sou · GUB350d2 · 2007-01-01 00:00:00 — However, the exception provided for in point (b) shall not apply in the case of transactions in financial instruments covered by Article 4(1)(18)(c) or any of points 4 to 10 of Section C in to Directive 2004/39/EC. 4.Member States shall require investment firms, in cases where the client elects to receive information about executed transactions on a transaction-by-transaction basis, to provide promptly to the client, on the execution of a transaction by the portfolio manager, the essential information concerning that transaction in a durable medium. Where the client concerned is a retail client, the investment firm must send him a notice confirming the transaction and containing the information referred to in Article 40(4) no later than the first business day following that execution and containing the information referred to in Article 40(4)or, if the confirmation is received by the investment firm from a third party, no later than the first business day following receipt of the confirmation from the third party. The second sub-paragraph shall not apply where the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the retail client by another person. (Article 19(8) of Directive 2004/39/EC) Additional reporting obligations for portfolio management or contingent liability transactions Member States shall ensure that where investment firms provide portfolio management transactions for retail clients or operate retail client accounts that include an uncovered open position in a contingent liability transaction, they also report to the retail client any losses exceeding any predetermined threshold, agreed between the firm and the client, no later than the end of the business day in which the threshold is exceeded or, in a case where the threshold is exceeded on a non-business day, the start close of the next business day. (Article 19(8) of Directive 2004/39/EC) Statements of client financial instruments or client funds 1.Member States shall require investment firms that hold client financial instruments or client funds to send at least once a year, to each client for whom they hold financial instruments or funds, a statement in a durable medium of those financial instruments or funds unless such a statement has been provided in any other periodic statement. The first subparagraph shall not apply to a credit institution authorised under Directive 2000/12/EC in respect of deposits within the meaning of that Directive held by that institution. 2.The statement of client assets referred to in paragraph 1 shall include the following information: (a)details of all the financial instruments or funds held by the investment firm for the client at the end of the period covered by the statement; (b)the extent to which any client financial instruments or client funds have been the subject of securities financing transactions; (c)the extent of any benefit that has accrued to the client by virtue of participation in any securities financing transactions, and the basis on which that benefit has accrued. In cases where the portfolio of a client includes the proceeds of one or more unsettled transactions, the information referred to in point (a) may be based either on the trade date or the settlement date, provided that the same basis is applied consistently to all such information in the statement. 3.Member States shall permit investment firms which hold financial instruments or funds and which carry out the service of portfolio management for a client to include the statement of client assets referred to in paragraph 1 in the periodic statement it provides to that client pursuant to Article 41(1). (Articles 19(1) and 21(1) of Directive 2004/39/EC) 1.Member States shall ensure that, when executing client orders, investment firms take into account the following criteria for determining the relative importance of the factors referred to in Article 21(1) of Directive 2004/39/EC: (a)the characteristics of the client including the statuscategorisation of the client as retail or professional; (b)the nature of the client order; (c)the characteristics of financial instruments that are the subject of that order; (d)the characteristics of the execution venues to which that order can be directed. For the purposes of this Article and Article 46, execution venue means a regulated market, a an MTF, a systematic internaliser acting in its capacity as such, or a market maker or other liquidity provider. 2.An investment firm satisfies its obligation under Article 21(1) of the Directive to take all reasonable steps to obtain the best possible result for a client to the extent that it executes an order or a specific aspect of the order following specific instructions from the a client relating to the order or the specific aspect of the order. 3.Where an investment firm executes an order on behalf of a retail client, the best possible result shall be determined in terms of the total consideration, representing the price of the financial instrument and the costs related to execution, which shall include all expenses incurred by the client which are directly related to the execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order. 4.Member States shall ensurerequire that investment firms do not structure or charge their commissions in such a way as to discriminate unfairly between execution venues. 5.Before 31 October 2008 the Commission shall present a report to Parliament and to availability, comparability and consolidation of information concerning the quality of execution of various execution venues. (Articles 19(1) of Directive 2004/39/EC) Best execution: application to Duty of investment firms carrying out portfolio management and reception and transmission of orders to act in the best interests of the client 1.Member States shall require investment firms, when providing the service of portfolio management, to comply with obligations analogous to those imposed under Articles 21 and 22(1) of Directive 2004/39/EC when carrying out transactions that result from decisions to deal, as if references in those Articles to executing orders were references to carrying out transactions that result from decisions by the investment firm to deal in financial instruments on behalf of its client. 2.Member States shall require investment firms, when providing the service of reception and transmission of orders, to comply with obligations analogous to those imposed under Articles 21 and 22(1) of Directive 2004/39/EC when receiving and transmitting client orders, as if references in those Articles to executing orders shall be treated aswere references to transmitting orders to another entity for execution. 3.In order to ensure full and effective compliance with the obligations of investment firms under this Article, Member States shall prohibit investment firms, in the course of providing the service of portfolio management, from transmitting client orders to another person for execution unless that other person undertakes to obtain the best possible result for the clients on whose behalf the orders are transmitted in accordance with Article 44 and Article 21(1) of Directive 2004/39/EC. (Article 21(3) and (4) of Directive 2004/39/EC) 1.Member States shall ensure that investment firms review annually the execution policy established pursuant to Article 21(2) of Directive 2004/39/EC, as well as their order execution arrangements. Such a review shall also be carried out whenever a material change occurs that affects the firm's ability to continue to obtain the best possible result for the execution of its client orders on a consistent basis using the venues included in its execution policy. 2.Investment firms shall provide retail clients with the following details on their execution policy in a durable medium and in good time prior to the provision of the service: (a)an account of the relative importance the investment firm assigns, in accordance with the criteria specified in Article 44(1) of this Directive, to the factors referred to in Article 21(1) of Directive 2004/39/EC, or the process by which the firm determines the relative importance of those factors; (b)a list of the execution venues on which the firm places significant reliance in meeting its obligation to take all reasonable steps to obtain on a consistent basis the best possible result for the execution of client orders. Investment firms shall include in the execution policy (c) a clear and prominent warning that any specific instructions from a client may prevent the firm from taking the steps that it has designed and implemented in its execution policy to obtain the best possible result for the execution of those orders in respect of the elements covered by those instructions. That information shall be provided in a durable medium, or by means of a website (where that does not constitute a durable medium) provided that the conditions specified in Article 3(2) are satisfied (Article 22(1) of Directive 2004/39/EC) 1.Member States shall require investment firms to satisfy the following conditions when carrying out client orders: (a)they must ensure that orders executed on behalf of clients are promptly and accurately recorded and allocated; (b)they must carry out otherwise comparable client orders sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable, or the interests of the client require otherwise; (c)they must inform a retail client in advance about any material difficulty relevant to the proper carrying out of orders promptly upon becoming aware of the difficulty. 2.Where an investment firm is responsible for overseeing or arranging the settlement of an executed order, it shall take all reasonable steps to ensure that any client financial instruments or client funds received in settlement of that executed order are promptly and correctly delivered to the account of the appropriate client. 3.An investment firm shall not misuse information relating to pending client orders, and shall take all reasonable steps to prevent the misuse of such information by any of its relevant persons. (Article 22(1) of Directive 2004/39/EC) Aggregation and allocation of orders 1.Member States shall not permit investment firms to carry out a client order in aggregation with another client order unless the following conditions are met: (a)it must be unlikely that the aggregation of orders will work overall to the disadvantage of any client whose order is to be aggregated; (b)it must be disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order; (c)an order allocation policy must be established and effectively implemented, providing in sufficiently precise terms for the fair allocation of aggregated orders and transactions in sufficiently precise terms, and in particular in terms of, including how the volume and price of orders relates to how they will be allocated in each casedetermines allocations and the treatment of partial executions. 2.Member States shall ensure that where an investment firm aggregates an order with one or more other client orders and the aggregated order is partially executed, it allocates the related trades in accordance with its order allocation policy. (Article 22(1) of Directive 2004/39/EC) Aggregation and allocation of transactions for own account 1.Member States shall ensure that investment firms which have aggregated transactions for own account with one or more client orders do not allocate the related trades in a way that is detrimental to a client. 2.Member States shall require that, where an investment firm aggregates a client order with a transaction for own account and the aggregated order is partially executed, it allocates the related trades to the client in priority to the firm. However, if the firm is able to demonstrate on reasonable grounds that without the combination it would not have been able to carry out the order on such advantageous terms, or at all, it may allocate the transaction for own account proportionally, in accordance with its order allocation policy referred to in Article 2348(1)(c). 3.Member States shall require investment firms, as part of the order allocation policy referred to in Article 48(1)(c), to put in place procedures designed to prevent the reallocation, in a way that is detrimental to the client, of transactions for own account which are executed in combination with client orders. (Article 24(3) of Directive 2004/39/EC) 1.Member States may recognise an undertaking as an eligible counterparty if that undertaking falls within a category of clients who are to be considered professional clients in accordance with paragraphs 1, 2 and 3 of Section I of to Directive 2004/39/EC, excluding any category which is explicitly mentioned in Article 24(2) of that Directive. On request, Member States may also recognise as eligible counterparties undertakings which fall within a category of clients who are to be considered professional clients in accordance with Section II of to Directive 2004/39/EC. In such cases, however, the undertaking concerned shall be recognised as an eligible counterparty only in respect of the services or transactions for which it could be treated as a professional client. 2.Where, pursuant to the second subparagraph of Article 24(2) of Directive 2004/39/EC, an eligible counterparty requests treatment as a client whose business with an investment firm is subject to Articles 19, 21 and 22 of that Directive, but does not expressly request treatment as a retail client, and the investment firm agrees to that request, the firm shall treat that eligible counterparty as a professional client. However, where that eligible counterparty expressly requests treatment as a retail client, the provisions in respect of requests of non-professional treatment specified in the second, third and fourth sub-paragraphs of Section I of to Directive 2004/39/EC shall apply. (Article 13(6) of Directive 2004/39(EC) 1.Member States shall require investment firms to retain all the records required under Directive 2004/39/EC and its implementing measures for a period of at least five years. Additionally, records which set out the respective rights and obligations of the investment firm and the client under an agreement to provide services, or the terms on which the firm provides services to the client, shall be retained for at least the duration of the relationship with the client. However, competent authorities may, in exceptional circumstances, require investment firms to retain any or all of those records for such longer period as is justified by the nature of the instrument or transaction, if that is necessary to enable the authority to exercise its supervisory functions under Directive 2004/39/EC. Following the termination of the authorisation of an investment firm, Member States or competent authorities may require the firm to retain records for the outstanding term of the five year period required under the first subparagraph. 2.The records shall be retained in a durable medium, and in such a form and that the following conditions are met: (a)the competent authority must be able to access them readily and to reconstitute each key stage of the processing of each transaction; (b)it must be possible for any corrections or other amendments, and the contents of the records prior to such corrections or amendments, to be easily ascertained; (c)it must not be possible for the records otherwise to be manipulated or altered. 3.The competent authority of each draw up and maintain a list of the minimum records investment firms are required to keep under Directive 2004/39/EC and its implementing measures. 4.Record-keeping obligations under Directive 2004/39/EC and in this Directive are without prejudice to the right of Member States to impose obligations on investment firms relating to the recording of telephone conversations or electronic communications involving client orders. 5.Before the 31st the Commission shall, in the light of discussions with competent authorities, report to Parliament and continued appropriateness of the provisions of paragraph 4. DEFINED TERMS FOR THE PURPOSES OF DIRECTIVE 2004/39/EC (Article 4(1)(4) of Directive 2004/39/EC) For the purposes of the definition of investment advice in Article 4(1)(4) of Directive 2004/39/EC, a personal recommendation is a recommendation that is made to a person in his capacity as an investor or potential investor, or in his capacity as an agent for an investor or potential investor. That recommendation must be presented as suitable for that person, or must be based on a consideration of the circumstances of that person, and must constitute a recommendation to take one of the following sets of steps: (a)to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument; (b)to exercise or not to exercise any right conferred by a particular financial instrument to buy, sell, subscribe for, exchange, or redeem a financial instrument. A recommendation is not a personal recommendation if it is issued exclusively through distribution channels or to the public. 1.Member States shall adopt and publish, by 31 January 2007 at the latest, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of those provisions and a correlation table between those provisions and this Directive. 2.Member States shall apply those provisions from . 3.When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 4.Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. This Directive shall enter into force on the twentieth day following that of its publication in the . This Directive is addressed to the Member States. Done at , [] For the Commission [] Member of the Commission Working document ESC/9/2006-rev1 COMMISSION OF THE EUROPEAN COMMUNITIES [Institutional Reference] implementing Directive 2004/39/EC of Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of that Directive implementing Directive 2004/39/EC of Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of that Directive (Text with EEA Relevance) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing Community, Having regard to Directive 20032004/39/EC of Parliament and of the Council of on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of Parliament and of the Council and repealing Council Directive 93/22/EEC1, and in particular Articles 4(1)(2), 4(1)(7) and 4(2), Article 13(10), Article 25(7), Article 27(7), Article 28(3), Article 29(3), Article 30(3), Article 40(6), Article 44(3), Article 45(3), Article 56(5), and Article 58(4) thereof, (1)Directive 2004/39/EC establishes the general framework for a comprehensive regulatory regime for financial markets in the Community, setting out, among other matters: operating conditions relating to the performance by investment firms of investment and ancillary services, and investment activities; organisational requirements (including record-keeping obligations) for investment firms performing such services and activities on a professional basis, and for regulated markets; transaction reporting requirements in respect of transactions in financial instruments; transparency requirements in respect of transactions in shares; and record-keeping requirements for investment firms and market operators. (2)It is appropriate that the provisions of this Regulation take that legislative form in order to ensure a harmonised regime in all Member States, to promote market integration and the cross-border provision of investment and ancillary services, and to facilitate the further consolidation of the single market. Provisions relating to certain aspects of record-keeping, and to transaction reporting, transparency and commodity derivatives have few interfaces with national law and with detailed laws governing client relationships. OJ L 145, 30.4.2004, p. (3)Detailed and fully harmonised transparency requirements and rules regulating transaction reporting are appropriate so as to ensure equivalent market conditions and the smooth operation of securities markets throughout the Community, and to facilitate the effective integration of those markets. Certain aspects of record-keeping are closely allied as they make use of the same concepts as are defined for transaction reporting and transparency purposes. (4)The regime established by Directive 2004/39/EC governing transaction reporting requirements in respect of transactions in financial instruments aims to ensure that relevant competent authorities are properly informed about transactions in which they have a supervisory interest. For those purposes it is necessary to ensure that a single data set is collected from all investment firms with a minimum of variation between Member States, so as to minimise the extent to which businesses operating across borders are subject to different reporting obligations, and so as to maximise the proportion of data held by a competent authority that can be shared with other competent authorities. The measures are also designed to ensure that competent authorities are in a position to carry out their obligations under that Directive as expeditiously and efficiently as possible. (5)The regime established by Directive 2004/39/EC governing transparency requirements in respect of transactions in shares admitted to trading on a regulated market aims to ensure that investors are fullyadequately informed as to the true level of actual and potential transactions in such shares, whether those transactions take place on regulated markets, multilateral trading facilities, hereinafter MTFs, systematic internalisers, or outside those trading venues. Those requirements are part of a broader framework of rules designed to promote competition between trading venues for execution services so as to increase investor choice, encourage innovation, lower transaction costs, and increase the efficiency of the price formation process on a pan- Community basis. A high degree of transparency is an essential part of this framework, so as to ensure a level playing field between trading venues so that the price discovery mechanism in respect of particular shares is not impaired by the fragmentation of liquidity, and investors are not thereby penalised. On the other hand, that Directive recognises that there may be circumstances where exemptions from pre- trade transparency obligations, or deferral of post-trade transparency obligations, may be necessary. This Regulation sets out details of those circumstances, bearing in mind the need both to ensure a high level of transparency, and to ensure that liquidity on trading venues and elsewhere is not impaired as an unintended consequence of obligations to disclose transactions and thereby to make public risk positions. (6)Competent authorities are expected to issue interpretative guidance on provisions on this Regulation.