General principles of European and National regulation of markets in financial instruments Avv. Salvatore Providenti Università di Bergamo 28.11.2016
Financial services: general framework The integration of financial markets means that capital can be allocated more efficiently and makes for better long term economic performance. The European Union has established a legislative framework geared to strengthening the financial services sector, in particular in order to improve the performance of financial operators and boost liquidity, competition and financial stability. European policy on financial services shares some concerns with that on the free movement of capital when it comes to facilitating, and improving the security of, financial activity. Such issues stem in particular from the cross border character of this activity, but also from the massive growth in services based on new technologies. Financial services policy covers three main sectors: the banking system, insurance and securities. Apart from laying down rules for operators and investors (banks, insurance and securities), the Union also intends to give greater protection to consumers in specific areas such as retail financial services.
The four freedom of movement • Art. 26.2 of the Treaty on the Functioning of the European Union “The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties”.
Financial services: transactions in securities • Listing on the Stock Exchange • Admission of securities to official stock ‐ exchange g listing and information to be published on those securities • Equity capital • Rights of shareholders in listed companies • Transparency of information about issuers of securities • Prospectus to be published when securities are offered to the public or admitted to trading • Market abuse • Credit rating agencies • Investment research and financial analysts • • Investment funds • Undertakings for collective investment in transferable securities (UCITS): applicable rules • UCITS: organisational requirements and rules of conduct • • Investment services • Markets in financial instruments (MiFID) and investment services • Capital adequacy of investment firms and credit institutions • Investor compensation schemes
Prospectus to be published when securities are offered to the public or admitted to trading : Directive 2003/71/EC of 4 November 2003 (now Directive 2010/73 of 24 november 2010) Obligation to publish a prospectus The Member States do not authorise any offering of securities to the public on their territory unless a prospectus has been published previously, except where an offer of securities: • • is addressed solely to qualified investors; and/or • • is addressed to fewer than 150 natural or legal persons other than qualified investors; and/or • • is addressed to investors who acquire securities for a total consideration of at least EUR 100 000 per investor, for each separate offer; and/or • • has a denomination of at least EUR 100 000; and/or • • has a total value in the EU, over a period of 12 months, of less than EU 100 000 . This Directive therefore provides for derogations. The latter are regulated by technical standards prepared by the European Securities and Markets Authority (ESMA) and adopted by the European Commission. • Approval of the prospectus No prospectus can be published until it has been approved by the competent authority of the home Member State. This competent authority must notify the ESMA at the same time as the issuer, the person offering the securities or the person seeking admission to trading on a regulated market, of its decision regarding the approval of the prospectus. This notification must be given within ten working days of the submission of the draft prospectus (twenty working days if the public offer involves securities issued by an issuer who does not have any securities admitted to trading on a regulated market and who has not previously offered securities to the public).
Transparency of information about issuers of securities : Directive 2004/109/EC of 15 December 2004 on the harmonisation of transparency requirements about issuers whose securities are admitted to trading on a regulated market (now Directive 2013/50/UE of 22 october 2013 ) • The Directive lays down detailed disclosure requirements: • for issuers whose securities are already admitted to trading on a regulated market ; • to shareholders with voting rights; • to natural or legal persons holding voting rights or financial instruments that influence voting rights. • • Competent authority • Each Member State will designate a competent authority responsible in particular for implementing the Directive. • Each competent authority shall have all the powers necessary for the performance of its functions, specifically: • monitoring of disclosure of timely information by the issuer and publication on its own initiative of information not disclosed within the time limits set; • request for further information and documents; • verification of compliance with the disclosure requirements, by way of on ‐ site inspections; • suspension for a maximum of ten days of trading in securities or prohibition of trading on a regulated • market if it finds that the disclosure requirements laid down in the Directive have not been met or if it has • reasonable grounds for suspecting that those requirements have been infringed.
Markets in financial instruments (MiFID) and investment services: Directive2004 /39/ of 21April 2004 on markets in financial instruments (now MIFID2 – Directive n. 2014/65 of 15.5.2014 and MIFIR – Regulation n. 600/2014 of 15.5.2014 , applicable as of 1.1.2018 ) OLD REGIME The Directive requires the Member States to harmonise the rules governing investment services and activities. To that end, the Member States must set up an authorisation system enabling investment firms to operate throughout the EU. These firms must be registered and the register must be accessible to the public. Each authorisation is notified to the European Securities and Markets Authority (ESMA). • Investor protection The Directive will considerably enhance investor protection by setting business of conduct rules for providing investment services to clients and minimum standards for the mandate and powers that national competent authorities must have at their disposal. It also establishes effective mechanisms for real ‐ time cooperation in investigating and prosecuting breaches of the rules. • Appointing competent authorities Member States must appoint their competent authorities and send the necessary information to the Commission, ESMA and the competent authorities of the other Member States. The competent authorities act as a point of contact in the Member States. ESMA keeps a list of these authorities up ‐ to ‐ date. These authorities are required to cooperate closely with ESMA
Market abuse: Before Directive 2003/6/EC of 28 January 2003 on insider dealing and market manipulation (MAD) – Now (applicable as of 3 July) Market Abuse Regulation (MAR) n . 596 of 16 April 2014 and Market Abuse Directive (MAD 2) n . 56 of 16 April 2014 on criminal sanctions for market abuse • A revamped EU legal framework, applicable as of 3 July, will ensure even more efficient, transparent and trustworthy European financial markets European Commission press release) • This new rulebook, will increase investor protection and confidence by allowing deeper and more integrated financial markets, and contribute to the creation of the Capital Markets Union. The new framework will strengthen the fight against market abuse across commodity and related derivative markets, explicitly ban the manipulation of benchmarks, such as LIBOR, and reinforce the investigative and sanctioning powers of regulators. • The updated rulebook strengthens and replaces the existing EU rules on market integrity and investor protection, first adopted in 2003. It consists of the Market Abuse Regulation and the Directive on Criminal Sanctions for Market Abuse. • The Market Abuse Regulation ensures that rules keep pace with market developments, such as new trading platforms, as well as new technologies, such as high frequency trading (HFT). The new Directive on Criminal Sanctions for Market Abuse (or Market Abuse Directive) complements the Market Abuse Regulation by requiring Member States to introduce common definitions of criminal offences of insider dealing and market manipulation, and to impose maximum criminal penalties for the most serious market abuse offences. Member States have to make sure that such behaviour, including the manipulation of benchmarks, is a criminal offence, punishable with effective sanctions everywhere in Europe. • The essential delegated and implementing acts based on the Market Abuse Regulation have been adopted in time to ensure that market participants and supervisory authorities can implement the new rule book and apply it as of 3 July 2016.
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