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Mifid implementation

Directive 2004/39/EC on markets in financial instruments (Mifid) introduces a comprehensive regulatory regime to ensure a high quality of investor transactions and represents a framework measure designed to improve the regulation of securities markets. The Mifid amends Directives 85/611/EEC, 93/6/EC and 2000/12/EC, and repeals Directive 93/22/EEC. It will come in effect starting November 1 2007.

By implementing Mifid, Romania not only complies with its obligations, but also makes a step towards attracting new investors to the Romanian capital market. Early implementation leaves enough time for all the market players to adapt their systems to the new rules.

The Mifid aims to protect investors and safeguard market integrity by establishing harmonized requirements governing the activities of authorized intermediaries, to reduce the barriers to cross-border trading of shares and cross-border provision of investment services, to strengthen competition on the European financial market, allowing banks and other investment firms to compete fairly with stock exchanges, to promote transparent, efficient and integrated financial markets, and to provide consumers a wider choice of investment service providers.

Although Directive 2006/31/EC has set the Mifid implementation deadline for January 31 2007, as of March 2007, Romania, UK and Ireland were the only EU member states to have fully implemented Mifid into their internal legislation.

Among the regulations that implement the Mifid in Romania are National Securities Commission (NSC) Regulation 32/2006 concerning financial investment services, NSC Regulation 1/2006 on securities issuers and related operations, and NSC Regulation 2/2006 on regulated markets and alternative trading markets.

Some of the changes introduced in the Romanian legislation relate to authorization and operating conditions for investment firms for multilateral trading facilities (MTFs), regulated markets and competent authorities. Romania no longer requires investment firms to route orders only to stock exchanges (regulated markets) so exchanges are now exposed to competition from MTFs.

Transparency and monitoring

As a general rule, market participants operating an MTF must establish transparent and non-discretionary rules and procedures for fair and orderly trading, and establish objective criteria for the efficient execution of orders. They must provide enough publicly available information to enable its users to form an investment judgment or make sure that there is access to this information. Market operators must establish and maintain effective arrangements to permanently monitor of users' with its rules. Also, market operators must insure a pre-trade (prices to buy and sell shares) and post-trade (at what prices shares have been sold and bought) transparency for MTFs.

The same requirements of transparency for pre-trade and post-trade apply for regulated markets. Market operators must make public current bid and offer prices on reasonable commercial terms and on a continuous basis during normal trading hours. In regulated markets, the same monitoring of transactions undertaken by members must be maintained to identify breaches of rules, disorderly trading conditions or conduct that might involve market abuse.

Single passport for investment firms

As a general rule, investment firms will be supervised by the home competent authority, which is the regulator authorizing their operations, and not the host authority. Investment firms will be able to operate in other member states on the basis of the authorization of their home authority. They can provide financial services either by establishing a branch in another member state or directly as part of their freedom to provide services on the European market.

Access to the regulated market

The market operator must establish and maintain transparent and non-discriminatory rules, based on objective criteria, governing access/suspension/removal of participants on regulated markets. The market operator may admit access to a regulated market by participants who comply with the rules of the market and NSC regulations and who have enough technical ability and competence, adequate organizational arrangements and enough resources for the role they are to perform.

Maria-Luiza Colonescu

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