Implementation of MiFID

Legislative Adjustment: New Rules and Regulations Introduced by the New Directive

Matjaž AlbrehtAssistant Director

The Slovene Securities Market Agency

Split, 14. – 15. June 2007

Disclosure

Any views expressed in this presentation do not necessarily

reflect views of the Slovene Securities Market Agency.

Agenda

About MiFID

Financial Instruments Market Act (FIMA) in Slovenia

Status of adopting FIMA: timetable

Novelties introduced by FIMA

Impact of MiFID on the EU accession countries

VISION

Markets in Financial Instruments (MiFID) would

play an important role in the wider European

economic reform agenda given the contribution

that deep and liquid capital markets can make

to encouraging investment, innovation, growth

and employment.

Financial Instruments Market Act

Markets in Financial Instruments Directive will be

implemented in Financial Instruments Market Act (FIMA) in

Slovenia, which will represent new legal environment for

Slovene capital market and will replace the present

Securities Market Act.

New Legal Framework in the Slovene Capital Market: FIMA

It will replace the present Securities Market Act (adopted in 1999).

It is fully harmonized with the following main Directives:1. Market Abuse Directive – MAD (2003/6/EC)

2. Prospectus Directive (2003/71/EC)

3. Markets in Financial Instruments Directive– MiFID (2004/39/EC)

4. Transparency Directive (2004/109)

... and other directives: 89/117, 97/9, 98/26, 2001/34, 2003/124, 2003/125, 2004/72, 2006/48, 2006/49;

and regulations: 2273/2003, 809/2004, 1287/2006.

Process of adopting FIMA

30.04.2006

31.01.2007 01.11.2007

MiFID entered in force

MiFID should be transposed by Member States

MiFID measures should be applied

by industry

TIMELINE

TIMELINE

01.07.2007

All executive acts should enter into

force

01.08.2007

15.08.2007

FIMA should be in reading in Parliament

FIMA should enter into force

FIMA should be published in Official

Gazette of RS

Transposition delayed

Nov.2006draft sent in government procedure

May 2007draft sent in government procedure

Ministry of Finance&

Ministry of Public Administration

FIMA

Jan.2007draft has been

withdrawn

Structure of FIMA

FIMA590. Articles

Banking Act416. Articles

FIMA by-lawsapp. 40 new ones

BA by-lawslogical application

Novelties introduced by FIMA

Type of investment firm determined by authorised capital

Defining “Small Investment Firm”

Systematic internalisers

Borrowing/lending customers financial instruments/ funds

Outsourcing

Tied Agent

Types of Investment firms

The scope of services listed in the Article 8 of FIMA that an investment firm can perform is determined by its amount of the authorised capital:

1. Min. value of authorised capital 730.000 EUR =

Investment firm can perform all services and activities listed in Article 8 of FIMA.

2. Min. value of authorised capital 125.000 EUR =

Investment firm can provide all services and activities, except: dealing on its own account; underwriting of financial instruments and/or placing

of financial instruments on a firm commitment basis.

Types of Investment firms - continuation

3. Min. value of authorised capital 50.000 EUR =

Investment firm can provide all services and activities, except:

dealing on its own account;

underwriting of financial instruments and/or placing of

financial instruments on a firm commitment basis;

safekeeping and administration of financial instruments

for the account of clients, including custodianship and

related services such as cash/collateral management.

“Small Investment firm”

... is an investment firm that can perform only the following investment services and activities:

transmission of orders in relation to transferable securities

or units of collective investment undertakings to persons

from Article 32. FIMA (providers of investment services

and activities);

investment advise;

And whose yearly income could not exceed 750.000 EUR.

SIF: special rules

Provisions of FIMA do not apply to: value of authorised capital; performing services and activities outside the territory of RS; obligation to disclose supervised information; risk management; rules of operations on performing investment services and

activities; system of guarantees with regard to investors’ claims.

It can perform only investment advising and trading of insurance products.

It should have protection of it’s liability for damage in relation to it’s customers.

MTF & Systematic Internaliser

MTF is 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 in a way that results in a contract in accordance with special rules for MTF.

Systematic internaliser is an investment firm which on an organised, frequent and systematic basis deals on its own account by executing client orders outside a regulated market or an MTF.

Borrowing/lending customers financial instruments/funds

Investment firm should not be allowed to use customers

financial instruments or funds, held by them on behalf of a

client, for their own account or the account of another client

of the firm, unless: the client gives prior express consent to the use of his/her

instruments or funds on specified terms, signed by the client;

consensus could be general or particular for use of client’s

instruments or funds in a single transaction.

DUE CARE OF INVESTMENT FIRM WITH CUSTOMER’S ASSETS

Outsourcing

If investment firms outsource critical or important operational functions or any investment services or activities to a third party, they have to adopt all reasonable measures to avoid unnecessary additional operational risks.

It is not permitted that investment firms outsource performing important operational functions in the way that would make the quality of internal control system’s performing impossible or extensively difficult as well as that would make compliance with relevant law difficult.

Tied Agent

... is 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;

sales financial instruments;

provides advice to clients or prospective clients in respect

of those financial instruments or services.

MiFID’s impact for the EU accessing countries

Opportunity for domestic investment firms to act cross

national borders using single passport.

Competition between exchanges and other trading

platforms will significant reduce transaction costs.

Lower costs and cross-border trading will increase

liquidity of domestic market.

Suggestion: learn on experiences and mistakes of EU

Member States.

TREM

Investment firms which execute transactions in any financial instruments admitted to trading on a regulated market should report details of such transactions to the competent authority as quick as possible and no later than at the close of the following working day. This obligation should be applied whether or not such a transactions were carried out on a regulated market.

The competent authority should 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.

Principles for transaction reporting

Duties of investment firms: Report transactions to home competent authority ASAP All transactions: On the exchange + off the exchange Special case: Branches

Duties of competent authorities: Set up a national transaction reporting system Exchange TRs between certain competent authorities Principle: „Most relevant market in terms of liquidity“

Deadlines for competent authorities

Questions?