European Commission, Technical Assistance Information
Exchange Unit (TAIEX), DG Enlargement
Securities:
main elements of the EU Directives
Dr. jur. Dimitris Tsibanoulis
Legal Advisor, Bank of Greece
1
EU Securities Directives ensure the
development of a single securities market
for both new issues and trading of securities
These Directives
regulate the initial and on-going conditions for
service providers (investment firms),
establish requirements for the issuance of
securities (both as regards public offers of
securities and requirements for securities to be
listed on a stock exchange) and
co-ordinate the conditions applicable to
investment funds.
2
Investment services providers:
Banks and Investment firms
The conditions for the setting-up of
investment firms and their on-going
business are similar to those for banks,
and provide for a level playing field
between non-bank investment firms and
banks providing investment services.
3
Provision of Investment Services
Directive 93/22/EEC on investment services in the
securities field
Directive 2004/39/EC on markets in financial
instruments, amending Directives 85/611/EEC
and 93/6/EEC and Directive 2000/12/EC and repealing
Directive 93/22/EEC;
Directive 93/6/EEC of 15 March 1993 on capital
adequacy of investment firms and credit institutions
[amended by Directive 98/31/EC and Directive
98/33/EC of 22 June 1998]
4
Objective of Directive 93/22/EEC
Liberalisation of the access to stock-exchange
membership and financial markets in host Member
States for investment firms authorised to provide the
services concerned in their home Member States.
The Directive provides for:
harmonisation of essential standards;
mutual recognition by the national supervisory
authorities of the controls applied in the country in
which the head office is situated;
coordination of the work of supervisory authorities
by the home country.
5
Provision of Investment Services (cont.)
The competent authorities in each Member State must
ensure that:
- the investment firm has sufficient initial financial
resources for the proposed activities;
- the persons directing the business have sufficient
professional integrity and experience;
- holders of qualifying participations are suitable persons.
6
Directive 2004/39/EC on markets in
financial instruments (MifiD)
It is a crucial part of the Financial Services Action Plan.
The Directive allows investment firms, banks and
exchanges to provide their services across borders on
the basis of their home country authorisation. It brings
closer into line national rules on the provision of
investment services and the operation of exchanges,
with the ultimate aim of creating a single European
"securities rule book". It benefits investors, issuers and
market participants by promoting efficient and
competitive markets, notably by allowing banks and
other investment institutions to compete fairly with stock
exchanges.
7
Directive 2004/39/EC on markets in
financial instruments (MifiD)
"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;
"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;
8
Directive 2004/39/EC on markets in
financial instruments (MifiD)
"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 non-discretionary
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;
9
Directive 2004/39/EC on markets in
financial instruments (MifiD)
"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;
10
AUTHORISATION AND OPERATING
CONDITIONS FOR INVESTMENT FIRMS
Requirements for authorisation
Persons who effectively direct the business
Shareholders and members with qualifying holdings
Membership of an authorised Investor Compensation
Scheme
Initial capital endowment
Organisational requirements
11
Capital Adequacy of Investment Firms and Credit
Institutions
Directive 93/6/EEC on capital adequacy of investment firms and
credit institutions
OBJECTIVE
To achieve equality of treatment between credit institutions
and investment firms by harmonizing capital requirements.
CONTENTS
Investment firms which hold clients' money and/or securities and
which receive, transmit and/or execute investors' orders for financial
instruments and/or manage portfolios of investments in financial
instruments must have initial capital of EURO 125 000.
All other investment firms must have initial capital of EURO 730 000.
In order to guarantee the ongoing financial soundness of such firms,
capital requirements are laid down to cover the market risks to which
they are exposed.
12
Regulatory capital
Proposal presented by the Commission for
DIRECTIVES OF THE EUROPEAN PARLIAMENT AND
OF THE COUNCIL
Re-casting 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 and Council Directive 93/6/EEC
of 15 March 1993 on the capital adequacy of
investment firms and credit institutions.
13
AUTHORISATION AND OPERATING
CONDITIONS FOR INVESTMENT FIRMS
OPERATING CONDITIONS FOR INVESTMENT
FIRMS
Regular review by the competent authorities of
compliance with the conditions for initial
authorisation (Art. 16).
General obligation of the competent authorities
in respect of on-going supervision (Art. 17).
Avoidance of conflicts of interest (Art. 18)
14
AUTHORISATION AND OPERATING
CONDITIONS FOR INVESTMENT FIRMS
Provisions to ensure investor protection
Conduct of business obligations when
providing investment services to clients (Art.
19)
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.
15
Conduct of business obligations (cont.)
Appropriate information shall be provided in a
comprehensible form to clients or potential clients about:
- the investment firm and its services,
- 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,
- execution venues, and
- costs and associated charges
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.
16
Conduct of business obligations (cont.)
Obligation to execute orders on terms most
favourable to the client (Art. 21)
Client order handling rules (Art. 22)
Obligations of investment firms when appointing
tied agents (Art. 23)
17
OPERATING CONDITIONS FOR INVESTMENT FIRMS
Market transparency and integrity
Obligation to uphold integrity of markets, report
transactions and maintain records (Art. 25)
Post-trade disclosure by investment firms (Art.
28)
Pre-trade transparency requirements for MTFs
(Art. 29)
Post-trade transparency requirements for MTFs
(Art. 30)
18
Directive 2004/39/EC on markets in
financial instruments (MifiD)
RIGHTS OF INVESTMENT FIRMS
Freedom to provide investment services and
activities (Art. 31)
Establishment of a branch (Art. 32)
Access to regulated markets (Art. 33)
Access to central counterparty, clearing and
settlement facilities and right to designate
settlement system (Art. 34)
19
List of Services and Activities coming within
the Scope of Directive 2004/39/EC
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.
20
List of Services and Activities coming within the Scope
of Directive 2004/39/EC (cont.)
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.
21
List of Financial Instruments
coming within the Scope of Directive
2004/39/EC
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);
22
List of Financial Instruments
coming within the Scope of Directive
2004/39/EC (cont.)
(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;
(8) Derivative instruments for the transfer of credit risk;
(9) Financial contracts for differences.
23
List of Financial Instruments
coming within the Scope of Directive
2004/39/EC (cont.)
(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.
24
Directive 2004/39/EC on markets in
financial instruments (MifiD)
REGULATED MARKETS
Authorisation (Art. 36)
Requirements for the management of the
regulated market (Art. 37)
Requirements relating to persons exercising
significant influence over the management of
the regulated market (Art. 38)
Organisational requirements (Art. 39)
25
Directive 2004/39/EC on markets in financial
instruments (MifiD) – Regulated Markets
Admission of financial instruments to trading
(Art. 40)
Suspension and removal of instruments from
trading (Art. 41)
Access to the regulated market (Art. 42)
Monitoring of compliance with the rules of the
regulated market and with other legal obligations
(Art. 43)
Pre-trade and post-trade transparency
requirements for regulated markets (Art. 44-45)
26
Investor Compensation Schemes
Directive 97/9/EC
OBJECTIVE
To protect investors following the failure of an investment
firm.
The compensation scheme operates where:
-the competent authorities have determined that in their view
an investment firm appears, for the time being, to be unable to
meet its obligations arising out of investors' claims and has no
early prospect of being able to do so; or
- a judicial authority has made a ruling which has the effect of
suspending investors' ability to make claims against an
investment firm.
27
Investor Compensation Schemes (cont.)
Cover must be provided for claims arising out of an investment firm's
inability to:
- repay money owed to or belonging to investors and held on their
behalf in connection with investment business; or
- return to investors any instruments belonging to them and held,
administered or managed on their behalf in connection with
investment business
The Directive sets a Community minimum level of compensation per
investor of EURO 20 000, while at the same time authorising
Member States to provide for a higher level of compensation if they
so wish.
An investor's claim must be met within a maximum of three months
of the establishment of the eligibility and the amount of the claim.
Obligations are laid down regarding information that must be
supplied to investors.
28
Conditions for the Admission of Securities
to Official Stock Exchange Listing
Directive 2001/34/EC of the European Parliament and of the
Council on the admission of securities to official stock
exchange listings and on information to be published on those
securities
OBJECTIVE: The Directive aims to codify existing measures
concerning the conditions for the admission of securities to
official stock exchange listing and the financial information
that listed companies must make available to investors. The
existing measures are:
coordinating the conditions for the admission of securities to official
stock-exchange listing;
information to be published on a regular basis by companies the
shares of which have been admitted to official stock-exchange
listing;
information to be published when a major holding in a listed
company is acquired or disposed of.
29
Prospectus for Public Offerings of Securities
Directive 2003/71/EC on the prospectus to be
published when securities are offered to the public
or admitted to trading and amending Directive
2001/34/EC
A prospectus is a disclosure document containing
essential financial and non-financial information that an
issuer makes available to potential investors when it
issues securities (shares, bonds, derivatives, etc.) to
raise capital and/or when it wants its securities admitted
to trading on stock markets.
30
Prospectus for Public Offerings of Securities
(cont.)
OBJECTIVES:
- To improve the quality of information provided
to investors by companies wishing to raise
capital in the European Union (EU).
- To increase the harmonisation of rules governing
the drafting and content of prospectuses.
- To introduce a single authorisation system for
prospectuses which may be used in all EU
Member States (a "single passport for issuers").
31
Prospectus for Public Offerings of Securities
(cont.)
Prospectuses may serve as "single passports" for
issuers of securities wishing to offer their securities in
more than one Member State. As a result of the
modernisation of Community rules on content and
distribution, prospectuses should contain better-quality
information that is more easily accessible, e.g. via the
Internet.
The principle of automatic mutual recognition means that
companies will no longer have to ask each Member
State for regulatory approval of their prospectus for
potential investors. This ensures better-quality
information that is available on the Internet in several
languages.
32
Prospectus for Public Offerings of Securities
(cont.)
With effect from 1 July 2005, Directive 2003/71 will
repeal Directive 89/298/EEC and so replace the previous
mutual recognition system, which was partial and
complex since it did not meet the objective of providing a
single passport.
It is one of the key elements of the Financial Services
Action Plan, which advocates the establishment of an
integrated financial services market by 2003.
33
Prospectus Directive 2003/71/EC
Implementing measures (level 2)
COMMISSION REGULATION (EC) No 809/2004
of 29 April 2004 implementing Directive
2003/71/EC of the European Parliament and of
the Council as regards information contained in
prospectuses as well as the format,
incorporation by reference and publication of
such prospectuses and dissemination of
advertisements
34
Transparency Directive 2004/109/EC
The Directive on transparency requirements revises and
replaces provisions of Directive 2001/34/EC.
The goal is to upgrade the information available to
investors, thus helping them to allocate their funds on
the basis of a more informed assessment.
The Directive aims to ensure that investors receive
interim management statements from those share
issuers who do not publish quarterly reports, and half–
yearly financial reports from issuers of new bonds.
In addition, all securities issuers will have to provide
annual financial reports within four months after the end
of the financial year. The Directive is also expected to
improve dissemination of information on issuers.
35
Market Abuse
Directive 2003/6/EC on insider dealing
and market manipulation
OBJECTIVE
To strengthen the integrity of financial markets by limiting
opportunities for insider
dealing
and market
manipulation, to define common standards to increase
investor confidence and to strengthen cooperation
between the appropriate national authorities within the
European Union.
There are two main categories of market abuse:
insider dealing and
market manipulation.
36
Market Abuse – Directive 2003/6/EC
The definition of what constitutes market abuse is a
general one and is flexible enough to last as long as
possible. Market abuse may arise in circumstances
where investors have been unreasonably
disadvantaged, directly or indirectly, by others who:
- have used information which is not publicly available
(insider trading);
- have distorted the price-setting mechanism of financial
instruments;
- have disseminated false or misleading information.
This type of conduct can undermine the general principle
that all investors must be placed on an equal footing.
37
Market Abuse – Directive 2003/6/EC
COMMISSION DIRECTIVE 2003/124/EC of 22
December 2003 implementing Directive 2003/6/EC of
the European Parliament and of the Council as regards
the definition and public disclosure of inside information
and the definition of market manipulation
Commission Directive 2004/72/EC of 29 April 2004
implementing Directive 2003/6/EC of the European
Parliament and of the Council as regards accepted
market practices, the definition of inside information in
relation to derivatives on commodities, the drawing up of
lists of insiders, the notification of managers' transactions
and the notification of suspicious transactions
38
Market Abuse – Directive 2003/6/EC
COMMISSION REGULATION (EC) No 2273/2003 of
22 December 2003 implementing Directive
2003/6/EC of the European Parliament and of the
Council as regards exemptions for buy-back
programmes
and
stabilisation
of
financial
instruments
39
Collective Investment Undertakings (UCITS)
Directive 85/611/EEC on the coordination of
laws, regulations and administrative provisions
relating to undertakings for collective investment
in transferable securities (UCITS) amended by:
Directive 88/220/EEC;
Directive 95/26/EC;
Directive 2001/107/EC;
Directive 2001/108/EC.
40
Collective Investment Undertakings (UCITS)
OBJECTIVE
To achieve approximation at Community level of the
conditions of competition between UCITS and to give
unit-holders more uniform and more effective protection.
CONTENTS
UCITS are undertakings whose sole object is the
collective investment in transferable securities of capital
raised from the public and the units of which are, at the
request of the holders, repurchased or redeemed out of
the undertaking’s assets.
41
Collective Investment Undertakings (UCITS)
(cont.)
UCITS must be authorised by the Member State in which
they are situated. The authorisation is valid for all
Member States.
Requirement to publish a prospectus, regular reports,
and information on the sale price of units.
Designation of authorities responsible for authorisation
and supervision in each Member State.
42
Collective Investment Undertakings (UCITS)
(cont.)
Directive 2001/107/EEC introduces harmonised
rules on market access and conditions for
conducting business, together with prudential
requirements on management companies.
It sets up a "European passport" system,
whereby a management company authorised to
provide its services in one Member State may do
so throughout the single market without having
to apply for a new authorisation.
43
Collective Investment Undertakings (UCITS)
(cont.)
Directive 2001/108/EC widens the scope
of Directive 85/611/EEC to include
collective investment undertakings which
invest in financial instruments other than
transferable securities, such as money
market instruments, bank deposits,
options and standardised financial-futures
contracts, and units of other collective
investment undertakings.
44
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