For most financial and securities market participants in Albania, derivatives remain unknown and sophisticated investment instruments. Albanian law does not define derivatives and does not specifically and uniformly regulate derivatives. The law does provide vague definitions of the terms futures, options, and rights on securities contracts, that is, forwards and swaps, in Article 2 of the Law On Securities 8080, dated March 1 1996, as amended (the Securities Law). The definition of securities includes several terms relevant to derivatives:
"(d) any option to acquire or dispose of any other security ('options');
(dh) rights under a contract for the acquisition or disposal of any other security under which delivery is to be made at a future date and at a price agreed when the contract is made (including a date and a price determined in accordance with the contract) ('futures');
(e) rights under a contract which does not provide for the delivery of securities but whose purpose or presumed purpose is to secure a profit or avoid a loss by reference to fluctuations in:
(i) a share index or other similar factor connected with other securities;
(ii) the price of other particular securities; or
(iii) the interest rate offered on money placed on deposit ('contracts for differences'); or
(ë) any other instruments deemed by the Commission to be securities for the purposes of this Law."
Derivatives transactions are classified as:
- financial activities (transactions on futures, options or other interest rate instruments), under Law 8365 On banks in the Republic of Albania, dated July 2 1998 (the Banking Law), when performed by banks under their banking licence; or
- securities transactions (transactions on futures, options and rights on securities contracts), under the Securities Law, when performed by persons, including banks, licensed by the Albanian Securities Commission (ASC).
Under the Banking Law, a bank has the right, in accordance with its banking licence, to "[borrow] funds and buy and sell for its own account or for the account of customers: ... futures and options relating to debt securities or interest rates". The Banking Law qualifies the activity of a broker/dealer in derivatives as a financial activity conducted by a licensed bank pursuant to, and in compliance with, the licence issued by the Bank of Albania.
On the other hand, under the Securities Law, any person, including banks, that performs securities transactions either on its own behalf or on behalf of its clients is required to conduct those activities pursuant to a broker and/or dealer licence issued by the ASC.
The provisions of the Banking Law and the Securities Law with respect to securities transactions, including transactions on futures, options and other interest rate instruments, therefore overlap. More specifically, the Banking Law regulates transactions in futures, options and other interest rate instruments as banking activities within the scope of a banking licence issued by the Bank of Albania, while the Securities Law regulates transactions in futures, options and rights on securities contracts as securities transactions, subject to licensing and supervision by the ASC. In practice, several banks in Albania have been licensed by the ASC to conduct broker/dealer activities in securities in addition to their banking licence.
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