ACT ON BUSINESS ACTIVITIES ON THE CAPITAL MARKET (ALSO KNOWN AS THE CAPITAL MARKET UNDERTAKINGS ACT)

Transcription

1 ACT ON BUSINESS ACTIVITIES ON THE CAPITAL MARKET (ALSO KNOWN AS THE CAPITAL MARKET UNDERTAKINGS ACT) NOTE: THIS TRANSLATION IS INFORMATIVE, I.E. NOT LEGALLY BINDING! (TABLE OF CONTENTS ADDED)

2 - 2 - TABLE OF CONTENTS PART ONE BASIC PROVISIONS...12 Article Article 2 Definitions...12 PART TWO INVESTMENT SERVICES...13 CHAPTER I BASIC PROVISIONS...13 Article 3 Investment Instruments...13 Article 4 Investment Services...14 CHAPTER II INVESTMENT FIRM...15 Section 1 Basic Provisions...15 Article Section 2 Licence for the Business of an Investment Firm...15 Article Article Article Section 3 Some Conditions for the Business Activities of an Investment Firm...16 Article 9 Capital Adequacy of an Investment Firm...16 Article 10 Approval of a Director of an Investment Firm...16 Article 11 Acquisition and Forfeiture of a Holding in an Investment Firm That Is Not a Bank...17 Section 4 Rules for Activities and Financial Management of an Investment Firm...18 Article 12 Rules for Prudent Provision of Investment Services...18 Article 13 Transactions and Orders Book of an Investment Firm...20 Article 14 Broker...20 Article 15 Conduct of an Investment Firm towards Clients...21 Article 16 Disclosure Duties of an Investment Firm...21 Article 17 Retention of Documents by an Investment Firm...22 Section 5 Winding-up, Change in the Objects of Business or Conversion of an Investment Firm and Transfer, Pledge or Lease of the Business of an Investment Firm...22 Article 18 Winding-up or Change in the Objects of Business of an Investment Firm...22

3 - 3 - Article 19 Conversion of an Investment Firm...23 Article 20 Transfer, Pledge or Lease of the Business of an Investment Firm...23 CHAPTER III PROVISION OF INVESTMENT SERVICES IN THE TERRITORIES OF MEMBER STATES OF THE EUROPEAN UNION...23 Section 1 Provision of Investment Services by an Investment Firm in another Member State of the European Union...23 Article Article Article Section 2 Provision of Investment Services in the Territory of the Czech Republic by a Foreign Person with a Registered Office in Another Member State of the European Union...25 Article 24 Provision of Investment Services through an Organisational Unit...25 Article 25 Provision of Investment Services without Establishing an Organisational Unit...26 Article 26 Cooperation with the Commission of the European Communities...26 Article 27 Co-operation between Supervisory Authorities of the Member States of the European Union27 CHAPTER IV AN ORGANISATIONAL UNIT OF A FOREIGN PERSON HAVING ITS REGISTERED OFFICE IN A STATE OTHER THAN A MEMBER STATE OF THE EUROPEAN UNION THAT PROVIDES INVESTMENT SERVICES IN THE CZECH REPUBLIC..27 Article CHAPTER V INVESTMENT INTERMEDIARY...29 Article 29 Basic Provisions...29 Article 30 Registration of an Investment Intermediary...29 Article Article 32 Obligations of an Investment Intermediary...30 PART THREE PUBLIC AUCTION OF SECURITIES...31 Article PART FOUR OFFER OF INVESTMENT SECURITIES TO THE PUBLIC AND SECURITY PROSPECTUS...32 CHAPTER I OFFER OF INVESTMENT SECURITIES TO THE PUBLIC...32 Article 34 Basic Provisions...32 Article 35 Obligation to Publish a Prospectus...33 CHAPTER II SECURITY PROSPECTUS...34

4 - 4 - Article 36 Content of a Security Prospectus...34 Article 36a Base Prospectus...35 Article 36b Responsibility for the Content of the Prospectus...35 Article 36c Approval of the Prospectus...36 Article 36d Final Price and Number of Securities...37 Article 36e Omission of Information from the Prospectus...37 Article 36f Securities of Issuers Having their Registered Office in Another Member State of the European Union...37 Article 36g Language of the Prospectus...38 Article 36h Publication of the Prospectus...38 Article 36i Validity of a Prospectus...39 Article 36j Supplement to the Prospectus...39 Article 36k Advertisements and Other Communications...40 Article 36l Cooperation Between Supervisory Authorities of Member States of the European Union PART FIVE MARKET IN INVESTMENT INSTRUMENTS...40 CHAPTER I BASIC PROVISIONS...40 Regulated Market in Investment Instruments...40 Article Article Article Article 40 Free Market...41 Article 41 Disclosure Duty of a Regulated Market Operator...41 Article 42 Transaction Concluded on a Regulated Market...41 Article 43 Publication of the Price of an Investment Instrument...42 Article 44 Conditions for Admission of a Security to Trading on an Official Market...42 Article 45 Licence to Print Listed Physical Securities...45 Article 46 Registration of Securities Issued by a Collective Investment Fund on an Official Market...45 Article 47 Exclusion of a Security from Trading on an Official Market...45

5 - 5 - Article 48 Suspension of a Security from Trading and Removal of a Security from Trading on an Official Market...46 Article 49 Decision not to Admit a Security to Trading or to Remove a Security from Trading...46 Article cancelled...46 Article cancelled...46 Article cancelled...47 Article cancelled...47 Article cancelled...47 Article cancelled...47 CHAPTER II SECURITIES EXCHANGE...47 Article 56 Basic Provisions...47 Article 57 Licence for the Business of an Exchange...47 Article Article 59 Incompatibility of Offices of a Director of an Exchange...48 Article 60 Winding-up of an Exchange or Change in the Objects of Business of an Exchange...49 Article 61 Conversion of an Exchange...49 Article 62 Transfer, Pledge or Lease of the Business of an Exchange...49 Article 63 Exchange Shares...49 Article 64 General Meeting...50 Article 65 Exchange Chamber...50 Article 66 Rights and Obligations of an Exchange Chamber...50 Article 67 Exchange Committees...50 Article 68 General Director of an Exchange...51 Article 69 Exchange Transaction...51 Person Authorised to Conclude Exchange Transactions...51 Article Article Article 72 Exchange Court of Arbitration...52 CHAPTER III OFF-EXCHANGE MARKET...52

6 - 6 - Article 73 Basic Provisions...52 Article 74 Licence for the Operation of an Off-Exchange Market...52 Article Article 76 Incompatibility of Offices of a Director of an Off-Exchange Market Operator...54 Article 77 Winding-up or Change in the Objects of Business of an Off-Exchange Market Operator...54 Article 78 Conversion of an Off-Exchange Market Operator...54 Article 79 Transfer, Pledge or Lease of the Business of an Off-Exchange Market Operator...55 Obligations of an Off-Exchange Market Operator...55 Article Article PART SIX SETTLEMENT SYSTEM...56 Article 82 Basic Provisions...56 Article 83 Licence for the Operation of a Settlement System...57 Article 84 Winding-up or Change in the Objects of Business of a Settlement System Operator...58 Article 85 Conversion of a Settlement System Operator...59 Article 86 Settlement Order Finality...59 Article 87 Disclosure Duties of a Settlement System Operator...59 Article 88 Disclosure Duties Concerning Settlement System Participants...60 Article 89 Reporting Duties of the Commission and a Settlement System Operator...60 Article PART SEVEN REGISTER OF INVESTMENT INSTRUMENTS...61 CHAPTER I BASIC PROVISIONS...61 Section 1 Book-Entry Security...61 Article Section 2 Types of Registers of Investment Instruments...61 Article 92 Central Register of Securities...61 Article 93 Separate Register of Investment Instruments...61 Section 3 Principles of Maintaining Registers of Investment Instruments...62 Article 94 Types of Accounts...62

7 - 7 - Article 95 Entry in a Register of Investment Instruments...63 Article 96 Effects of a Transfer of an Investment Instrument...63 Article 97 Suspension of the Exercise of the Right of an Owner to Dispose of a Book-Entry Investment Instrument...64 Article 98 Correction of Errors in a Register of Investment Instruments...65 Article 99 Extract from a Register of Investment Instruments...65 Article 99a...65 CHAPTER II CENTRAL DEPOSITORY OF SECURITIES...65 Basic Provisions...66 Article Article Article Article 103 Licence for the Business of the Central Depository...67 Article 104 Rules of Operation of the Central Depository...68 Article 104a Acquisition and Forfeiture of a Holding in the Central Depository...68 Article 104b Director of the Central Depository...70 Article 105 Winding-up or Change in the Objects of Business of the Central Depository...70 Article 106 Conversion of the Central Depository...70 Article 107 Transfer, Pledge or Lease of the Business of the Central Depository...71 Article 107a Bankruptcy of the Central Depository...71 Article 108 Disclosure Duties of the Central Depository...72 Article 109 Participant in the Central Depository...72 Article 110 Client Account...73 Article 111 Register of Issues of Book-Entry Securities...73 Article Article Article CHAPTER IV PROVISION OF DETAILS OF OWNERS OF INVESTMENT INSTRUMENTS...76 Article PART EIGHT PROTECTION OF THE CAPITAL MARKET AND INVESTORS...77 CHAPTER I OBLIGATIONS OF MARKET PARTICIPANTS...77

8 - 8 - Article 116 Disclosure Duty of an Investment Firm, an Institutional Investor and a Regulated Market Operator...77 Article 117 Duty of Confidentiality...77 Article 118 Annual Report of an Issuer of a Listed Security...78 Article 119 Half-yearly Report of an Issuer of a Listed Security...79 Other Obligations of an Issuer of a Listed Security...80 Article Article Article 122 Notification of a Share in Voting Rights...81 Article 123 Annual Report and Half-yearly Report of an Issuer of Securities Admitted to Trading on an Official Market of a Securities Exchange in another Member State of the European Union...82 Protection of Inside Information...83 Article Article Article 126 Market Manipulation...85 Article CHAPTER II GUARANTEE FUND OF INVESTMENT FIRMS...87 Article 128 Basic Provisions...87 Article 129 Payment of Contributions to the Guarantee Fund...88 Article 129a Control of Payment of Contributions...88 Provision of Compensation from the Guarantee Fund...88 Article Article Article 132 Release of Client Assets Following the Adjudication of Bankruptcy in Respect of Assets of an Investment Firm...90 Article 133 Payment of a Contribution to the Guarantee Fund by a Foreign Person...91 Article 134 Disclosure Duties and Co-operation...91 PART NINE SUPERVISION AND ADMINISTRATIVE OFFENCES...91 CHAPTER I SUPERVISION ON AN INDIVIDUAL BASIS...91 Section 1 Basic Provisions...91 Article 135 Persons Subject to Supervision...92 Section 2 Remedial Measures and Withdrawal of Licence...93 Article 136 Basic Provisions...93

9 - 9 - Article 137 Suspension of Trading in Securities...93 Forced Administration...94 Article Article Article Article Article Article Article 144 Change in the Scope of a Licence...96 Article 145 Withdrawal of a Licence, Consent or Registration...96 Section 3 Supervision of a Foreign Person Providing Investment Services in the Czech Republic under a Licence Granted by the Supervisory Authority of Another Member State of the European Union...97 Article Section 4 Supervision of an Investment Firm Providing Services in Another Member State of the European Union...98 Article Section 5 Supervision of an Exchange...98 Article Article CHAPTER II SUPERVISION ON A CONSOLIDATED BASIS...99 Article 150 Basic Provisions...99 Article 151 Definitions...99 Exercise of Supervision on a Consolidated Basis Article Article Obligations of Persons Subject to Supervision on a Consolidated Basis Article Article Article 156 Remedial Measures CHAPTER III ADMINISTRATIVE OFFENCES Article 157 Administrative Offences of an Investment Firm Article 158 Administrative Offences of an Investment Intermediary Article 159 Administrative Offences of a Person Using a Service of an Investment Intermediary Article 160 Administrative Offences of a Securities Exchange Article 161 Administrative Offences of an Off-Exchange Market Operator Article 162 Administrative Offences of a Settlement System Operator...104

10 Article 163 Administrative Offences of a Settlement System Participant Article 164 Administrative Offences of the Central Depository Article 165 Administrative Offences of a Participant in the Central Depository Article 166 Administrative Offences of a Person Maintaining a Register Linked to the Central Register of Securities Maintained by the Central Depository Article 167 Administrative Offences of a Person Maintaining a Separate Register of Investment Instruments Article 168 Administrative Offences of a Person Maintaining a Register Linked to a Separate Register of Investment Instruments Article 169 Administrative Offences of an Institutional Investor Article 170 Administrative Offences of an Operator of a Printing House Article 171 Administrative Offences of an Issuer Administrative Offences during an Offer of Investment Securities to the Public and during the Admittance of a Security to Trading on an Official Market Article Article Article 173a Article 173b Article 174 Administrative Offences of a Foreign Person Providing Investment Services in the Czech Republic under a Licence Granted by the Home State Article 175 Administrative Offences of a Foreign Person Providing Investment Services in the Czech Republic through an Organisational Unit Article 176 Administrative Offences of a Person Subject to Supervision on a Consolidated Basis Administrative Offences of an Insider Article Article Administrative Offences of a Person who Manipulates the Market Article Article Administrative Offences of a Person who Fails to Report Market Manipulation Article Article Administrative Offences of a Person Involved in the Decision-Making of an Issuer that Fails to Report its Transactions in Investment Instruments Article Article Administrative Offences of a Person who Fails to Report the Use of Inside Information Article Article Article 186a Violation of the Duty of Confidentiality Further Administrative Offences...110

11 Article Further Offences Article Article Article Article Administrative Offences during the Provision of Investment Services Abroad Article 192 Common Provisions PART TEN RATING AGENCIES Article PART ELEVEN COMMON, TRANSITIONAL AND FINAL PROVISIONS Article 194 Links to Other Legal Regulations Article Article Article Article 198 List of Forced Administrators and Liquidators Article 199 Authorisation Transitional and Final Provisions Article Article Article Article 202a Article Article Article Article 206 Effect...119

12 /2004 Coll. ACT of 14 April 2004 on Business Activities on the Capital Market (Capital Market Undertakings Act) (effective 1 May 2004) as amended by with effect from Act No. 635/2004 Coll. 16 January 2005 Act No. 179/2005 Coll. promulgation (30 April 2005) Act No. 377/2005 Coll. promulgation (29 September 2005) Act No. 56/2006 Coll. promulgation (8 March 2006) Act No. 62/2006 Coll. promulgation (8 March 2006) Parliament has passed this Act of the Czech Republic: PART ONE BASIC PROVISIONS Article 1 This Act incorporates the applicable regulations of the European Communities 1) and regulates the provision of services in the capital market field and the offering of securities to the public. Article 2 Definitions In this Act, the following terms shall have the following meanings: a) professional investor shall mean: 1. an investment firm, 2. a bank, 3. an insurance company, 4. a reinsurance company, 5. an investment company, 6. an investment fund, 7. a pension fund, 8. a payment system operator, 9. a settlement system operator, 10. a person issuing and administering means of payment, 11. a person providing financial leasing as part of their business activity, 12. a person whose principal activity is acquisition of holdings in other companies, 13. a person providing guarantees as part of their business activity, 14. a business company that, pursuant to the latest annual report or consolidated annual report, meets at least two of three criteria, such criteria being the total of its assets amounting in Czech crowns to at least EUR 20,000,000, its net annual turnover amounting in Czech crowns to at least EUR 40,000,000 or its equity amounting in Czech crowns to at least EUR 2,000,000, 15. a foreign person that corresponds to any of the persons referred to in clauses 1 to 14, 16. a state or a member state of a federation, 17. the Czech National Bank, a foreign central bank or the European Central Bank, 18. an international financial institution, b) details of a person (references in the text to persons should be understood as including both natural and

13 legal persons) shall mean: 1. in the case of a legal person, its commercial name or name, registered office and identification number if assigned, 2. in the case of a natural person, his name and surname, date of birth and permanent residence address; in the case of an entrepreneur registered in the Commercial Register, his commercial name and, as the case may be, place of business, and identification number if assigned c) director shall mean a member of the statutory body, the statutory body, the executive director or the procurator (in Czech prokurista ) of a legal person or a person who otherwise actually manages the activities of the legal person, d) qualifying holding shall mean any direct or indirect holding in the registered capital or the voting rights of a person, or the sum thereof, which represents at least 10% or allows a significant influence to be exercised over its management, e) indirect holding shall mean a holding held through another person or a group of persons acting in concert, f) close links shall mean relations between persons: 1. where one person holds a direct or indirect holding in the registered capital or voting rights of another person, which represents at least 20%, 2. where one person controls another person, or 3. where such persons are controlled by the same person, g) misleading information shall mean information capable of resulting in a false idea about the thing concerned; misleading information shall also mean truthful information that, given the context in which it was used, may be misleading. h) client asset shall mean cash funds and investment instruments entrusted to an investment firm for the purpose of provision of investment services and cash funds and investment instruments acquired in exchange for these values for the client. Client asset shall not refer to deposits pursuant to a law governing the activities of banks 1a) which an investment firm that is a bank or a branch of a foreign bank keeps accounting records of. (1)Investment instruments are: a) investment securities, b) collective investment securities, PART TWO INVESTMENT SERVICES CHAPTER I BASIC PROVISIONS Article 3 Investment Instruments c) securities that are usually dealt in on the money market (money market instruments), d) derivatives. (2)Investment securities are: a) shares or similar securities representing a share in a company, which shares or securities may be dealt in on the capital market, b) bonds or similar securities representing a right to receive repayment of an outstanding amount, which bonds or securities may be dealt in on the capital market, c) securities giving the right to the acquisition of the securities referred to in (a) or (b) above, which securities are regularly dealt in on the capital market, save for means of payment, d) other securities that are usually dealt in on the money market, which securities give rise to the right to cash settlement, save for means of payment.

14 (3)For the purposes of this Act, derivatives shall mean: a) options relating to investment instruments referred to in paragraph 1(a) to (c), b) financial future contracts (especially futures, forwards and swaps) relating to investment instruments referred to in paragraph 1(a) to (c), c) contracts for differences and similar instruments for the transfer of interest rate or exchange rate risk, d) instruments for the transfer of credit risk, e) other instruments that give rise to the right to cash settlement and whose value is derived, in particular, from the price of an investment security, an index, an interest rate, an exchange rate or a commodity price. (4)Identification pursuant to the international securities identification numbering system (ISIN) shall be assigned to an investment instrument for the purposes of trading on a regulated or free market by the central securities depository (hereinafter the central depository ) on request. (5) Collective investment securities shall mean unit certificates of a unit trust, investment fund shares and similar securities issued abroad. Article 4 Investment Services (1)Investment services are core investment services and ancillary investment services provided to third parties as part of a business activity. (2)Core investment services are: a) the receipt and transmission of orders in relation to investment instruments, b) execution of orders in relation to investment instruments for the account of another person, c) dealing in investment instruments on own account, d) management of assets of a client under a contract with the client, if an investment instrument is part of such assets, e) underwriting or placing of issues of investment instruments. (3)Ancillary investment services are: a) administration of investment instruments, b) safekeeping of investment instruments, c) granting credit or a loan to a client to allow him to carry out a transaction in an investment instrument, where the provider of the credit or loan is involved in the transaction, d) advice on capital structure, industrial strategy and related matters and advice and services relating to corporate transformation or business transfers, e) advice on investments in investment instruments, f) carrying out foreign exchange operations connected to the provision of investment services, g) services related to underwriting of issues of investment instruments, h) renting safe deposit boxes. (4)The investment service of safekeeping of investment instruments shall also include the maintenance of a register linked to the central register of securities (Article 92) or the maintenance of a separate register of investment instruments or the maintenance of a register linked to the separate register of investment instruments (Article 93). (5)A core investment service or an ancillary investment service pursuant to paragraph 3(a) may only be provided by an investment firm (Article 5) unless stipulated otherwise by law. (6)A licence or registration shall not be required for the provision of an investment service if it is provided: a) solely to persons who control a person providing an investment service, are controlled by a person providing an investment service, or to persons controlled by the same person as a person providing an investment service, or

15 b) in connection with the performance of another professional activity the legal regulation of which explicitly permits the provision of investment services, especially by a notary, solicitor or judicial executor. CHAPTER II INVESTMENT FIRM Section 1 Basic Provisions Article 5 An investment firm is a legal person that provides investment services under a licence for the business of an investment firm granted by the Czech National Bank. Section 2 Licence for the Business of an Investment Firm Article 6 (1)The Czech National Bank shall grant a licence for the business of an investment firm only to a joint stock company: a) that only issues book-entry shares or registered physical shares (i.e. registered to name), this being without prejudice to the provision of the special legal rule governing the form of preference shares issued by a bank, b) whose registered office and actual office is situated within the territory of the Czech Republic, c) the origin of whose registered capital is transparent and clean, d) that submits a plan of business activities and a proposal for the organisational structure of the investment firm, e) that has material, personnel and organisational prerequisites for the performance of the activities of an investment firm, in particular: 1. its registered capital has been paid up, 2. its directors meet the approval conditions pursuant to Article 10, f) that submits draft rules for prudent provision of investment services and draft rules of conduct of the investment firm towards clients that meet the requirements of this Act, g) in which a qualifying holding is held by persons who are suitable in terms of sound and prudent management of the investment firm, h) whose close links with any other person do not prevent the effective exercise of supervision of the investment firm; in the event of close links with a person who has its registered office or actual office in a non-member state of the European Union, the law of such state and manner of application thereof, including the enforceability of law, may not prevent the effective exercise of supervision of the investment firm. (2)In a licence for the business of an investment firm the Czech National Bank shall specify the core and ancillary investment services that the investment firm is authorised to provide and the investment instruments in respect of which the investment firm is authorised to provide such services. The licence must include at least one core investment service. (3)The equity of an investment firm that is not a bank and is not restricted in providing investment services pursuant to paragraph 4 must amount, in Czech crowns, at least to the sum equivalent to EUR 730,000. (4)The equity of an investment firm that is not a bank and is not authorised to provide any of the investment services specified in Article 4(2)(c) and (e) must amount, in Czech crowns, at least to the sum equivalent to EUR 125,000.

16 (5)The objects of business of an investment firm that is not a bank may only comprise activities specified in the licence for the business of an investment firm. (6)A licence for the business of an investment firm shall be granted for an indefinite period of time. Article 7 An application for a licence for the business of an investment firm shall contain the details and the documents attached to it shall prove the facts referred to in Article 6(1). The essential elements of the application and the annex thereto shall be set out in an implementing legal regulation. Article 8 (1)Prior to granting a licence for the business of an investment firm, the Czech National Bank shall request the opinion of the supervisory authority of another Member State of the European Union if the applicant is: a) controlled: 1. by a person who holds a licence for the provision of investment services granted by the supervisory authority of that Member State of the European Union, 2. by a credit institution (Article 151(1)(l)) or a financial institution (Article 151(1)(k)) that has its registered office in that Member State of the European Union, or 3. by an insurance company that holds a licence granted by the supervisory authority of that Member State of the European Union, or b) controlled by the same person who controls the person referred to in (a) above. (2)cancelled Section 3 Some Conditions for the Business Activities of an Investment Firm Article 9 Capital Adequacy of an Investment Firm (1)An investment firm shall maintain capital adequacy on an individual basis. An investment firm that is a bank shall maintain capital adequacy pursuant to a law governing the activities of banks 1a). (2)Rules of capital adequacy on an individual basis applicable to an investment firm that is not a bank shall be set out in an implementing legal regulation. Article 10 Approval of a Director of an Investment Firm (1)A director of an investment firm must have the prior consent of the Czech National Bank to the performance of his office; in the case of an investment firm that is a bank, the prior consent of the Czech National Bank shall only be required for the performance of office of a director responsible for the bank s activities as an investment firm. (2)The Czech National Bank shall grant its consent pursuant to paragraph 1 to a person: a) who has reached the age of 18 years, b) who is competent to carry out legal acts, c) in respect of whom there are no circumstances preventing the carrying on of a trade pursuant to the act governing trades, d) who is trustworthy,

17 e) who is professionally qualified, f) who meets the condition of incompatibility of offices pursuant to paragraph 3, g) where no other activity of such person prevents the due discharge of office. (3)A director of an investment firm may not be: a) a member of the Chamber of Deputies or senator of the Parliament of the Czech Republic, b) an employee of the Czech National Bank, c) a member of the Bank Board of the Czech National Bank, d) an investment intermediary or a director or employee of an investment intermediary, or a foreign person with similar objects of business or a director or employee of such foreign person; the same shall not apply if the investment firm and the investment intermediary or the foreign person with similar objects of business are part of the same concern, e) a director or an employee of another investment firm or a foreign person with a licence for the provision of investment services; the same shall not apply if the investment firm and the other investment firm or the foreign person with a licence for the provision of investment services are members of the same concern, or f) a director or an employee of an investment company or an investment fund or of a foreign person with a licence for collective investment; the same shall not apply if the investment firm and the investment company or the investment fund or the foreign person with a licence for collective investment are members of the same concern. (4)An application for the consent pursuant to paragraph 1 shall contain the details and documents necessary for the examination of the facts referred to in paragraphs 2 and 3. The essential elements of the application and the annex thereto shall be set out in an implementing legal regulation. Article 11 Acquisition and Forfeiture of a Holding in an Investment Firm That Is Not a Bank (1)A person or persons acting in concert must have the prior consent of the Czech National Bank: a) to the acquisition of a qualifying holding in an investment firm that is not a bank unless such acquisition is to take place by way of passage of the ownership title to a security, b) to the attaining or exceeding of a qualifying holding of 20%, 33% or 50% in an investment firm that is not a bank unless such attaining or exceeding of a qualifying holding is to take place by way of passage of the ownership title to a security, or c) to become persons controlling an investment firm that is not a bank unless they become the same by way of passage of the ownership title to a security. (2)For the purposes of the calculation of a holding pursuant to paragraph 1 in an investment firm, the voting rights attached to the following securities shall be included: a) those held for the account of the person referred to in paragraph 1 by another person in their own name, b) those that are at the disposal of a person controlled by the person referred to in paragraph 1, c) those that are at the disposal of another person who has entered into an agreement with the person referred to in paragraph 1 or with a person controlled by it, in which agreement they undertook to pursue on a longterm basis a joint policy concerning the management of an investment firm by exercising the voting rights at their disposal in concert, d) those held, under an agreement with the person referred to in paragraph 1 or with a person controlled by it, by another person if such agreement envisages that disposal of such voting rights will be temporarily granted to the person referred to in paragraph 1 or to a person controlled by it for a consideration, e) those that have been provided as collateral by the person referred to in paragraph 1; the same shall not apply if disposal of such voting rights has been granted to a person who holds such securities in safekeeping, in administration or as part of its property and has published information in at least one national newspaper that it will exercise such voting rights; in such case, the voting rights attached to such

18 securities shall be attributed to the person which holds such securities in safekeeping, in administration or as part of its property, f) those in the ownership of another person, if such person exercises the voting rights attached to such securities in its own name pursuant to the instructions of the person referred to in paragraph 1 under an agreement on the exercise of voting rights. (3)Where the person or persons acting in concert or the persons referred to in paragraph 2 have their registered office in a Member State of the European Union, are subject to supervision by the supervisory authority of this Member State and intend to acquire a holding referred to in paragraph 1, the Czech National Bank shall request the opinion of this supervisory authority prior to issuing a decision. (4)An application for the consent referred to in paragraph 1 shall contain the details pursuant to paragraph 1 and the documents attached thereto shall prove the facts necessary to examine the suitability of the applicant from the point of view of sound and prudent management of the investment firm that is not a bank, and to assess whether close links of the applicant to the investment firm that is not a bank prevents the effective exercise of supervision of such investment firm. The essential elements of the application and the annex thereto shall be set out in an implementing legal regulation. (5)The Czech National Bank shall grant the consent referred to in to paragraph 1 if the applicant is a person suitable from the point of view of sound and prudent management of the investment firm that is not a bank and if the applicant s close links to the investment firm that is not a bank do not prevent the effective exercise of supervision of such investment firm. (6)If the Czech National Bank does not send a decision on the application for the consent referred to in paragraph 1 within 3 months of the date of its delivery, against such decision an objection can be lodged, the consent shall be deemed to have been granted. If the application proceedings are suspended, this time period shall not run. (7)The consent referred to in paragraph 1 may be granted on an ex-post basis. (8)A person who acquires or increases a qualifying holding pursuant to paragraph 1 by way of passage of the ownership title to a security shall notify the Czech National Bank of this fact without delay. (9)A person or persons acting in concert or the persons referred to in paragraph 2 shall notify the Czech National Bank that: a) they are ceasing to control an investment firm that is not a bank, b) they are reducing their qualifying holding in an investment firm that is not a bank below 50%, 33% or 20% or that they are forfeiting the same, or c) they are transferring a qualifying holding in an investment firm that is not a bank to another person. (10)The notification pursuant to paragraph 9 shall contain the details of the notifying party, details of the investment firm and the size of the notifying party s holding in the investment firm after the reduction; the notification pursuant to paragraph 9(c) shall also contain details of the person to whom the qualifying holding is being transferred. (11)An acquisition of or increase in a holding pursuant to paragraph 1 in an investment firm without the consent of the Czech National Bank shall not render the relevant legal act invalid, but the voting rights attached to such holding may not be exercised until the consent is granted. Section 4 Rules for Activities and Financial Management of an Investment Firm (1)An investment firm shall introduce: a) administrative and accounting procedures, Article 12 Rules for Prudent Provision of Investment Services b) control and security measures applicable to the processing and recording of data, c) an internal control system; an investment firm that is a bank shall follow a special legal rule governing the activities of banks,

19 d) a risk management system and a liquidity management system; an investment firm that is a bank shall follow a special legal rule governing the activities of banks, e) procedures designed to restrict the possibility of a conflict of interests between the investment firm and its client or between the investment firm s clients, f) rules for concluding transactions by its employees for own account or for the account of persons closely associated with the investment firm pursuant to the Civil Code, g) rules for pooling of client orders, h) a mechanism of control of the activities of investment intermediaries used by the investment firm in the provision of its services, i) measures for the protection of inside information, j) measures to prevent market manipulation. (2)An investment firm shall regulate its internal organisation (organisational rules) and the items mentioned in paragraph 1 by means of an internal regulation. (3) An investment firm shall ensure the maintenance of a register: a) of book-entry securities with whose owner it entered into an agreement on the safekeeping of investment instruments and that are entered in the central register of securities in a client account; this register shall be maintained in a register linked to the central register of securities maintained by the central depository (Article 92), b) of book-entry securities with whose owner it entered into an agreement on the safekeeping of investment instruments and that are entered in the separate register of securities maintained by the Czech National Bank in a client account; this register shall be maintained in a register linked to the separate register of securities maintained by the Czech National Bank (Article 93), c) of physical investment instruments entrusted to its safekeeping by clients; this register shall be maintained in the separate register of investment instruments (Article 93), d) of foreign investment instruments entrusted to it by clients for the purposes of providing an investment service; this register shall be maintained in the separate register of investment instruments (Article 93), e) of investment instruments entrusted to it by clients for the purposes of providing an investment service and that are not referred to under (a) to (d) above and whose nature so allows; this register shall be maintained in the separate register of investment instruments (Article 93). (4)The registers referred to in paragraph 3 shall be maintained in electronic form. (5)When handling client assets, an investment firm shall: a) keep its own cash funds separate from cash funds entrusted to it by a client and keep accounts concerning client assets separate from the accounts concerning the investment firm s assets, b) introduce such measures so that client assets that consist of investment instruments cannot be used in a transaction for the account of a person other than that client except where the client has granted its written consent to the investment firm, c) refrain from using client assets that consist of cash funds for a transaction for the account of a person other than that client, d) ensure a clear identification of client assets. (6)Details of compliance with the rules for prudent provision of investment services shall be set out in an implementing legal regulation. (7)When providing investment services, an investment firm shall perform professional trading activities through an employee who holds a licence for the activities of a broker (Article 14) for the relevant specialisation. The types of professional trading activities that the investment firm must perform through a broker shall be set out in an implementing legal regulation. (8)A broker may be an employee of only one investment firm. (9)An investment firm shall have material and personnel resources that are appropriate to the character and scope of services that it provides.

20 Article 13 Transactions and Orders Book of an Investment Firm (1) Transactions and orders book of an investment firm shall mean a record of received orders to arrange the purchase, sale or other transfer of investment instruments and of transactions concluded on the basis of such orders. (2)An investment firm shall maintain a transactions and orders book of an investment firm, in which it shall record, in particular: a) received orders to arrange the purchase, sale or other transfer of an investment instrument, b) transactions in investment instruments concluded for the account of a client, c) transactions in investment instruments concluded by the investment firm for own account regardless of whether they have been concluded for the purpose of the provision of an investment service. (3)A transactions and orders book of an investment firm shall be maintained in electronic form. For the purposes of maintaining a transactions and orders book of an investment firm, an investment firm is entitled to keep the birth certificate numbers of parties to transactions. (4)The manner of maintenance and the essential elements of a transactions and orders book of an investment firm shall be set out in an implementing legal regulation. Article 14 Broker (1)A broker is a natural person who, under a licence granted by the Czech National Bank, performs professional trading activity during the provision of an investment service. (2)The Czech National Bank shall grant the licence for the activities of a broker on the basis of an application if the applicant has passed the broker examination, is not a person referred to in Article 10(3) and is trustworthy. (3)The Czech National Bank may waive the requirement to pass the broker examination in respect of a person who: a) proves that he/she has passed a similar examination before a domestic professional organisation grouping capital market participants where such examination verifies the knowledge needed to perform the activities of a broker comparably to the broker examination, or b) proves that he/she has passed a similar examination abroad where such examination verifies the knowledge needed to perform the activities of a broker comparably to the broker examination, and proves the knowledge of legal regulations governing the capital market in the Czech Republic. (4)An application for the licence for the activities of a broker shall contain the details and the documents attached to it shall prove the facts referred to in paragraph 2. The essential elements of the application and the annex thereto shall be set out in an implementing legal regulation. (5)The licence for the activities of a broker shall contain the type of professional specialisation of the broker. The licence shall be granted for an indefinite period of time. (6)The broker examination shall include, in accordance with the broker s specialisation, verification of the knowledge of investment instruments and dealing therein, knowledge of the internal regulations of operators of regulated markets and knowledge of the legal regulations governing the capital market, with emphasis on knowledge of the rules for prudent provision of investment services and conduct of an investment firm towards clients. (7)The types of specialisation of a broker, including the professional trading activities which a broker with the relevant specialisation is entitled to perform, the method of taking the broker examination and the amount of the fee for the broker examination shall be set out in an implementing legal regulation. (8)A person whose licence for the activities of a broker has been withdrawn by the Czech National Bank and who re-applies for such a licence shall re-pass the broker examination.

21 (1)An investment firm shall: Article 15 Conduct of an Investment Firm towards Clients a) provide investment services with professional care, consisting primarily in a professional, honest and fair conduct in the best interests of clients and proper functioning of the market, b) request from a client, depending on the type and scope of the investment services requested by the client, information on the client s economic situation, experience in the field of investment in investment instruments and on the goals to be achieved by the requested service, c) inform the client fully, truthfully and in a comprehensible manner about every material fact related to the provision of the investment service, especially about potential risks, d) request the client s written consent to the provision of an investment service resulting in further financial obligations, e) inform the client within the time limit agreed with him, although at the latest within the time limits stipulated in an implementing regulation, about the transactions which it has concluded for the client, f) where a conflict of interests cannot be avoided, put the client s interests above its own interests and, where a conflict of clients interests occurs, to act in a fair manner, g) execute client orders under the best conditions and process them in the order in which it received them, h) provide the client with detailed information about the conditions of compensation from the Guarantee Fund of Investment Firms (hereinafter the Guarantee Fund ) and, at the client s request, provide information on the manner of making claims for the payment of compensation, i) shall use truthful information when promoting its investment services. (2)An investment firm shall not: a) provide misleading information, b) misuse the Guarantee Fund, c) conceal any important facts, d) offer benefits the reliability of which it cannot guarantee. (3)An investment firm shall observe the rules referred to in paragraphs 1 and 2 with special regard to the level of professional knowledge and experience of the client to whom it provides a service. An investment firm is not obliged to provide an explanation, advice or information to a client that is a professional investor where such professional investor explicitly declared that it was familiar therewith and did not require provision thereof. (4)The detailed rules of conduct of an investment firm towards its clients (paragraphs 1 to 3) shall be laid down in an implementing legal regulation. Article 16 Disclosure Duties of an Investment Firm (1)An investment firm shall submit to the Czech National Bank, no later than 4 months following the end of the accounting period, its annual report and its consolidated annual report pursuant to a special legal rule governing accounting, which reports shall include audited financial statements, and shall publish the same in a manner allowing remote access. If the general meeting of the investment firm fails to approve the financial statements or the consolidated financial statements within the said period of time, the investment firm shall send to the Czech National Bank and publish in a manner allowing remote access the reasons why the financial statements or the consolidated financial statements have not been approved and the manner of addressing the comments of the general meeting. This shall be without prejudice to the obligations of a joint stock company in publishing financial statements and annual report pursuant to special legal rules. (2)No later than 1 month after the end of a calendar quarter, an investment firm shall notify the Czech National Bank:

22 a) of its economic situation, b) of the types and scope of investment services provided in this quarter, c) of all regulated markets, including foreign ones, and of persons through whom it executed client orders in that quarter, stating the facts that affected the choice of such persons and any benefits received by the investment firm from such persons as remuneration for using their services, d) of transactions it concluded or arranged, in the scope given in Article 13(2). e) of the volume of client assets (Article 129(1)) as at the last day of each month in that quarter. (3)An investment firm shall publish the information referred to in paragraph 2(a) and (b) within the time limit stipulated in an implementing regulation in a manner allowing remote access. (4)An investment firm that is obliged to maintain equity pursuant to Article 6(3) shall inform the Czech National Bank within 20 days of the end of each calendar month of its compliance with the capital adequacy rules. Other investment firms shall fulfil this obligation within one month after the end of the calendar quarter. (5)An investment firm shall submit to the Czech National Bank, once a year, no later than 1 month after its ordinary general meeting took place, a list of persons who had a qualifying holding in the investment firm or were closely linked therewith in the past year. (6)An investment firm shall notify the Czech National Bank without undue delay of any changes in the facts upon which it was granted a licence for the business of an investment firm. (7)The content of an investment firm s disclosure duties according to paragraphs 1 5, the method of performance thereof and time limits referred to in paragraph 3 shall be laid down in an implementing legal regulation. (8)The provisions of paragraphs 1, 4 and 5 shall not apply to an investment firm that is a bank. In this case, a special legal rule governing the activities of banks shall apply. Article 17 Retention of Documents by an Investment Firm An investment firm shall retain: a) documents concerning a provided investment service for at least 10 years from the end of the calendar year when the service was provided, b) records of communication with a client concerning a provided investment service for at least 5 years from the end of the calendar year when the service was provided. Section 5 Winding-up, Change in the Objects of Business or Conversion of an Investment Firm and Transfer, Pledge or Lease of the Business of an Investment Firm Article 18 Winding-up or Change in the Objects of Business of an Investment Firm (1)If the general meeting of an investment firm decides to wind up the company with liquidation or to change the objects of business, the investment firm shall notify the Czech National Bank of this fact immediately upon the resolution of the general meeting. (2)From the date of an investment firm s entry into liquidation or from the date of a change in its objects of business, the person who entered into liquidation or changed its objects of business may not provide investment services and if it is not a bank it may only release client assets and settle its receivables and payables arising from provided investment services; such person shall be regarded as an investment firm until such receivables and payables are settled. The licence for the business of an investment firm shall expire upon entry into liquidation or change in the objects of business. (3)An investment firm shall send to the Czech National Bank for information an invitation to its general meeting the agenda of which includes a discussion of its winding-up or the change in its objects of business.