sou · GUB374 · 2007-01-01 00:00:00 — For the purposes of delivering best execution where there is more than one competing venue to execute an order for a financial instrument, in order to assess and compare the results for the client that would be achieved by executing the order on each of the execution venues listed in the firms order execution policy that is capable of executing that order, the firms own commissions and costs for executing the order on each of the eligible execution venues shall be taken into account in that assessment. 4.Member States shall require that investment firms do not structure or charge their commissions in such a way as to discriminate unfairly between execution venues. 5.Before 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. (Article 19(1) of Directive 2004/39/EC) 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 the obligation under Article 19(1) of Directive 2004/39/EC to act in accordance with the best interests of their clients when placing orders with other entities for execution 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 the obligation under Article 19(1) of Directive 2004/39/EC to act in accordance with the best interests of their clients when transmitting client orders to other entities for execution. 3.Member States shall ensure that, in order to comply with paragraphs 1 or 2, investment firms take the actions mentioned in paragraphs 4 to 6. 4.Investment firms shall take all reasonable steps to obtain the best possible result for their clients taking into account the factors referred to in Article 21(1) of Directive 2004/39/EC. The relative importance of these factors shall be determined by reference to the criteria set out in Article 44(1) and, for retail clients, to the requirement under Article 44(3). An investment firm satisfies its obligations under paragraph 1 or 2, and is not required to take the steps mentioned in this paragraph, to the extent that it follows specific instructions from its client when placing an order with, or transmitting an order to, another entity for execution. 5.Investment firms shall establish and implement a policy to enable them to comply with the obligation in paragraph 4. The policy shall identify, in respect of each class of instruments, the entities with which the orders are placed or to which the investment firm transmits orders for execution. The entities identified must have execution arrangements that enable the investment firm to comply with its obligations under this Article when it places or transmits orders to that entity for execution. Investment firms shall provide appropriate information to their clients on the policy established in accordance with this paragraph. 6.Investment firms shall monitor on a regular basis the effectiveness of the policy established in accordance with paragraph 5 and, in particular, the execution quality of the entities identified in that policy and, where appropriate, correct any deficiencies. In addition, investment firms shall review the policy annually. Such a review shall also be carried out whenever a material change occurs that affects the firms ability to continue to obtain the best possible result for their clients. 7.This Article shall not apply when the investment firm that provides the service of portfolio management and/or reception and transmission of orders also executes the orders received or the decisions to deal on behalf of its clients portfolio. In those cases Article 21 of Directive 2004/39/EC applies. (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 firms 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 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), 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; (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. (Articles 22(1) and 19(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 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. (Articles 22(1) and 19(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 or a transaction for own account in aggregation with another client order unless the following conditions are met: (a)it must be unlikely that the aggregation of orders and transactions 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, including how the volume and price of orders determines 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. (Articles 22(1) and 19(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 48(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 medium that allows the storage of information in a way accessible for future reference by the competent authority, 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 the Committee of Regulators, 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 KOMMISSIONENS FÖRSLAG TILL GENOMFÖRANDEFÖRORDNING 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 Note: this draft text is based on the text approved by 2006 (with typographical corrections). It remains subject to Parliamentary oversight. The final text will be that adopted by the Commission (probably in ) and subsequently published in the . 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 2004/39/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 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- 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. (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. (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 OJ L 145, 30.4.2004, p. 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 adequately 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)For the purposes of the provisions on record-keeping, a reference to the type of the order should be understood as referring to its status as a limit order, market order, or other specific type of order. For the purposes of the provisions on record-keeping, a reference to the nature of the order or transaction should be understood as referring to orders to subscribe for securities or the subscription of securities, or to exercise an option or the exercise of an option, or similar client orders or transactions. (7)It is not necessary at this stage to specify or prescribe in detail the type, nature and sophistication of the arrangements for the exchange of information between competent authorities. (8)Where a notification made by a competent authority relating to the alternative determination of the most relevant market in terms of liquidity is not acted upon within a reasonable time, or where a competent authority does not agree with the calculation made by the other authority, the competent authorities concerned should seek to find a solution. It is open to the competent authorities, where appropriate, to discuss the matter in the Committee of Regulators. (9)The competent authorities should coordinate the design and of arrangements for the exchange of transaction information between themselves. Again it is open to the competent authorities to discuss those matters in the Committee of Regulators. Competent authorities should report to the Commission which should inform arrangements. In carrying out the coordination, competent authorities should consider the need to monitor the activities of investment firms effectively, so as to ensure that they act honestly, fairly and professionally and in a which promotes the integrity of the market in the Community, the need for decisions to be based on a thorough cost-benefit analysis, the need to ensure that transaction information is used only for the proper discharge of the functions of competent authorities and finally the need to have effective and accountable governance arrangements for any common system that might be considered necessary. (10)It is appropriate to set the criteria for determining when the operations of a regulated market are of substantial importance in a host , and the consequences of that status in such a way as to avoid creating an obligation on a regulated market to deal with or be made subject to more than one competent authority where otherwise there would be no such obligation. (11)ISO 10962 (Classification of financial instruments code) is an example of a uniform internationally accepted standard for financial instrument classification. (12)If granting waivers in relation to pre-trade transparency requirements, or authorising the deferral of post-trade transparency obligations, competent authorities should treat all regulated markets and MTFs equally and in a non-discriminatory , so that a waiver or deferral is granted either to all regulated markets and MTFs that they authorise under Directive 2004/39/EC, or to none. Competent authorities which grant the waivers or deferrals should not impose additional requirements.