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.
main elements of the EU Directives
Dr. jur. Dimitris Tsibanoulis Legal Advisor, Bank of Greece
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:
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.
Requirements for authorisation
Directive 93/6/EEC on capital adequacy of investment firms and credit institutions
Proposal presented by the Commissionfor
DIRECTIVES OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
Re-casting Directive 2000/12/EC of the European Parliament and of the Council of 20March 2000 relating to the taking up and pursuit of the business of credit institutionsand Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investmentfirms and credit institutions.
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.
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 chargesso 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.
Market transparency and integrity
RIGHTS OF INVESTMENT FIRMS
Section AInvestment 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 BAncillary 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.
Section CFinancial 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; (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.
- 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
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:
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.
- 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").
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.
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.
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
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:
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.
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:
To achieve approximation at Community level of the conditions of competition between UCITS and to give unit-holders more uniform and more effective protection.
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.
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.
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.