In accordance with Croatia's pre-accession obligations, the
Croatian Parliament enacted the new Capital Market Act in July
2008 (New Act). It will enter into force on January 1 2009,
bringing with it significant changes to existing capital market
regulation. The EU standards and the acquis
communautaire have been reflected in it. However, the
legal effect of some provisions, such as those pertaining to
the freedom to provide services, has been postponed until
Croatia's accession to the EU.
The New Act focuses on the regulation of: (i) the
establishment, activities, supervision and cessation of
investment companies, market operators and operators of payment
and settlement systems; (ii) the offering of investment
services and the performance of investment activities; (iii)
the rules of trading on the organised market; (iv) the offering
and quotation of securities on the organised market; (v) the
reporting requirements in connection with the securities quoted
on the organised market; (vi) market abuse; (vii) the deposit
of financial instruments and the settlement and payment of
transactions with financial instruments; and (viii) the
authority and activities of the Croatian Financial Services
Supervisory Agency (HANFA) in connection with its
The New Act prescribes a higher minimal share capital
requirement and necessitates organisational adjustments, all
seeking to offer a higher level of protection to investors.
The New Act introduces the possibility of issuing various
types of documentation: that is, summary notes, prospectuses
consisting of separate documents and base prospectuses.
Furthermore, it specifies in greater detail the persons
responsible for the information contained in a prospectus.
These include an issuer, its management board and supervisory
board, an offeror, a guarantor and persons asking for admission
to trading on a regulated market. As to the content of a
prospectus, while the New Act generally follows the relevant EU
Directive, it also authorises HANFA to prescribe it.
The process of prospectus approval will now take less time.
HANFA must decide on the approval of a prospectus within 10
working days following the submission of its draft (20 working
days in the case of an initial offer), instead of 60 days. Once
approved, the prospectus may be published on the issuer's
The New Act introduces, among other factors, an obligation
on the part of the issuer to file quarterly, semiannual and
yearly reports to HANFA.
The New Act also introduces the concept of qualified
investors, a category of investors to which the protective
provisions contained in the New Act are, generally,
Fund for the protection of investors
The New Act includes an obligation for investment companies
registered in the Republic of Croatia to pay contributions to
the Fund for the Protection of Investors from 2010 onwards.
The New Act introduces the concept of accepted market
practices, defining them as practices that are reasonably
expected in one or more financial markets and accepted by
HANFA. The New Act prohibits engaging in market manipulation,
and defines situations and procedures aimed at preventing such
The New Act defines inside information as information of a
precise nature that has not been made public, relating
(directly or indirectly) to one or more issuers of financial
instruments or to one or more financial instruments, which, if
it were made public, would likely have a significant effect on
the prices of those financial instruments or on the price of
related derivative financial instruments. The changes to the
definition of inside information relate to the requirement for
precise information, as well as to the need for such
information to have a significant effect on prices. The issuers
must compile a list of persons with access to inside
information and deliver it regularly to HANFA.
According to existing legislation, persons (directly or
indirectly) acquiring or releasing shares of a public joint
stock company resulting in voting rights exceeding or falling
below thresholds of 10%, 25%, 50% and 75% respectively have an
obligation to notify the change in writing within four days to
both HANFA and the issuer. The New Act sets three additional
thresholds: 5%, 15% and 30%. At the same time, this obligation
not only arises from trading with shares but also from when the
total portion of voting rights from other financial instruments
(transferable securities, money market instruments, units in
collective investment undertakings and derivatives, for
example) exceeds or falls below the aforementioned thresholds.
Notification to the issuer must be made as soon as possible,
but no later than four trading days after the acquisition or
the possibility of exercising voting rights.
Multilateral trading facility
Trading in equities will be made possible through a
multilateral trading facility. In that respect, HANFA must
regulate further requirements in addition to those provided in
the New Act.
It has yet to be seen how the New Act will affect Croatia's
relatively undeveloped capital market. The New Act has already
been publicly criticised for having an adverse effect on
existing investment companies, as it forces them into
reorganisation. It is expected that the new requirements will
cause some investment companies to disappear while making
Interestingly enough, in the process of drafting the New
Act, the legislature sought its references from legislation
that was either amended at a later date or was not even in
force when first considered. Therefore, we expect the New Act
to be subject to amendments in the not so distant future.
Danijel Pribanic and Dubravka Grujic