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 implementation.
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 website.
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, inapplicable.
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 violations.
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 others stronger.
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
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