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Mifid implementation

Effective as of July 1 2008, the Czech Republic has transposed into its national legislation Directive 2004/39/EC on markets in financial instruments (Mifid) and Directive 2006/73/EC, implementing Mifid as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of Mifid. The transposition has been effected mainly by way of a complex amendment of the Capital Markets Act. The amendment was promulgated on June 30 2008 (only one day before its effective date), with a delay against the deadline of January 31 2007 for the transposition of Mifid into national legislation. The respective provisions of the national legislation should have been applicable as of November 1 2007.

In line with Mifid, a number of key new requirements for the operation of investment firms have been implemented, such as detailed obligations of investment firms for communication with clients, information duties towards clients, the obligatory obtaining of information about and categorisation of clients, best execution rules, rules for orders handling and reporting to clients and to the Czech National Bank (CNB), the capital market regulator.

The concept of a tied agent as an exclusive agent of an investment firm for the execution of selected activities has been implemented. The Czech Republic has made use of the optional exemption under Article 3 of Mifid and has also retained the concept of an investment intermediary who is not tied to a single investment firm but subject to CNB regulation.

Rules for the operation of and trading on regulated markets have been updated. A single regime for regulated markets has been introduced: an exchange and an off-exchange market will no longer be distinguished between. An organiser of a regulated market may also organise a commodities exchange.

A multilateral trading facility (MTF) is being implemented as a market subject to a lower level of requirements than a regulated market. The operation of a MTF is regarded as a main investment service, and can be operated by an investment firm or the organiser of a regulated market.

Also, the concept of systematic internalisation has been implemented. Investment firms may now provide an investment service systematically dealing on their own accounts, thereby creating an alternative business platform to traditional exchanges (regulated markets) or MTFs.

A number of trading transparency requirements have been introduced for various possible trading platforms. These are new requirements for pre-trade transparency (publication of quotes) and post-trade transparency (publication of results of trades).

When it comes to organising settlement systems, foreign participants should be subject to the same transparent, objective and non-discriminatory rules as local participants. A settlement system is also entitled to settle trades undertaken on a regulated market or MTF in other member states.

Many changes have been implemented for the cooperation of regulators of the individual member states during the supervision of host providers of investment services and cross-border regulated markets.

A number of implementing decrees of the CNB also entered into force on July 1 2008. These are, for example, a decree amending the informational obligations of an investment firm, the new decrees on informational obligations of an operator of a settlement system, a central depository of securities, an organiser of a regulated market and an operator of a MTF. Further a decree on rules for the provision of investment services and an amendment of a decree on keeping records of traded securities have been issued with this effective date.

Some other implementing decrees, such as requirements for expert knowledge of providers of investment services, an amendment of a decree on prudential rules and the internal organisation of an investment company or fund are in the final stages of preparation.

Paul Sestak and Michal Pravda

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