internalisers that only deal in sizes above
standard market size shall not be subject to the provisions of this Article.
Systematic internalisers may decide the size or sizes at which they will quote. For a
particular share each quote shall include a firm bid and/or offer price or prices for a size or
sizes which could be up to standard market size for the class of shares to which the share
73
belongs. The price or prices shall also reflect the prevailing market conditions for that
share.
Shares shall be grouped in classes on the basis of the arithmetic average value of the
orders executed in the market for that share. The standard market size for each class of
shares shall be a size representative of the arithmetic average value of the orders
executed in the market for the shares included in each class of shares.
Regulation 23
(Fourth subparagraph of Article 27(1) of Directive 2004/39/EC)
Standard market size
In order to determine the standard market size for liquid shares, those shares shall be grouped
into classes in terms of the average value of orders executed in accordance with Table 3 in Annex
II.
The market for each share shall be comprised of all orders executed in the European
Union in respect of that share excluding those large in scale compared to normal market
size for that share.
Regulation 24
(Article 27(1) of Directive 2004/39/EC) Quotes reflecting prevailing market conditions
A systematic internaliser shall, for each liquid share for which it is a systematic internaliser,
maintain the following:
(a) a quote or quotes which are close in price to comparable quotes for the same share in other
trading venues;
(b) a record of its quoted prices, which it shall retain for a period of 12 months or such longer
period as it considers appropriate.
The obligation laid down in point (b) is without prejudice to the obligation of the investment firm
under Article 25(2) of Directive 2004/39/EC to keep at the disposal of the competent authority for
at least five years the relevant data relating to all transactions it has carried out.
2.
The competent authority of the most relevant market in terms of liquidity as defined in
Article 25 for each share shall determine at least annually, on the basis of the arithmetic
average value of the orders executed in the market in respect of that share, the class of
shares to which it belongs. This information shall be made public to all market participants.
3.
Systematic internalisers shall make public their quotes on a regular and continuous basis
during normal trading hours. They shall be entitled to update their quotes at any time.
They shall also be allowed, under exceptional market conditions, to withdraw their quotes.
The quote shall be made public in a manner which is easily accessible to other market
participants on a reasonable commercial basis.
Systematic internalisers shall, while complying with the provisions set down in Article 21,
execute the orders they receive from their retail clients in relation to the shares for which
they are systematic internalisers at the quoted prices at the time of reception of the order.
Systematic internalisers shall execute the orders they receive from their professional
clients in relation to the shares for which they are systematic internalisers at the quoted
price at the time of reception of the order. However, they may execute those orders at a
better price in justified cases provided that this price falls within a public range close to
market conditions and provided that the orders are of a size bigger than the size
74
customarily undertaken by a retail investor.
Regulation 26
(Fourth subparagraph Article 27(3) of Directive 2004/39/EC)
Retail size
For the purposes of the fourth subparagraph of Article 27(3) of Directive 2004/39/EC, an order
shall be regarded as being of a size bigger than the size customarily undertaken by a retail
investor if it exceeds EUR 7 500.
Provisions common to pre- and post-trade transparency
Regulation 29
(Articles 27(3), 28(1), 29(1), 44(1) and 45(1) of Directive 2004/39/EC)
Publication and availability of pre- and post-trade transparency data
1. A regulated market, MTF or systematic internaliser shall be considered to publish pre-trade
information on a continuous basis during normal trading hours if that information is published as
soon as it becomes available during the normal trading hours of the regulated market, MTF or
systematic internaliser concerned, and remains available until it is updated.
2. Pre-trade information, and post-trade information relating to transactions taking place on trading
venues and within normal trading hours, shall be made available as close to real time as possible.
Post-trade information relating to such transactions shall be made available in any case within
three minutes of the relevant transaction.
3. Information relating to a portfolio trade shall be made available with respect to each constituent
transaction as close to real time as possible, having regard to the need to allocate prices to
particular shares. Each constituent transaction shall be assessed separately for the purposes of
determining whether deferred publication in respect of that transaction is available under
Regulation 28.
4. Post-trade information relating to transactions taking place on a trading venue but outside its
normal trading hours shall be made public before the opening of the next trading day of the trading
venue on which the transaction took place.
5. For transactions that take place outside a trading venue, post-trade information shall be made
public:
(a) if the transaction takes place during a trading day of the most relevant market for the share
concerned, or during the investment firm's normal trading hours, as close to real time as possible.
Post-trade information relating to such transactions shall be made available in any case within
three minutes of the relevant transaction;
(b) in a case not covered by point (a), immediately upon the commencement of the investment
firm's normal trading hours or at the latest before the opening of the next trading day in the most
relevant market for that share.
Furthermore, systematic internalisers may execute orders they receive from their
professional clients at prices different than their quoted ones without having to comply with
75
the conditions established in the fourth subparagraph, in respect of transactions where
execution in several securities is part of one transaction or in respect of orders that are
subject to conditions other than the current market price.
Regulation 25
(Fifth subparagraph of Article 27(3) and Article 27(6) of Directive)
Execution of orders by systematic internalisers
1. For the purposes of the fifth subparagraph of Article 27(3) of Directive 2004/39/EC, execution in
several securities shall be regarded as part of one transaction if that one transaction is a portfolio
trade that involves 10 or more securities.
For the same purposes, an order subject to conditions other than the current market price means
any order which is neither an order for the execution of a transaction in shares at the prevailing
market price, nor a limit order.
Where a systematic internaliser who quotes only one quote or whose highest quote is
lower than the standard market size receives an order from a client of a size bigger than
its quotation size, but lower than the standard market size, it may decide to execute that
part of the order which exceeds its quotation size, provided that it is executed at the
quoted price, except where otherwise permitted under the conditions of the previous two
subparagraphs. Where the systematic internaliser is quoting in different sizes and receives
an order between those sizes, which it chooses to execute, it shall execute the order at
one of the quoted prices in compliance with the provisions of Article 22, except where
otherwise permitted under the conditions of the previous two subparagraphs.
4.
The competent authorities shall check:
(a)
that investment firms regularly update bid and/or offer prices published in
accordance with paragraph 1 and maintain prices which reflect the prevailing
market conditions;
(b)
that investment firms comply with the conditions for price improvement laid down
in the fourth subparagraph of paragraph 3.
5.
Systematic internalisers shall be allowed to decide, on the basis of their commercial policy
and in an objective nondiscriminatory way, the investors to whom they give access to their
quotes. To that end there shall be clear standards for governing access to their quotes.
Systematic internalisers may refuse to enter into or discontinue business relationships with
investors on the basis of commercial considerations such as the investor credit status, the
counterparty risk and the final settlement of the transaction.
6.
In order to limit the risk of being exposed to multiple transactions from the same client
systematic internalisers shall be allowed to limit in a non-discriminatory way the number of
transactions from the same client which they undertake to enter at the published
conditions. They shall also be allowed, in a non-discriminatory way and in accordance with
the provisions of Article 22, to limit the total number of transactions from different clients at
the same time provided that this is allowable only where the number and/or volume of
orders sought by clients considerably exceeds the norm.
Regulation 25
2. For the purposes of Article 27(6) of Directive 2004/39/EC, the number or volume of orders shall
be regarded as considerably exceeding the norm if a systematic internaliser cannot execute those
orders without exposing itself to undue risk.
76
In order to identify the number and volume of orders that it can execute without exposing itself to
undue risk, a systematic internaliser shall maintain and implement as part of its risk management
policy under Article 7 of Commission Directive 2006/73/EC (6) a non-discriminatory policy which
takes into account the volume of the transactions, the capital that the firm has available to cover
the risk for that type of trade, and the prevailing conditions in the market in which the firm is
operating.
3. Where, in accordance with Article 27(6) of Directive 2004/39/EC, an investment firm limits the
number or volume of orders it undertakes to execute, it shall set out in writing, and make available
to clients and potential clients, the arrangements designed to ensure that such a limitation does
not result in the discriminatory treatment of clients.
7.
In order to ensure the uniform application of paragraphs 1 to 6, in a manner which
supports the efficient valuation of shares and maximises the possibility of investment firms
of obtaining the best deal for their clients, the Commission shall, in accordance with the
procedure referred to in Article 64(2), adopt implementing measures which:
(a)
specify the criteria for application of paragraphs 1 and 2;
(b)
specify the criteria determining when a quote is published on a regular and
continuous basis and is easily accessible as well as the means by which
investment firms may comply with their obligation to make public their quotes,
which shall include the following possibilities:
(i)
through the facilities of any regulated market which has admitted the
instrument in question to trading;
(ii)
through the offices of a third party;
(iii)
through proprietary arrangements;
(c)
specify the general criteria for determining those transactions where execution in
several securities is part of one transaction or orders that are subject to conditions
other than current market price;
(d)
specify the general criteria for determining what can be considered as exceptional
market circumstances that allow for the withdrawal of quotes as well as conditions
for updating quotes;
(e)
specify the criteria for determining what is a size customarily undertaken by a retail
investor.
(f)
specify the criteria for determining what constitutes considerably exceeding the
norm as set down in paragraph 6;
(g)
specify the criteria for determining when prices fall within a public range close to
market conditions.
Regulation 22
(Article 27 of Directive 2004/39/EC)
Determination of liquid shares4
4
Regulation 40
Re-examinations
77
1. A share admitted to trading on a regulated market shall be considered to have a liquid market if
the share is traded daily, with a free float not less than EUR 500 million, and one of the following
conditions is satisfied:
(a) the average daily number of transactions in the share is not less than 500;
(b) the average daily turnover for the share is not less than EUR 2 million.
However, a Member State may, in respect of shares for which it is the most relevant market,
specify by notice that both of those conditions are to apply. That notice shall be made public.
2. A Member State may specify the minimum number of liquid shares for that Member State. The
minimum number shall be no greater than five. The specification shall be made public.
3. Where, pursuant to paragraph 1, a Member State would be the most relevant market for fewer
liquid shares than the minimum number specified in accordance with paragraph 2, the competent
authority for that Member State may designate one or more additional liquid shares, provided that
the total number of shares which are considered in consequence to be liquid shares for which that
Member State is the most relevant market does not exceed the minimum number specified by that
Member State.
The competent authority shall designate the additional liquid shares successively in decreasing
order of average daily turnover from among the shares for which it is the relevant competent
authority that are admitted to trading on a regulated market and are traded daily.
4. For the purposes of the first subparagraph of paragraph 1, the calculation of the free float of a
share shall exclude holdings exceeding 5 % of the total voting rights of the issuer, unless such a
holding is held by a collective investment undertaking or a pension fund.
Voting rights shall be calculated on the basis of all the shares to which voting rights are attached,
even if the exercise of such a right is suspended.
5. A share shall not be considered to have a liquid market for the purposes of Article 27 of
Directive 2004/39/EC until six weeks after its first admission to trading on a regulated market, if the
estimate of the total market capitalisation for that share at the start of the first day's trading after
that admission, provided in accordance with Article 33(3), is less than EUR 500 million.
6. Each competent authority shall ensure the maintenance and publication of a list of all liquid
shares for which it is the relevant competent authority.
It shall ensure that the list is current by reviewing it at least annually.
The list shall be made available to the Committee of European Securities Regulators. It shall be
considered as published when it is published by the Committee of European Securities Regulators
in accordance with Regulation 34(5).
1. At least once every two years, and after consulting the Committee of European Securities
Regulators, the Commission shall re-examine the definition of 'transaction' for the purposes of this
Regulation, the Tables included in Annex II, as well as the criteria for determination of liquid
shares contained in Article 22.
78
Regulation 30
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Public availability of pre- and post-trade information
For the purposes of Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC and of this
Regulation, pre- and post-trade information shall be considered to be made public or available to
the public if it is made available generally through one of the following to investors located in the
Community:
(a) the facilities of a regulated market or an MTF;
(b) the facilities of a third party;
(c) proprietary arrangements.
Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis at
a reasonable cost.
Regulation 33
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Calculations and estimates for shares admitted to trading on a regulated market
1. In respect of each share that is admitted to trading on a regulated market, the relevant
competent authority for that share shall ensure that the following calculations are made in respect
of that share promptly after the end of each calendar year:
(a) the average daily turnover;
(b) the average daily number of transactions;
(c) for those shares which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as
applicable), the free float as at 31 December;
(d) if the share is a liquid share, the average value of the orders executed.
This paragraph and paragraph 2 shall not apply to a share which is first admitted to trading on a
regulated market four weeks or less before the end of the calendar year.
2. The calculation of the average daily turnover, average value of the orders executed and
average daily number of transactions shall take into account all the orders executed in the
79
Community in respect of the share in question between 1 January and 31 December of the
preceding year, or, where applicable, that part of the year during which the share was admitted to
trading on a regulated market and was not suspended from trading on a regulated market.
In the calculations of the average daily turnover, average value of the orders executed and
average daily number of transactions of a share, non-trading days in the Member State of the
relevant competent authority for that share shall be excluded.
3. Before the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that estimates are provided, in respect of that share, of the
average daily turnover, the market capitalisation as it will stand at the start of the first day of
trading and, where the estimate of the market capitalisation is EUR 500 million or more:
(a) the average daily number of transactions and, for those shares which satisfy the conditions
laid down in Regulation 22 (1)(a) or (b) (as applicable), the free float;
(b) in the case of a share that is estimated to be a liquid share, the average value of the orders
executed.
The estimates shall relate to the six-week period following admission to trading, or the end of that
period, as applicable, and shall take account of any previous trading history of the share, as well
as that of shares that are considered to have similar characteristics.
4. After the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that, in respect of that share, the figures referred to in points
(a) to (d) of paragraph 1 are calculated, using data relating to the first four weeks' trading, as if a
reference in point (c) of paragraph 1 to 31 December were a reference to the end of the first four
weeks' trading, as soon as practicable after those data are available, and in any case before the
end of the six-week period referred to in Regulation 22(5).
5. During the course of a calendar year, the relevant competent authorities shall ensure the review
and where necessary the recalculation of the average daily turnover, average value of the orders
executed, average daily number of transactions executed and the free float whenever there is a
change in relation to the share or the issuer which significantly affects the previous calculations on
an ongoing basis.
6. The calculations referred to in paragraphs 1 to 5 which are to be published on or before the first
trading day in March 2009 shall be made on the basis of the data relating to the regulated market
or markets of the Member State which is the most relevant market in terms of liquidity for the share
in question. For those purposes, negotiated transactions within the meaning of Regulation 19 shall
be excluded from the calculations.
Regulation 34
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Publication and effect of results of required calculations and estimates
1. On the first trading day of March of each year, each competent authority shall, in relation to
each share for which it is the relevant competent authority that was admitted to trading on a
regulated market at the end of the preceding calendar year, ensure the publication of the following
information:
(a) the average daily turnover and average daily number of transactions, as calculated in
accordance with Regulation 33(1) and (2);
(b) the free float and average value of the orders executed, where calculated in accordance with
Regulation 33(1) and (2).
80
This paragraph shall not apply to shares to which the second subparagraph of Regulation 33(1)
applies.
2. The results of the estimates and calculations required under Regulation 33(3), (4) or (5) shall
be published as soon as practicable after the calculation or estimate is completed.
3. The information referred to in paragraphs 1 or 2 shall be considered as published when it is
published by the Committee of European Securities Regulators in accordance with paragraph 5.
4. For the purposes of this Regulation, the following shall apply:
(a) the classification based on the publication referred to in paragraph 1 shall apply for the 12month period starting on 1 April following publication and ending on the following 31 March;
(b) the classification based on the estimates provided for in Regulation 33(3) shall apply from the
relevant first admission to trading until the end of the six-week period referred to in Regulation
22(5);
(c) the classification based on the calculations specified in Regulation 33(4) shall apply from the
end of the six-week period referred to in Regulation 22(5), until:
(i)
where the end of that six-week period falls between 15 January and 31 March (both
inclusive) in a given year, 31 March of the following year;
(ii) otherwise, the following 31 March after the end of that period.
However, the classification based on the recalculations specified in Regulation 33(5) shall apply
from the date of publication and, unless further recalculated under Regulation 33(5), until the
following 31 March.
5. The Committee of European Securities Regulators shall, on the basis of data supplied to it by or
on behalf of competent authorities, publish on its website consolidated and regularly updated lists
of:
(a) every systematic internaliser in respect of a share admitted to trading on a regulated market;
(b) every share admitted to trading on a regulated market, specifying:
(i)
the average daily turnover, average daily number of transactions and, for those shares
which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as applicable), the free
float;
(ii) in the case of a liquid share, the average value of the orders executed and the standard
market size for that share;
(iii) in the case of a liquid share which has been designated as an additional liquid share in
accordance with Regulation 22(3), the name of the competent authority that so designated
it; and
(iv) the relevant competent authority.
6. Each competent authority shall ensure the first publication of the details referred to in points (a)
and (b) of paragraph 1 on the first trading day in July 2007, based on the reference period 1 April
2006 to 31 March 2007. By way of derogation from paragraph 4, the classification based on that
publication shall apply for the five-month period starting on 1 November 2007 and ending on 31
March 2008.
Article 28 : Post-trade disclosure by investment firms
81
1.
Member States shall, at least, require investment firms which, either on own account or on
behalf of clients, conclude transactions in shares admitted to trading on a regulated market
outside a regulated market or MTF, to make public the volume and price of those
transactions and the time at which they were concluded. This information shall be made
public as close to real-time as possible, on a reasonable commercial basis, and in a
manner which is easily accessible to other market participants.
Provisions common to pre- and post-trade transparency
Regulation 29
(Articles 27(3), 28(1), 29(1), 44(1) and 45(1) of Directive 2004/39/EC)
Publication and availability of pre- and post-trade transparency data
1. A regulated market, MTF or systematic internaliser shall be considered to publish pre-trade
information on a continuous basis during normal trading hours if that information is published as
soon as it becomes available during the normal trading hours of the regulated market, MTF or
systematic internaliser concerned, and remains available until it is updated.
2. Pre-trade information, and post-trade information relating to transactions taking place on trading
venues and within normal trading hours, shall be made available as close to real time as possible.
Post-trade information relating to such transactions shall be made available in any case within
three minutes of the relevant transaction.
3. Information relating to a portfolio trade shall be made available with respect to each constituent
transaction as close to real time as possible, having regard to the need to allocate prices to
particular shares. Each constituent transaction shall be assessed separately for the purposes of
determining whether deferred publication in respect of that transaction is available under Article
28.
4. Post-trade information relating to transactions taking place on a trading venue but outside its
normal trading hours shall be made public before the opening of the next trading day of the trading
venue on which the transaction took place.
5. For transactions that take place outside a trading venue, post-trade information shall be made
public:
(a) if the transaction takes place during a trading day of the most relevant market for the share
concerned, or during the investment firm's normal trading hours, as close to real time as
possible. Post-trade information relating to such transactions shall be made available in any
case within three minutes of the relevant transaction;
(b) in a case not covered by point (a), immediately upon the commencement of the investment
firm's normal trading hours or at the latest before the opening of the next trading day in the
most relevant market for that share.
2.
Member States shall require that the information which is made public in accordance with
paragraph 1 and the time--limits within which it is published comply with the requirements
adopted pursuant to Article 45. Where the measures adopted pursuant to Article 45
provide for deferred reporting for certain categories of transaction in shares, this possibility
shall apply mutatis mutandis to those transactions when undertaken outside regulated
markets or MTFs.
3.
In order to ensure the transparent and orderly functioning of markets and the uniform
application of paragraph 1, the Commission shall adopt, in accordance with the procedure
referred to in Article 64(2), implementing measures which:
82
(a)
(b)
specify the means by which investment firms may comply with their obligations
under paragraph 1 including the following possibilities:
(i)
through the facilities of any regulated market which has admitted the
instrument in question to trading or through the facilities of an MTF in
which the share in question is traded;
(ii)
through the offices of a third party;
(iii)
through proprietary arrangements;
clarify the application of the obligation under paragraph 1 to transactions involving
the use of shares for collateral, lending or other purposes where the exchange of
shares is determined by factors other than the current market valuation of the
share.
Regulation 27
(Articles 28, 30 and 45 of Directive 2004/39/EC)
Post-trade transparency obligation
1. Investment firms, regulated markets, and investment firms and market operators operating an
MTF shall, with regard to transactions in respect of shares admitted to trading on regulated
markets concluded by them or, in the case of regulated markets or MTFs, within their systems,
make public the following details:
(a) the details specified in points 2, 3, 6, 16, 17, 18, and 21 of Table 1 in Annex I;
(b) an indication that the exchange of shares is determined by factors other than the current
market valuation of the share, where applicable;
(c) an indication that the trade was a negotiated trade, where applicable;
(d) any amendments to previously disclosed information, where applicable.
Those details shall be made public either by reference to each transaction or in a form aggregating
the volume and price of all transactions in the same share taking place at the same price at the
same time.
2. By way of exception, a systematic internaliser shall be entitled to use the acronym 'SI' instead of
the venue identification referred to in paragraph 1(a) in respect of a transaction in a share that is
executed in its capacity as a systematic internaliser in respect of that share.
The systematic internaliser may exercise that right only as long as it makes available to the public
aggregate quarterly data as to the transactions executed in its capacity as a systematic internaliser
in respect of that share relating to the most recent calendar quarter, or part of a calendar quarter,
during which the firm acted as a systematic internaliser in respect of that share. That data shall be
made available no later than one month after the end of each calendar quarter.
It may also exercise that right during the period between the date specified in Article 41(2), or the
date on which the firm commences to be a systematic internaliser in relation to a share, whichever
is the later, and the date that aggregate quarterly data in relation to a share is first due to be
published.
3. The aggregated quarterly data referred to in the second subparagraph of paragraph 2 shall
contain the following information for the share in respect of each trading day of the calendar
quarter concerned:
83
(a) the highest price;
(b) the lowest price;
(c) the average price;
(d) the total number of shares traded;
(e) the total number of transactions;
(f) such other information as the systematic internaliser decides to make available.
4. Where the transaction is executed outside the rules of a regulated market or an MTF, one of the
following investment firms shall, by agreement between the parties, arrange to make the
information public:
(a) the investment firm that sells the share concerned;
(b) the investment firm that acts on behalf of or arranges the transaction for the seller;
(c) the investment firm that acts on behalf of or arranges the transaction for the buyer;
(d) the investment firm that buys the share concerned.
In the absence of such an agreement, the information shall be made public by the investment firm
determined by proceeding sequentially from point (a) to point (d) until the first point that applies to
the case in question.
The parties shall take all reasonable steps to ensure that the transaction is made public as a single
transaction. For those purposes two matching trades entered at the same time and price with a
single party interposed shall be considered to be a single transaction.
Article 28
(Articles 28, 30 and 45 of Directive 2004/39/EC)
Deferred publication of large transactions
The deferred publication of information in respect of transactions may be authorised, for a period
no longer than the period specified in Table 4 in Annex II for the class of share and transaction
concerned, provided that the following criteria are satisfied:
(a) the transaction is between an investment firm dealing on own account and a client of that firm;
(b) the size of the transaction is equal to or exceeds the relevant minimum qualifying size, as
specified in Table 4 in Annex II.
In order to determine the relevant minimum qualifying size for the purposes of point (b), all shares
admitted to trading on a regulated market shall be classified in accordance with their average daily
turnover to be calculated in accordance with Article 33.
Regulation 30
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Public availability of pre- and post-trade information
84
For the purposes of Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC and of this
Regulation, pre- and post-trade information shall be considered to be made public or available to
the public if it is made available generally through one of the following to investors located in the
Community:
(a) the facilities of a regulated market or an MTF;
(b) the facilities of a third party;
(c) proprietary arrangements.
Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis
at a reasonable cost.
Regulation 33
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Calculations and estimates for shares admitted to trading on a regulated market
1. In respect of each share that is admitted to trading on a regulated market, the relevant
competent authority for that share shall ensure that the following calculations are made in respect
of that share promptly after the end of each calendar year:
(a) the average daily turnover;
(b) the average daily number of transactions;
(c) for those shares which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as
applicable), the free float as at 31 December;
(d) if the share is a liquid share, the average value of the orders executed.
This paragraph and paragraph 2 shall not apply to a share which is first admitted to trading on a
regulated market four weeks or less before the end of the calendar year.
2. The calculation of the average daily turnover, average value of the orders executed and
average daily number of transactions shall take into account all the orders executed in the
Community in respect of the share in question between 1 January and 31 December of the
preceding year, or, where applicable, that part of the year during which the share was admitted to
trading on a regulated market and was not suspended from trading on a regulated market.
85
In the calculations of the average daily turnover, average value of the orders executed and
average daily number of transactions of a share, non-trading days in the Member State of the
relevant competent authority for that share shall be excluded.
3. Before the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that estimates are provided, in respect of that share, of the
average daily turnover, the market capitalisation as it will stand at the start of the first day of
trading and, where the estimate of the market capitalisation is EUR 500 million or more:
(a) the average daily number of transactions and, for those shares which satisfy the conditions laid
down in Regulation 22 (1)(a) or (b) (as applicable), the free float;
(b) in the case of a share that is estimated to be a liquid share, the average value of the orders
executed.
The estimates shall relate to the six-week period following admission to trading, or the end of that
period, as applicable, and shall take account of any previous trading history of the share, as well
as that of shares that are considered to have similar characteristics.
4. After the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that, in respect of that share, the figures referred to in points
(a) to (d) of paragraph 1 are calculated, using data relating to the first four weeks' trading, as if a
reference in point (c) of paragraph 1 to 31 December were a reference to the end of the first four
weeks' trading, as soon as practicable after those data are available, and in any case before the
end of the six-week period referred to in Regulation 22(5).
5. During the course of a calendar year, the relevant competent authorities shall ensure the review
and where necessary the recalculation of the average daily turnover, average value of the orders
executed, average daily number of transactions executed and the free float whenever there is a
change in relation to the share or the issuer which significantly affects the previous calculations on
an ongoing basis.
6. The calculations referred to in paragraphs 1 to 5 which are to be published on or before the first
trading day in March 2009 shall be made on the basis of the data relating to the regulated market
or markets of the Member State which is the most relevant market in terms of liquidity for the share
in question. For those purposes, negotiated transactions within the meaning of Article 19 shall be
excluded from the calculations.
Regulation 34
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Publication and effect of results of required calculations and estimates
1. On the first trading day of March of each year, each competent authority shall, in relation to
each share for which it is the relevant competent authority that was admitted to trading on a
regulated market at the end of the preceding calendar year, ensure the publication of the following
information:
(a) the average daily turnover and average daily number of transactions, as calculated in
accordance with Regulation 33(1) and (2);
(b) the free float and average value of the orders executed, where calculated in accordance with
Regulation 33(1) and (2).
This paragraph shall not apply to shares to which the second subparagraph of Regulation 33(1)
applies.
86
2. The results of the estimates and calculations required under Regulation 33(3), (4) or (5) shall
be published as soon as practicable after the calculation or estimate is completed.
3. The information referred to in paragraphs 1 or 2 shall be considered as published when it is
published by the Committee of European Securities Regulators in accordance with paragraph 5.
4. For the purposes of this Regulation, the following shall apply:
(a) the classification based on the publication referred to in paragraph 1 shall apply for the 12month period starting on 1 April following publication and ending on the following 31 March;
(b) the classification based on the estimates provided for in Regulation 33(3) shall apply from the
relevant first admission to trading until the end of the six-week period referred to in Regulation
22(5);
(c) the classification based on the calculations specified in Regulation 33(4) shall apply from the
end of the six-week period referred to in Regulation 22(5), until:
(i) where the end of that six-week period falls between 15 January and 31 March (both
inclusive) in a given year, 31 March of the following year;
(ii) otherwise, the following 31 March after the end of that period.
However, the classification based on the recalculations specified in Regulation 33(5) shall apply
from the date of publication and, unless further recalculated under Regulation 33(5), until the
following 31 March.
5. The Committee of European Securities Regulators shall, on the basis of data supplied to it by or
on behalf of competent authorities, publish on its website consolidated and regularly updated lists
of:
(a) every systematic internaliser in respect of a share admitted to trading on a regulated market;
(b) every share admitted to trading on a regulated market, specifying:
(i) the average daily turnover, average daily number of transactions and, for those shares
which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as applicable), the free
float;
(ii) in the case of a liquid share, the average value of the orders executed and the standard
market size for that share;
(iii) in the case of a liquid share which has been designated as an additional liquid share in
accordance with Regulation 22(3), the name of the competent authority that so designated
it; and
(iv) the relevant competent authority.
6. Each competent authority shall ensure the first publication of the details referred to in points (a)
and (b) of paragraph 1 on the first trading day in July 2007, based on the reference period 1 April
2006 to 31 March 2007. By way of derogation from paragraph 4, the classification based on that
publication shall apply for the five-month period starting on 1 November 2007 and ending on 31
March 2008.
Article 29 : Pre-trade transparency requirements for MTFs
1.
Member States shall, at least, require that investment firms and market operators
operating an MTF make public current bid and offer prices and the depth of trading
87
interests at these prices which are advertised through their systems in respect of shares
admitted to trading on a regulated market. Member States shall provide for this information
to be made available to the public on reasonable commercial terms and on a continuous
basis during normal trading hours.
Provisions common to pre- and post-trade transparency
Regulation 29
(Articles 27(3), 28(1), 29(1), 44(1) and 45(1) of Directive 2004/39/EC)
Publication and availability of pre- and post-trade transparency data
1. A regulated market, MTF or systematic internaliser shall be considered to publish pre-trade
information on a continuous basis during normal trading hours if that information is published as
soon as it becomes available during the normal trading hours of the regulated market, MTF or
systematic internaliser concerned, and remains available until it is updated.
2. Pre-trade information, and post-trade information relating to transactions taking place on trading
venues and within normal trading hours, shall be made available as close to real time as possible.
Post-trade information relating to such transactions shall be made available in any case within
three minutes of the relevant transaction.
3. Information relating to a portfolio trade shall be made available with respect to each constituent
transaction as close to real time as possible, having regard to the need to allocate prices to
particular shares. Each constituent transaction shall be assessed separately for the purposes of
determining whether deferred publication in respect of that transaction is available under Article
28.
4. Post-trade information relating to transactions taking place on a trading venue but outside its
normal trading hours shall be made public before the opening of the next trading day of the trading
venue on which the transaction took place.
5. For transactions that take place outside a trading venue, post-trade information shall be made
public:
(a) if the transaction takes place during a trading day of the most relevant market for the share
concerned, or during the investment firm's normal trading hours, as close to real time as
possible. Post-trade information relating to such transactions shall be made available in any
case within three minutes of the relevant transaction;
(b) in a case not covered by point (a), immediately upon the commencement of the investment
firm's normal trading hours or at the latest before the opening of the next trading day in the
most relevant market for that share.
2.
Member States shall provide for the competent authorities to be able to waive the
obligation for investment firms or market operators operating an MTF to make public the
information referred to in paragraph 1 based on the market model or the type and size of
orders in the cases defined in accordance with paragraph 3. In particular, the competent
authorities shall be able to waive the obligation in respect of transactions that are large in
scale compared with normal market size for the share or type of share in question.
Regulation 18
(Articles 29(2) and 44(2) of Directive 2004/39/EC)
88
Waivers based on market model and type of order or transaction
1. Waivers in accordance with Article 29(2) and 44(2) of Directive 2004/39/EC may be granted by
the competent authorities for systems operated by an MTF or a regulated market, if those systems
satisfy one of the following criteria:
(a) they must be based on a trading methodology by which the price is determined in accordance
with a reference price generated by another system, where that reference price is widely
published and is regarded generally by market participants as a reliable reference price;
(b) they formalise negotiated transactions, each of which meets one of the following criteria:
(i)
it is made at or within the current volume weighted spread reflected on the order book or
the quotes of the market makers of the regulated market or MTF operating that system or,
where the share is not traded continuously, within a percentage of a suitable reference
price, being a percentage and a reference price set in advance by the system operator;
(ii)
it is subject to conditions other than the current market price of the share.
For the purposes of point (b), the other conditions specified in the rules of the regulated market or
MTF for a transaction of this kind must also have been fulfilled.
In the case of systems having functionality other than as described in points (a) or (b), the waiver
shall not apply to that other functionality.
2. Waivers in accordance with Articles 29(2) and 44(2) of Directive 2004/39/EC based on the type
of orders may be granted only in relation to orders held in an order management facility
maintained by the regulated market or the MTF pending their being disclosed to the market.
Regulation 19
(Articles 29(2) and 44(2) of Directive 2004/39/EC)
References to negotiated transaction
For the purpose of Regulation 18(1)(b) a negotiated transaction shall mean a transaction involving
members or participants of a regulated market or an MTF which is negotiated privately but
executed within the regulated market or MTF and where that member or participant in doing so
undertakes one of the following tasks:
(a) dealing on own account with another member or participant who acts for the account of a
client;
(b) dealing with another member or participant, where both are executing orders on own account;
(c) acting for the account of both the buyer and seller;
(d) acting for the account of the buyer, where another member or participant acts for the account of
the seller;
(e) trading for own account against a client order.
Article 20
(Articles 29(2) and 44(2), and fifth subparagraph of Article 27(1) of Directive 2004/39/EC)
Waivers in relation to transactions which are large in scale
89
An order shall be considered to be large in scale compared with normal market size if it is equal to
or larger than the minimum size of order specified in Table 2 in Annex II. For the purposes of
determining whether an order is large in scale compared to normal market size, all shares
admitted to trading on a regulated market shall be classified in accordance with their average daily
turnover, which shall be calculated in accordance with the procedure set out in Regulation 33.
3.
In order to ensure the uniform application of paragraphs 1 and 2, the Commission shall, in
accordance with the procedure referred to in Article 64(2) adopt implementing measures
as regards:
(a)
the range of bid and offers or designated market-maker quotes, and the depth of
trading interest at those prices, to be made public;
(b)
the size or type of orders for which pre-trade disclosure may be waived under
paragraph 2;
(c)
the market model for which pre-trade disclosure may be waived under paragraph
2 and in particular, the applicability of the obligation to trading methods operated
by an MTF which conclude transactions under their rules by reference to prices
established outside the systems of the MTF or by periodic auction.
Except where justified by the specific nature of the MTF, the content of these
implementing measures shall be equal to that of the implementing measures provided for
in Article 44 for regulated markets.
Chapter IV
MARKET TRANSPARENCY
Section 1
Pre-trade transparency for regulated markets and MTFs
Regulation 17
(Articles 29 and 44 of Directive 2004/39/EC)
Pre-trade transparency obligations
1. An investment firm or market operator operating an MTF or a regulated market shall, in respect
of each share admitted to trading on a regulated market that is traded within a system operated by
it and specified in Table 1 of Annex II, make public the information set out in paragraphs 2 to 6.
2. Where one of the entities referred to in paragraph 1 operates a continuous auction order book
trading system, it shall, for each share as specified in paragraph 1, make public continuously
throughout its normal trading hours the aggregate number of orders and of the shares those
orders represent at each price level, for the five best bid and offer price levels.
3. Where one of the entities referred to in paragraph 1 operates a quote-driven trading system, it
shall, for each share as specified in paragraph 1, make public continuously throughout its normal
trading hours the best bid and offer by price of each market maker in that share, together with the
volumes attaching to those prices.
The quotes made public shall be those that represent binding commitments to buy and sell the
shares and which indicate the price and volume of shares in which the registered market makers
are prepared to buy or sell.
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In exceptional market conditions, however, indicative or one-way prices may be allowed for a
limited time.
4. Where one of the entities referred to in paragraph 1 operates a periodic auction trading system,
it shall, for each share specified in paragraph 1, make public continuously throughout its normal
trading hours the price that would best satisfy the system's trading algorithm and the volume that
would potentially be executable at that price by participants in that system.
5. Where one of the entities referred to in paragraph 1 operates a trading system which is not
wholly covered by paragraph 2 or 3 or 4, either because it is a hybrid system falling under more
than one of those paragraphs or because the price determination process is of a different nature, it
shall maintain a standard of pre-trade transparency that ensures that adequate information is
made public as to the price level of orders or quotes for each share specified in paragraph 1, as
well as the level of trading interest in that share.
In particular, the five best bid and offer price levels and/or two-way quotes of each market maker in
that share shall be made public, if the characteristics of the price discovery mechanism permit it.
6. A summary of the information to be made public in accordance with paragraphs 2 to 5 is
specified in Table 1 of Annex II.
Regulation 30
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Public availability of pre- and post-trade information
For the purposes of Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC and of this
Regulation, pre- and post-trade information shall be considered to be made public or available to
the public if it is made available generally through one of the following to investors located in the
Community:
(a) the facilities of a regulated market or an MTF;
(b) the facilities of a third party;
(c) proprietary arrangements.
Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis at
a reasonable cost.
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Regulation 33
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Calculations and estimates for shares admitted to trading on a regulated market
1. In respect of each share that is admitted to trading on a regulated market, the relevant
competent authority for that share shall ensure that the following calculations are made in respect
of that share promptly after the end of each calendar year:
(a) the average daily turnover;
(b) the average daily number of transactions;
(c) for those shares which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as
applicable), the free float as at 31 December;
(d) if the share is a liquid share, the average value of the orders executed.
This paragraph and paragraph 2 shall not apply to a share which is first admitted to trading on a
regulated market four weeks or less before the end of the calendar year.
2. The calculation of the average daily turnover, average value of the orders executed and
average daily number of transactions shall take into account all the orders executed in the
Community in respect of the share in question between 1 January and 31 December of the
preceding year, or, where applicable, that part of the year during which the share was admitted to
trading on a regulated market and was not suspended from trading on a regulated market.
In the calculations of the average daily turnover, average value of the orders executed and
average daily number of transactions of a share, non-trading days in the Member State of the
relevant competent authority for that share shall be excluded.
3. Before the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that estimates are provided, in respect of that share, of the
average daily turnover, the market capitalisation as it will stand at the start of the first day of
trading and, where the estimate of the market capitalisation is EUR 500 million or more:
(a) the average daily number of transactions and, for those shares which satisfy the conditions laid
down in Regulation 22 (1)(a) or (b) (as applicable), the free float;
(b) in the case of a share that is estimated to be a liquid share, the average value of the orders
executed.
The estimates shall relate to the six-week period following admission to trading, or the end of that
period, as applicable, and shall take account of any previous trading history of the share, as well
as that of shares that are considered to have similar characteristics.
4. After the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that, in respect of that share, the figures referred to in points
(a) to (d) of paragraph 1 are calculated, using data relating to the first four weeks' trading, as if a
reference in point (c) of paragraph 1 to 31 December were a reference to the end of the first four
weeks' trading, as soon as practicable after those data are available, and in any case before the
end of the six-week period referred to in Regulation 22(5).
5. During the course of a calendar year, the relevant competent authorities shall ensure the review
and where necessary the recalculation of the average daily turnover, average value of the orders
executed, average daily number of transactions executed and the free float whenever there is a
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change in relation to the share or the issuer which significantly affects the previous calculations on
an ongoing basis.
6. The calculations referred to in paragraphs 1 to 5 which are to be published on or before the first
trading day in March 2009 shall be made on the basis of the data relating to the regulated market
or markets of the Member State which is the most relevant market in terms of liquidity for the share
in question. For those purposes, negotiated transactions within the meaning of Regulation 19 shall
be excluded from the calculations.
Regulation 34
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Publication and effect of results of required calculations and estimates
1. On the first trading day of March of each year, each competent authority shall, in relation to
each share for which it is the relevant competent authority that was admitted to trading on a
regulated market at the end of the preceding calendar year, ensure the publication of the following
information:
(a) the average daily turnover and average daily number of transactions, as calculated in
accordance with Regulation 33(1) and (2);
(b) the free float and average value of the orders executed, where calculated in accordance with
Regulation 33(1) and (2).
This paragraph shall not apply to shares to which the second subparagraph of Regulation 33(1)
applies.
2. The results of the estimates and calculations required under Regulation 33(3), (4) or (5) shall
be published as soon as practicable after the calculation or estimate is completed.
3. The information referred to in paragraphs 1 or 2 shall be considered as published when it is
published by the Committee of European Securities Regulators in accordance with paragraph 5.
4. For the purposes of this Regulation, the following shall apply:
(a) the classification based on the publication referred to in paragraph 1 shall apply for the 12month period starting on 1 April following publication and ending on the following 31 March;
(b) the classification based on the estimates provided for in Regulation 33(3) shall apply from the
relevant first admission to trading until the end of the six-week period referred to in Regulation
22(5);
(c) the classification based on the calculations specified in Regulation 33(4) shall apply from the
end of the six-week period referred to in Regulation 22(5), until:
(i)
where the end of that six-week period falls between 15 January and 31 March (both
inclusive) in a given year, 31 March of the following year;
(ii)
otherwise, the following 31 March after the end of that period.
However, the classification based on the recalculations specified in Regulation 33(5) shall apply
from the date of publication and, unless further recalculated under Regulation 33(5), until the
following 31 March.
5. The Committee of European Securities Regulators shall, on the basis of data supplied to it by or
on behalf of competent authorities, publish on its website consolidated and regularly updated lists
of:
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(a) every systematic internaliser in respect of a share admitted to trading on a regulated market;
(b) every share admitted to trading on a regulated market, specifying:
(i)
the average daily turnover, average daily number of transactions and, for those shares
which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as applicable), the
free float;
(ii)
in the case of a liquid share, the average value of the orders executed and the standard
market size for that share;
(iii)
in the case of a liquid share which has been designated as an additional liquid share in
accordance with Regulation 22(3), the name of the competent authority that so
designated it; and
(iv)
the relevant competent authority.
6. Each competent authority shall ensure the first publication of the details referred to in points (a)
and (b) of paragraph 1 on the first trading day in July 2007, based on the reference period 1 April
2006 to 31 March 2007. By way of derogation from paragraph 4, the classification based on that
publication shall apply for the five-month period starting on 1 November 2007 and ending on 31
March 2008.
Article 30 : Post-trade transparency requirements for MTFs
1.
Member States shall, at least, require that investment firms and market operators
operating an MTF make public the price, volume and time of the transactions executed
under its systems in respect of shares which are admitted to trading on a regulated
market. Member States shall require that details of all such transactions be made public,
on a reasonable commercial basis, as close to real-time as possible. This requirement
shall not apply to details of trades executed on an MTF that are made public under the
systems of a regulated market.
2.
Member States shall provide that the competent authority may authorise investment firms
or market operators operating an MTF to provide for deferred publication of the details of
transactions based on their type or size. In particular, the competent authorities may
authorise the deferred publication in respect of transactions that are large in scale
compared with the normal market size for that share or that class of shares. Member
States shall require MTFs to obtain the competent authority's prior approval to proposed
arrangements for deferred trade-publication, and shall require that these arrangements be
clearly disclosed to market participants and the investing public.
3.
In order to provide for the efficient and orderly functioning of financial markets, and to
ensure the uniform application of paragraphs 1 and 2, the Commission shall, in
accordance with the procedure referred to in Article 64(2) adopt implementing measures in
respect of:
(a)
the scope and content of the information to be made available to the public;
(b)
the conditions under which investment firms or market operators operating an
MTF may provide for deferred publication of trades and the criteria to be applied
when deciding the transactions for which, due to their size or the type of share
involved, deferred publication is allowed.
Except where justified by the specific nature of the MTF, the content of these implementing
measures shall be equal to that of the implementing measures provided for in Article 45 for
regulated markets.
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Regulation 27
(Articles 28, 30 and 45 of Directive 2004/39/EC)
Post-trade transparency obligation
1. Investment firms, regulated markets, and investment firms and market operators operating an
MTF shall, with regard to transactions in respect of shares admitted to trading on regulated
markets concluded by them or, in the case of regulated markets or MTFs, within their systems,
make public the following details:
(a) the details specified in points 2, 3, 6, 16, 17, 18, and 21 of Table 1 in Annex I;
(b) an indication that the exchange of shares is determined by factors other than the current
market valuation of the share, where applicable;
(c) an indication that the trade was a negotiated trade, where applicable;
(d) any amendments to previously disclosed information, where applicable.
Those details shall be made public either by reference to each transaction or in a form aggregating
the volume and price of all transactions in the same share taking place at the same price at the
same time.
2. By way of exception, a systematic internaliser shall be entitled to use the acronym 'SI' instead of
the venue identification referred to in paragraph 1(a) in respect of a transaction in a share that is
executed in its capacity as a systematic internaliser in respect of that share.
The systematic internaliser may exercise that right only as long as it makes available to the public
aggregate quarterly data as to the transactions executed in its capacity as a systematic internaliser
in respect of that share relating to the most recent calendar quarter, or part of a calendar quarter,
during which the firm acted as a systematic internaliser in respect of that share. That data shall be
made available no later than one month after the end of each calendar quarter.
It may also exercise that right during the period between the date specified in Regulation 41(2), or
the date on which the firm commences to be a systematic internaliser in relation to a share,
whichever is the later, and the date that aggregate quarterly data in relation to a share is first due
to be published.
3. The aggregated quarterly data referred to in the second subparagraph of paragraph 2 shall
contain the following information for the share in respect of each trading day of the calendar
quarter concerned:
(a) the highest price;
(b) the lowest price;
(c) the average price;
(d) the total number of shares traded;
(e) the total number of transactions;
(f) such other information as the systematic internaliser decides to make available.
4. Where the transaction is executed outside the rules of a regulated market or an MTF, one of the
following investment firms shall, by agreement between the parties, arrange to make the
information public:
(a) the investment firm that sells the share concerned;
95
(b) the investment firm that acts on behalf of or arranges the transaction for the seller;
(c) the investment firm that acts on behalf of or arranges the transaction for the buyer;
(d) the investment firm that buys the share concerned.
In the absence of such an agreement, the information shall be made public by the investment firm
determined by proceeding sequentially from point (a) to point (d) until the first point that applies to
the case in question.
The parties shall take all reasonable steps to ensure that the transaction is made public as a single
transaction. For those purposes two matching trades entered at the same time and price with a
single party interposed shall be considered to be a single transaction.
Article 28
(Articles 28, 30 and 45 of Directive 2004/39/EC)
Deferred publication of large transactions
The deferred publication of information in respect of transactions may be authorised, for a period
no longer than the period specified in Table 4 in Annex II for the class of share and transaction
concerned, provided that the following criteria are satisfied:
(a) the transaction is between an investment firm dealing on own account and a client of that firm;
(b) the size of the transaction is equal to or exceeds the relevant minimum qualifying size, as
specified in Table 4 in Annex II.
In order to determine the relevant minimum qualifying size for the purposes of point (b), all shares
admitted to trading on a regulated market shall be classified in accordance with their average daily
turnover to be calculated in accordance with Article 33.
Regulation 30
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Public availability of pre- and post-trade information
For the purposes of Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC and of this
Regulation, pre- and post-trade information shall be considered to be made public or available to
the public if it is made available generally through one of the following to investors located in the
Community:
(a) the facilities of a regulated market or an MTF;
(b) the facilities of a third party;
(c) proprietary arrangements.
96
Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis at
a reasonable cost.
Regulation 33
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Calculations and estimates for shares admitted to trading on a regulated market
1. In respect of each share that is admitted to trading on a regulated market, the relevant
competent authority for that share shall ensure that the following calculations are made in respect
of that share promptly after the end of each calendar year:
(a) the average daily turnover;
(b) the average daily number of transactions;
(c) for those shares which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as
applicable), the free float as at 31 December;
(d) if the share is a liquid share, the average value of the orders executed.
This paragraph and paragraph 2 shall not apply to a share which is first admitted to trading on a
regulated market four weeks or less before the end of the calendar year.
2. The calculation of the average daily turnover, average value of the orders executed and
average daily number of transactions shall take into account all the orders executed in the
Community in respect of the share in question between 1 January and 31 December of the
preceding year, or, where applicable, that part of the year during which the share was admitted to
trading on a regulated market and was not suspended from trading on a regulated market.
In the calculations of the average daily turnover, average value of the orders executed and
average daily number of transactions of a share, non-trading days in the Member State of the
relevant competent authority for that share shall be excluded.
3. Before the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that estimates are provided, in respect of that share, of the
average daily turnover, the market capitalisation as it will stand at the start of the first day of
trading and, where the estimate of the market capitalisation is EUR 500 million or more:
(a) the average daily number of transactions and, for those shares which satisfy the conditions laid
down in Regulation 22 (1)(a) or (b) (as applicable), the free float;
(b) in the case of a share that is estimated to be a liquid share, the average value of the orders
97
executed.
The estimates shall relate to the six-week period following admission to trading, or the end of that
period, as applicable, and shall take account of any previous trading history of the share, as well
as that of shares that are considered to have similar characteristics.
4. After the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that, in respect of that share, the figures referred to in points
(a) to (d) of paragraph 1 are calculated, using data relating to the first four weeks' trading, as if a
reference in point (c) of paragraph 1 to 31 December were a reference to the end of the first four
weeks' trading, as soon as practicable after those data are available, and in any case before the
end of the six-week period referred to in Regulation 22(5).
5. During the course of a calendar year, the relevant competent authorities shall ensure the review
and where necessary the recalculation of the average daily turnover, average value of the orders
executed, average daily number of transactions executed and the free float whenever there is a
change in relation to the share or the issuer which significantly affects the previous calculations on
an ongoing basis.
6. The calculations referred to in paragraphs 1 to 5 which are to be published on or before the first
trading day in March 2009 shall be made on the basis of the data relating to the regulated market
or markets of the Member State which is the most relevant market in terms of liquidity for the share
in question. For those purposes, negotiated transactions within the meaning of Regulation 19 shall
be excluded from the calculations.
Regulation 34
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Publication and effect of results of required calculations and estimates
1. On the first trading day of March of each year, each competent authority shall, in relation to
each share for which it is the relevant competent authority that was admitted to trading on a
regulated market at the end of the preceding calendar year, ensure the publication of the following
information:
(a) the average daily turnover and average daily number of transactions, as calculated in
accordance with Regulation 33(1) and (2);
(b) the free float and average value of the orders executed, where calculated in accordance with
Regulation 33(1) and (2).
This paragraph shall not apply to shares to which the second subparagraph of Regulation 33(1)
applies.
2. The results of the estimates and calculations required under Regulation 33(3), (4) or (5) shall
be published as soon as practicable after the calculation or estimate is completed.
3. The information referred to in paragraphs 1 or 2 shall be considered as published when it is
published by the Committee of European Securities Regulators in accordance with paragraph 5.
4. For the purposes of this Regulation, the following shall apply:
(a) the classification based on the publication referred to in paragraph 1 shall apply for the 12month period starting on 1 April following publication and ending on the following 31 March;
(b) the classification based on the estimates provided for in Regulation 33(3) shall apply from the
relevant first admission to trading until the end of the six-week period referred to in Regulation
22(5);
98
(c) the classification based on the calculations specified in Regulation 33(4) shall apply from the
end of the six-week period referred to in Regulation 22(5), until:
(i)
where the end of that six-week period falls between 15 January and 31 March (both
inclusive) in a given year, 31 March of the following year;
(ii) otherwise, the following 31 March after the end of that period.
However, the classification based on the recalculations specified in Regulation 33(5) shall apply
from the date of publication and, unless further recalculated under Regulation 33(5), until the
following 31 March.
5. The Committee of European Securities Regulators shall, on the basis of data supplied to it by or
on behalf of competent authorities, publish on its website consolidated and regularly updated lists
of:
(a) every systematic internaliser in respect of a share admitted to trading on a regulated market;
(b) every share admitted to trading on a regulated market, specifying:
(i)
the average daily turnover, average daily number of transactions and, for those shares
which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as applicable), the free
float;
(ii) in the case of a liquid share, the average value of the orders executed and the standard
market size for that share;
(iii) in the case of a liquid share which has been designated as an additional liquid share in
accordance with Regulation 22(3), the name of the competent authority that so designated
it; and
(iv) the relevant competent authority.
6. Each competent authority shall ensure the first publication of the details referred to in points (a)
and (b) of paragraph 1 on the first trading day in July 2007, based on the reference period 1 April
2006 to 31 March 2007. By way of derogation from paragraph 4, the classification based on that
publication shall apply for the five-month period starting on 1 November 2007 and ending on 31
March 2008.
Chapter III : RIGHTS OF INVESTMENT FIRMS
Article 31 : Freedom to provide investment services and activities
1.
Member States shall ensure that any investment firm authorised and supervised by the
competent authorities of another Member State in accordance with this Directive, and in
respect of credit institutions in accordance with Directive 2000/12/EC, may freely perform
investment services and/or activities as well as ancillary services within their territories,
provided that such services and activities are covered by its authorisation. Ancillary
services may only be provided together with an investment service and/or activity.
Member States shall not impose any additional requirements on such an investment firm
or credit institution in respect of the matters covered by this Directive.
2.
Any investment firm wishing to provide services or activities within the territory of another
Member State for the first time, or which wishes to change the range of services or
activities so provided, shall communicate the following information to the competent
99
authorities of its home Member State:
(a)
the Member State in which it intends to operate;
(b)
a programme of operations stating in particular the investment services and/or
activities as well as ancillary services which it intends to perform and whether it
intends to use tied agents in the territory of the Member States in which it intends
to provide services.
In cases where the investment firm intends to use tied agents, the competent authority of
the home Member State of the investment firm shall, at the request of the competent
authority of the host Member State and within a reasonable time, communicate the identity
of the tied agents that the investment firm intends to use in that Member State. The host
Member State may make public such information.
3.
The competent authority of the home Member State shall, within one month of receiving
the information, forward it to the competent authority of the host Member State designated
as contact point in accordance with Article 56(1). The investment firm may then start to
provide the investment service or services concerned in the host Member State.
4.
In the event of a change in any of the particulars communicated in accordance with
paragraph 2, an investment firm shall give written notice of that change to the competent
authority of the home Member State at least one month before implementing the change.
The competent authority of the home Member State shall inform the competent authority
of the host Member State of those changes.
5.
Member States shall, without further legal or administrative requirement, allow investment
firms and market operators operating MTFs from other Member States to provide
appropriate arrangements on their territory so as to facilitate access to and use of their
systems by remote users or participants established in their territory.
6.
The investment firm or the market operator that operates an MTF shall communicate to
the competent authority of its home Member State the Member State in which it intends to
provide such arrangements. The competent authority of the home Member State of the
MTF shall communicate, within one month, this information to the Member State in which
the MTF intends to provide such arrangements.
The competent authority of the home Member State of the MTF shall, on the request of the
competent authority of the host Member State of the MTF and within a reasonable delay,
communicate the identity of the members or participants of the MTF established in that
Member State.
Article 32 : Establishment of a branch
1.
Member States shall ensure that investment services and/or activities as well as ancillary
services may be provided within their territories in accordance with this Directive and
Directive 2000/12/EC through the establishment of a branch provided that those services
and activities are covered by the authorisation granted to the investment firm or the credit
institution in the home Member State. Ancillary services may only be provided together
with an investment service and/or activity.
Member States shall not impose any additional requirements save those allowed under
paragraph 7, on the organisation and operation of the branch in respect of the matters
covered by this Directive.
2.
Member States shall require any investment firm wishing to establish a branch within the
territory of another Member State first to notify the competent authority of its home
Member State and to provide it with the following information:
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(a)
the Member States within the territory of which it plans to establish a branch;
(b)
a programme of operations setting out inter alia the investment services and/or
activities as well as the ancillary services to be offered and the organisational
structure of the branch and indicating whether the branch intends to use tied
agents;
(c)
the address in the host Member State from which documents may be obtained;
(d)
the names of those responsible for the management of the branch.
In cases where an investment firm uses a tied agent established in a Member State
outside its home Member State, such tied agent shall be assimilated to the branch and
shall be subject to the provisions of this Directive relating to branches.
3.
Unless the competent authority of the home Member State has reason to doubt the
adequacy of the administrative structure or the financial situation of an investment firm,
taking into account the activities envisaged, it shall, within three months of receiving all the
information, communicate that information to the competent authority of the host Member
State designated as contact point in accordance with Article 56(1) and inform the
investment firm concerned accordingly.
4.
In addition to the information referred to in paragraph 2, the competent authority of the
home Member State shall communicate details of the accredited compensation scheme of
which the investment firm is a member in accordance with Directive 97/9/EC to the
competent authority of the host Member State. In the event of a change in the particulars,
the competent authority of the home Member State shall inform the competent authority of
the host Member State accordingly.
5.
Where the competent authority of the home Member State refuses to communicate the
information to the competent authority of the host Member State, it shall give reasons for
its refusal to the investment firm concerned within three months of receiving all the
information.
6.
On receipt of a communication from the competent authority of the host Member State, or
failing such communication from the latter at the latest after two months from the date of
transmission of the communication by the competent authority of the home Member State,
the branch may be established and commence business.
7.
The competent authority of the Member State in which the branch is located shall assume
responsibility for ensuring that the services provided by the branch within its territory
comply with the obligations laid down in Articles 19, 21, 22, 25, 27 and 28 and in
measures adopted pursuant thereto.
The competent authority of the Member State in which the branch is located shall have the
right to examine branch arrangements and to request such changes as are strictly needed
to enable the competent authority to enforce the obligations under Articles 19, 21, 22, 25,
27 and 28 and measures adopted pursuant thereto with respect to the services and/or
activities provided by the branch within its territory.
8.
Each Member State shall provide that, where an investment firm authorised in another
Member State has established a branch within its territory, the competent authority of the
home Member State of the investment firm, in the exercise of its responsibilities and after
informing the competent authority of the host Member State, may carry out on-site
inspections in that branch.
9.
In the event of a change in any of the information communicated in accordance with
paragraph 2, an investment firm shall give written notice of that change to the competent
authority of the home Member State at least one month before implementing the change.
The competent authority of the host Member State shall also be informed of that change
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by the competent authority of the home Member State.
Article 33 : Access to regulated markets
1.
2.
Member States shall require that investment firms from other Member States which are
authorised to execute client orders or to deal on own account have the right of
membership or have access to regulated markets established in their territory by means of
any of the following arrangements:
(a)
directly, by setting up branches in the host Member States;
(b)
by becoming remote members of or having remote access to the regulated market
without having to be established in the home Member State of the regulated
market, where the trading procedures and systems of the market in question do
not require a physical presence for conclusion of transactions on the market.
Member States shall not impose any additional regulatory or administrative requirements,
in respect of matters covered by this Directive, on investment firms exercising the right
conferred by paragraph 1.
Article 34 : Access to central counterparty, clearing and settlement facilities and right to
designate settlement system
1.
Member States shall require that investment firms from other Member States have the
right of access to central counterparty, clearing and settlement systems in their territory for
the purposes of finalising or arranging the finalisation of transactions in financial
instruments.
Member States shall require that access of those investment firms to such facilities be
subject to the same non-discriminatory, transparent and objective criteria as apply to local
participants. Member States shall not restrict the use of those facilities to the clearing and
settlement of transactions in financial instruments undertaken on a regulated market or
MTF in their territory.
2.
Member States shall require that regulated markets in their territory offer all their members
or participants the right to designate the system for the settlement of transactions in
financial instruments undertaken on that regulated market, subject to:
(a)
such links and arrangements between the designated settlement system and any
other system or facility as are necessary to ensure the efficient and economic
settlement of the transaction in question; and
(b)
agreement by the competent authority responsible for the supervision of the
regulated market that technical conditions for settlement of transactions concluded
on the regulated market through a settlement system other than that designated
by the regulated market are such as to allow the smooth and orderly functioning of
financial markets.
This assessment of the competent authority of the regulated market shall be without
prejudice to the competencies of the national central banks as overseers of settlement
systems or other supervisory authorities on such systems. The competent authority shall
take into account the oversight/supervision already exercised by those institutions in order
to avoid undue duplication of control.
3.
The rights of investment firms under paragraphs 1 and 2 shall be without prejudice to the
right of operators of central counterparty, clearing or securities settlement systems to
refuse on legitimate commercial grounds to make the requested services available.
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Article 35 : Provisions regarding
arrangements in respect of MTFs
central
counterparty,
clearing
and
settlement
1.
Member States shall not prevent investment firms and market operators operating an MTF
from entering into appropriate arrangements with a central counterparty or clearing house
and a settlement system of another Member State with a view to providing for the clearing
and/or settlement of some or all trades concluded by market participants under their
systems.
2.
The competent authority of investment firms and market operators operating an MTF may
not oppose the use of central counterparty, clearing houses and/or settlement systems in
another Member State except where this is demonstrably necessary in order to maintain
the orderly functioning of that MTF and taking into account the conditions for settlement
systems established in Article 34(2).
In order to avoid undue duplication of control, the competent authority shall take into
account the oversight/supervision of the clearing and settlement system already exercised
by the national central banks as overseers of clearing and settlement systems or by other
supervisory authorities with a competence in such systems.
Title III : REGULATED MARKETS
Article 36 : Authorisation and applicable law
1.
Member States shall reserve authorisation as a regulated market to those systems which
comply with the provisions of this Title.
Authorisation as a regulated market shall be granted only where the competent authority is
satisfied that both the market operator and the systems of the regulated market comply at
least with the requirements laid down in this Title.
In the case of a regulated market that is a legal person and that is managed or operated
by a market operator other than the regulated market itself, Member States shall establish
how the different obligations imposed on the market operator under this Directive are to be
allocated between the regulated market and the market operator.
The operator of the regulated market shall provide all information, including a programme
of operations setting out inter alia the types of business envisaged and the organisational
structure, necessary to enable the competent authority to satisfy itself that the regulated
market has established, at the time of initial authorisation, all the necessary arrangements
to meet its obligations under the provisions of this Title.
2.
Member States shall require the operator of the regulated market to perform tasks relating
to the organisation and operation of the regulated market under the supervision of the
competent authority. Member States shall ensure that competent authorities keep under
regular review the compliance of regulated markets with the provisions of this Title. They
shall also ensure that competent authorities monitor that regulated markets comply at all
times with the conditions for initial authorisation established under this Title.
3.
Member States shall ensure that the market operator is responsible for ensuring that the
regulated market that he manages complies with all requirements under this Title.
Member States shall also ensure that the market operator is entitled to exercise the rights
that correspond to the regulated market that he manages by virtue of this Directive.
4.
Without prejudice to any relevant provisions of Directive 2003/6/EC, the public law
governing the trading conducted under the systems of the regulated market shall be that of
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the home Member State of the regulated market.
5.
The competent authority may withdraw the authorisation issued to a regulated market
where it:
(a)
does not make use of the authorisation within 12 months, expressly renounces the
authorisation or has not operated for the preceding six months, unless the
Member State concerned has provided for authorisation to lapse in such cases;
(b)
has obtained the authorisation by making false statements or by any other
irregular means;
(c)
no longer meets the conditions under which authorisation was granted;
(d)
has seriously and systematically infringed the provisions adopted pursuant to this
Directive;
(e)
falls within any of the cases where national law provides for withdrawal.
Article 37 : Requirements for the management of the regulated market
1.
Member States shall require the persons who effectively direct the business and the
operations of the regulated market to be of sufficiently good repute and sufficiently
experienced as to ensure the sound and prudent management and operation of the
regulated market. Member States shall also require the operator of the regulated market to
inform the competent authority of the identity and any other subsequent changes of the
persons who effectively direct the business and the operations of the regulated market.
The competent authority shall refuse to approve proposed changes where there are
objective and demonstrable grounds for believing that they pose a material threat to the
sound and prudent management and operation of the regulated market.
2.
Member States shall ensure that, in the process of authorisation of a regulated market, the
person or persons who effectively direct the business and the operations of an already
authorised regulated market in accordance with the conditions of this Directive are
deemed to comply with the requirements laid down in paragraph 1.
Article 38 : Requirements relating to persons exercising significant influence over the
management of the regulated market
1.
Member States shall require the persons who are in a position to exercise, directly or
indirectly, significant influence over the management of the regulated market to be
suitable.
2.
Member States shall require the operator of the regulated market:
3.
(a)
to provide the competent authority with, and to make public, information regarding
the ownership of the regulated market and/or the market operator, and in
particular, the identity and scale of interests of any parties in a position to exercise
significant influence over the management;
(b)
to inform the competent authority of and to make public any transfer of ownership
which gives rise to a change in the identity of the persons exercising significant
influence over the operation of the regulated market.
The competent authority shall refuse to approve proposed changes to the controlling
interests of the regulated market and/or the market operator where there are objective and
demonstrable grounds for believing that they would pose a threat to the sound and
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prudent management of the regulated market.
Article 39 : Organisational requirements
Member States shall require the regulated market:
(a)
to have arrangements to identify clearly and manage the potential adverse consequences,
for the operation of the regulated market or for its participants, of any conflict of interest
between the interest of the regulated market, its owners or its operator and the sound
functioning of the regulated market, and in particular where such conflicts of interest might
prove prejudicial to the accomplishment of any functions delegated to the regulated market
by the competent authority;
(b)
to be adequately equipped to manage the risks to which it is exposed, to implement
appropriate arrangements and systems to identify all significant risks to its operation, and
to put in place effective measures to mitigate those risks;
(c)
to have arrangements for the sound management of the technical operations of the
system, including the establishment of effective contingency arrangements to cope with
risks of systems disruptions;
(d)
to have transparent and non-discretionary rules and procedures that provide for fair and
orderly trading and establish objective criteria for the efficient execution of orders;
(e)
to have effective arrangements to facilitate the efficient and timely finalisation of the
transactions executed under its systems;
(f)
to have available, at the time of authorisation and on an ongoing basis, sufficient financial
resources to facilitate its orderly functioning, having regard to the nature and extent of the
transactions concluded on the market and the range and degree of the risks to which it is
exposed.
Article 40 : Admission of financial instruments to trading
1.
Member States shall require that regulated markets have clear and transparent rules
regarding the admission of financial instruments to trading.
Those rules shall ensure that any financial instruments admitted to trading in a regulated
market are capable of being traded in a fair, orderly and efficient manner and, in the case
of transferable securities, are freely negotiable.
2.
In the case of derivatives, the rules shall ensure in particular that the design of the
derivative contract allows for its orderly pricing as well as for the existence of effective
settlement conditions.
Regulation 37
(Article 40(1) and (2) of Directive 2004/39/EC)
Derivatives
1. When admitting to trading a financial instrument of a kind listed in points of Sections C(4) to (10)
of Annex I to Directive 2004/39/EC, regulated markets shall verify that the following conditions are
satisfied:
(a) the terms of the contract establishing the financial instrument must be clear and unambiguous,
and enable a correlation between the price of the financial instrument and the price or other
value measure of the underlying;
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(b) the price or other value measure of the underlying must be reliable and publicly available;
(c) sufficient information of a kind needed to value the derivative must be publicly available;
(d) the arrangements for determining the settlement price of the contract must be such that the
price properly reflects the price or other value measure of the underlying;
(e) where the settlement of the derivative requires or provides for the possibility of the delivery of
an underlying security or asset rather than cash settlement, there must be adequate
arrangements to enable market participants to obtain relevant information about that underlying
as well as adequate settlement and delivery procedures for the underlying.
2. Where the financial instruments concerned are of a kind listed in Sections C (5), (6), (7) or (10)
of Annex I to Directive 2004/39/EC, point (b) of paragraph 1 shall not apply if the following
conditions are satisfied:
(a) the contract establishing that instrument must be likely to provide a means of disclosing to the
market, or enabling the market to assess, the price or other value measure of the underlying,
where the price or value measure is not otherwise publicly available;
(b) the regulated market must ensure that appropriate supervisory arrangements are in place to
monitor trading and settlement in such financial instruments;
(c) the regulated market must ensure that settlement and delivery, whether physical delivery or by
cash settlement, can be effected in accordance with the contract terms and conditions of those
financial instruments.
3.
In addition to the obligations set out in paragraphs 1 and 2, Member States shall require
the regulated market to establish and maintain effective arrangements to verify that
issuers of transferable securities that are admitted to trading on the regulated market
comply with their obligations under Community law in respect of initial, ongoing or ad hoc
disclosure obligations.
Member States shall ensure that the regulated market establishes arrangements which
facilitate its members or participants in obtaining access to information which has been
made public under Community law.
4.
Member States shall ensure that regulated markets have established the necessary
arrangements to review regularly the compliance with the admission requirements of the
financial instruments which they admit to trading.
5.
A transferable security that has been admitted to trading on a regulated market can
subsequently be admitted to trading on other regulated markets, even without the consent
of the issuer and in compliance with the relevant provisions of Directive 2003/71/EC of the
European Parliament and of the Council of..... on the prospectus to be published when
securities are offered to the public or admitted to trading and amending Directive
2001/34/EC (23). The issuer shall be informed by the regulated market of the fact that its
securities are traded on that regulated market. The issuer shall not be subject to any
obligation to provide information required under paragraph 3 directly to any regulated
market which has admitted the issuer's securities to trading without its consent.
6.
In order to ensure the uniform application of paragraphs 1 to 5, the Commission shall, in
accordance with the procedure referred to in Article 64(2) adopt implementing measures
which:
(a)
specify the characteristics of different classes of instruments to be taken into
account by the regulated market when assessing whether an instrument is issued
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in a manner consistent with the conditions laid down in the second subparagraph
of paragraph 1 for admission to trading on the different market segments which it
operates;
(b)
clarify the arrangements that the regulated market is to implement so as to be
considered to have fulfilled its obligation to verify that the issuer of a transferable
security complies with its obligations under Community law in respect of initial,
ongoing or ad hoc disclosure obligations;
(c)
clarify the arrangements that the regulated market has to establish pursuant to
paragraph 3 in order to facilitate its members or participants in obtaining access to
information which has been made public under the conditions established by
Community law.
Regulation 6
First admission to trading of a share on a regulated market
For the purposes of this Regulation, the first admission to trading of a share on a regulated market
referred to in Article 40 of Directive 2004/39/EC shall be considered to take place at a time when
one of the following conditions applies:
(a) the share has not previously been admitted to trading on a regulated market;
(b) the share has previously been admitted to trading on a regulated market but the share is
removed from trading on every regulated market which has so admitted it.
Article 41 : Suspension and removal of instruments from trading
1.
Without prejudice to the right of the competent authority under Article 50(2)(j) and (k) to
demand suspension or removal of an instrument from trading, the operator of the
regulated market may suspend or remove from trading a financial instrument which no
longer complies with the rules of the regulated market unless such a step would be likely
to cause significant damage to the investors' interests or the orderly functioning of the
market.
Notwithstanding the possibility for the operators of regulated markets to inform directly the
operators of other regulated markets, Member States shall require that an operator of a
regulated market that suspends or removes from trading a financial instrument make
public this decision and communicates relevant information to the competent authority.
The competent authority shall inform the competent authorities of the other Member
States.
2.
A competent authority which demands the suspension or removal of a financial instrument
from trading on one or more regulated markets shall immediately make public its decision
and inform the competent authorities of the other Member States. Except where it could
cause significant damage to the investors' interests or the orderly functioning of the market
the competent authorities of the other Member States shall demand the suspension or
removal of that financial instrument from trading on the regulated markets and MTFs that
operate under their authority.
Article 42 : Access to the regulated market
1.
Member States shall require the regulated market to establish and maintain transparent
and non-discriminatory rules, based on objective criteria, governing access to or
membership of the regulated market.
107
2.
3.
Those rules shall specify any obligations for the members or participants arising from:
(a)
the constitution and administration of the regulated market;
(b)
rules relating to transactions on the market;
(c)
professional standards imposed on the staff of the investment firms or credit
institutions that are operating on the market;
(d)
the conditions established, for members or participants other than investment
firms and credit institutions, under paragraph 3;
(e)
the rules and procedures for the clearing and settlement of transactions concluded
on the regulated market.
Regulated markets may admit as members or participants investment firms, credit
institutions authorised under Directive 2000/12/EC and other persons who:
(a)
are fit and proper;
(b)
have a sufficient level of trading ability and competence;
(c)
have, where applicable, adequate organisational arrangements;
(d)
have sufficient resources for the role they are to perform, taking into account the
different financial arrangements that the regulated market may have established in
order to guarantee the adequate settlement of transactions.
4.
Member States shall ensure that, for the transactions concluded on a regulated market,
members and participants are not obliged to apply to each other the obligations laid down
in Articles 19, 21 and 22. However, the members or participants of the regulated market
shall apply the obligations provided for in Articles 19, 21 and 22 with respect to their clients
when they, acting on behalf of their clients, execute their orders on a regulated market.
5.
Member States shall ensure that the rules on access to or membership of the regulated
market provide for the direct or remote participation of investment firms and credit
institutions.
6.
Member States shall, without further legal or administrative requirements, allow regulated
markets from other Member States to provide appropriate arrangements on their territory
so as to facilitate access to and trading on those markets by remote members or
participants established in their territory.
The regulated market shall communicate to the competent authority of its home Member
State the Member State in which it intends to provide such arrangements. The competent
authority of the home Member State shall communicate, within one month, this information
to the Member State in which the regulated market intends to provide such arrangements.
The competent authority of the home Member State of the regulated market shall, on the
request of the competent authority of the host Member State and within a reasonable time,
communicate the identity of the members or participants of the regulated market
established in that Member State.
7.
Member States shall require the operator of the regulated market to communicate, on a
regular basis, the list of the members and participants of the regulated market to the
competent authority of the regulated market.
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Article 43 : Monitoring of compliance with the rules of the regulated market and with other
legal obligations
1.
Member States shall require that regulated markets establish and maintain effective
arrangements and procedures for the regular monitoring of the compliance by their
members or participants with their rules. Regulated markets shall monitor the transactions
undertaken by their members or participants under their systems in order to identify
breaches of those rules, disorderly trading conditions or conduct that may involve market
abuse.
2.
Member States shall require the operators of the regulated markets to report significant
breaches of their rules or disorderly trading conditions or conduct that may involve market
abuse to the competent authority of the regulated market. Member States shall also
require the operator of the regulated market to supply the relevant information without
delay to the authority competent for the investigation and prosecution of market abuse on
the regulated market and to provide full assistance to the latter in investigating and
prosecuting market abuse occurring on or through the systems of the regulated market.
Article 44 : Pre-trade transparency requirements for regulated markets
1.
Member States shall, at least, require regulated markets to make public current bid and
offer prices and the depth of trading interests at those prices which are advertised through
their systems for shares admitted to trading. Member States shall require this information
to be made available to the public on reasonable commercial terms and on a continuous
basis during normal trading hours.
Regulated markets may give access, on reasonable commercial terms and on a nondiscriminatory basis, to the arrangements they employ for making public the information
under the first subparagraph to investment firms which are obliged to publish their quotes
in shares pursuant to Article 27.
Provisions common to pre- and post-trade transparency
Regulation 29
(Articles 27(3), 28(1), 29(1), 44(1) and 45(1) of Directive 2004/39/EC)
Publication and availability of pre- and post-trade transparency data
1. A regulated market, MTF or systematic internaliser shall be considered to publish pre-trade
information on a continuous basis during normal trading hours if that information is published as
soon as it becomes available during the normal trading hours of the regulated market, MTF or
systematic internaliser concerned, and remains available until it is updated.
2. Pre-trade information, and post-trade information relating to transactions taking place on trading
venues and within normal trading hours, shall be made available as close to real time as possible.
Post-trade information relating to such transactions shall be made available in any case within
three minutes of the relevant transaction.
3. Information relating to a portfolio trade shall be made available with respect to each constituent
transaction as close to real time as possible, having regard to the need to allocate prices to
particular shares. Each constituent transaction shall be assessed separately for the purposes of
determining whether deferred publication in respect of that transaction is available under
Regulation 28.
4. Post-trade information relating to transactions taking place on a trading venue but outside its
normal trading hours shall be made public before the opening of the next trading day of the trading
109
venue on which the transaction took place.
5. For transactions that take place outside a trading venue, post-trade information shall be made
public:
(a) if the transaction takes place during a trading day of the most relevant market for the share
concerned, or during the investment firm's normal trading hours, as close to real time as
possible. Post-trade information relating to such transactions shall be made available in any
case within three minutes of the relevant transaction;
(b) in a case not covered by point (a), immediately upon the commencement of the investment
firm's normal trading hours or at the latest before the opening of the next trading day in the
most relevant market for that share.
2.
Member States shall provide that the competent authorities are to be able to waive the
obligation for regulated markets to make public the information referred to in paragraph 1
based on the market model or the type and size of orders in the cases defined in
accordance with paragraph 3. In particular, the competent authorities shall be able to
waive the obligation in respect of transactions that are large in scale compared with
normal market size for the share or type of share in question.
3.
In order to ensure the uniform application of paragraphs 1 and 2, the Commission shall, in
accordance with the procedure referred to in Article 64(2) adopt implementing measures
as regards:
Regulation 18
(Articles 29(2) and 44(2) of Directive 2004/39/EC)
Waivers based on market model and type of order or transaction
1. Waivers in accordance with Article 29(2) and 44(2) of Directive 2004/39/EC may be granted by
the competent authorities for systems operated by an MTF or a regulated market, if those systems
satisfy one of the following criteria:
(a) they must be based on a trading methodology by which the price is determined in accordance
with a reference price generated by another system, where that reference price is widely
published and is regarded generally by market participants as a reliable reference price;
(b) they formalise negotiated transactions, each of which meets one of the following criteria:
(i)
(ii)
it is made at or within the current volume weighted spread reflected on the order book or
the quotes of the market makers of the regulated market or MTF operating that system
or, where the share is not traded continuously, within a percentage of a suitable
reference price, being a percentage and a reference price set in advance by the system
operator;
it is subject to conditions other than the current market price of the share.
For the purposes of point (b), the other conditions specified in the rules of the regulated market or
MTF for a transaction of this kind must also have been fulfilled.
In the case of systems having functionality other than as described in points (a) or (b), the waiver
shall not apply to that other functionality.
2. Waivers in accordance with Articles 29(2) and 44(2) of Directive 2004/39/EC based on the type
of orders may be granted only in relation to orders held in an order management facility
maintained by the regulated market or the MTF pending their being disclosed to the market.
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Regulation 19
(Articles 29(2) and 44(2) of Directive 2004/39/EC)
References to negotiated transaction
For the purpose of Article 18(1)(b) a negotiated transaction shall mean a transaction involving
members or participants of a regulated market or an MTF which is negotiated privately but
executed within the regulated market or MTF and where that member or participant in doing so
undertakes one of the following tasks:
(a) dealing on own account with another member or participant who acts for the account of a
client;
(b) dealing with another member or participant, where both are executing orders on own account;
(c) acting for the account of both the buyer and seller;
(d) acting for the account of the buyer, where another member or participant acts for the account of
the seller;
(e) trading for own account against a client order.
Article 20
(Articles 29(2) and 44(2), and fifth subparagraph of Article 27(1) of Directive 2004/39/EC)
Waivers in relation to transactions which are large in scale
An order shall be considered to be large in scale compared with normal market size if it is equal to
or larger than the minimum size of order specified in Table 2 in Annex II. For the purposes of
determining whether an order is large in scale compared to normal market size, all shares
admitted to trading on a regulated market shall be classified in accordance with their average daily
turnover, which shall be calculated in accordance with the procedure set out in Article 33.
(a)
the range of bid and offers or designated market-maker quotes, and the depth of trading
interest at those prices, to be made public;
(b)
the size or type of orders for which pre-trade disclosure may be waived under paragraph
2;
(c)
the market model for which pre-trade disclosure may be waived under paragraph 2, and in
particular, the applicability of the obligation to trading methods operated by regulated
markets which conclude transactions under their rules by reference to prices established
outside the regulated market or by periodic auction.
Chapter IV
MARKET TRANSPARENCY
Section 1
Pre-trade transparency for regulated markets and MTFs
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Regulation 17
(Articles 29 and 44 of Directive 2004/39/EC)
Pre-trade transparency obligations
1. An investment firm or market operator operating an MTF or a regulated market shall, in respect
of each share admitted to trading on a regulated market that is traded within a system operated by
it and specified in Table 1 of Annex II, make public the information set out in paragraphs 2 to 6.
2. Where one of the entities referred to in paragraph 1 operates a continuous auction order book
trading system, it shall, for each share as specified in paragraph 1, make public continuously
throughout its normal trading hours the aggregate number of orders and of the shares those
orders represent at each price level, for the five best bid and offer price levels.
3. Where one of the entities referred to in paragraph 1 operates a quote-driven trading system, it
shall, for each share as specified in paragraph 1, make public continuously throughout its normal
trading hours the best bid and offer by price of each market maker in that share, together with the
volumes attaching to those prices.
The quotes made public shall be those that represent binding commitments to buy and sell the
shares and which indicate the price and volume of shares in which the registered market makers
are prepared to buy or sell.
In exceptional market conditions, however, indicative or one-way prices may be allowed for a
limited time.
4. Where one of the entities referred to in paragraph 1 operates a periodic auction trading system,
it shall, for each share specified in paragraph 1, make public continuously throughout its normal
trading hours the price that would best satisfy the system's trading algorithm and the volume that
would potentially be executable at that price by participants in that system.
5. Where one of the entities referred to in paragraph 1 operates a trading system which is not
wholly covered by paragraph 2 or 3 or 4, either because it is a hybrid system falling under more
than one of those paragraphs or because the price determination process is of a different nature, it
shall maintain a standard of pre-trade transparency that ensures that adequate information is
made public as to the price level of orders or quotes for each share specified in paragraph 1, as
well as the level of trading interest in that share.
In particular, the five best bid and offer price levels and/or two-way quotes of each market maker in
that share shall be made public, if the characteristics of the price discovery mechanism permit it.
6. A summary of the information to be made public in accordance with paragraphs 2 to 5 is
specified in Table 1 of Annex II.
Regulation 30
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Public availability of pre- and post-trade information
For the purposes of Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC and of this
Regulation, pre- and post-trade information shall be considered to be made public or available to
the public if it is made available generally through one of the following to investors located in the
Community:
(a) the facilities of a regulated market or an MTF;
112
(b) the facilities of a third party;
(c) proprietary arrangements.
Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis at
a reasonable cost.
Regulation 33
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Calculations and estimates for shares admitted to trading on a regulated market
1. In respect of each share that is admitted to trading on a regulated market, the relevant
competent authority for that share shall ensure that the following calculations are made in respect
of that share promptly after the end of each calendar year:
(a) the average daily turnover;
(b) the average daily number of transactions;
(c) for those shares which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as
applicable), the free float as at 31 December;
(d) if the share is a liquid share, the average value of the orders executed.
This paragraph and paragraph 2 shall not apply to a share which is first admitted to trading on a
regulated market four weeks or less before the end of the calendar year.
2. The calculation of the average daily turnover, average value of the orders executed and
average daily number of transactions shall take into account all the orders executed in the
Community in respect of the share in question between 1 January and 31 December of the
preceding year, or, where applicable, that part of the year during which the share was admitted to
trading on a regulated market and was not suspended from trading on a regulated market.
In the calculations of the average daily turnover, average value of the orders executed and
average daily number of transactions of a share, non-trading days in the Member State of the
relevant competent authority for that share shall be excluded.
3. Before the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that estimates are provided, in respect of that share, of the
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average daily turnover, the market capitalisation as it will stand at the start of the first day of
trading and, where the estimate of the market capitalisation is EUR 500 million or more:
(a) the average daily number of transactions and, for those shares which satisfy the conditions laid
down in Regulation 22 (1)(a) or (b) (as applicable), the free float;
(b) in the case of a share that is estimated to be a liquid share, the average value of the orders
executed.
The estimates shall relate to the six-week period following admission to trading, or the end of that
period, as applicable, and shall take account of any previous trading history of the share, as well
as that of shares that are considered to have similar characteristics.
4. After the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that, in respect of that share, the figures referred to in points
(a) to (d) of paragraph 1 are calculated, using data relating to the first four weeks' trading, as if a
reference in point (c) of paragraph 1 to 31 December were a reference to the end of the first four
weeks' trading, as soon as practicable after those data are available, and in any case before the
end of the six-week period referred to in Regulation 22(5).
5. During the course of a calendar year, the relevant competent authorities shall ensure the review
and where necessary the recalculation of the average daily turnover, average value of the orders
executed, average daily number of transactions executed and the free float whenever there is a
change in relation to the share or the issuer which significantly affects the previous calculations on
an ongoing basis.
6. The calculations referred to in paragraphs 1 to 5 which are to be published on or before the first
trading day in March 2009 shall be made on the basis of the data relating to the regulated market
or markets of the Member State which is the most relevant market in terms of liquidity for the share
in question. For those purposes, negotiated transactions within the meaning of Regulation 19 shall
be excluded from the calculations.
Regulation 34
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Publication and effect of results of required calculations and estimates
1. On the first trading day of March of each year, each competent authority shall, in relation to
each share for which it is the relevant competent authority that was admitted to trading on a
regulated market at the end of the preceding calendar year, ensure the publication of the following
information:
(a) the average daily turnover and average daily number of transactions, as calculated in
accordance with Regulation 33(1) and (2);
(b) the free float and average value of the orders executed, where calculated in accordance with
Regulation 33(1) and (2).
This paragraph shall not apply to shares to which the second subparagraph of Regulation 33(1)
applies.
2. The results of the estimates and calculations required under Regulation 33(3), (4) or (5) shall
be published as soon as practicable after the calculation or estimate is completed.
3. The information referred to in paragraphs 1 or 2 shall be considered as published when it is
published by the Committee of European Securities Regulators in accordance with paragraph 5.
4. For the purposes of this Regulation, the following shall apply:
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(a) the classification based on the publication referred to in paragraph 1 shall apply for the 12month period starting on 1 April following publication and ending on the following 31 March;
(b) the classification based on the estimates provided for in Regulation 33(3) shall apply from the
relevant first admission to trading until the end of the six-week period referred to in Regulation
22(5);
(c) the classification based on the calculations specified in Regulation 33(4) shall apply from the
end of the six-week period referred to in Regulation 22(5), until:
(i)
where the end of that six-week period falls between 15 January and 31 March (both
inclusive) in a given year, 31 March of the following year;
(ii)
otherwise, the following 31 March after the end of that period.
However, the classification based on the recalculations specified in Regulation 33(5) shall apply
from the date of publication and, unless further recalculated under Article 33(5), until the following
31 March.
5. The Committee of European Securities Regulators shall, on the basis of data supplied to it by or
on behalf of competent authorities, publish on its website consolidated and regularly updated lists
of:
(a) every systematic internaliser in respect of a share admitted to trading on a regulated market;
(b) every share admitted to trading on a regulated market, specifying:
(i)
the average daily turnover, average daily number of transactions and, for those shares
which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as applicable), the
free float;
(ii)
in the case of a liquid share, the average value of the orders executed and the standard
market size for that share;
(iii) in the case of a liquid share which has been designated as an additional liquid share in
accordance with Regulation 22(3), the name of the competent authority that so
designated it; and
(iv)
the relevant competent authority.
6. Each competent authority shall ensure the first publication of the details referred to in points (a)
and (b) of paragraph 1 on the first trading day in July 2007, based on the reference period 1 April
2006 to 31 March 2007. By way of derogation from paragraph 4, the classification based on that
publication shall apply for the five-month period starting on 1 November 2007 and ending on 31
March 2008.
Article 45 : Post-trade transparency requirements for regulated markets
1.
Member States shall, at least, require regulated markets to make public the price, volume
and time of the transactions executed in respect of shares admitted to trading. Member
States shall require details of all such transactions to be made public, on a reasonable
commercial basis and as close to real-time as possible.
Regulated markets may give access, on reasonable commercial terms and on a nondiscriminatory basis, to the arrangements they employ for making public the information
under the first subparagraph to investment firms which are obliged to publish the details of
their transactions in shares pursuant to Article 28.
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Provisions common to pre- and post-trade transparency
Regulation 29
(Articles 27(3), 28(1), 29(1), 44(1) and 45(1) of Directive 2004/39/EC)
Publication and availability of pre- and post-trade transparency data
1. A regulated market, MTF or systematic internaliser shall be considered to publish pre-trade
information on a continuous basis during normal trading hours if that information is published as
soon as it becomes available during the normal trading hours of the regulated market, MTF or
systematic internaliser concerned, and remains available until it is updated.
2. Pre-trade information, and post-trade information relating to transactions taking place on trading
venues and within normal trading hours, shall be made available as close to real time as possible.
Post-trade information relating to such transactions shall be made available in any case within
three minutes of the relevant transaction.
3. Information relating to a portfolio trade shall be made available with respect to each constituent
transaction as close to real time as possible, having regard to the need to allocate prices to
particular shares. Each constituent transaction shall be assessed separately for the purposes of
determining whether deferred publication in respect of that transaction is available under
Regulation 28.
4. Post-trade information relating to transactions taking place on a trading venue but outside its
normal trading hours shall be made public before the opening of the next trading day of the trading
venue on which the transaction took place.
5. For transactions that take place outside a trading venue, post-trade information shall be made
public:
(a) if the transaction takes place during a trading day of the most relevant market for the share
concerned, or during the investment firm's normal trading hours, as close to real time as
possible. Post-trade information relating to such transactions shall be made available in any
case within three minutes of the relevant transaction;
(b) in a case not covered by point (a), immediately upon the commencement of the investment
firm's normal trading hours or at the latest before the opening of the next trading day in the
most relevant market for that share.
2.
Member States shall provide that the competent authority may authorise regulated
markets to provide for deferred publication of the details of transactions based on their
type or size. In particular, the competent authorities may authorise the deferred publication
in respect of transactions that are large in scale compared with the normal market size for
that share or that class of shares. Member States shall require regulated markets to obtain
the competent authority's prior approval of proposed arrangements for deferred tradepublication, and shall require that these arrangements be clearly disclosed to market
participants and the investing public.
3.
In order to provide for the efficient and orderly functioning of financial markets, and to
ensure the uniform application of paragraphs 1 and 2, the Commission shall, in
accordance with the procedure referred to in Article 64(2) adopt implementing measures in
respect of:
(a)
the scope and content of the information to be made available to the public;
(b)
the conditions under which a regulated market may provide for deferred
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publication of trades and the criteria to be applied when deciding the transactions
for which, due to their size or the type of share involved, deferred publication is
allowed.
Regulation 27
(Articles 28, 30 and 45 of Directive 2004/39/EC)
Post-trade transparency obligation
1. Investment firms, regulated markets, and investment firms and market operators operating an
MTF shall, with regard to transactions in respect of shares admitted to trading on regulated
markets concluded by them or, in the case of regulated markets or MTFs, within their systems,
make public the following details:
(a) the details specified in points 2, 3, 6, 16, 17, 18, and 21 of Table 1 in Annex I;
(b) an indication that the exchange of shares is determined by factors other than the current
market valuation of the share, where applicable;
(c) an indication that the trade was a negotiated trade, where applicable;
(d) any amendments to previously disclosed information, where applicable.
Those details shall be made public either by reference to each transaction or in a form aggregating
the volume and price of all transactions in the same share taking place at the same price at the
same time.
2. By way of exception, a systematic internaliser shall be entitled to use the acronym 'SI' instead of
the venue identification referred to in paragraph 1(a) in respect of a transaction in a share that is
executed in its capacity as a systematic internaliser in respect of that share.
The systematic internaliser may exercise that right only as long as it makes available to the public
aggregate quarterly data as to the transactions executed in its capacity as a systematic internaliser
in respect of that share relating to the most recent calendar quarter, or part of a calendar quarter,
during which the firm acted as a systematic internaliser in respect of that share. That data shall be
made available no later than one month after the end of each calendar quarter.
It may also exercise that right during the period between the date specified in Regulation 41(2), or
the date on which the firm commences to be a systematic internaliser in relation to a share,
whichever is the later, and the date that aggregate quarterly data in relation to a share is first due
to be published.
3. The aggregated quarterly data referred to in the second subparagraph of paragraph 2 shall
contain the following information for the share in respect of each trading day of the calendar
quarter concerned:
(a) the highest price;
(b) the lowest price;
(c) the average price;
(d) the total number of shares traded;
(e) the total number of transactions;
(f) such other information as the systematic internaliser decides to make available.
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4. Where the transaction is executed outside the rules of a regulated market or an MTF, one of the
following investment firms shall, by agreement between the parties, arrange to make the
information public:
(a) the investment firm that sells the share concerned;
(b) the investment firm that acts on behalf of or arranges the transaction for the seller;
(c) the investment firm that acts on behalf of or arranges the transaction for the buyer;
(d) the investment firm that buys the share concerned.
In the absence of such an agreement, the information shall be made public by the investment firm
determined by proceeding sequentially from point (a) to point (d) until the first point that applies to
the case in question.
The parties shall take all reasonable steps to ensure that the transaction is made public as a single
transaction. For those purposes two matching trades entered at the same time and price with a
single party interposed shall be considered to be a single transaction.
Article 28
(Articles 28, 30 and 45 of Directive 2004/39/EC)
Deferred publication of large transactions
The deferred publication of information in respect of transactions may be authorised, for a period
no longer than the period specified in Table 4 in Annex II for the class of share and transaction
concerned, provided that the following criteria are satisfied:
(a) the transaction is between an investment firm dealing on own account and a client of that firm;
(b) the size of the transaction is equal to or exceeds the relevant minimum qualifying size, as
specified in Table 4 in Annex II.
In order to determine the relevant minimum qualifying size for the purposes of point (b), all shares
admitted to trading on a regulated market shall be classified in accordance with their average daily
turnover to be calculated in accordance with Article 33.
Regulation 30
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Public availability of pre- and post-trade information
For the purposes of Regulations 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC and of this
Regulation, pre- and post-trade information shall be considered to be made public or available to
the public if it is made available generally through one of the following to investors located in the
Community:
(a) the facilities of a regulated market or an MTF;
(b) the facilities of a third party;
(c) proprietary arrangements.
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Regulation 32
(Article 22(2), 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Arrangements for making information public
Any arrangement to make information public, adopted for the purposes of Regulations 30 and 31,
shall satisfy the following conditions:
(a) it must include all reasonable steps necessary to ensure that the information to be published is
reliable, monitored continuously for errors, and corrected as soon as errors are detected;
(b) it must facilitate the consolidation of the data with similar data from other sources;
(c) it must make the information available to the public on a non-discriminatory commercial basis at
a reasonable cost.
Regulation 33
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Calculations and estimates for shares admitted to trading on a regulated market
1. In respect of each share that is admitted to trading on a regulated market, the relevant
competent authority for that share shall ensure that the following calculations are made in respect
of that share promptly after the end of each calendar year:
(a) the average daily turnover;
(b) the average daily number of transactions;
(c) for those shares which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as
applicable), the free float as at 31 December;
(d) if the share is a liquid share, the average value of the orders executed.
This paragraph and paragraph 2 shall not apply to a share which is first admitted to trading on a
regulated market four weeks or less before the end of the calendar year.
2. The calculation of the average daily turnover, average value of the orders executed and
average daily number of transactions shall take into account all the orders executed in the
Community in respect of the share in question between 1 January and 31 December of the
preceding year, or, where applicable, that part of the year during which the share was admitted to
trading on a regulated market and was not suspended from trading on a regulated market.
In the calculations of the average daily turnover, average value of the orders executed and
average daily number of transactions of a share, non-trading days in the Member State of the
relevant competent authority for that share shall be excluded.
3. Before the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that estimates are provided, in respect of that share, of the
average daily turnover, the market capitalisation as it will stand at the start of the first day of
trading and, where the estimate of the market capitalisation is EUR 500 million or more:
(a) the average daily number of transactions and, for those shares which satisfy the conditions laid
down in Regulation 22 (1)(a) or (b) (as applicable), the free float;
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(b) in the case of a share that is estimated to be a liquid share, the average value of the orders
executed.
The estimates shall relate to the six-week period following admission to trading, or the end of that
period, as applicable, and shall take account of any previous trading history of the share, as well
as that of shares that are considered to have similar characteristics.
4. After the first admission of a share to trading on a regulated market, the relevant competent
authority for that share shall ensure that, in respect of that share, the figures referred to in points
(a) to (d) of paragraph 1 are calculated, using data relating to the first four weeks' trading, as if a
reference in point (c) of paragraph 1 to 31 December were a reference to the end of the first four
weeks' trading, as soon as practicable after those data are available, and in any case before the
end of the six-week period referred to in Regulation 22(5).
5. During the course of a calendar year, the relevant competent authorities shall ensure the review
and where necessary the recalculation of the average daily turnover, average value of the orders
executed, average daily number of transactions executed and the free float whenever there is a
change in relation to the share or the issuer which significantly affects the previous calculations on
an ongoing basis.
6. The calculations referred to in paragraphs 1 to 5 which are to be published on or before the first
trading day in March 2009 shall be made on the basis of the data relating to the regulated market
or markets of the Member State which is the most relevant market in terms of liquidity for the share
in question. For those purposes, negotiated transactions within the meaning of Regulation 19 shall
be excluded from the calculations.
Regulation 34
(Articles 27, 28, 29, 30, 44 and 45 of Directive 2004/39/EC)
Publication and effect of results of required calculations and estimates
1. On the first trading day of March of each year, each competent authority shall, in relation to
each share for which it is the relevant competent authority that was admitted to trading on a
regulated market at the end of the preceding calendar year, ensure the publication of the following
information:
(a) the average daily turnover and average daily number of transactions, as calculated in
accordance with Regulation 33(1) and (2);
(b) the free float and average value of the orders executed, where calculated in accordance with
Regulation 33(1) and (2).
This paragraph shall not apply to shares to which the second subparagraph of Regulation 33(1)
applies.
2. The results of the estimates and calculations required under Regulation 33(3), (4) or (5) shall
be published as soon as practicable after the calculation or estimate is completed.
3. The information referred to in paragraphs 1 or 2 shall be considered as published when it is
published by the Committee of European Securities Regulators in accordance with paragraph 5.
4. For the purposes of this Regulation, the following shall apply:
(a) the classification based on the publication referred to in paragraph 1 shall apply for the 12month period starting on 1 April following publication and ending on the following 31 March;
(b) the classification based on the estimates provided for in Regulation 33(3) shall apply from the
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relevant first admission to trading until the end of the six-week period referred to in Regulation
22(5);
(c) the classification based on the calculations specified in Regulation 33(4) shall apply from the
end of the six-week period referred to in Regulation 22(5), until:
(i)
where the end of that six-week period falls between 15 January and 31 March (both
inclusive) in a given year, 31 March of the following year;
(ii)
otherwise, the following 31 March after the end of that period.
However, the classification based on the recalculations specified in Regulation 33(5) shall apply
from the date of publication and, unless further recalculated under Regulation 33(5), until the
following 31 March.
5. The Committee of European Securities Regulators shall, on the basis of data supplied to it by or
on behalf of competent authorities, publish on its website consolidated and regularly updated lists
of:
(a) every systematic internaliser in respect of a share admitted to trading on a regulated market;
(b) every share admitted to trading on a regulated market, specifying:
(i)
the average daily turnover, average daily number of transactions and, for those shares
which satisfy the conditions laid down in Regulation 22(1)(a) or (b) (as applicable), the
free float;
(ii)
in the case of a liquid share, the average value of the orders executed and the standard
market size for that share;
(iii) in the case of a liquid share which has been designated as an additional liquid share in
accordance with Regulation 22(3), the name of the competent authority that so
designated it; and
(iv) the relevant competent authority.
6. Each competent authority shall ensure the first publication of the details referred to in points (a)
and (b) of paragraph 1 on the first trading day in July 2007, based on the reference period 1 April
2006 to 31 March 2007. By way of derogation from paragraph 4, the classification based on that
publication shall apply for the five-month period starting on 1 November 2007 and ending on 31
March 2008.
Article 46 : Provisions regarding central counterparty and clearing and settlement
arrangements
1.
Member States shall not prevent regulated markets from entering into appropriate
arrangements with a central counterparty or clearing house and a settlement system of
another Member State with a view to providing for the clearing and/or settlement of some
or all trades concluded by market participants under their systems.
2.
The competent authority of a regulated market may not oppose the use of central
counterparty, clearing houses and/or settlement systems in another Member State except
where this is demonstrably necessary in order to maintain the orderly functioning of that
regulated market and taking into account the conditions for settlement systems
established in Article 34(2).
In order to avoid undue duplication of control, the competent authority shall take into
account the oversight/supervision of the clearing and settlement system already exercised
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by the national central banks as overseers of clearing and settlement systems or by other
supervisory authorities with competence in relation to such systems.
Article 47 : List of regulated markets
Each Member State shall draw up a list of the regulated markets for which it is the home Member
State and shall forward that list to the other Member States and the Commission. A similar
communication shall be effected in respect of each change to that list. The Commission shall
publish a list of all regulated markets in the Official Journal of the European Union and update it at
least once a year. The Commission shall also publish and update the list at its website, each time
the Member States communicate changes to their lists.
Title IV : COMPETENT AUTHORITIES
Chapter 1 : DESIGNATION, POWERS AND REDRESS PROCEDURES
Article 48 : Designation of competent authorities
1.
Each Member State shall designate the competent authorities which are to carry out each
of the duties provided for under the different provisions of this Directive. Member States
shall inform the Commission and the competent authorities of other Member States of the
identity of the competent authorities responsible for enforcement of each of those duties,
and of any division of those duties.
2.
The competent authorities referred to in paragraph 1 shall be public authorities, without
prejudice to the possibility of delegating tasks to other entities where that is expressly
provided for in Articles 5(5), 16(3), 17(2) and 23(4).
Any delegation of tasks to entities other than the authorities referred to in paragraph 1 may
not involve either the exercise of public authority or the use of discretionary powers of
judgement. Member States shall require that, prior to delegation, competent authorities
take all reasonable steps to ensure that the entity to which tasks are to be delegated has
the capacity and resources to effectively execute all tasks and that the delegation takes
place only if a clearly defined and documented framework for the exercise of any
delegated tasks has been established stating the tasks to be undertaken and the
conditions under which they are to be carried out. These conditions shall include a clause
obliging the entity in question to act and be organised in such a manner as to avoid conflict
of interest and so that information obtained from carrying out the delegated tasks is not
used unfairly or to prevent competition. In any case, the final responsibility for supervising
compliance with this Directive and with its implementing measures shall lie with the
competent authority or authorities designated in accordance with paragraph 1.
Member States shall inform the Commission and the competent authorities of other
Member States of any arrangements entered into with regard to delegation of tasks,
including the precise conditions regulating such delegation.
3.
The Commission shall publish a list of the competent authorities referred to in paragraphs
1 and 2 in the Official Journal of the European Union at least once a year and update it
continuously on its website.
Article 49 : Cooperation between authorities in the same Member State
If a Member State designates more than one competent authority to enforce a provision of this
Directive, their respective roles shall be clearly defined and they shall cooperate closely.
Each Member State shall require that such cooperation also take place between the competent
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authorities for the purposes of this Directive and the competent authorities responsible in that
Member State for the supervision of credit and other financial institutions, pension funds, UCITS,
insurance and reinsurance intermediaries and insurance undertakings.
Member States shall require that competent authorities exchange any information which is
essential or relevant to the exercise of their functions and duties.
Article 50 : Powers to be made available to competent authorities
1.
2.
Competent authorities shall be given all supervisory and investigatory powers that are
necessary for the exercise of their functions. Within the limits provided for in their national
legal frameworks they shall exercise such powers:
(a)
directly; or
(b)
in collaboration with other authorities; or
(c)
under their responsibility by delegation to entities to which tasks have been
delegated according to Article 48(2); or
(d)
by application to the competent judicial authorities.
The powers referred to in paragraph 1 shall be exercised in conformity with national law
and shall include, at least, the rights to:
(a)
have access to any document in any form whatsoever and to receive a copy of it;
(b)
demand information from any person and if necessary to summon and question a
person with a view to obtaining information;
(c)
carry out on-site inspections;
(d)
require existing telephone and existing data traffic records;
(e)
require the cessation of any practice that is contrary to the provisions adopted in
the implementation of this Directive;
(f)
request the freezing and/or the sequestration of assets;
(g)
request temporary prohibition of professional activity;
(h)
require authorised investment firms and regulated markets' auditors to provide
information;
(i)
adopt any type of measure to ensure that investment firms and regulated markets
continue to comply with legal requirements;
(j)
require the suspension of trading in a financial instrument;
(k)
require the removal of a financial instrument from trading, whether on a regulated
market or under other trading arrangements;
(l)
refer matters for criminal prosecution;
(m)
allow auditors or experts to carry out verifications or investigations.
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Article 51 : Administrative sanctions
1.
Without prejudice to the procedures for the withdrawal of authorisation or to the right of
Member States to impose criminal sanctions, Member States shall ensure, in conformity
with their national law, that the appropriate administrative measures can be taken or
administrative sanctions be imposed against the persons responsible where the provisions
adopted in the implementation of this Directive have not been complied with. Member
States shall ensure that these measures are effective, proportionate and dissuasive.
2.
Member States shall determine the sanctions to be applied for failure to cooperate in an
investigation covered by Article 50.
3.
Member States shall provide that the competent authority may disclose to the public any
measure or sanction that will be imposed for infringement of the provisions adopted in the
implementation of this Directive, unless such disclosure would seriously jeopardise the
financial markets or cause disproportionate damage to the parties involved.
Article 52 : Right of appeal
1.
Member States shall ensure that any decision taken under laws, regulations or
administrative provisions adopted in accordance with this Directive is properly reasoned
and is subject to the right to apply to the courts. The right to apply to the courts shall also
apply where, in respect of an application for authorisation which provides all the
information required, no decision is taken within six months of its submission.
2.
Member States shall provide that one or more of the following bodies, as determined by
national law, may, in the interests of consumers and in accordance with national law, take
action before the courts or competent administrative bodies to ensure that the national
provisions for the implementation of this Directive are applied:
(a)
public bodies or their representatives;
(b)
consumer organisations having a legitimate interest in protecting consumers;
(c)
professional organisations having a legitimate interest in acting to protect their
members.
Article 53 : Extra-judicial mechanism for investors’ complaints
1.
Member States shall encourage the setting-up of efficient and effective complaints and
redress procedures for the out-of-court settlement of consumer disputes concerning the
provision of investment and ancillary services provided by investment firms, using existing
bodies where appropriate.
2.
Member States shall ensure that those bodies are not prevented by legal or regulatory
provisions from cooperating effectively in the resolution of cross-border disputes.
Article 54 : Professional secrecy
1.
Member States shall ensure that competent authorities, all persons who work or who have
worked for the competent authorities or entities to whom tasks are delegated pursuant to
Article 48(2), as well as auditors and experts instructed by the competent authorities, are
bound by the obligation of professional secrecy. No confidential information which they
may receive in the course of their duties may be divulged to any person or authority
whatsoever, save in summary or aggregate form such that individual investment firms,
market operators, regulated markets or any other person cannot be identified, without
prejudice to cases covered by criminal law or the other provisions of this Directive.
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2.
Where an investment firm, market operator or regulated market has been declared
bankrupt or is being compulsorily wound up, confidential information which does not
concern third parties may be divulged in civil or commercial proceedings if necessary for
carrying out the proceeding.
3.
Without prejudice to cases covered by criminal law, the competent authorities, bodies or
natural or legal persons other than competent authorities which receive confidential
information pursuant to this Directive may use it only in the performance of their duties and
for the exercise of their functions, in the case of the competent authorities, within the
scope of this Directive or, in the case of other authorities, bodies or natural or legal
persons, for the purpose for which such information was provided to them and/or in the
context of administrative or judicial proceedings specifically related to the exercise of those
functions. However, where the competent authority or other authority, body or person
communicating information consents thereto, the authority receiving the information may
use it for other purposes.
4.
Any confidential information received, exchanged or transmitted pursuant to this Directive
shall be subject to the conditions of professional secrecy laid down in this Article.
Nevertheless, this Article shall not prevent the competent authorities from exchanging or
transmitting confidential information in accordance with this Directive and with other
Directives applicable to investment firms, credit institutions, pension funds, UCITS,
insurance and reinsurance intermediaries, insurance undertakings regulated markets or
market operators or otherwise with the consent of the competent authority or other
authority or body or natural or legal person that communicated the information.
5.
This Article shall not prevent the competent authorities from exchanging or transmitting in
accordance with national law, confidential information that has not been received from a
competent authority of another Member State.
Article 55 : Relations with auditors
1.
Member States shall provide, at least, that any person authorised within the meaning of
Eighth Council Directive 84/253/EEC of 10 April 1984 on the approval of persons
responsible for carrying out the statutory audits of accounting documents (24), performing
in an investment firm the task described in Article 51 of Fourth Council Directive
78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies (25),
Article 37 of Directive 83/349/EEC or Article 31 of Directive 85/611/EEC or any other task
prescribed by law, shall have a duty to report promptly to the competent authorities any
fact or decision concerning that undertaking of which that person has become aware while
carrying out that task and which is liable to:
(a)
constitute a material breach of the laws, regulations or administrative provisions
which lay down the conditions governing authorisation or which specifically govern
pursuit of the activities of investment firms;
(b)
affect the continuous functioning of the investment firm;
(c)
lead to refusal to certify the accounts or to the expression of reservations.
That person shall also have a duty to report any facts and decisions of which the person
becomes aware in the course of carrying out one of the tasks referred to in the first
subparagraph in an undertaking having close links with the investment firm within which he
is carrying out that task.
2.
The disclosure in good faith to the competent authorities, by persons authorised within the
meaning of Directive 84/253/EEC, of any fact or decision referred to in paragraph 1 shall
not constitute a breach of any contractual or legal restriction on disclosure of information
and shall not involve such persons in liability of any kind.
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Chapter II : COOPERATION BETWEEN COMPETENT AUTHORITIES OF DIFFERENT
MEMBER STATES
Article 56 : Obligation to cooperate
1.
Competent authorities of different Member States shall cooperate with each other
whenever necessary for the purpose of carrying out their duties under this Directive,
making use of their powers whether set out in this Directive or in national law.
Competent authorities shall render assistance to competent authorities of the other
Member States. In particular, they shall exchange information and cooperate in any
investigation or supervisory activities.
In order to facilitate and accelerate cooperation, and more particularly exchange of
information, Member States shall designate one single competent authority as a contact
point for the purposes of this Directive. Member States shall communicate to the
Commission and to the other Member States the names of the authorities which are
designated to receive requests for exchange of information or cooperation pursuant to this
paragraph.
2.
When, taking into account the situation of the securities markets in the host Member State,
the operations of a regulated market that has established arrangements in a host Member
State have become of substantial importance for the functioning of the securities markets
and the protection of the investors in that host Member State, the home and host
competent authorities of the regulated market shall establish proportionate cooperation
arrangements.
Regulation 16
(Article 56(2) of Directive 2004/39/EC) Determination of the substantial importance of a
regulated market's operations in a host Member State
The operations of a regulated market in a host Member State shall be considered to be of
substantial importance for the functioning of the securities markets and the protection of investors
in that host State where one of the following criteria is met:
(a) the host Member State has formerly been the home Member State of the regulated market in
question;
(b) the regulated market in question has acquired through merger, takeover, or any other form of
transfer the business of a regulated market which had its registered office or head office in the
host Member State.
3.
Member States shall take the necessary administrative and organisational measures to
facilitate the assistance provided for in paragraph 1.
Competent authorities may use their powers for the purpose of cooperation, even in cases
where the conduct under investigation does not constitute an infringement of any
regulation in force in that Member State.
4.
Where a competent authority has good reasons to suspect that acts contrary to the
provisions of this Directive, carried out by entities not subject to its supervision, are being
or have been carried out on the territory of another Member State, it shall notify this in as
specific a manner as possible to the competent authority of the other Member State. The
latter authority shall take appropriate action. It shall inform the notifying competent
authority of the outcome of the action and, to the extent possible, of significant interim
126
developments. This paragraph shall be without prejudice to the competences of the
competent authority that has forwarded the information.
5.
In order to ensure the uniform application of paragraph 2 the Commission may adopt, in
accordance with the procedure referred to in Article 64(2), implementing measures to
establish the criteria under which the operations of a regulated market in a host Member
State could be considered as of substantial importance for the functioning of the securities
markets and the protection of the investors in that host Member State.
Article 57 : Cooperation in supervisory activities, on-the-spot verifications or in
investigations
A competent authority of one Member State may request the cooperation of the competent
authority of another Member State in a supervisory activity or for an on-the-spot verification or in
an investigation. In the case of investment firms that are remote members of a regulated market
the competent authority of the regulated market may choose to address them directly, in which
case it shall inform the competent authority of the home Member State of the remote member
accordingly.
Where a competent authority receives a request with respect to an on-the-spot verification or an
investigation, it shall, within the framework of its powers:
(a)
carry out the verifications or investigations itself; or
(b)
allow the requesting authority to carry out the verification or investigation; or
(c)
allow auditors or experts to carry out the verification or investigation.
Article 58 : Exchange of information
1.
Competent authorities of Member States having been designated as contact points for the
purposes of this Directive in accordance with Article 56(1) shall immediately supply one
another with the information required for the purposes of carrying out the duties of the
competent authorities, designated in accordance to Article 48(1), set out in the provisions
adopted pursuant to this Directive.
Competent authorities exchanging information with other competent authorities under this
Directive may indicate at the time of communication that such information must not be
disclosed without their express agreement, in which case such information may be
exchanged solely for the purposes for which those authorities gave their agreement.
Regulation 15
(Article 58(1) of Directive 2004/39/EC)
Request for cooperation and exchange of information
1. Where a competent authority wishes another competent authority to supply or exchange
information in accordance with Article 58(1) of Directive 2004/39/EC, it shall submit a written
request to that competent authority containing sufficient detail to enable it to provide the
information requested.
However, in a case of urgency, the request may be transmitted orally provided that it is confirmed
in writing.
The competent authority which receives a request shall acknowledge receipt as soon as
practicable.
127
2. Where the information requested under paragraph 1 is internally available to the competent
authority that receives the request, that authority shall transmit the requested information without
delay to the competent authority which made the request.
However, if the competent authority that receives the request does not possess or control the
information requested, it shall immediately take the necessary steps to obtain that information and
to comply fully with the request. That competent authority shall also inform the competent authority
that made the request of the reasons for not sending immediately the information requested.
2.
The competent authority having been designated as the contact point may transmit the
information received under paragraph 1 and Articles 55 and 63 to the authorities referred
to in Article 49. They shall not transmit it to other bodies or natural or legal persons without
the express agreement of the competent authorities which disclosed it and solely for the
purposes for which those authorities gave their agreement, except in duly justified
circumstances. In this last case, the contact point shall immediately inform the contact
point that sent the information.
3.
Authorities as referred to in Article 49 as well as other bodies or natural and legal persons
receiving confidential information under paragraph 1 of this Article or under Articles 55 and
63 may use it only in the course of their duties, in particular:
(a)
to check that the conditions governing the taking-up of the business of investment
firms are met and to facilitate the monitoring, on a non-consolidated or
consolidated basis, of the conduct of that business, especially with regard to the
capital adequacy requirements imposed by Directive 93/6/EEC, administrative and
accounting procedures and internal-control mechanisms;
(b)
to monitor the proper functioning of trading venues;
(c)
to impose sanctions;
(d)
in administrative appeals against decisions by the competent authorities;
(e)
in court proceedings initiated under Article 52; or
(f)
in the extra-judicial mechanism for investors' complaints provided for in Article 53.
4.
The Commission may adopt, in accordance with the procedure referred to in Article 64(2),
implementing measures concerning procedures for the exchange of information between
competent authorities.
5.
Articles 54, 58 and 63 shall not prevent a competent authority from transmitting to central
banks, the European System of Central Banks and the European Central Bank, in their
capacity as monetary authorities, and, where appropriate, to other public authorities
responsible for overseeing payment and settlement systems, confidential information
intended for the performance of their tasks; likewise such authorities or bodies shall not be
prevented from communicating to the competent authorities such information as they may
need for the purpose of performing their functions provided for in this Directive.
Article 59 : Refusal to cooperate
A competent authority may refuse to act on a request for cooperation in carrying out an
investigation, on-the-spot verification or supervisory activity as provided for in Article 57 or to
exchange information as provided for in Article 58 only where:
(a)
such an investigation, on-the-spot verification, supervisory activity or exchange of
128
information might adversely affect the sovereignty, security or public policy of the State
addressed;
(b)
judicial proceedings have already been initiated in respect of the same actions and the
same persons before the authorities of the Member State addressed;
(c)
final judgment has already been delivered in the Member State addressed in respect of
the same persons and the same actions.
In the case of such a refusal, the competent authority shall notify the requesting competent
authority accordingly, providing as detailed information as possible.
Article 60 : Inter-authority consultation prior to authorisation
1.
2.
3.
The competent authorities of the other Member State involved shall be consulted prior to
granting authorisation to an investment firm which is:
(a)
a subsidiary of an investment firm or credit institution authorised in another
Member State; or
(b)
a subsidiary of the parent undertaking of an investment firm or credit institution
authorised in another Member State; or
(c)
controlled by the same natural or legal persons as control an investment firm or
credit institution authorised in another Member State.
The competent authority of the Member State responsible for the supervision of credit
institutions or insurance undertakings shall be consulted prior to granting an authorisation
to an investment firm which is:
(a)
a subsidiary of a credit institution or insurance undertaking authorised in the
Community; or
(b)
a subsidiary of the parent undertaking of a credit institution or insurance
undertaking authorised in the Community; or
(c)
controlled by the same person, whether natural or legal, who controls a credit
institution or insurance undertaking authorised in the Community.
The relevant competent authorities referred to in paragraphs 1 and 2 shall in particular
consult each other when assessing the suitability of the shareholders or members and the
reputation and experience of persons who effectively direct the business involved in the
management of another entity of the same group. They shall exchange all information
regarding the suitability of shareholders or members and the reputation and experience of
persons who effectively direct the business that is of relevance to the other competent
authorities involved, for the granting of an authorisation as well as for the ongoing
assessment of compliance with operating conditions.
Article 61 : Powers for host Member States
1.
Host Member States may, for statistical purposes, require all investment firms with
branches within their territories to report to them periodically on the activities of those
branches.
2.
In discharging their responsibilities under this Directive, host Member States may require
branches of investment firms to provide the information necessary for the monitoring of
their compliance with the standards set by the host Member State that apply to them for
the cases provided for in Article 32(7). Those requirements may not be more stringent
129
than those which the same Member State imposes on established firms for the monitoring
of their compliance with the same standards.
Article 62 : Precautionary measures to be taken by host Member States
1.
Where the competent authority of the host Member State has clear and demonstrable
grounds for believing that an investment firm acting within its territory under the freedom to
provide services is in breach of the obligations arising from the provisions adopted
pursuant to this Directive or that an investment firm that has a branch within its territory is
in breach of the obligations arising from the provisions adopted pursuant to this Directive
which do not confer powers on the competent authority of the host Member State, it shall
refer those findings to the competent authority of the home Member State.
If, despite the measures taken by the competent authority of the home Member State or
because such measures prove inadequate, the investment firm persists in acting in a
manner that is clearly prejudicial to the interests of host Member State investors or the
orderly functioning of markets, the competent authority of the host Member State, after
informing the competent authority of the home Member State shall take all the appropriate
measures needed in order to protect investors and the proper functioning of the markets.
This shall include the possibility of preventing offending investment firms from initiating any
further transactions within their territories. The Commission shall be informed of such
measures without delay.
2.
Where the competent authorities of a host Member State ascertain that an investment firm
that has a branch within its territory is in breach of the legal or regulatory provisions
adopted in that State pursuant to those provisions of this Directive which confer powers on
the host Member State's competent authorities, those authorities shall require the
investment firm concerned to put an end to its irregular situation.
If the investment firm concerned fails to take the necessary steps, the competent
authorities of the host Member State shall take all appropriate measures to ensure that the
investment firm concerned puts an end to its irregular situation. The nature of those
measures shall be communicated to the competent authorities of the home Member State.
If, despite the measures taken by the host Member State, the investment firm persists in
breaching the legal or regulatory provisions referred to in the first subparagraph in force in
the host Member State, the latter may, after informing the competent authorities of the
home Member State, take appropriate measures to prevent or to penalise further
irregularities and, in so far as necessary, to prevent that investment firm from initiating any
further transactions within its territory. The Commission shall be informed of such
measures without delay.
3.
Where the competent authority of the host Member State of a regulated market or an MTF
has clear and demonstrable grounds for believing that such regulated market or MTF is in
breach of the obligations arising from the provisions adopted pursuant to this Directive, it
shall refer those findings to the competent authority of the home Member State of the
regulated market or the MTF.
If, despite the measures taken by the competent authority of the home Member State or
because such measures prove inadequate, the said regulated market or the MTF persists
in acting in a manner that is clearly prejudicial to the interests of host Member State
investors or the orderly functioning of markets, the competent authority of the host
Member State, after informing the competent authority of the home Member State, shall
take all the appropriate measures needed in order to protect investors and the proper
functioning of the markets. This shall include the possibility of preventing the said
regulated market or the MTF from making their arrangements available to remote
members or participants established in the host Member State. The Commission shall be
informed of such measures without delay.
130
4.
Any measure adopted pursuant to paragraphs 1, 2 or 3 involving sanctions or restrictions
on the activities of an investment firm or of a regulated market shall be properly justified
and communicated to the investment firm or to the regulated market concerned.
Chapter III : COOPERATION WITH THIRD COUNTRIES
Article 63 : Exchange of information with third countries
1.
Member States may conclude cooperation agreements providing for the exchange of
information with the competent authorities of third countries only if the information
disclosed is subject to guarantees of professional secrecy at least equivalent to those
required under Article 54. Such exchange of information must be intended for the
performance of the tasks of those competent authorities.
Member States may transfer personal data to a third country in accordance to Chapter IV
of Directive 95/46/EC.
Member States may also conclude cooperation agreements providing for the exchange of
information with third country authorities, bodies and natural or legal persons responsible
for:
(i)
the supervision of credit institutions, other financial organisations, insurance
undertakings and the supervision of financial markets;
(ii)
the liquidation and bankruptcy of investment firms and other similar procedures;
(iii)
carrying out statutory audits of the accounts of investment firms and other financial
institutions, credit institutions and insurance undertakings, in the performance of
their supervisory functions, or which administer compensation schemes, in the
performance of their functions;
(iv)
overseeing the bodies involved in the liquidation and bankruptcy of investment
firms and other similar procedures;
(v)
overseeing persons charged with carrying out statutory audits of the accounts of
insurance undertakings, credit institutions, investment firms and other financial
institutions,
only if the information disclosed is subject to guarantees of professional secrecy at least
equivalent to those required under Article 54. Such exchange of information must be
intended for the performance of the tasks of those authorities or bodies or natural or legal
persons.
2.
Where the information originates in another Member State, it may not be disclosed without
the express agreement of the competent authorities which have transmitted it and, where
appropriate, solely for the purposes for which those authorities gave their agreement. The
same provision applies to information provided by third country competent authorities.
Title V : FINAL PROVISIONS
Article 64 : Committee procedure
1.
The Commission shall be assisted by the European Securities Committee established by
Commission Decision 2001/528/EC (26) (hereinafter referred to as 'the Committee').
2.
Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC
131
shall apply, having regard to the provisions of Article 8 thereof, provided that the
implementing measures adopted in accordance with that procedure do not modify the
essential provisions of this Directive.
The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months.
3.
Without prejudice to the implementing measures already adopted, on the expiry of a fouryear period following the entry into force of this Directive, the application of its provisions
requiring the adoption of technical rules and decisions in accordance with paragraph 2
shall be suspended. On a proposal from the Commission, the European Parliament and
the Council may renew the provisions concerned in accordance with the procedure laid
down in Article 251 of the Treaty and, to that end, they shall review them prior to the expiry
of that period.
Article 65 : Reports and review
1.
Before [30 April 2006] (*), the Commission shall, on the basis of public consultation and in
the light of discussions with competent authorities, report to the European Parliament and
Council on the possible extension of the scope of the provisions of the Directive
concerning pre and post-trade transparency obligations to transactions in classes of
financial instrument other than shares.
2.
Before [30 April 2007] (**), the Commission shall present a report to the European
Parliament and to the Council on the application of Article 27.
3.
Before [30 October 2006] (***), the Commission shall, on the basis of public consultations
and in the light of discussions with competent authorities, report to the European
Parliament and Council on:
(a)
the continued appropriateness of the exemption under Article 2(1)(k) for
undertakings whose main business is dealing on own account in commodity
derivatives;
(b)
the content and form of proportionate requirements for the authorisation and
supervision of such undertakings as investment firms within the meaning of this
Directive;
(c)
the appropriateness of rules concerning the appointment of tied agents in
performing investment services and/or activities, in particular with respect to the
supervision on them;
(d)
the continued appropriateness of the exemption under of Article 2(1)(i).
4.
Before [30 October 2006] (***), the Commission shall present a report to the European
Parliament and the Council on the state of the removal of the obstacles which may prevent
the consolidation at the European level of the information that trading venues are required
to publish.
5.
On the basis of the reports referred to in paragraphs 1 to 4, the Commission may submit
proposals for related amendments to this Directive.
6.
Before [30 April 2005] (****), the Commission shall, in the light of discussions with
competent authorities, report to the European Parliament and Council on the continued
appropriateness of the requirements for professional indemnity insurance imposed on
intermediaries under Community law.
(1) OJ L 191, 13.7.2001, p. 45.
(*) 2 years after the entry into force of this Directive.
(**) 3 years after the entry into force of this Directive.
132
(***) 30 months after the entry into force of this Directive.
(****) 1 year after the entry into force of this Directive.
Article 66 : Amendment of Directive 85/611/EEC
In Article 5 of Directive 85/611/EEC, paragraph 4 shall be replaced by the following:
'4.
Articles 2(2), 12, 13 and 19 of Directive 2004/39/EC of the European Parliament and of the
Council of 21 April 2004 on markets in financial instruments , shall apply to the provision of
the services referred to in paragraph 3 of this Article by management companies
(*) OJ L'.
Article 67 : Amendment of Directive 93/6/EEC
Directive 93/6/EEC shall be amended as follows:
1)
Article 2(2) shall be replaced by the following:
'2. Investment firms shall mean all institutions that satisfy the definition in Article 4(1) of
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on
markets in financial instruments, which are subject to the requirements imposed by the
same Directive, excluding:
(a)
credit institutions,
(b)
local firms as defined in 20, and
(c)
firms which are only authorised to provide the service of investment advice and/or
receive and transmit orders from investors without in both cases holding money or
securities belonging to their clients and which for that reason may not at any time
place themselves in debit with their clients.
(*) OJ L'
2)
Article 3(4) shall be replaced by the following:
'4. The firms referred to in point (b) of Article 2(2) shall have initial capital of EUR 50 000 in
so far as they benefit from the freedom of establishment or to provide services under
Articles 31 or 32 of Directive 2004/39/EC.';
3)
In Article 3 the following paragraphs shall be inserted:
'(4a) Pending revision of Directive 93/6/EC, the firms referred to in point (c) of Article 2(2)
shall have:
(a)
initial capital of EUR 50 000; or
(b)
professional indemnity insurance covering the whole territory of the Community or
some other comparable guarantee against liability arising from professional
negligence, representing at least EUR 1 000 000 applying to each claim and in
aggregate EUR 1 500 000 per year for all claims; or
(c)
a combination of initial capital and professional indemnity insurance in a form
resulting in a level of coverage equivalent to points (a) or (b).
The amounts referred to in this paragraph shall be periodically reviewed by the
Commission in order to take account of changes in the European Index of
133
Consumer Prices as published by Eurostat, in line with and at the same time as
the adjustments made under Article 4(7) of Directive 2002/92/EC of the European
Parliament and the Council of 9 December 2002 on insurance mediation (*).
(4b)
When an investment firm referred to in Article 2(2)(c), is also registered under
Directive 2002/92/EC it has to comply with the requirement established by Article
4(3), of that Directive and in addition it has to have:
(a)
initial capital of EUR 25 000; or
(b)
professional indemnity insurance covering the whole territory of the Community or
some other comparable guarantee against liability arising from professional
negligence, representing at least EUR 500 000 applying to each claim and in
aggregate EUR 750 000 per year for all claims; or
(c)
a combination of initial capital and professional indemnity insurance in a form
resulting in a level of coverage equivalent to points (a) or (b).
(*) OJ L 9, 15.1.2003, p. 3.'
Article 68 : Amendment of Directive 2000/12/EC
Annex I of Directive 2000/12/EC shall be amended as follows:
At the end of the Annex I the following sentence is added:
'The services and activities provided for in Section A and B of Annex I of Directive 2004/39/EC of
the European Parliament and of the Council of 21 April 2004 on markets in financial instruments
(*) when referring to the financial instruments provided for in Section C of Annex I of that Directive
are subject to mutual recognition according to this Directive.
(*) OJ L'
Article 69 : Repeal of Directive 93/22/EEC
Directive 93/22/EEC shall be repealed with effect from [30 April 2006]. References to Directive
93/22/EEC shall be construed as references to this Directive. References to terms defined in, or
Articles of, Directive 93/22/EEC shall be construed as references to the equivalent term defined in,
or Article of, this Directive.
(*) 24 months after the entry into force of this Directive.
Article 70 : Transportation
Member States shall adopt the laws, regulations and administrative provisions necessary to
comply with this Directive by [30 April 2006] at the latest. They shall forthwith inform the
Commission thereof.
When Member States adopt these measures, they shall contain a reference to this Directive or
shall be accompanied by such reference on the occasion of their official publication. The methods
of making such reference shall be laid down by the Member States.
Article 71 : Transitional provisions
1.
Investment firms already authorised in their home Member State to provide investment
services before the [30 April 2006], shall be deemed to be so authorised for the purpose of
this Directive, if the laws of those Member States provide that to take up such activities
134
they must comply with conditions comparable to those imposed in Articles 9 to 14.
2.
A regulated market or a market operator already authorised in its home Member State
before the [30 April 2006], shall be deemed to be so authorised for the purposes of this
Directive, if the laws of such Member State provide that the regulated market or market
operator (as the case may be) must comply with conditions comparable to those imposed
in Title III.
3.
Tied agents already entered in a public register before the [30 April 2006] shall be
deemed to be so registered for the purposes of this Directive, if the laws of those Member
States provide that tied agents must comply with conditions comparable to those imposed
in Article 23.
4.
Information communicated before the [30 April 2006], for the purposes of Articles 17, 18 or
30 of Directive 93/22/EEC shall be deemed to have been communicated for the purposes
of Articles 31 and 32 of this Directive.
5.
Any existing system falling under the definition of an MTF operated by a market operator
of a regulated market, shall be authorised as an MTF at the request of the market operator
of the regulated market provided it complies with rules equivalent to those required by this
Directive for the authorisation and operation of MTFs, and provided that the request
concerned is made within 18 months of the date referred to in Article 70.
6.
Investment firms shall be authorised to continue considering existing professional clients
as such provided that this categorisation has been granted by the investment firm on the
basis of an adequate assessment of the expertise, experience and knowledge of the client
which gives reasonable assurance, in light of the nature of the transactions or services
envisaged, that the client is capable of making his own investment decisions and
understands the risks involved. Those investment firms shall inform their clients about the
conditions established in the Directive for the categorisation of clients.
Article 72 : Entry into force
This Directive shall enter into force on the day of its publication in the Official Journal of the
European Union.
Article 73 : Addressees
This Directive is addressed to the Member States.
Done at Strasbourg, 21 April 2004
For the European Parliament
The President
P. COX
For the Council
The President
D. ROCHE
(*) 2 years after the entry into force of this Directive.
(**) 3 years after the entry into force of this Directive.
135
(***) 30 months after the entry into force of this Directive.
(****) 1 year after the entry into force of this Directive.
(*****) 24 months after the entry into force of this Directive.
136
ANNEX 1 : LIST OF SERVICES AND ACTIVITIES AND FINANCIAL INSTRUMENTS
Section A : Investment services and activities
(1)
Reception and transmission of orders in relation to one or more financial instruments.
(2)
Execution of orders on behalf of clients.
(3)
Dealing on own account.
(4)
Portfolio management.
(5)
Investment advice.
(6)
Underwriting of financial instruments and/or placing of financial instruments on a firm
commitment basis.
(7)
Placing of financial instruments without a firm commitment basis
(8)
Operation of Multilateral Trading Facilities.
Section B : Ancillary services
(1)
Safekeeping and administration of financial instruments for the account of clients,
including custodianship and related services such as cash/collateral management;
(2)
Granting credits or loans to an investor to allow him to carry out a transaction in one or
more financial instruments, where the firm granting the credit or loan is involved in the
transaction;
(3)
Advice to undertakings on capital structure, industrial strategy and related matters and
advice and services relating to mergers and the purchase of undertakings;
(4)
Foreign exchange services where these are connected to the provision of investment
services;
(5)
Investment research and financial analysis or other forms of general recommendation
relating to transactions in financial instruments;
(6)
Services related to underwriting.
(7)
Investment services and activities as well as ancillary services of the type included under
Section A or B of Annex 1 related to the underlying of the derivatives included under
Section C - 5, 6, 7 and 10 - where these are connected to the provision of investment or
ancillary services.
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Section C : Financial Instruments
(1)
Transferable securities;
(2)
Money-market instruments;
(3)
Units in collective investment undertakings;
(4)
Options, futures, swaps, forward rate agreements and any other derivative contracts
relating to securities, currencies, interest rates or yields, or other derivatives instruments,
financial indices or financial measures which may be settled physically or in cash;
(5)
Options, futures, swaps, forward rate agreements and any other derivative contracts
relating to commodities that must be settled in cash or may be settled in cash at the option
of one of the parties (otherwise than by reason of a default or other termination event);
(6)
Options, futures, swaps, and any other derivative contract relating to commodities that can
be physically settled provided that they are traded on a regulated market and/or an MTF;
(7)
Options, futures, swaps, forwards and any other derivative contracts relating to
commodities, that can be physically settled not otherwise mentioned in C.6 and not being
for commercial purposes, which have the characteristics of other derivative financial
instruments, having regard to whether, inter alia, they are cleared and settled through
recognised clearing houses or are subject to regular margin calls;
Regulation 385
(Article 4(1)(2) of Directive 2004/39/EC)
Characteristics of other derivative financial instruments
1. For the purposes of Section C(7) of Annex I to Directive 2004/39/EC, a contract which is not a
spot contract within the meaning of paragraph 2 of this Regulation and which is not covered by
paragraph 4 shall be considered as having the characteristics of other derivative financial
instruments and not being for commercial purposes if it satisfies the following conditions:
(a) it meets one of the following sets of criteria:
5
(i)
it is traded on a third country trading facility that performs a similar function to a regulated
market or an MTF;
(ii)
it is expressly stated to be traded on, or is subject to the rules of, a regulated market, an
MTF or such a third country trading facility;
(iii)
it is expressly stated to be equivalent to a contract traded on a regulated market, MTF or
Regulation 40
Re-examinations
2. The Commission shall, after consulting the Committee of European Securities Regulators, reexamine the provisions of Articles 38 and 39 relating to criteria for determining which instruments
are to be treated as having the characteristics of other derivative financial instruments, or as being
for commercial purposes, or which fall within Section C(10) of Annex I to Directive 2004/39/EC if
the other criteria set out in that Section are satisfied in relation to them.
The Commission shall report to the European Parliament and to the Council at the same time that
it makes its reports under article 65(a) and (d) of Directive 2004/39/EC.
138
such a third country trading facility;
(b) it is cleared by a clearing house or other entity carrying out the same functions as a central
counterparty, or there are arrangements for the payment or provision of margin in relation to
the contract;
(c) it is standardised so that, in particular, the price, the lot, the delivery date or other terms are
determined principally by reference to regularly published prices, standard lots or standard
delivery dates.
2. A spot contract for the purposes of paragraph 1 means a contract for the sale of a commodity,
asset or right, under the terms of which delivery is scheduled to be made within the longer of the
following periods:
(a) two trading days;
(b) the period generally accepted in the market for that commodity, asset or right as the standard
delivery period.
However, a contract is not a spot contract if, irrespective of its explicit terms, there is an
understanding between the parties to the contract that delivery of the underlying is to be
postponed and not to be performed within the period mentioned in the first subparagraph.
3. For the purposes of Section C(10) of Annex I to Directive 2004/39/EC, a derivative contract
relating to an underlying referred to in that Section or in Regulation 39 shall be considered to have
the characteristics of other derivative financial instruments if one of the following conditions is
satisfied:
(a) that contract is settled in cash or may be settled in cash at the option of one or more of the
parties, otherwise than by reason of a default or other termination event;
(b) that contract is traded on a regulated market or an MTF;
(c) the conditions laid down in paragraph 1 are satisfied in relation to that contract.
4. A contract shall be considered to be for commercial purposes for the purposes of Section C(7)
of Annex I to Directive 2004/39/EC, and as not having the characteristics of other derivative
financial instruments for the purposes of Sections C(7) and (10) of that Annex, if it is entered into
with or by an operator or administrator of an energy transmission grid, energy balancing
mechanism or pipeline network, and it is necessary to keep in balance the supplies and uses of
energy at a given time.
(8)
Derivative instruments for the transfer of credit risk;
(9)
Financial contracts for differences.
(10)
Options, futures, swaps, forward rate agreements and any other derivative contracts
relating to climatic variables, freight rates, emission allowances or inflation rates or other
official economic statistics that must be settled in cash or may be settled in cash at the
option of one of the parties (otherwise than by reason of a default or other termination
event), as well as any other derivative contracts relating to assets, rights, obligations,
indices and measures not otherwise mentioned in this Section, which have the
characteristics of other derivative financial instruments, having regard to whether, inter
alia, they are traded on a regulated market or an MTF, are cleared and settled through
recognised clearing houses or are subject to regular margin calls.
Regulation 39
(Article 4(1)(2) of Directive 2004/39/EC)
139
Derivatives within Section C(10) of Annex I to Directive 2004/39/EC
In addition to derivative contracts of a kind referred to in Section C(10) of Annex I to Directive
2004/39/EC, a derivative contract relating to any of the following shall fall within that Section if it
meets the criteria set out in that Section and in Regulation 38(3):
(a) telecommunications bandwidth;
(b) commodity storage capacity;
(c) transmission or transportation capacity relating to commodities, whether cable, pipeline or other
means;
(d) an allowance, credit, permit, right or similar asset which is directly linked to the supply,
distribution or consumption of energy derived from renewable resources;
(e) a geological, environmental or other physical variable;
(f) any other asset or right of a fungible nature, other than a right to receive a service, that is
capable of being transferred;
(g) an index or measure related to the price or value of, or volume of transactions in any asset,
right, service or obligation.
140
ANNEX II : PROFESSIONAL CLIENTS FOR THE PURPOSE OF THIS DIRECTIVE
Professional client is a client who possesses the experience, knowledge and expertise to make its
own investment decisions and properly assess the risks that it incurs. In order to be considered a
professional client, the client must comply with the following criteria:
I.
Categories of client who are considered to be professionals
The following should all be regarded as professionals in all investment services and activities and
financial instruments for the purposes of the Directive.
(1)
(2)
Entities which are required to be authorised or regulated to operate in the financial
markets. The list below should be understood as including all authorised entities carrying
out the characteristic activities of the entities mentioned: entities authorised by a Member
State under a Directive, entities authorised or regulated by a Member State without
reference to a Directive, and entities authorised or regulated by a non-Member State:
(a)
Credit institutions
(b)
Investment firms
(c)
Other authorised or regulated financial institutions
(d)
Insurance companies
(e)
Collective investment schemes and management companies of such schemes
(f)
Pension funds and management companies of such funds
(g)
Commodity and commodity derivatives dealers
(h)
Locals
(i)
Other institutional investors
Large undertakings meeting two of the following size requirements on a company basis:
- balance sheet total: EUR 20 000 000,
- net turnover: EUR 40 000 000,
- own funds: EUR 2 000 000.
(3)
National and regional governments, public bodies that manage public debt, Central Banks,
international and supranational institutions such as the World Bank, the IMF, the ECB, the
EIB and other similar international organisations.
(4)
Other institutional investors whose main activity is to invest in financial instruments,
including entities dedicated to the securitisation of assets or other financing transactions.
The entities mentioned above are considered to be professionals. They must however be allowed
to request nonprofessional treatment and investment firms may agree to provide a higher level of
protection. Where the client of an investment firm is an undertaking referred to above, the
investment firm must inform it prior to any provision of services that, on the basis of the information
available to the firm, the client is deemed to be a professional client, and will be treated as such
unless the firm and the client agree otherwise. The firm must also inform the customer that he can
request a variation of the terms of the agreement in order to secure a higher degree of protection.
141
It is the responsibility of the client, considered to be a professional client, to ask for a higher level
of protection when it deems it is unable to properly assess or manage the risks involved.
This higher level of protection will be provided when a client who is considered to be a professional
enters into a written agreement with the investment firm to the effect that it shall not be treated as
a professional for the purposes of the applicable conduct of business regime. Such agreement
should specify whether this applies to one or more particular services or transactions, or to one or
more types of product or transaction.
II.
Clients who may be treated as professionals on request
II.1. Identification criteria
Clients other than those mentioned in section I, including public sector bodies and private
individual investors, may also be allowed to waive some of the protections afforded by the conduct
of business rules.
Investment firms should therefore be allowed to treat any of the above clients as professionals
provided the relevant criteria and procedure mentioned below are fulfilled. These clients should
not, however, be presumed to possess market knowledge and experience comparable to that of
the categories listed in section I.
Any such waiver of the protection afforded by the standard conduct of business regime shall be
considered valid only if an adequate assessment of the expertise, experience and knowledge of
the client, undertaken by the investment firm, gives reasonable assurance, in light of the nature of
the transactions or services envisaged, that the client is capable of making his own investment
decisions and understanding the risks involved.
The fitness test applied to managers and directors of entities licensed under Directives in the
financial field could be regarded as an example of the assessment of expertise and knowledge. In
the case of small entities, the person subject to the above assessment should be the person
authorised to carry out transactions on behalf of the entity.
In the course of the above assessment, as a minimum, two of the following criteria should be
satisfied:
- the client has carried out transactions, in significant size, on the relevant market at an average
frequency of 10 per quarter over the previous four quarters,
- the size of the client's financial instrument portfolio, defined as including cash deposits and
financial instruments exceeds EUR 500 000,
- the client works or has worked in the financial sector for at least one year in a professional
position, which requires knowledge of the transactions or services envisaged.
II.2. Procedure
The clients defined above may waive the benefit of the detailed rules of conduct only where the
following procedure is followed:
- they must state in writing to the investment firm that they wish to be treated as a professional
client, either generally or in respect of a particular investment service or transaction, or type of
transaction or product,
- the investment firm must give them a clear written warning of the protections and investor
compensation rights they may lose,
- they must state in writing, in a separate document from the contract, that they are aware of the
consequences of losing such protections.
142
Before deciding to accept any request for waiver, investment firms must be required to take all
reasonable steps to ensure that the client requesting to be treated as a professional client meets
the relevant requirements stated in Section II.1 above.
However, if clients have already been categorised as professionals under parameters and
procedures similar to those above, it is not intended that their relationships with investment firms
should be affected by any new rules adopted pursuant to this Annex.
Firms must implement appropriate written internal policies and procedures to categorise clients.
Professional clients are responsible for keeping the firm informed about any change, which could
affect their current categorisation. Should the investment firm become aware however that the
client no longer fulfils the initial conditions, which made him eligible for a professional treatment,
the investment firm must take appropriate action.
143
ANNEX 1 to the Regulation 6
Table 1
List of fields for reporting purposes
Field Identifier
Description
1. Reporting firm identification
A unique code to identify the firm which executed the
transaction.
2. Trading day
The trading day on which the transaction was executed.
3. Trading time
The time at which the transaction was executed, reported
in the local time of the competent authority to which the
transaction will be reported, and the basis in which the
transaction is reported expressed as Coordinated
Universal Time (UTC) +/- hours.
4. Buy/sell indicator
Identifies whether the transaction was a buy or sell from
the perspective of the reporting investment firm or, in the
case of a report to a client, of the client.
5. Trading capacity
Identifies whether the firm executed the transaction:
6
—
on its own account (either on its own behalf or on
behalf of a client),
—
for the account, and on behalf, of a client.
Regulation 40
Re-examinations
1. At least once every two years, and after consulting the Committee of European Securities
Regulators, the Commission shall re-examine the definition of 'transaction' for the purposes of this
Regulation, the Tables included in Annex II, as well as the criteria for determination of liquid
shares contained in Article 22.
…
3. The Commission shall, no later than two years after the date of application of this Regulation,
after consulting the Committee of European Securities Regulators, re-examine Table 4 of Annex II
and report on the results of this re-examination to the European Parliament and the Council.
144
6. Instrument identification
This shall consist of:
—
a unique code, to be decided by the competent
authority (if any) to which the report is made
identifying the financial instrument which is the
subject of the transaction,
—
if the financial instrument in question does not have a
unique identification code, the report must include the
name of the instrument or, in the case of a derivative
contract, the characteristics of the contract.
7. Instrument code type
The code type used to report the instrument.
8. Underlying instrument
identification
The instrument identification applicable to the security that
is the underlying asset in a derivative contract as well as
the transferable security falling within Article 4(1)(18)(c) of
Directive 2004/39/EC.
9. Underlying instrument
identification code type
The code type used to report the underlying instrument.
10. Instrument type
The harmonised classification of the financial instrument
that is the subject of the transaction. The description must
at least indicate whether the instrument belongs to one of
the top level categories as provided by a uniform
internationally accepted standard for financial instrument
classification.
11. Maturity date
The maturity date of a bond or other form of securitised
debt, or the exercise date/maturity date of a derivative
contract.
12. Derivative type
The harmonised description of the derivative type should
be done according to one of the top level categories as
provided by a uniform internationally accepted standard for
financial instrument classification.
13. Put/call
Specification whether an option or any other financial
instrument is a put or a call.
14. Strike price
The strike price of an option or other financial instrument.
15. Price multiplier
The number of units of the financial instrument in question
which are contained in a trading lot; for example, the
number of derivatives or securities represented by one
contract.
16. Unit price
The price per security or derivative contract excluding
commission and (where relevant) accrued interest. In the
145
case of a debt instrument, the price may be expressed
either in terms of currency or as a percentage.
17. Price notation
The currency in which the price is expressed. If, in the
case of a bond or other form of securitised debt, the price
is expressed as a percentage, that percentage shall be
included.
18. Quantity
The number of units of the financial instruments, the
nominal value of bonds, or the number of derivative
contracts included in the transaction.
19. Quantity notation
An indication as to whether the quantity is the number of
units of financial instruments, the nominal value of bonds
or the number of derivative contracts.
20. Counterparty
Identification of the counterparty to the transaction. That
identification shall consist of:
21. Venue identification
—
where the counterparty is an investment firm, a
unique code for that firm, to be determined by the
competent authority (if any) to which the report is
made,
—
where the counterparty is a regulated market or MTF
or an entity acting as its central counterparty, the
unique harmonised identification code for that market,
MTF or entity acting as central counterparty, as
specified in the list published by the competent
authority of the home Member State of that entity in
accordance with Article 13(2),
—
where the counterparty is not an investment firm, a
regulated market, an MTF or an entity acting as
central counterparty, it should be identified as
‘customer/client’ of the investment firm which
executed the transaction.
Identification of the venue where the transaction was
executed. That identification shall consist in:
—
where the venue is a trading venue: its unique
harmonised identification code,
—
otherwise: the code ‘OTC’.
22. Transaction reference number
A unique identification number for the transaction provided
by the investment firm or a third party reporting on its
behalf.
23. Cancellation flag
An indication as to whether the transaction was cancelled.
146
Table 2
Further details for use of competent authorities
Field Identifier
Description
1. Reporting firm identification
If a unique code as referred to in Table 1 of Annex I is not
sufficient to identify the counterparty, competent
authorities should develop adequate measures that ensure
the identification of the counterparty.
6. Instrument identification
The unique code, agreed between all the competent
authorities, applicable to the financial instrument in
question shall be used.
20. Counterparty
If a unique code, or unique harmonised identification code
as referred to in Table 1 of Annex 1 is not sufficient to
identify the counterparty, competent authorities should
develop adequate measures that ensure the identification
of the counterparty.
ANNEX II to the Regulation
Table 1
Information to be made public in accordance with Article 17
Type of system
Description of system
Summary of information to
be
made
public,
in
accordance with Article 17
Continuous auction
order book trading
system
A system that by means of an order
book and a trading algorithm operated
without human intervention matches sell
orders with matching buy orders on the
basis of the best available price on a
continuous basis.
The aggregate number of
orders and the shares they
represent at each price level,
for at least the five best bid
and offer price levels.
Quote-driven trading
system
A system where transactions are
concluded on the basis of firm quotes
that are continuously made available to
participants, which requires the market
makers to maintain quotes in a size that
The best bid and offer by price
of each market maker in that
share, together with the
volumes attaching to those
prices.
147
balances the needs of members and
participants to deal in a commercial size
and the risk to which the market maker
exposes itself.
Periodic
auction
trading system
A system that matches orders on the
basis of a periodic auction and a trading
algorithm operated without human
intervention.
The price at which the auction
trading system would best
satisfy its trading algorithm and
the
volume
that
would
potentially be executable at
that price.
Trading system not
covered by first three
rows
A hybrid system falling into two or more
of the first three rows or a system where
the price determination process is of a
different nature than that applicable to
the types of system covered by first
three rows.
Adequate information as to the
level of orders or quotes and of
trading interest; in particular,
the five best bid and offer price
levels and/or two-way quotes
of each market maker in the
share, if the characteristics of
the price discovery mechanism
so permit.
Table 2
Orders large in scale compared with normal market size
(in EUR)
Class in
terms of
average daily
turnover
(ADT)
Minimum size
of
order
qualifying as
large in scale
compared
with
normal
market size
ADT <
500,000
50 000
500,000 ≤
ADT <
1,000,000
100 000
1,000,000 ≤
ADT
< 25,000,000
25,000,000 ≤
ADT <
50,000,000
250 000
400 000
ADT ≥
50,000,000
500 000
148
Table 3
Standard market sizes
(in EUR)
Class in
terms of
average
value of
transactions
(AVT)
Standard
market size
AVT
<
10,000
7,500
10,000
≤ AVT
<
20,000
15,000
20,000
≤ AVT
<
30,000
25,000
30,000
≤ AVT
<
40,000
35,000
40,000
≤ AVT
<
50,000
45,000
50,000
≤ AVT
<
70,000
60,000
70,000
≤ AVT
<
90,000
80,000
Etc.
Etc.
Table 4
Deferred publication thresholds and delays
The table below shows, for each permitted delay for publication and each class of shares in
terms of average daily turnover (ADT), the minimum qualifying size of transaction that will
qualify for that delay in respect of a share of that type.
Class of shares in terms of average daily turnover (ADT)
ADT < EUR
100,000
EUR 100 000
≤ ADT < EUR
1,000,000
EUR
1,000,000
≤ ADT < EUR
50,000,000
ADT ≥ EUR
50,000,000
Minimum qualifying size of transaction for permitted delay
Permitted delay for
publication
60 minutes
EUR 10,000
Greater of 5%
of ADT and
EUR
25,000
Lower of 10%
of ADT and
EUR
3,500,000
Lower of 10%
of ADT and
EUR
7,500,000
180 minutes
EUR 25,000
Greater of
15% of ADT
and EUR
75,000
Lower of 15%
of ADT and
EUR
5,000,000
Lower of 20%
of ADT and
EUR
15,000,000
149
Until end of trading
day (or roll-over to
noon
of
next
trading day if trade
undertaken in final
two
hours
of
trading day)
EUR 45,000
Greater of
25% of ADT
and EUR
100,000
Lower of 25%
of ADT and
EUR
10,000,000
Lower of 30%
of ADT and
EUR
30,000,000
Until end of trading
day
next
after
trade
EUR 60,000
Greater of
50%
of ADT and
EUR
100,000
Greater of
50%
of ADT and
EUR
1,000,000
100% of ADT
Until
end
of
second trading day
next after trade
EUR 80,000
100% of ADT
100% of ADT
250% of ADT
250% of ADT
250% of ADT
Until end of third
trading day next
after trade
150
Appendix 2
MiFID scope and non-scope business
MiFID scope
Non-MiFID scope
MiFID scope firm
Note:
For MiFID Directive purposes, an “investment firm” means any person whose regular
occupation or business is the provision of one or more investment services to third parties and/or
the performance of one or more investment activities on a professional basis (Article 4.1(1)).
In effect it can encompass a firm which is an investment firm plus, for some purposes only, a credit
institution and a UCITS investment firm unless and to the extent it is exempt under Articles 2 or 3
of MiFID.
Each member state must require that the performance of investment services or activities as a
regular occupation or business on a professional basis by an investment firm shall be subject to prior
authorisation in accordance with the provisions of Chapter 1 of the MiFID Directive. The
authorisation must specify the investment services or activities which the investment firm is
authorised to provide. The authorisation may cover one or more of the ancillary services but in no
case shall be granted solely for the provision of ancillary services.
MiFID does not apply to a range of institutions. (Article 2) For example:
(a)
insurance companies;
(b)
persons providing investment services exclusively for their parent undertakings for their
subsidiaries or for other subsidiaries of their parent undertakings;
(c)
persons providing an investment service where that service is provided in an incidental
manner in the course of a professional activity and that activity is regulated by legal or
regulatory provisions or a code of ethics governing the profession which do not include the
provision of that service;
(d)
persons who do not provide any investment services or activities other than dealing on their
own account (unless they are market makers or deal on own account outside the regulated
market or an MTF or an organised frequent and systematic basis for providing a system
accessible to third parties in order to engage in dealings with them);
(e)
persons who provide investment services consisting exclusively in the administration of
employee participation schemes;
(f)
persons which provide investment services which only involve both admin of employee
participation schemes and the provision of investment services exclusively for their parent
undertakings for their subsidiaries or for other subsidiaries of their parent undertakings;
(h)
collective investment undertakings and pension funds whether co-ordinated at community
The authorisation shall be valid for the entire community and shall allow an investment firm to
provide the services or perform the activities which it has been authorised throughout the
community either through the establishment of a branch or the free provision of services.
MiFID scope
Non-MiFID scope
level or not and the depositaries and managers of such undertakings;
(j)
persons providing investment advice in the course of providing another professional activity
not covered by this directive provided that the provision of such advice is not specifically
remunerated;
(k)
certain persons whose main business consists of dealing on an account in commodities and/or
commodity derivatives (exception not applicable where the persons that deal on account are
part of a group the main business of which is the provision of other investment services
within the meaning of this directive, or banking services under the Banking Directive;
(l)
firms which provide investment services and/or perform investment activities consisting
exclusively in dealing on own account on the markets in financial futures or options or other
derivatives and on cash markets for the sole purpose of hedging positions on derivative
markets or which deal for the accounts of other members of those markets or make prices for
them and which are guaranteed by clearing members of the same markets, for responsibility
for ensuring the performance of contracts entered into by such firms is assumed by clearing
members of the same markets.
Many EU member states (including the UK) are taking advantage of the Article 3 discretion to
exempt intermediaries who only accept and receive orders for transferable securities and units in
collective investment schemes and only provide advice on those orders.
(Note that firms which do not fall within MiFID’s scope only include collective investment
undertakings and operators of such insofar as they do not provide segregated discretionary portfolio
management and/or investment advice, or safekeeping and administration in relation to units of
collective investment undertakings.)
MiFID scope
Non-MiFID scope
MiFID services and activities
Not, for example:
“Investment services and activities” are defined in MiFID to mean any of the services and
activities listed in Section A of Annex 1 relating to any of the instruments listed in Section C of
Annex 1. “Ancillary services” means any of the services listed in Section B of Annex 1
(Article 4(2)).
-
insurance contracts
-
deposits
Core services and activities
The FSA is taking the opportunity to review the regulation of some of the non-MiFID business areas
which are within the scope of NEWCOB, namely:
(1)
reception and transmission of orders in relation to one or more financial instruments
-
venture capital business or corporate finance business (defined by the FSA glossary) where it
falls outside the scope of business or is carried on by non-MiFID firms
(2)
execution of orders on behalf of clients
-
commodities business
(3)
dealing on own account
-
(4)
portfolio management
business falling within the Article 2(1)(i) and (k) MiFID exemptions. These generally relate
to commodities derivatives although they also cover some ancillary dealing in other financial
instruments
(5)
investment advice, which is defined to mean the provision of personal recommendations to
a client, either upon its request or at the initiative of the investment firm, in respect of one
or more transactions relating to financial instruments.
-
energy market and oil market activity that does not fall within the scope of MiFID. This will
largely (but not entirely) overlap with matters under the preceding paragraph.
-
sports and leisure spread betting
-
Lloyds business (designated investment business currently subject to Chapter 12 of COB to
the extent it falls outside the MiFID scope)
-
collective investment undertakings and their operators focusing principally on the scheme
management activity of operators
(6)
underwriting of financial instruments and/or placing of financial instruments on a firm
commitment basis
(7)
placing of financial instruments without a firm commitment basis
(8)
operation of a multilateral trading facilities (or MTF) meaning a multilateral system
operated by an investment firm or a market operator, which brings together multiple third
party buying and selling interests in financial instruments – in the system and in accordance
MiFID scope
with non discretionary rules – in a way that results in a contract in accordance with the
provisions of Title II.
Non-MiFID scope
-
OPS firms (primarily concerning the provision of services such as asset management to
pension funds rather than the provision of services in relation to pension products that are
investments)
-
the provision of investment research by a non-MiFID firm by a college institution on a stand
alone basis or by a MiFID firm in relation to non-MiFID instruments
-
locals
-
service companies and other firms engaged in activity falling within Article 25(2) of the
Regulated Activities Order in relation to arrangements with professional clients
-
business falling within the existing regimes for depositaries and trustees (including those
within the Article 2(1)(h) exemption for collective investment undertakings in MiFID) except
for MiFID business of trustee firms that are MiFID firms
-
best execution and order handling for all firms outside the scope of MiFID
-
client categorisation rules concerning the professional client/eligible counterparty boundary
outside the scope of MiFID
-
requirements relating to projections of future returns and the effect of charges for packaged
products
Ancillary Services
Any of the services listed in Section B of Annex 1 to MiFID that is:
(1)
safekeeping and administration of financial instruments for the account of clients,
including custodianship and related services such as cash/collateral management;
(2)
granting credits or loans to an investor to allow him to carry out a transaction in one or
more financial instruments, where the firm granting the credit or loan is involved in the
transaction;
(3)
advice to undertakings on capital structure, industrial strategy and related matters and
advice and services relating to mergers and the purchase of undertakings;
(4)
foreign exchange services where these are connected to the provision of investment
services;
(5)
investment research and financial analysis or other forms of general recommendation
relating to transactions in financial instruments;
(6)
services related to underwriting; and
(7)
investment services and activities as well as ancillary services of the type included under
Section A or B of Annex 1 related to the underlying of the derivatives included under
Section C – 5, 6, 7 and 10- where these are connected to the provision of investment or
ancillary services that is in accordance with that Annex and Recital 21 to, and Article 39 of,
the MiFID Regulation)
MiFID scope
Non-MiFID scope
where these are connected to the provision of investment services or ancillary services.
Note that the MiFID Directive does not indicate which are “services” and which are “activities”.
The distinction is important because under MiFID an investment firm is subject to various
requirements when it is providing investment services or providing investment activities but other
requirements only apply to an investment firm when it is providing investment services but not when
it is performing investment activities.
In the FSA’s view, some of these business outlined above may be conducted only by way of
investment service – for example portfolio management and investment advice. It is also the FSA’s
view that an investment firm could conduct others of the activities listed above as either investment
services or investment activities. Whether the firm is providing a service or conducting an activity
will at least in part depend on the nature of the relationship between the parties. The central factor
in determining this issue is the presence (or absence) of a “client relationship”1
1
-
-
Criteria indicating that an investment firm has a client relationship with another person could include:
the nature of the obligations that each person has agreed to undertake
whether the relationship involves some act or work to be done for the other person, for example customisation of a particular product or a transaction to meet the
needs of the other party; where an investment firm “works” a transaction that it enters into or brings about with another person; or where an investment firm is
providing a facility to the other person such as the facilitation of transactions or providing an opportunity to trade
the reasonable expectations of the parties as to their relationship including any relevant communications between them (although a statement that there is no client
relationship will not be conclusive if it is inconsistent with the overall nature of the relationship)
whether an investment firm has agreed to treat a person as a retail professional client
whether the investment firm holds itself out as providing services and
whether the relationship involves fiduciary agency or similar obligations
MiFID scope
Non-MiFID scope
If an investment firm is only performing an investment activity without providing an investment
service, it will have no client and other protections will not apply.2 For example, a firm dealing on
its own account may be performing an investment activity without providing an investment service,
depending on the nature of its relationship with its counterparty. (In the FSA’s view, portfolio
managers and investment advisers will always be conducting activities by way of investment
services rather than simply an investment activity.)
2 The following MiFID requirements are, at least in some respects, limited to investment services business:
suitability and appropriateness
conflicts of interest
inducements
financial promotions/marketing communications
investment research
client money and assets
information to clients and potential clients
client order handling including aggregation and allocation and
reporting obligations
-
Other obligations under MiFID are not dependent upon there being a “client” to whom investment services and/or ancillary services are being provided including:
compliance
risk management
internal audit
senior management responsibility
personal transactions
outsourcing
the provision of information in a durable medium and
aspects of record keeping
MiFID scope
MiFID instruments
Instruments specified in Annex C of Annex 1 of MiFID, that is:
1.
transferable securities;
2.
money market instruments;
3.
units in collective investment undertakings;
4.
options, futures, swaps, forward rate agreements and any other derivative contracts
relating to securities, currencies, interest rates or yields or other derivative instruments,
financial indices or financial measures which may be settled physically or in cash;
5.
options, futures, swaps, forward rate agreements and any other derivative contracts
relating to commodities that must be settled in cash or may be settled in cash at the option
of one of the parties (otherwise than by reason of a default or other termination event);
6.
options, futures, swaps or any other derivatives contract relating to commodities that can
be physically settled provided that they are trading on a regulated market and/or MTF.
7.
options, futures, swaps, forwards and any other derivative contracts relating to
commodities, that can be physically settled not otherwise mentioned in (f) and not being
for commercial purposes, which have the characteristics of other derivative financial
instruments, having regard to whether, inter alia, they are cleared and settled through
recognised clearing houses or are subject to regular margin calls as determined (articles
38(1), (2) and (4) of the MiFID Regulation);
Non-MiFID scope
MiFID scope
Non-MiFID scope
8.
derivative instruments for the transfer of credit risk;
9.
financial contracts for differences; and
10.
options, futures, swaps, forward rate agreements and any other derivative contracts relating
to
i.
commodities;
ii.
climatic variables;
iii.
freight rates;
iv.
emission allowances;
v.
inflation rates or other official economic statistics;
vi.
telecommunications bandwidth;
vii.
commodity storage capacity;
viii.
transmission or transportation capacity relating to commodities, where
cable, pipeline or other means;
ix.
an allowance, credit, permit, right or similar asset which is directly linked to
the supply, distribution or consumption of energy derived from renewable
resources;
x.
a geological, environmental or other physical variable;
xi.
any other asset or right of a fungible nature, other than a right to receive a
service, that is capable of being transferred;
xii.
an index or measure related to the price or value of, or volume of
transactions in any asset, right, service or obligation;
where the conditions in Article 38(3) and (4) of the MiFID Regulation are met.
MiFID scope
[Note: Articles 38(3) and (4) and 30 of the MiFID Regulation.]
[Note: Article 4(1)(17) of MiFID]
Non-MiFID scope
Appendix 3
Ongoing FSA work
FSA publication
Date
1.
MiFID Transposition Instrument
January 2007
2.
NEWCOB Policy Statement, formal making of NEWCOB (this will incorporate and replace the MiFID
Q2 2007 (May)
Transposition Instrument)
3.
Deferred matters CP, including review of non MiFID projections regime.
Q2 2007
4.
Consequentials CP
Q2 2007
5.
Ongoing engagement with European Commission review of the Simplified Prospectus
6.
Further work (to which MPBR approach to be applied) re
7.
-
depolarisation
-
menu
-
IDD
-
basic advice
→ NEWCOB implementation
1 November 2007
Review of Financial Promotion Region (HM Treasury/FSA)
Post November 2007
Appendix 4
Ongoing CESR Work Programme re MiFID
There follows:
1.
a summary of consultations
2.
a copy of CESR’s 2007 Work Programme (published December 2006)
3.
a copy of the 2006/7 Work
(published 20 October 2006)
Programme for the MiFID Level 3 Expert Group
CESR Work Programme on MiFID Level 3 work
Issue
Publication date
Consultation Period
Hearing date
Completion date
Planned
completion date
The list of minimum records in
20 October 2006
Article 51(3) of the MiFID
20 October 2006 – 27
Recommendations
November 2007
published
implementing Directive
(Public
Consultation
on
9
February 2007
Ref:
Ref: CESR/06-552c
CESR/06-552)
Publication and Consolidation
20 October 2006
of MiFID Market Transparency
20 October 2006 - 15
Recommendations
December 2006
published
on
9
February 2007
(Public
Consultation
Ref:
CESR/07-043
CESR/06-551)
The Passport under MiFID
15 December 2006
15 December 2006 – 9
2 February 2007
March 2007
8 January 2007
Quarter 1/2 2007
February 2007
(Public
Consultation
Ref:
CESR/06-0669)
Use of reference data standard
codes in transaction reporting
15 December 2006
15 December 2006 – 15
January 2007
Issue
Publication date
Consultation Period
Hearing date
Completion date
Planned
completion date
(Public
Consultation
Ref:
CESR/06-648b)
22 December 2006
Inducements under MiFID
22 December 2006 – 9
2 February 2007
Quarter 1 2007
7 March 2007
Quarter 1 2007
1 March 2007
Quarter 1/2 2007
February 2007
(Public
Consultation
Ref:
CESR/06-687)
Best execution under MIFID
2 February 2007
2 February 2007 – 16
March 2007
(Public
Consultation
Ref:
CESR/07-050b)
CESR Level 3 Guidelines on
MiFID Transaction reporting
(Public
Consultation
CESR/07-047)
Ref:
2 February 2007
2 February 2007 - 2
March 2007
THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS
Date: December 2006
Ref:
06-627
2007 Work Programme
for the
Committee of European Securities Regulators
11-13 avenue de Friedland - 75008 PARIS - FRANCE - Tel.: 33.(0).1.58.36.43.21 - Fax: 33.(0).1.58.36.43.30
Web site: www.cesr.eu
Introduction : areas of work
The Work Plan for 2007 presented below, reflects the marked ‘shift in focus’ that CESR has been
undertaking since completing the submission of its advice to the European Commission on the various
legislative proposals in the Financial Services Action Plan.
During the period that CESR undertook a great deal of work to provide Level 2 advice, in particular in
2005 and 2006, CESR also began to establish and build a number of operational groups. These
groups are CESR-Pol, drawing together enforcement officers from across the organisations, and CESRFin, on financial information. CESR also developed the work of the Review Panel, whose role it is to
undertake assessment exercises to establish the level of convergence and increase peer pressure. In
addition, a mediation system to resolve any disputes that arise amongst supervisors, has also been
established. The work within the operational groups has been accompanied by the development of a
number of tools to assist convergence through databases of decisions. During 2007, the work of these
‘operational groups’ is going to receive even greater impetus and emphasis, with ever increasing
dialogue of very day to day operational nature taking place. CESR also intends in 2007 to give a more
operational focus to its work on Investment Management, building further on the Level 3 work
already undertaken.
In addition, 2007 will witness the entry into force of the Transparency Directive and the Markets in
Financial Instruments Directive (MiFID). CESR will continue to make every effort to converge
practices in the daily application of these Directives. In this spirit, CESR will be undertaking a great
deal of work, particularly in respect to MiFID, where a clear list of priorities for guidance has been
established in the form of a detailed work plan developed in close discussion with market
participants.
Similarly, efforts to converge practices amongst supervisors for those Directives which have now been
implemented for a year, namely the Prospectus Directive and Market Abuse Directive, will receive
fresh attention. During 2006, ‘calls for evidence’ were launched to review the functioning of these
two Directives and to establish what further work needs to be done. The responses will be reviewed
and action will be taken to improve further the daily application. To assist convergence in
supervisory practices, in the daily application of the Prospectus Directive, CESR Members developed a
‘question and answer’ (Q and A) mechanism to provide responses in a timely, clear and consistent
manner. Similarly, guidance was developed for the Market Abuse Directive. Where helpful or
necessary, further guidance will be issued, or the ‘Q and A’ adapted or added to.
Further practical steps will be taken to develop a common culture and to refine and improve the
process of peer pressure, both through putting in place systems to facilitate the movement of staff
amongst Members and the development of a training strategy. In addition, the methodology and
process used by the Review Panel will be reviewed to see in what ways it can be made more effective
and powerful as a tool to increase convergence.
The work programme presented below is divided into four areas, namely:
- Markets and intermediaries;
- Financial Information;
- Policy
- Supervisory convergence and peer pressure
The joint ‘Three-Level-Three Committees’ (3L3) 2007 work programme, on cross sector issues, will
be published by CESR, CEBS and CEIOPS in the forthcoming weeks.
-2-
Markets and Intermediaries
MiFID
•
Input to reports from the European Commission on:
- Pre and post transparency for bond trading
- Capital requirements for commodities firms
- Rules for tied agents
Rolling out the ‘Level 3’ Work Programme to create convergence amongst supervisors with the
development of guidance on:
• Passport functioning (Home/Host)
• Best execution
• Record keeping
• Inducements
• Publication and consolidation of market transparency information
• Calculation and publication of data (liquid shares, blocs, list of internalisers, etc….)
• Transaction reporting (several aspects of practical implementation)
TRANSACTION REPORTING EXCHANGE MECHANISM (TREM)
•
Development of a transaction reporting exchange mechanism (TREM) which involves
- Developing manuals and training
- Instrument reference data
- Conception of the long-term solution
- Report to the EU Institutions
CLEARING AND SETTLEMENT
•
Based on a response from the European Commission and EU Institutions at the end of 2006,
CESR (with the ESCB) will consider if any further work is necessary.
INVESTMENT MANAGEMENT
•
•
•
•
•
•
•
•
Follow-up work on the eligibility of indexes of Hedge funds
Development of ‘Level 3’ measures on eligible assets
Work on conduct of business rules and supervisory practices
Evaluation of the implementation of the notification guidelines
Implementation of a more operational focus for the group
Follow-up of the White Paper of the European Commission
Possible mandate from the Commission on simplified Prospectus
Contribution to the cross sector work (through the 3 Level 3 Committees) on substitute
products
CESR-Pol
•
•
•
Joint investigations through urgent issues groups
Surveillance and intelligence work
Market Abuse Directive - Level 3 guidance for supervisors and for the market
-3-
•
•
•
•
•
Evaluation of the supervisory functioning of the MAD
Enforcement aspects of MiFID
Creation of a database on enforcement cases
Uncooperative jurisdictions:
- Bilateral contacts
- Creation of a database of uncooperative jurisdictions in liaison with the other Level 3
Committees
Contacts with the CFTC and IOSCO
Financial Information
PROSPECTUS
•
•
•
•
•
•
•
On-going update of the frequently asked questions on the daily application of Directive and the
Regulation
Evaluation of the functioning of the Directive and the Regulation
Pilot study on the transfer of vetting of prospectus (delegation)
Follow-up on the Level 2 measures about equivalence of GAAP
Follow-up on the Level 2 measures on complex financial histories
Input to the cross-sector (3Level 3 Committees’) work on substitute products
Possible Level 2 measures on documentation for take-over bids and link with the prospectus
directive
TRANSPARENCY
•
•
•
•
Organisation of an implementation forum on the Transparency Directive
Follow-up on the advice given to the European Commission on the storage of regulated
information
Exchange of views with the US SEC on the storage of regulated information
Possible level 3 work to facilitate the daily application of the Transparency Directive
CESR-Fin
•
Decisions on the enforcement of IFRS
- Sessions (10 per year)
- Enrichment of the database of enforcement decisions
- Publication of decisions
- Supervisory convergence
•
Equivalence of third countries’ GAAP: Follow up on the decision to delay judgement on
equivalence until 2009, especially
- Follow-up advice on US, Canada, Japan
- Third countries GAAP assessments
Implementing the CESR-SEC work programme on the practical cooperation of the enforcement
of IFRS and US GAAP
•
•
•
•
•
Report on initial IFRS implementation by EU listed companies
Ongoing monitoring of IFRS developments and endorsement
Monitoring of International Standards on Auditing (ISA) development and endorsement
Checklist for enforcement of IFRS
-4-
•
Specific short-term audit projects
CREDIT RATING AGENCIES
•
•
•
Annual report to the European Commission on the compliance of Credit Rating Agencies with
the IOSCO Code
Monitoring of developments in the US
Liaison with CEBS and CEIOPS
Policy
ECONET
•
•
•
•
Develop an economic assessment of financial activities in Europe in 2006 for publication in the
Annual Report
Work to develop the bi-annual contribution to the Financial Stability Table of the Economic and
Financial Committee (EFC) in March/September
Develop an impact assessment methodology and consider how it can be applied to CESR’s work
and liaison with the other Level 3 Committees
Building links with academics with an aim to improve intelligence gathering and dissemination
REPORTING TO EUROPEAN UNION INSTITUTIONS
•
•
•
•
Annual and half-yearly report to Commission, ECOFIN and European Parliament
Supervisory convergence report to the FSC
Hearings in EU Parliament
Contributions to the Inter Institutional Monitoring Group (IIMG)
THE GLOBAL DIMENSION
•
•
•
•
•
Work programme with the SEC:
− On IFRS
− Exchange of experience on storage and risk based approaches
Work programme with the CFTC:
− Transparency
− Common formats
Enforcement cooperation dialogue: Swiss/Liechtenstein
Accompanying European Union’s cooperation policy: Russia/China/India/Brazil
Provide assistance to the consultative group of Non EEA countries (Turkey, Croatia, Serbia,
Montenegro,…)
ENGAGING RETAIL INVESTORS MORE EFFECTIVELY IN CESR’S CONSULTATION PROCESSES AND
INVESTOR INFORMATION
•
•
Development of an investor corner on the website which will provide investors with some
useful information on regulators and investor warnings and things to consider when buying
cross border.
Annual investor day
Supervisory Convergence/Peer Review
-5-
REVIEW PANEL
•
•
•
•
•
•
Mapping of supervisory powers for the implementation of MAD and Prospectus Directive
Review of the implementation of the simplification procedure for UCITS notification
Revision of existing CESR standards, guidelines and recommendations
Updating of previous reviews
Development of a protocol and improvement of the methodology for the work of the Panel
Refinement of the Review Panel IT-Tool
MEDIATION
•
•
Treatment of mediation cases
Reporting to EU institutions
COMMON SUPERVISORY CULTURE
•
•
•
Development of exchange of staff between CESR members
Development of training of staff: feasibility study on a long-term strategy
Restructuring of CESR’s website to better reflect the work of CESR at Level 3 and to undertake its
new responsibilities as set out in Directives, as well as, promoting and delivering information
which assists in converging practices and supervisory implementation on a day-to-day basis.
-6-
THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS
Date: 20 October 2006
Ref.: CESR/550b
MiFID Level 3 Expert Group – 2006/2007 Work Programme
This work-plan covers the period of time that goes from the establishment of the MiFID Level 3 Expert Group until the implementation of the Level 1 and
Level 2 Directives and Regulation (November 2007). Therefore it does not address, at this stage, other areas of work contained in the CESR Work
Programme on MiFID level 3 work (Ref. CESR/06-413) that was submitted to public consultation. The current work programme has been adopted taking
into account the results of the public consultation and having heard the MiFID Consultative Working Group.
The work programme is divided in two sections: 1) Intermediaries and 2) Markets.
1. Intermediaries
Issue
Start date
Process and Finish date
Practical and operational aspects related to the functioning of the passport of
investment firms
Q3 2006
Consultation: planned for December for a period
of six weeks.
• transitional provisions around the passport;
Approval planned by March 2007
• home/host relationships in the phase of authorization;
Bullet points three and four of the left column
should be prioritised over bullet points one and
two.
• home/host relationships regarding supervision and monitoring in the
provision of services/ activities from branches:
• issues regarding the provision of cross border business by tied agents.
The objective of this work is to achieve a common understanding by regulators
on how to collaborate on issues that relate to the passport, hence facilitating the
11-13 avenue de Friedland - 75008 PARIS - FRANCE - Tel.: 33.(0).1.58.36.43.21 - Fax: 33.(0).1.58.36.43.30
Web site: www.cesr.eu
cross-border provision of services by investment firms. In essence, this work is
directed at creating an optimum environment so that the Directive can meet its
objectives.
[Articles 23, 31 and 32 of MIFID]
Issue
Start date
Best execution
Q3 2006
• Development of convergent views regarding application of the best execution
requirements to non-equity markets, order receivers and transmitters, and
investment managers;
Process and Finish date
Q1 2007
Consultation/s will be performed as soon as
practicable, but not earlier than December for the
first and second bullet points.
• Clarification on firms not executing client orders;
• Execution venues: need to consider those outside the EU.
The main outcome of this work is to reach a convergent view as to how the best
execution requirements contained in the Level 1 and Level 2 Directives apply to
quote driven markets. This work also comprehends practical points such as the
ones raised in the bullet point 3.
[Article 21 of MiFID and articles 44 to 46 of Level 2 Directive]
Issue
Start date
Record keeping
Q3 2006
Minimum list of records to be maintained.
Process and Finish date
Q1 2007
A consultation has been launched on 20 October
2006 with a view to have the minimum list of
-2-
The objective of this work is to achieve consistency in the minimum list of
records that competent authorities need to establish.
records ready in January 2007
[Article 51(3) of Level 2 Directive]
Issue
Start date
Outsourcing (3L3)
Q3 2006
To ensure consistency to the maximum extent permitted by the EU legal
framework between the Level 2 provisions and the respective Level 3 guidance
stemming from MIFID and the Level 3 guidance developed in relation to the
Capital Requirements Directive (CRD).
Process and Finish date
Q4 2006
The finish date of this work will be the date of
publication of the CEBS standards (Q1/Q2 2007)
No consultation different from the one undertaken
by CEBS will be conducted at CESR, with the
objective of not duplicating issues.
The aim of this work is to create consistency between standards of CEBS, the
Level 2 and 3 work in the MIFID area and the future work on UCITS and
Solvency II.
To avoid inconsistencies with these developments, CEIOPS is participating in this
alignment in view of its work in the framework of the Solvency II project.
[Article 13(5) of MiFID and articles 13 to 15 of Level 2 Directive]
Issue
Start date
Internal governance (3L3)
Interactions between the CRD and MiFID.
Q3 2006
The work within the context of the CRD and the MIFID on internal governance
of banks and investment firms will be discussed. An analytical report will be
prepared and shared with the market on any overlaps and areas of possible
further work. This will take into account the current thinking on Solvency II.
-3-
Process and Finish date
Q1 2007
The deliverable for this date is an analytical report
that maps the different initiatives and serves as a
reference to determine if further work is needed.
No consultation is needed for the mapping as it is a
CEBS’ guidelines on internal governance within e.g. the supervisory review
process and model validation work, and Level 2 measures under MIFID (based
on CESR’s work on internal governance in the MIFID area), will be discussed in
order to assess whether there is a need to do future work in this area.
purely factual exercise.
UCITS will also be taken into account. CEIOPS is participating in this alignment
of work in view of avoiding inconsistencies relating to its work on Solvency II, as
well as any input following from the pension funds side and current insurance
directives.
[Article 13 of MiFID and Chapter II of Level 2 Directive]
Issue
Start date
Inducements
Q3 2006
Process and Finish date
Q1 2007
• Clarification on certain remuneration structures, scope, and distribution
channels.
Consultation/s will be performed as soon as
practicable, but no earlier than December 2006.
• Practices of “softing and bundling”.
Bullet point one of the left column should be
prioritised over bullet point two.
Clarification of practical implementation of provisions on inducements.
[Article 26 of the draft Level 2 Directive]
-4-
2. Markets
Issue
Start date
Process and finish date
Depending on
the request
from the
Commission
Q2 2008
I- Work in connection with upcoming Commission's Reports
State of the removal of the obstacles which may prevent the consolidation at the
European level of the information that trading venues are required to publish.
The Commission's report is due by April 2008.
•
Wait for a request from the Commission. Timing: April 2008 is however
tight because consolidation should only begin in November 2007.
Possible extension of the pre and post-trade transparency obligations to
transactions in classes of financial instruments other than shares. The
Commission's report is due by October 2007.
Request in two phases. First step in progress.
Q3 2006
Q4 2006
Q4 2006
Q2 2007
Application of article 27 of MiFID on systematic internalizers (SI). The
Commission's report is due by October 2008.
•
Depending on
the request by
Wait for a request from the Commission and experience on the the Commission
operation of MiFID SI regime.
Appropriateness of the definition of transaction, the tables included in Annex II
of the Regulation and the criteria for determination of liquid shares contained in
article 21 of the Level 2 Regulation. (Re-examination under Level 2 regulation)
•
Wait for experience on MiFID, possibly discuss the methodology and
-5-
Depending on
the request by
the Commission
Q2 2008
Q3 2009
Issue
Start date
Process and finish date
Depending on
the request by
the Commission
Q3 2008
national experience well before the deadline.
Re-examine table 4 of annex II of the Level 2 Regulation
•
Wait for experience on MiFID, possibly discuss the methodology and
national experience well before the deadline.
II- Others Areas of Work
Aspects related to the functioning of the passport of investment firms and
regulated markets (where relevant), including home/host relationships in the
phases of authorization, free provision of services/activities, establishment of
branches, crisis management; it also covers transitional provisions around the
passport, and issues regarding the provision of cross border business by tied
agents.
At this stage, CESR has not identified issues which require immediate actions.
Potential questions may arise around MTFs. However their cross-border
activities are likely to be similar to the ones like RMs (where no major problems
are recognized) they should only be addressed on the basis of practical
experience.
According to
current status
there is no work
anticipated.
Q1 2007 (if the work would be needed)
If such a work
would become
necessary, it
should have
priority (i.e.
starting
Q4/2006)
Publication and consolidation of market transparency information
- Publication of transparency information (accuracy of the information,
avoiding double publication, requirements for proprietary arrangements etc.)
- Consolidating the transparency information
•
Issues discussed during the previous "consolidation work", like:
o how to ensure publication only once;
-6-
Already started
Q1 2007
(Consultation Paper published on 20 October
2006)
Issue
o
o
o
o
o
o
•
Start date
necessary technical standards in order to enhance consolidation;
publication on non-discriminatory way and guaranteeing the
availability of data to all interested parties;
synchronization of trading clocks;
the issues of websites – minimum requirements for "cheap"
publication channels;
requirements for data quality monitoring systems (art 32
regulation: reliable, monitoring continuously for errors and
correct as soon as errors are detected);
publication of cancellations/corrections;
Interpretation issues:
o When information is published;
o Whose obligation is it to publish;
o How to define shares;
o Definition of transaction – chain of transactions;
o Trading by non-EU branches;
o How to interpretate end of trading day (which trading day) and
non trading days;
Common procedures and formats for the calculation and publication of data
(liquid shares, block sizes and the list of systematic internalizers).
•
Process and finish date
Internal CESR work – no need for consultation
Level 2 sets obligation for CESR to publish certain data. The basic
obligation for publication is on competent authorities, but their
publication obligation is considered to be fulfilled when the data has
been submitted to CESR and published. CESR should establish an internal
guidebook on the methods and procedures (including deadlines) how
members should submit the data.
o Art 11 Level 2 Regulation: list of the relevant competent
authority for one or more financial instruments;
o Art 21 Publication of sistematic internalizers;
-7-
Q4 2006
Q1/Q2 2007
Issue
•
Start date
Process and finish date
o Art 22 Determination and publication of liquid shares;
o Art 23 Determination and publication Standard Market Size;
o Art 33, 34 Calculations and estimates for shares en publication.
Requirements for CESRs "publication mechanisms": The content as such
is "simple" compared for example to transaction reporting, but it should
first be noted that it is not static once a year exercise. Depending on the
market activity, the list may need to be updated even daily. Another
thing is the level of service CESR wants to provide: In terms of timing,
for example the list of internalizers needs to be updated at least
annually, but in practice such updates would be meaningful, if meant to
be of use for markets it needs to be updated daily. Secondly, as has been
discussed in relation to market data consolidation, a "static website"
would not achieve the wanted result. Similarly it can be argued that if
CESR’s list were to be useful it should meet the requirement of being
"machine readable".
Required calculations and estimates concerning liquid shares and delayed
publication
- Free float: identification of holdings held by a collective investment
undertaking or a pension fund and cooperation between competent authorities
to share the information;
- Average daily turnover;
- Average daily number of transactions;
- Average value of orders executed;
- Estimates in relation to "new listings";
- Block trade thresholds.
Apart from the technical manual referred to in the previous box, there is a need
to clarify the exact calculation procedures and necessary interpretations in order
to reach figures which are comparable (earlier stock taking exercises have the
importance of such common understanding). Therefore a more content oriented
manual on conducting the calculations is needed.
-8-
There should be general agreement on these issues
well before the first calculations
Q4 2006
Q2 2007
Issue
Start date
Process and finish date
Q4/2006
Q1/2007
2) Reporting channel: Transactions reports shall be made either by the
investment firm itself, a third party acting on its behalf or by a trade-matching
or reporting system approved by the competent authority or by the regulated
market or MTF through whose systems the transaction was completed. Reports
shall be in electronic format unless a competent authority grants a waiver.
Additional work may be needed in the following aspects: Exemptions from being
in electronic format and/or approval of the reporting system.
Q4/2006
(preliminary
analysis)
Q4/2006
CESR will first analyse whether any immediate action in this field is needed for
the operation of MiFID or whether actions should be taken on long term (if at
all).
2008 long term
Transaction reporting
1) Interpretation of a transaction: According to the Level 2 Directive a
transaction is a reference only to the purchase and sale of financial instrument.
However, more work seems to be needed, eg on the interpretation of the term
"execution" in relation to a transaction and in particular its application to
investment managers and investment advisers. The work should be done in cooperation with CESR-Tech/TREM (Transactions Reporting Exchange
Mechanism) project.
3) List of financial instruments and list of "markets": Relevant competent
authority shall ensure that there is established and maintained an updated list of
those instruments. – Each Regulated Market shall submit identifying reference
data on each instrument in an electronic and standardised format to its home
competent authority. Similarly competent authorities shall maintain a list of
markets.
CESR-Tech/TREM project is already working on the subject. The issue of list of
-9-
Q4/2006
Q2/2007
Issue
Start date
Process and finish date
Q4/2006
Q2/2007
markets will be addressed as part of the calculations manual.
4) Additional content of the reports: (instrument specificities, trading
methodology specificities and identification of the client).
While MiFID expressly allows individual Member States to have superequivalent requirements it may be possible for those super-equivalent
requirements to be implemented in such a way that as much as possible CESR
members adhere to 23 standard fields. For example, it may be that those CESR
members who decide to require client identification in transaction reports could
all agree a common format standard for that field. Furthermore CESR might
agree to use existing fields in such a way that minimum system changes are
needed for reporting in different jurisdictions.
This work should be done in co-operation with CESR-Tech/Trem project.
5) Common IT protocols/formats and interfaces: It would be sensible for
European regulators to agree on a common set of protocols and IT formats for
reporting mechanisms.
CESR recognizes that agreeing common protocols/formats could be difficult.
Taking into account the tight timetables in implementing MiFID, this work will
take place at a later stage.
6) Article 32(7) of MiFID on the home/host issues from a transaction reporting
perspective: The interpretation of Article 32(7) of MiFID has implications for
transaction reporting and it is important that the transaction reporting
perspective is properly considered in reaching a decision on how this provision
should be interpreted. Otherwise there is a risk of double reporting. According
to the MiFID, branches report to the host country authority and other firms to
their home country authority. There are views among market participants that
following this distinction may prove difficult (and costly) and therefore they
may be willing to report all trades to both regulators (home and host).
- 10 -
2008 (if
needed)
Q4/2006
Q1/2007
Issue
Start date
Proposal for a standard service level agreement between an investment firm
and the reporting channel.
2008 (if
needed)
- 11 -
Process and finish date
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