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Capital markets - transposition of the MiFID Directive

Act No. 230/2008, Coll., a very important amendment to the Act on the Capital Market Business (“Capital Market Business Act”) was published and transposes Directive 2004/39 on financial tools markets known under the abbreviation MiFID as well as other European regulations into Czech law. The aim of the regulation is to enhance the transparency of financial markets, improve protection of investors and strengthen the competitive environment. The amendment took effect on 1 July 2008. New implementation regulations were issued on the same date.

Summary of main changes:

Extension of regulation

As a result of transfer of investment advisory from supplementary services to main investment services, it will be necessary to have a permit for provision of advisory services. Licensed activities are further extended by trading with commodity and exotic derivatives, currency derivatives and in principle trading with investment tools on one’s own account.

Provision of investment services by securities dealers

Rules for negotiations with customers have been significantly extended. Categorization of customers has been introduced (professional and non-professional) as well as rules for assessment of suitability of investment services and tools for the customer in question. Informing of customers is regulated in detail as well as handling their instructions and performance of instructions under the best conditions. The dealer must meet the requirements imposed on the managing and inspection system, in particular the system of risk management. The new rules impact outsourcing, conflict of interests, protection of customers’ assets and personnel equipment of the dealer (the broker institute has been abandoned).

Simultaneously certain existing requirements imposed on dealers have been lifted; the legal form of a limited liability company will be newly admissible and the subject of business be allowed to include other activities subject to registration thereof with the Czech National Bank. Lower limits of the initial capital are admissible in the event of provision of reduced services.

Investment tools markets

An important change consists of unification of the regime for regulated markets and their organizers, i.e. the stock exchange market and over-the-counter securities market will not be differentiated. The multilateral trading system has been newly introduced, which may be operated as a licensed activity by securities dealers and for which less strict requirements are determined in contrast to regulated market. The market transparency should be increased by publication of information on bids and demands for investment tools concerning prices and quantity and on results of realized deals.

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