Public Trading in Securities Act
On October 3 1997 a new Public Trading in Securities Act was published, which took effect on January 4 1998. The Act replaces the Securities Trading Act of 1991. The new Act provides, among other things, for a more detailed regulation of the field of derivatives transactions.
Under Article 3 no. 3 of the new Act, negotiable proprietary rights, the prices of which depend directly or indirectly on the value of other securities (ie derivatives), fall under the general definition of securities. Trading in derivatives is, therefore, in principle, also subject to the rules applying to trading in securities. Although the former Act contained provisions on derivatives (Article 49, section 1), by including negotiable proprietary rights in the definition of securities, the regulatory framework for derivatives trading on a stock exchange will be much more coherent because many unsolved questions will become subject to statutory solutions.
Thus, on January 16 1998, the Warsaw stock exchange began derivatives trading with futures contracts on the WIG 20 Index. The WIG 20 Index consists of the 20 most traded companies on the exchange. Derivatives are traded on a special new market segment called Rynek praw pochodnych. Trading in derivatives on a stock exchange (the Warsaw Stock Exchange or the CTO (Centralna Tabela Offert)) requires the consent of the Securities Commission or KPW (Komisja Papierow Wartosciowych).
The procedural requirements of the KPW are similar to the requirements for securities. The introduction of a derivatives product to trading on the Warsaw stock exchange naturally also requires the Warsaw stock exchange's consent. A precondition for this consent is the presentation of a clearing contract, for which the National Securities Depository or KDPW SA (Krajowy Depozyt Papierow Wartosciowych SA) is at present the only eligible counterparty.
In addition to the futures contracts traded on the Warsaw stock exchange, two warrants issued by Bank Rozwoju Eksportu were admitted to trading at the beginning of March. The trading volume, however, remains limited.
On November 20 1997, a new Statute on Investment Funds was published in the Dziennik Ustaw and came into force on February 21 1998.
According to its Article 1, the Statute regulates the establishment and economic activities of investment funds. The first part of the Statute contains general provisions on the creation of investment funds.
The general principles can be described as follows:
- investment funds are to be managed by investment management companies specifically created for this purpose;
- a strict division between the accounts of the management company and those of the investment fund must be maintained;
- the investment management company must be established before the creation of an investment fund and must have a capital of at least Z3 million (US$870,000);
- if the management company is to manage more than one investment fund, for each additional fund the capital of the company must be increased by Z1 million;
- the entire shareholders' capital of the management company must be fully paid in before registration;
- the amount of shareholders' capital must be maintained at a level of at least 50% of the required starting capital during the entire time of operation. If the shareholders' capital falls below the 50% margin, the KPW must be informed without delay. The management company may lose its licence to manage investment funds in this case by declaration of the KPW, if the capital is not increased to the proper level within three months;
- the shares of the management company must be registered shares. If a single shareholder intends to increase his or her interest above the thresholds of 20%, 33% or 50% of the total shares of the investment management company he or she must obtain the prior consent of the KPW;
- the assets of the investment fund managed by the investment management company must be deposited on a segregated custody account with a bank that is resident in Poland and has at least Z100 million in capital. Another eligible segregated custody account holder is the KDPW SA;
- the custodian bank keeping the assets of the investment fund may not be represented in the management of the investment management company nor may it maintain an interest in the stock of the management company. Thus, the principle of separation between the investment fund assets and its management company is extended to the custodian bank as well;
- the custodian bank is also obliged to ensure the management company's consent to all legal requirements in its activities. Violations of this obligation may lead to a liability of the custodian bank.
The investment funds issue so-called certificates of ownership to investors, the value of which is a proportional share of the value of the entire investment fund. The following types of investment funds may be created: open funds (part 5 of the Statute); special open funds (part 6); closed funds (part 7); and mixed funds (part 8).
Each type of investment fund is subject to specific restrictions in its investment policy. The supervisory authority for all funds as well as for their management companies is the KPW. Its officials have been granted specific investigative rights (part 9 of the Statute).
Further provisions of the Statute deal with the dissolution of funds, with penalties and the Anti-Monopoly Act (Ustawa o Przeciwdzialaniu Praktykom Monopolistycznym). The creation of funds is also subject to the provisions of the Anti-Monopoly Act.
The Statute also contains transitional provisions for active fiduciary funds established in accordance with the former Securities Trading Act. Those funds must be reorganized to meet the requirements of the new Statute within the next three years.