Common Position (EC) No 9/2004 of 8 December 2003 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting a directive of the European Parliament and of the Council on financial instruments markets, amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC
Date: 2003-12-08
Institutions: Council of the European Union
Subjects: credit institution, financial instrument, financial market, investment company, official market, securities

9.3.2004

EN

Official Journal of the European Union

C 60 E/1

I

(Information)

COUNCIL

COMMON POSITION (EC) No 9/2004

adopted by the Council on 8 December 2003

with a view to the adoption of a Directive 2004/. . ./EC of the European Parliament and of the
Council of . . . on financial instruments markets, amending Council Directives 85/611/EEC and
93/66/EEC of the European Parliament and of the Council and Directive 2000/12/EC of the
European Parliament and repealing Council Directive 93/22/EEC

(2004/C 60 E/01)

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 47(2) thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Economic and
Social Committee (2),

Having regard to the opinion of the European Central Bank (3),

Acting in accordance with the procedure laid down in Article
251 of the Treaty (4),

Whereas:

the

conditions

under which

(1) Council Directive 93/22/EEC of 10 May 1993 on
investment services in the securities field (5) sought
to
establish
authorised
investment
firms and banks could provide specified
services or establish branches in other Member States on
the basis of home country authorisation and supervision.
To this end, that Directive aimed to harmonise the initial
authorisation and operating requirements for investment
firms including conduct of business rules. It also provided
for the harmonisation of some conditions governing the
operation of regulated markets.

(2)

In recent years more investors have become active in the
financial markets and are offered an even more complex
wide-ranging set of services and instruments. In view of
these
the
Community should encompass the full range of investor-

developments

framework

legal

the

of

(1) OJ C 71 E, 25.3.2003, p. 62.
(2) OJ C 220, 16.9.2003, p. 1.
(3) OJ C 144, 20.6.2003, p. 6.
(4) Opinion of the European Parliament of 25 September 2003 (not yet
Journal), Council Common Position of
published in the Official
8 December 2003 and Position of the European Parliament of . . .
(not yet published in the Official Journal).

(5) OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive
2002/87/EC of the European Parliament and of the Council (OJ L
35, 11.2.2003, p. 1).

oriented activities. To this end, it is necessary to provide
for the degree of harmonisation needed to offer investors a
high level of protection and to allow investment firms to
the Community, being a
provide services
single market, on the basis of home country supervision.
In view of the preceding, Directive 93/22/EEC should be
replaced by a new Directive.

throughout

(3) Due to the increasing dependence of investors on personal
recommendations,
the
provision of investment advice as an investment service
requiring authorisation.

to include

appropriate

is

it

(4)

(5)

is appropriate to include in the list of

It
financial
instruments commodity derivatives which are constituted
and traded in such a way as to give rise to regulatory
issues comparable to traditional
instruments
such as futures, options, swaps and any other derivative
contract relating to commodities that can be settled in
cash or
is
traded on a regulated market or a multilateral trading
facility (MTF).

is physically settled provided that

financial

that

it

the

governing

transactions

execution of

It is necessary to establish a comprehensive regulatory
regime
in
financial instruments irrespective of the trading methods
used to conclude those transactions so as to ensure a high
quality of execution of investor transactions and to uphold
the integrity and overall efficiency of the financial system.
A coherent and risk-sensitive framework for regulating the
main types of order-execution arrangement currently
active in the European financial marketplace should be
provided for. It is necessary to recognise the emergence
of
a new generation of organised trading systems
alongside regulated markets which should be subjected
to obligations designed to preserve the efficient and
orderly functioning of financial markets. With a view to
establishing
framework
provision should be made for the inclusion of a new
investment service which relates to the operation of an
MTF.

proportionate

regulatory

a

C 60 E/2

EN

Official Journal of the European Union

9.3.2004

(6) Definitions of

instruments to trading,

regulated market and MTF should be
introduced and closely aligned with each other to reflect
the fact that they represent the same organised trading
should exclude bilateral
functionality. The definitions
into every
firm enters
systems where an investment
trade on own account and not as a riskless counterparty
interposed between the buyer and seller. The term ‘system’
encompasses all those markets that are composed of a set
of rules and a trading platform as well as those that only
function on the basis of a set of rules. Regulated markets
and MTFs are not obliged to operate a ‘technical’ system
for matching orders. A market which is only composed of
a set of rules that governs aspects related to membership,
admission of
trading between
members, reporting and, where applicable, transparency
obligations is a regulated market or an MTF within the
meaning of this Directive and the transactions concluded
under those rules are considered to be concluded under
the systems of a regulated market or an MTF. The term
‘buying and selling interests’ is to be understood in a broad
sense and includes orders, quotes and indications of
interest. The requirement
that the interests be brought
together in the system by means of non-discretionary
they are
rules set by the system operator means that
brought together under the system's rules or by means
of the system's protocols or internal operating procedures
(including procedures embodied in computer software).
The term ‘non-discretionary rules’ means that these rules
firm operating an MTF with no
leave the investment
discretion as to how interests may interact. The definitions
require that interests be brought together in such a way as
to result in a contract, meaning that execution takes place
under the system's rules or by means of the system's
protocols or internal operating procedures.

(7) The purpose of this Directive is to cover undertakings the
regular occupation or business of which is to provide
investment services and/or perform investment activities
on a professional basis.
Its scope should not therefore
cover any person with a different professional activity.

(8) Persons administrating their own assets and undertakings,
who do not provide investment services and/or perform
investment activities other than dealing on own account
and who cannot be categorised as market makers or as
dealing on own account outside a regulated market or an
MTF on an organised, regular and systematic basis, should
not be covered by the scope of this Directive.

(9) References in the text to persons should be understood as

including both natural and legal persons.

abolition of restrictions on freedom of establishment and
freedom to provide services in respect of reinsurance and
retrocession (1), First Council Directive 73/239/EEC of
24 July 1973 on the coordination of laws, regulations
and administrative provisions relating to the taking up
and pursuit of direct insurance other than life assurance (2)
and Council Directive 2002/83/EC of 5 November 2002
concerning life assurance (3) should be excluded.

(11) Persons who do not provide services for third parties but
whose business consists in providing investment services
solely for their parent undertakings, for their subsidiaries,
or for other subsidiaries of
their parent undertakings
should not be covered by this Directive.

(12) Persons who provide investment services only on an inci-
dental basis in the course of professional activity should
also be excluded from the scope of this Directive, provided
that activity is regulated and the relevant rules do not
prohibit
the provision, on an incidental basis, of
investment services.

(13) Persons who provide

investment

consisting
exclusively in the administration of employee-participation
schemes and who therefore do not provide investment
services for third parties should not be covered by this
Directive.

services

(14) It is necessary to exclude from the scope of this Directive
central banks
and other bodies performing similar
functions as well as public bodies charged with or inter-
the public debt, which
vening in the management of
concept
the
thereof, with
investment
exception of bodies that are partly or wholly State-owned
the role of which is commercial or
linked to the
acquisition of holdings.

covers

the

(15) It is necessary to exclude from the scope of this Directive
collective investment undertakings and pension funds
whether or not coordinated at Community level, and the
depositaries or managers of such undertakings, since they
are subject
to specific rules directly adapted to their
activities.

(10) Insurance or assurance undertakings the activities of which
are subject to appropriate monitoring by the competent
prudential-supervision authorities and which are subject to
Council Directive 64/225/EEC of 25 February 1964 on the

(1) OJ 56, 4.4. 1964, p. 878/64. Directive as amended by the 1972

Act of Accession.

(2) OJ L 228, 16.8.1973, p. 3. Directive as last amended by Directive

2002/87/EC.

(3) OJ L 345, 19.12.2002, p. 1.

9.3.2004

EN

Official Journal of the European Union

C 60 E/3

(16) In order

to benefit

from the exemptions

from this
Directive the person concerned should comply on a
continuous basis with the conditions laid down for such
exemptions. In particular, if a person provides investment
services or performs investment activities and is exempted
from this Directive because such services or activities are
ancillary to his main business, when considered on a
group basis, he should no longer be covered by the
exemption related
the
to ancillary
those services or activities ceases to be
provision of
ancillary to his main business.

services where

(17) Persons who provide the investment

services and/or
perform investment activities covered by this Directive
to authorisation by their home
should be
Member States in order to protect
investors and the
stability of the financial system.

subject

(18) Credit

the European Parliament and of

institutions that are authorised under Directive
the
2000/12/EC of
Council of 20 March 2000 relating to the taking up and
pursuit of the business of credit institutions (1) should not
need another authorisation under this Directive in order to
provide
services or perform investment
institution decides to provide
activities. When a credit
investment services or perform investment activities the
competent authorities, before granting an authorisation,
should verify that it complies with the relevant provisions
of this Directive.

investment

(19) In cases where an investment firm provides one or more
investment services not covered by its authorisation, or
performs one or more investment activities not covered
by its authorisation, on a non-regular basis it should not
need an additional authorisation under this Directive.

(20) For the purposes of this Directive, the business of the
reception and transmission of orders should also include
bringing together two or more investors thereby bringing
about a transaction between those investors.

(21) The principles of mutual

of

that

programmes

supervision require

recognition and of home
Member State
the Member
States' competent authorities should not grant or should
withdraw authorisation where factors such as the content
of
geographical
distribution or the activities actually carried on indicate
clearly that an investment firm has opted for the legal
system of one Member State for the purpose of evading
the stricter standards in force in another Member State
within the territory of which it intends to carry on or
its activities. An
does carry on the greater part of
investment firm which is a legal person should be auth-

operations,

the

orised in the Member State in which it has its registered
office. An investment firm which is not a legal person
should be authorised in the Member State in which it
In addition, Member States should
has its head office.
firm's head office must
require
always be situated in its home Member State and that it
actually operates there.

that an investment

(22) An investment firm authorised in its home Member State
should be entitled to provide investment
services or
perform investment activities throughout the Community
without the need to seek a separate authorisation from the
competent authority in the Member State in which it
wishes to provide such services or perform such activities.

a minimum amount of

(23) Since certain investment firms are exempted from certain
obligations imposed by Council Directive 93/6/EEC of
15 March 1993 on the capital adequacy of investment
firms and credit institutions (2), they should be obliged
capital or
to hold either
professional
indemnity insurance or a combination of
both. The adjustments of the amounts of that insurance
into account adjustments made in the
should take
the European
framework of Directive 2002/92/EC of
Parliament and of the Council of 9 December 2002 on
insurance mediation (3). This particular treatment for the
purposes of capital adequacy should be without prejudice
to any decisions regarding the appropriate treatment of
these firms under future changes to Community legislation
on capital adequacy.

(24) Since the scope of prudential regulation should be limited
to those entities which, by virtue of running a trading
book on a professional basis,
represent a source of
counterparty risk to other market participants, entities
instruments,
which deal on own account
including those commodity derivatives covered by this
Directive, as well as
those that provide investment
services in commodity derivatives to the clients of their
main business on an ancillary basis to their main business
when considered on a group basis, provided that this main
business is not the provision of investment services within
the meaning of this Directive, should be excluded from the
scope of this Directive.

in financial

(25) In order to protect an investor's ownership and other
similar rights in respect of securities and his rights in
respect of funds entrusted to a firm those rights should
in particular be kept distinct from those of the firm. This
principle should not, however, prevent a firm from doing
business in its name but on behalf of the investor, where
that is required by the very nature of the transaction and
the investor is in agreement, for example stock lending.

(2) OJ L 141, 11.6.1993, p. 1. Directive as last amended by Directive

(1) OJ L 126, 26.5.2000, p. 1. Directive as last amended by Directive

2002/87/EC.

2002/87/EC.

(3) OJ L 9, 15.1.2003, p. 3.

C 60 E/4

EN

Official Journal of the European Union

9.3.2004

the

2002/47/EC of

(26) Where a client, in line with Community legislation and in
European
particular Directive
the Council of 6 June 2002 on
Parliament and of
full
financial
collateral
to an
ownership of
investment firm for the purpose of securing or otherwise
covering present or future, actual or contingent or pros-
pective obligations, such financial
instruments or funds
should likewise no longer be regarded as belonging to
the client.

transfers
funds

arrangements (1),

instruments or

financial

(27) The procedures

for

the

authorisation, within the
Community, of branches of investment firms authorised
in third countries should continue to apply to such
firms. Those branches should not enjoy the freedom to
provide services under the second paragraph of Article
49 of
in
Member States other than those in which they are estab-
lished.
In view of cases where the Community is not
bound by any bilateral or multilateral obligations it is
appropriate to provide for a procedure intended to
ensure
receive
reciprocal treatment in the third countries concerned.

the right of establishment

that Community

the Treaty or

investment

firms

(28) The expanding range of activities that many investment
firms undertake simultaneously has increased potential
for conflicts of interest between those different activities
and the interests of their clients. It is therefore necessary to
provide for rules to ensure that such conflicts do not
adversely affect the interests of their clients.

the firm to that particular

in respect of a specific financial

(29) A service should be considered to be provided at the
initiative of a client unless the client demands it
in
response to a personalised communication from or on
behalf of
client, which
contains an invitation or is intended to influence the
client
instrument or
specific transaction. A service can be considered to be
provided at the initiative of the client notwithstanding
that the client demands it on the basis of any communi-
financial
cation containing a promotion or offer of
instruments made by any means that by its very nature
is general and addressed to the public or a larger group or
category of clients or potential clients.

(30) One of

the objectives of

investors. Measures
adapted to the particularities of
investors (retail, professional and counterparties).

to protect

this Directive is to protect
should be
each category of

investors

(1) OJ L 168, 27.6.2002, p. 43.

(31) By way of derogation from the principle of home country
authorisation, supervision and enforcement of obligations
in respect of the operation of branches, it is appropriate
for the competent authority of the host Member State to
assume responsibility for enforcing certain obligations
specified in this Directive
in relation to business
conducted through a branch within the territory where
the branch is located, since that authority is closest to
the branch, and is better placed to detect and intervene
rules governing the
in respect of
operations of the branch.

infringements of

(32) It is necessary to impose an effective ‘best execution’ obli-
gation to ensure that
firms execute client
investment
orders on terms that are most favourable to the client.
This obligation should apply to the firm which owes
contractual or agency obligations to the client.

(33) Fair competition requires that market participants and
investors be able to compare the prices that
trading
venues (i.e. regulated markets, MTFs and intermediaries)
are required to publish. To this end, it is recommended
that Member States remove any obstacles which may
prevent
the
relevant information and its publication.

the consolidation at European level of

(34) When establishing the business relationship with the client
the investment firm might ask the client or potential client
to consent at the same time to the execution policy as well
as to the possibility that his orders may be executed
outside a regulated market or an MTF.

(35) Persons who provide investment services on behalf of
more than one investment firm should not be considered
as tied agents but as investment firms when they fall under
the definition provided in this Directive, with the
exception of certain persons who may be exempted.

(36) This Directive should be without prejudice to the right of
tied agents
to undertake activities covered by other
financial
Directives and related activities in respect of
services or products not covered by this Directive,
including on behalf of parts of the same financial group.

(37) The conditions
premises of
the investment
should not be covered by this Directive.

for conducting activities outside the
firm (door-to-door selling)

9.3.2004

EN

Official Journal of the European Union

C 60 E/5

(38) Member States' competent authorities should not register
or should withdraw the registration where the activities
actually carried on indicate clearly that a tied agent has
opted for the legal system of one Member State for the
purpose of evading the stricter standards in force in
another Member State within the territory of which it
intends to carry on or does carry on the greater part of
its activities.

shares. These rules are needed to ensure the effective inte-
gration of Member State equity markets, to promote the
efficiency of the overall price formation process for equity
instruments, and to assist the effective operation of ‘best
require a
execution’ obligations. These considerations
comprehensive transparency regime applicable to all trans-
actions in shares irrespective of their execution by an
investment firm on a bilateral basis or through regulated
markets or MTFs.

(39) For the purposes of this Directive eligible counterparties

should be considered as acting as clients.

(40) For the purposes of ensuring that conduct of business
rules (including rules on best execution and handling of
client orders) are enforced in respect of those investors
most in need of these protections, and to reflect well-
established market practice throughout the Community,
it is appropriate to clarify that conduct of business rules
may be waived in the case of transactions entered into or
brought about between eligible counterparties.

transactions executed between eligible
(41) In respect of
limit
the obligation to disclose client
counterparties,
orders should only apply where the counter party is
explicitly sending a limit order to an investment firm for
its execution.

(42) Member States shall protect the right to privacy of natural
persons with respect to the processing of personal data in
accordance with Directive 95/46/EC of
the European
Parliament and of the Council of 24 October 1995 on
the protection of individuals with regard to the processing
of personal data and of the free movement of such data (1).

(43) With the two-fold aim of protecting investors and
ensuring the smooth operation of securities markets, it is
necessary to ensure that transparency of transactions is
achieved and that the rules laid down for that purpose
apply to investment
firms when they operate on the
investors or market
to enable
In order
markets.
participants to assess at any time the terms of a trans-
action in shares that they are considering and to verify
afterwards the conditions in which it was carried out,
common rules should be established for the publication
of details of completed transactions in shares and for the
disclosure of details of current opportunities to trade in

(1) OJ L 281, 23.11.1995, p. 31. Directive as amended by Regulation

(EC) No 1882/2003 (OJ L 284, 31.10.2003, p. 1).

(44) Member States

should be able to apply transaction
to financial
the Directive
that are not admitted to trading on a

reporting obligations of
instruments
regulated market.

requirements

should apply

instruments other than shares.

(45) A Member State may decide to apply the pre- and
post-trade transparency requirements laid down in this
In
Directive to financial
to all
those
case
that
firms for which that Member State is the
investment
home Member State for
their operations within the
territory of that Member State and those carried out cross-
border through the freedom to provide services. They
should also apply to the operations carried out within
the territory of that Member State by the branches estab-
lished in its territory of investment firms authorised in
another Member State.

(46) Investment firms should all have the same opportunities of
joining or having access to regulated markets throughout
the Community. Regardless of the manner in which trans-
actions are at present organised in the Member States, it is
important to abolish the technical and legal restrictions on
access to regulated markets.

firms,

irrespective of whether

(47) In order to facilitate the finalisation of cross-border trans-
actions, it is appropriate to provide for access to clearing
the Community by
and settlement systems throughout
investment
transactions
have been concluded through regulated markets in the
Investment firms which wish
Member State concerned.
to participate directly in other Member States' settlement
systems should comply with the relevant operational and
commercial
the
prudential measures to uphold the smooth and orderly
functioning of the financial markets.

for membership and

requirements

C 60 E/6

EN

Official Journal of the European Union

9.3.2004

processing,

confirmation

(48) The authorisation to operate a regulated market should
extend to all activities which are directly related to the
display,
and
execution,
reporting of orders from the point at which such orders
are received by the regulated market to the point at which
they are transmitted for subsequent finalisation, and to
activities related to the admission of financial instruments
to trading. This should also include transactions concluded
through the medium of designated market makers
appointed by the regulated market which are undertaken
under its systems and in accordance with the rules that
govern those systems. Not all transactions concluded by
members or participants of the regulated market or MTF
are to be considered as concluded within the systems of a
regulated market or MTF. Transactions which members or
participants conclude on a bilateral basis and which do
not comply with all
the obligations established for a
regulated market or an MTF under this Directive should
a
be
regulated market or an MTF for the purposes of the defi-
nition of systematic internaliser. In such a case the obli-
gation for investment firms to make public firm quotes
should apply if the conditions established by this Directive
are met.

concluded outside

considered as

transactions

(49) Systematic internalisers might decide to give access to
their quotes only to retail clients, only to professional
clients, or
to both. They should not be allowed to
discriminate within those categories of clients.

(50) Revision of Directive 93/6/EEC should fix the minimum
capital requirements with which regulated markets should
comply in order to be authorised.

(51) Operators of a regulated market should also be able to
operate an MTF in accordance with the relevant provisions
of this Directive.

(52) The provisions of this Directive concerning the admission
of instruments to trading under the rules enforced by the
regulated market should be without prejudice to the
application of Directive 2001/34/EC of
the European
Parliament and of the Council of 28 May 2001 on the
admission of securities to official stock exchange listing
and on information to be published on those securities (1).
should not be prevented from
A regulated market
applying more demanding requirements in respect of the
issuers of securities or instruments which it is considering
for admission to trading than are imposed pursuant to this
Directive.

(53) Member States

should be able to designate different
competent authorities to enforce the wide-ranging obli-
laid down in this Directive. Such authorities
gations

(1) OJ L 184, 6.7.2001, p. 1. Directive as last amended by Directive
2003/71/EC of the European Parliament and of the Council (OJ L
345, 31.12.2003, p. 64).

interest.

should be of a public nature guaranteeing their inde-
pendence from economic actors and avoiding conflicts
law, Member
of
In accordance with national
States
the
competent authority. The designation of public authorities
should not exclude delegation under the responsibility of
the competent authority.

should ensure

financing of

appropriate

(54) Any confidential information received by the contact point
of one Member State through the contact point of another
Member State should not be regarded as purely domestic.

(55) It is necessary to enhance convergence of powers at the
disposal of competent authorities so as to pave the way
towards an equivalent intensity of enforcement across the
integrated financial market. A common minimum set of
powers coupled with adequate resources should guarantee
supervisory effectiveness.

(56) With a view to protecting clients and without prejudice to
the right of customers to bring their action before the
it is appropriate that Member States encourage
courts,
public or private bodies established with a view to
settling disputes out-of-court, to cooperate in resolving
cross-border disputes,
taking into account Commission
Recommendation 98/257/EC of 30 March 1998 on the
for
principles
out-of-court settlement of consumer disputes (2). When
implementing provisions on complaints
and redress
procedures for out-of-court settlements, Member States
should be encouraged to use existing cross-border coop-
Services
eration mechanisms, notably
Complaints Network (FIN-Net).

to the bodies

responsible

applicable

Financial

the

(57) Any exchange or transmission of

authorities, other

information between
bodies or
competent
persons
should be in accordance with the rules on
transfer of personal data to third countries as laid down
in Directive 95/46/EC.

authorities,

(58) It

is necessary to reinforce provisions on exchange of
information between national competent authorities and
to strengthen the duties of assistance and cooperation
which they owe to each other. Due to increasing cross-
border activity, competent authorities should provide each
other with the relevant information for the exercise of
their functions, so as to ensure the effective enforcement
of
situations where
including
infringements or
suspected infringements may be of
concern to authorities in two or more Member States. In
the exchange of information, strict professional secrecy is
needed to ensure
that
smooth transmission of
information and the protection of particular rights.

this Directive,

the

in

(2) OJ L 115, 17.4.1998, p. 31.

9.3.2004

EN

Official Journal of the European Union

C 60 E/7

(59) At its meeting on 17 July 2000, the Council set up the
Committee of Wise Men on the Regulation of European
Securities Markets. In its final report, the Committee of
Wise Men proposed the introduction of new legislative
approach, namely
techniques based on a
framework principles,
coop-
eration and enforcement. Level 1, the Directive, should
‘framework’ principles
confine itself
while level 2 should contain technical
implementing
measures to be adopted by the Commission with the
assistance of a committee.

implementing measures,

to broad general

four-level

(60) The Resolution adopted by the Stockholm European
Council of 23 March 2001 endorsed the final report of
the Committee of Wise Men and the proposed four-level
approach to make the regulatory process for Community
securities legislation more efficient and transparent.

(61) According to the Stockholm European Council,

level 2
implementing measures should be used more frequently,
to ensure that technical provisions can be kept up to date
with market and supervisory developments, and deadlines
should be set for all stages of level 2 work.

(62) The Resolution of the European Parliament of 5 February
2002 on the implementation of financial services legis-
lation also endorsed the Committee of Wise Men's
report, on the basis of
the solemn declaration made
before Parliament the same day by the Commission and
the letter of 2 October 2001 addressed by the Internal
Market Commissioner to the chairman of Parliament's
Committee on Economic and Monetary Affairs with
regard to the safeguards for the European Parliament's
role in this process.

(63) The measures necessary for the implementation of this
Directive should be adopted in accordance with Council
Decision 1999/468/EC of 28 June 1999 laying down the
procedures
implementing powers
the exercise of
conferred on the Commission (1).

for

from the

(64) The European Parliament should be given a period of
three months
transmission of draft
implementing measures to allow it to examine them and
to give its opinion. However, in urgent and duly justified
If, within that
cases,
period, a resolution is passed by the European Parliament,
the Commission should re-examine the draft measures.

this period could be shortened.

first

(65) With a view to taking into account further developments
in the financial markets, the Commission should submit
reports to the European Parliament and the Council on the
application of
the provisions concerning professional
indemnity insurance, the scope of the transparency rules
and the possible authorisation of specialised dealers in
commodity derivatives as investment firms.

(1) OJ L 184, 17.7.1999, p. 23.

of

the

common

establishment

(66) The objective of creating an integrated financial market, in
which investors are effectively protected and the efficiency
the overall market are safeguarded,
and integrity of
requires
regulatory
requirements relating to investment firms wherever they
are authorised in the Community and governing the func-
tioning of regulated markets and other trading systems so
as to prevent opacity or disruption on one market from
undermining the efficient operation of
the European
financial system as a whole. Since this objective may be
better achieved at Community level, the Community may
adopt measures in accordance with the principle of subsi-
diarity as set out in Article 5 of the Treaty. In accordance
with the principle of proportionality, as set out in that
is
Article,
necessary in order to achieve this objective,

this Directive does not go beyond what

HAVE ADOPTED THIS DIRECTIVE:

TITLE I

DEFINITIONS AND SCOPE

Article 1

Scope

This Directive shall apply to investment

1.
regulated markets.

firms and

The following provisions shall also apply to credit insti-
2.
tutions
2000/12/EC, when
under Directive
providing one or more investment services and/or performing
investment activities:

authorised

— Articles 2(2), 11, 13 and 14,

— Chapter

II of Title II excluding Article 23(2)

second

subparagraph,

— Chapter III of Title II excluding Articles 31(2) to 31(4) and

32(2) to 32(6), 32(8) and 32(9),

— Articles 48 to 53, 57, 61 and 62, and

— Article 71(1).

Article 2

Exemptions

1.

This Directive shall not apply to:

(a)

insurance undertakings as defined in Article 1 of Directive
73/239/EEC or assurance undertakings as defined in
Article 1 of Directive 2002/83/EC or undertakings
carrying on the reinsurance and retrocession activities
referred to in Directive 64/225/EEC;

C 60 E/8

EN

Official Journal of the European Union

9.3.2004

(b) persons who provide investment services exclusively for
for their subsidiaries or for

their parent undertakings,
other subsidiaries of their parent undertakings;

derivatives are part of a group the main business of
which is the provision of other investment services;

(c) persons providing an investment service where that service
is provided in an incidental manner in the course of a
professional activity and that activity is regulated by
legal or
ethics
governing the profession which do not exclude the
provision of that service;

regulatory provisions or a code of

(d) persons who do not provide any investment services or
activities other than dealing on own account and who
cannot be categorised as market makers or as dealing on
own account outside a regulated market or an MTF on an
organised, regular and systematic basis;

(e) persons who provide

consisting
exclusively in the administration of employee-participation
schemes;

investment

services

(f) persons who provide investment

services which only
involve both administration of employee-participation
schemes
services
their
exclusively
subsidiaries or for other subsidiaries of their parent under-
takings;

their parent undertakings,

and the provision of

investment

for

for

(g)

the members of the European System of Central Banks and
other national bodies performing similar functions and
other public bodies charged with or intervening in the
management of the public debt;

(h) collective investment undertakings and pension funds
whether coordinated at Community level or not and the
depositaries and managers of such undertakings;

(i)

persons dealing on own account in financial instruments,
or providing investment services in commodity derivatives
to the clients of their main business, provided this is an
ancillary activity to their main business, when considered
on a group basis, and that main business is not
the
provision of investment services within the meaning of
this Directive or banking
services under Directive
2000/12/EC;

(j)

persons providing investment advice in the course of
providing another professional activity not covered by
this Directive provided that the provision of such advice
is not specifically remunerated;

(k) persons whose main business consists of dealing on own
account in commodities and/or commodity derivatives.

This exception shall not apply where the persons that deal
in commodities and/or commodity
on own account

(l)

firms which provide investment services and/or perform
investment activities consisting exclusively in dealing on
own account on markets in financial futures or options
or other derivatives and on cash markets for the sole
purpose of hedging positions on derivatives markets or
which deal for the accounts of other members of those
them and which are
markets or make prices
guaranteed by clearing members of
the same markets,
where responsibility for ensuring the performance of
contracts entered into by such firms is assumed by
clearing members of the same markets;

for

(m) associations set up by Danish and Finnish pension funds
with the sole aim of managing the assets of pension funds
that are members of those associations;

(n)

‘agenti di cambio’ whose activities and functions are
governed by Article 201 of
Italian Legislative Decree
No 58 of 24 February 1998.

The rights conferred by this Directive shall not extend to
2.
the provision of services as counterparty in transactions carried
out by public bodies dealing with public debt or by members
of the European System of Central Banks performing their
tasks as provided for by the Treaty and the Statute of the
the European
European System of Central Banks and of
Central Bank or performing equivalent
functions under
national provisions.

In order to take account of developments on financial
3.
this
markets, and to ensure the uniform application of
the Commission, acting in accordance with the
Directive,
procedure referred to in Article 64(2), may,
in respect of
exemptions (c), (i), and (k) define the criteria for determining
when an activity is to be considered as ancillary to the main
business on a group level as well as for determining when an
activity is provided in an incidental manner.

Article 3

Optional exemptions

1. Member States may choose not to apply this Directive to
any persons for which they are the home Member State that:

— are not allowed to hold clients' funds or securities and
which for that reason are not allowed at any time to
place themselves in debit with their clients, and

— are not allowed to provide any investment service except
the reception and transmission of orders in transferable
securities and units in collective investment undertakings
and the provision of
investment advice in relation to
such financial instruments, and

9.3.2004

EN

Official Journal of the European Union

C 60 E/9

— in the course of providing that service, are allowed to

transmit orders only to:

Member States may include in the definition of investment
firms undertakings which are not legal persons, provided
that:

(i) investment firms authorised in accordance with this

Directive;

(ii) credit

institutions

authorised in accordance with

Directive 2000/12/EC;

(iii) branches of investment firms or of credit institutions
which are authorised in a third country and which are
subject to and comply with prudential rules considered
by the competent authorities to be at least as stringent
as those laid down in this Directive,
in Directive
2000/12/EC or in Directive 93/6/EEC;

(iv) collective investment undertakings authorised under
the law of a Member State to market units to the
public and to the managers of such undertakings;

are

(v) investment companies with fixed capital, as defined in
Article 15(4) of Second Council Directive 77/91/EEC of
13 December 1976 on coordination of safeguards
which, for the protection of the interests of members
required by Member States of
and others,
the
companies within the meaning of
second
paragraph of Article 58 of the Treaty,
in respect of
the formation of public limited liability companies
and the maintenance and alteration of their capital,
with a view to making such safeguards equivalent (1),
the securities of which are listed or dealt
in on a
regulated market in a Member State;

provided that the activities of those persons are regulated at
national level.

(a) their legal status ensures a level of protection for third
interests equivalent to that afforded by legal

parties'
persons; and

(b) they are subject to equivalent prudential supervision

appropriate to their legal form.

a natural person provides

However, where
services
involving the holding of third parties' funds or transferable
securities, he may be considered as an investment firm for
the purposes of this Directive only if, without prejudice to
the other requirements imposed in this Directive and in
Directive 93/6/EEC, he complies with the
following
conditions:

(a) the ownership rights of third parties in instruments
and funds must be safeguarded, especially in the
its
event of
proprietors, seisure, set-off or any other action by
creditors of the firm or of its proprietors;

insolvency of

firm or of

the

the

(b) the firm must be subject to rules designed to monitor

the firm's solvency and that of its proprietors;

(c) the firm's annual accounts must be audited by one or
more persons empowered, under national law, to audit
accounts;

Persons excluded from the scope of

2.
this Directive
according to paragraph 1 cannot benefit from the freedom
to provide services and/or activities or to establish branches
as provided for in Articles 31 and 32 respectively.

(d) where the firm has only one proprietor, he must make
provision for the protection of investors in the event
of the firm's cessation of business following his death,
his incapacity or any other such event;

Article 4

Definitions

For the purposes of this Directive, the following defi-

1.
nitions shall apply:

1.

‘Investment firm’ means any legal person whose regular
occupation or business is the provision of one or more
investment services to third parties and/or the performance
of one or more investment activities on a professional
basis.

(1) OJ L 26, 31.1.1977, p. 1. Directive as last amended by the 1994

Act of Accession.

2.

services and activities’ means any of

the
‘investment
services and activities listed in section A of Annex I
relating to any of the instruments listed in section C of
Annex I;

3.

‘ancillary service’ means any of the services listed in section
B of Annex I;

4.

‘investment advice’ means
the provision of personal
recommendations to a client, either upon its request or
at the initiative of the investment firm, in respect of one
or more transactions relating to financial instruments;

C 60 E/10

EN

Official Journal of the European Union

9.3.2004

5.

‘execution of orders on behalf of clients’ means acting to
conclude agreements to buy or sell one or more financial
instruments on behalf of clients;

16.

‘limit order’ means an order to buy or sell a financial
instrument at its specified price limit or better and for a
specified size;

6.

7.

8.

9.

on

own

‘dealing
against
proprietary capital resulting in the conclusion of trans-
actions in one or more financial instruments;

account’ means

trading

‘systematic internaliser’ means an investment firm which,
on an organised, regular, and systematic basis, deals on
own account by executing client orders outside
a
regulated market or an MTF;

‘market maker’ means a person who holds himself out on
the financial markets as being willing to deal on own
instruments
account by buying and selling financial
against his proprietary capital;

‘portfolio management’ means managing portfolios
in
accordance with mandates given by clients on a discre-
tionary
such portfolios
include one or more financial instruments;

client-by-client

basis where

17.

‘financial instrument’ means those instruments specified in
section C of Annex I;

18.

‘transferable securities’ means those classes of securities
which are negotiable on the capital market, with the
exception of instruments of payment, such as:

(a) shares in companies and other securities equivalent to
shares in companies, partnerships or other entities, and
depositary receipts in respect of shares;

(b) bonds or other forms of securitised debt,

including

depositary receipts in respect of such securities;

(c) any other securities giving the right to acquire or sell
any such transferable securities or giving rise to a cash
settlement determined by reference to transferable
securities,
yields,
commodities or other indices or measures;

currencies,

interest

rates

or

10.

‘client’ means any natural or legal person to whom an
investment
investment and/or ancillary
services;

firm provides

19.

instruments’ means

‘money-market
classes of
instruments which are normally dealt in on the money
market, such as treasury bills, certificates of deposit and
commercial papers and excluding instruments of payment;

those

11.

‘professional client’ means a client meeting the criteria laid
down in Annex II;

20.

‘home Member State’ means:

12.

‘retail client’ means a client who is not a professional
client;

13.

‘market operator’ means a person or persons who manages
and/or operates the business of a regulated market. The
market operator may be the regulated market itself;

14.

‘regulated market’ means a multilateral system operated
and/or managed by a market operator, which brings
together or facilitates the bringing together of multiple
third-party buying and selling interests
in financial
instruments — in the system and in accordance with its
non-discretionary rules — in a way that results in a
contract, in respect of the financial instruments admitted
to trading under its rules and/or systems, and which is
authorised and functions regularly and in accordance
with the provisions of Title III;

(a)

in the case of investment firms:

(i) if the investment firm is a natural person, the
Member State in which its head office is situated;

(ii) if

the investment

the
Member State in which its registered office is
situated;

firm is a legal person,

(iii) if the investment firm has, under its national law,
no registered office, the Member State in which its
head office is situated;

(b) in the case of a regulated market, the Member State in
which the regulated market is registered or, if under
the law of that Member State it has no registered
office, the Member State in which the head office of
the regulated market is situated;

15.

trading facility (MTF)’ means a multilateral
‘multilateral
firm or a market
system, operated by an investment
operator, which brings
third-party
buying and selling interests in financial instruments — in
the system and in accordance with non-discretionary rules
— in a way that results in a contract in accordance with
the provisions of Title II;

together multiple

21.

‘host Member State’ means the Member State, other than
the home Member State, in which an investment firm has
a branch or performs services and/or activities or the
Member State in which a regulated market provides appro-
priate arrangements so as to facilitate access to trading on
its system by remote members or participants established
in that same Member State;

9.3.2004

EN

Official Journal of the European Union

C 60 E/11

22.

‘competent authority’ means the authority, designated by
each Member State in accordance with Article 48, unless
otherwise specified in this Directive;

(a) participation which means the ownership, direct or by
way of control, of 20 % or more of the voting rights or
capital of an undertaking;

23.

institutions’ means credit

‘credit
under Directive 2000/12/EC;

institutions as defined

24.

25.

26.

‘UCITS management company’ means a management
company as defined in Council Directive 85/611/EEC of
20 December 1985, on the coordination of laws, regu-
lations and administrative provisions relating to under-
takings for collective investment in transferable securities
(UCITS) (1);

and

unconditional
firm on whose behalf

‘tied agent’ means a natural or legal person who, under the
responsibility of only one
full
investment
it acts, promotes
investment and/or ancillary services to clients or pros-
pective clients,
instructions or
receives and transmits
orders from the client in respect of investment services
or
instruments
and/or provides advice to clients or prospective clients in
respect of those financial instruments or services;

instruments, places

financial

financial

‘branch’ means a place of business other than the head
office which is a part of an investment firm, which has
investment
no legal personality and which provides
services and/or activities and which may also perform
ancillary services for which the investment firm has been
authorised; all the places of business set up in the same
Member State by an investment firm with headquarters in
another Member State shall be regarded as a single branch;

27.

‘qualifying holding’ means any direct or indirect holding in
an investment firm which represents 10 % or more of the
capital or of the voting rights, as set out in Article 92 of
Directive 2001/34/EC, or which makes it possible to
exercise a significant influence over the management of
the investment firm in which that holding subsists;

28.

‘parent undertaking’ means a parent undertaking as defined
in Articles 1 and 2 of Seventh Council Directive
83/349/EEC of 13 June 1983 based on Article 54(3)(g)
of the Treaty on consolidated accounts (2);

29.

‘subsidiary’ means a subsidiary undertaking as defined in
Articles 1 and 2 of Directive 83/349/EEC, including any
subsidiary of a subsidiary undertaking of an ultimate
parent undertaking;

30.

‘control’ means control as defined in Article 1 of Directive
83/349/EEC;

31.

‘close links’ means a situation in which two or more
natural or legal persons are linked by:

(1) OJ L 375, 31.12.1985, p. 3. Directive as last amended by Directive
2001/108/EC of the European Parliament and of the Council (OJ L
41, 13.2.2002, p. 35).

(2) OJ L 193, 18.7.1983, p. 1. Directive as last amended by Directive
2003/51/EC of the European Parliament and of the Council (OJ L
178, 17.7.2003, p. 16).

(b) control which means the relationship between a parent
undertaking and a subsidiary, in all the cases referred
to in Article 1(1) and (2) of Directive 83/349/EEC, or a
legal
relationship between any natural or
similar
person and an undertaking, any subsidiary undertaking
of a subsidiary undertaking also being considered a
subsidiary of the parent undertaking which is at the
head of those undertakings.

A situation in which two or more natural or legal persons
are permanently linked to one and the same person by a
control relationship shall also be regarded as constituting a
close link between such persons.

In order to take account of developments on financial
2.
this
markets, and to ensure the uniform application of
Directive,
the Commission, acting in accordance with the
procedure referred to in Article 64(2), may clarify the defi-
nitions laid down in paragraph 1 of this Article.

TITLE II

AUTHORISATION AND OPERATING CONDITIONS

FOR

INVESTMENT FIRMS

CHAPTER I

Conditions and procedures for authorisation

Article 5

Requirement for authorisation

1.
Each Member State shall require that the performance of
investment services or activities as a regular occupation or
business on a professional basis be subject to prior author-
isation in accordance with the provisions of
this Chapter.
Such authorisation shall be granted by the home Member
State competent authority designated in accordance with
Article 48.

2. Member States shall allow market operators to be auth-
orised to operate an MTF in accordance with the provisions of
this Chapter, excluding Articles 11 and 15.

3. Member States shall establish a register of all investment
firms. This register shall be publicly accessible and shall contain
information on the services and/or activities for which the
investment
shall be updated on a
regular basis.

firm is authorised.

It

C 60 E/12

EN

Official Journal of the European Union

9.3.2004

4.

Each Member State shall require that:

time of initial authorisation, all the necessary arrangements
to meet its obligations under the provisions of this Chapter.

— any investment firm which is a legal person have its head
office in the same Member State as its registered office,

— any investment firm which is not a legal person or any
firm which is a legal person but under its
investment
national law has no registered office have its head office
in the Member State in which it actually carries on its
business.

investment

In the case of

5.
firms which provide only
investment advice or the service of reception and transmission
of orders under the conditions established in Article 3, Member
States may allow the competent authority to delegate adminis-
trative, preparatory or ancillary tasks related to the granting of
an authorisation, in accordance with the conditions laid down
in Article 48(2).

An applicant shall be informed, within six months of the
3.
submission of a complete application, whether or not author-
isation has been granted.

Article 8

Withdrawal of authorisations

The competent authority may withdraw the authorisation
issued to an investment firm where such an investment firm:

(a) does not make use of the authorisation within 12 months,
expressly renounces the authorisation or has provided no
investment services or performed no investment activity for
the preceding six months, unless
the Member State
concerned has provided for authorisation to lapse in such
cases;

Article 6

Scope of authorisation

(b) has obtained the authorisation by making false statements

or by any other irregular means;

The home Member State shall ensure that the author-
1.
isation specifies the investment services or activities which
the investment firm is authorised to provide. The authorisation
may cover one or more of the ancillary services set out in
in no case be
section B of Annex I. Authorisation shall
granted solely for the provision of ancillary services.

2.
An investment firm seeking authorisation to extend its
investment services or activities or
business to additional
ancillary services not foreseen at the time of initial author-
isation shall submit a request for extension of its authorisation.

3.
The authorisation shall be valid for the entire Community
and shall allow an investment firm to provide the services or
perform the activities,
for which it has been authorised,
throughout the Community, either through the establishment
of a branch or the free provision of services.

Article 7

Procedures for granting and refusing requests
for authorisation

1.
The competent authority shall not grant authorisation
the
unless and until such time as it
applicant complies with all requirements under the provisions
adopted pursuant to this Directive.

is fully satisfied that

The

investment

firm shall provide all

2.
information,
including a programme of operations setting out inter alia
the
envisaged and the organisational
structure, necessary to enable the competent authority to
satisfy itself that the investment firm has established, at the

types of business

(c) no longer meets the conditions under which authorisation
was granted, such as compliance with the conditions set
out in Directive 93/6/EEC;

(d) has seriously and systematically infringed the provisions
the

adopted pursuant
operating conditions for investment firms;

this Directive

governing

to

(e)

falls within any of the cases where national law, in respect
of matters outside the scope of this Directive, provides for
withdrawal.

Article 9

Persons who effectively direct the business

1. Member States shall require the persons who effectively
direct the business of an investment firm to be of sufficiently
good repute and sufficiently experienced as to ensure the sound
and prudent management of the investment firm.

Where the market operator that seeks authorisation to operate
an MTF and the persons that effectively direct the business of
the MTF are the same as those that effectively direct
the
business of the regulated market, those persons are deemed
to comply with the requirements
laid down in the first
subparagraph.

2. Member States shall require the investment firm to notify
the competent authority of any changes to its management,
along with all information needed to assess whether the new
staff appointed to manage the firm are of sufficiently good
repute and sufficiently experienced.

9.3.2004

EN

Official Journal of the European Union

C 60 E/13

The competent authority shall refuse authorisation if it is
3.
not satisfied that the persons who will effectively direct the
sufficiently good
business of
the investment
there are objective
repute or sufficiently experienced, or if
that proposed
and demonstrable grounds
changes to the management of the firm pose a threat to its
sound and prudent management.

for believing

firm are of

authority of the size of the resulting holding. Such persons
shall likewise be required to notify the competent authority if
they propose to increase or reduce their qualifying holding, if
in consequence the proportion of the voting rights or of the
capital that they hold would reach or fall below or exceed 20,
33 or 50 % or the investment firm would become or cease to
be their subsidiary.

4. Member States shall require that
investment
is undertaken by at
meeting the requirements laid down in paragraph 1.

the management of
two persons

firms

least

By way of derogation from the first subparagraph, Member
States may grant authorisation to investment firms that are
natural persons or to investment firms that are legal persons
managed by a single natural person in accordance with their
constitutive rules and national laws. Member States shall never-
theless require that alternative arrangements be in place which
ensure the sound and prudent management of such investment
firms.

Article 10

Shareholders and members with qualifying holdings

shall not

authorities

competent

investment

authorise
the
1.
The
performance of
activities by an
investment firm until they have been informed of the identities
of the shareholders or members, whether direct or indirect,
natural or legal persons, that have qualifying holdings and
the amounts of those holdings.

services or

a proposed

Without prejudice to paragraph 4, the competent authority
shall have up to three months from the date of the notification
of
first
acquisition provided
subparagraph to oppose such a plan if, in view of the need
to ensure sound and prudent management of the investment
it is not satisfied as to the suitability of the persons
firm,
referred to in the first
the competent
subparagraph.
authority does not oppose the plan, it may fix a deadline for
its implementation.

in the

for

If

insurance

institution,

If the acquirer of any holding referred to in paragraph 3
4.
is an investment firm, a credit institution, an insurance under-
taking or a UCITS management company authorised in another
Member State, or the parent undertaking of an investment firm,
credit
a UCITS
management company authorised in another Member State,
or a person controlling an investment firm, credit institution,
insurance undertaking or a UCITS management company auth-
orised in another Member State, and if, as a result of that
acquisition,
the undertaking would become the acquirer's
subsidiary or come under his control, the assessment of the
acquisition shall be subject to the prior consultation provided
for in Article 60.

undertaking

or

The competent authorities shall refuse authorisation if, taking
into account
the need to ensure the sound and prudent
management of an investment firm, they are not satisfied as
to the suitability of the shareholders or members that have
qualifying holdings.

5. Member States shall require that, if an investment firm
becomes aware of any acquisitions or disposals of holdings in
its capital that cause holdings to exceed or fall below any of
subparagraph of
referred to in the first
the thresholds
paragraph 3,
to inform the
firm is
that
competent authority without delay.

investment

Where close links exist between the investment firm and other
natural or legal persons, the competent authority shall grant
authorisation only if those links do not prevent the effective
exercise of
competent
supervisory functions of
authority.

the

the

2.
The competent authority shall refuse authorisation if the
laws, regulations or administrative provisions of a third country
governing one or more natural or legal persons with which the
undertaking has close links, or difficulties involved in their
enforcement, prevent the effective exercise of its supervisory
functions.

3. Member States shall require any natural or legal person
that proposes to acquire or sell, directly or indirectly, a qual-
to notify,
ifying holding in an investment
in
the competent
accordance with the second subparagraph,

firm,

first

the names of

investment firms shall also inform the
At least once a year,
competent authority of
shareholders and
members possessing qualifying holdings and the sizes of such
holdings as shown, for example, by the information received at
annual general meetings of shareholders and members or as a
regulations applicable
result of compliance with the
to
companies whose
securities are admitted to
trading on a regulated market.

transferable

6. Member States shall require that, where the influence
exercised by the persons referred to in the first subparagraph
of paragraph 1 is likely to be prejudicial to the sound and
prudent management of an investment firm, the competent
authority take appropriate measures to put an end to that
situation.

C 60 E/14

EN

Official Journal of the European Union

9.3.2004

Such measures may consist in applications for judicial orders
and/or the imposition of sanctions against directors and those
responsible for management, or suspension of the exercise of
the voting rights attaching to the shares held by the share-
holders or members in question.

Similar measures shall be taken in respect of persons who fail
to comply with the obligation to provide prior information in
relation to the acquisition or increase of a qualifying holding. If
a holding is acquired despite the opposition of the competent
authorities, the Member States shall, regardless of any other
sanctions to be adopted, provide either for exercise of the
corresponding voting rights to be suspended, for the nullity
of the votes cast or for the possibility of their annulment.

Article 11

Membership of an authorised Investor Compensation
Scheme

The competent authority shall verify that any entity seeking
authorisation as an investment
firm meets its obligations
under Directive 97/9/EC of the European Parliament and of
the Council of 3 March 1997 on investor-compensation
schemes (1) at the time of authorisation.

Article 12

Initial capital endowment

Member States shall ensure that the competent authorities do
firm has
not grant authorisation unless
in accordance with the requirements
sufficient initial capital
of Directive 93/6/EEC having regard to the nature of
the
investment service or activity in question.

investment

the

Pending the revision of Directive 93/6/EEC,
firms provided for in Article 67 shall be subject
capital requirements laid down in that Article.

the investment
to the

Article 13

Organisational requirements

1.
The home Member State shall require that investment
firms comply with the organisational requirements set out in
paragraphs 2 to 8.

2.
An investment firm shall establish adequate policies and
firm
procedures
including its managers, employees and tied agents with its
obligations under the provisions of this Directive as well as

compliance of

to ensure

sufficient

the

(1) OJ L 84, 26.3.1997, p. 22.

appropriate rules governing personal
persons.

transactions by such

3.
An investment firm shall maintain and operate effective
organisational and administrative arrangements with a view to
taking all reasonable steps designed to prevent conflicts of
interest as defined in Article 18 from adversely affecting the
interests of its clients.

An investment firm shall take reasonable steps to ensure
4.
continuity and regularity in the performance of
investment
services and activities. To this end the investment firm shall
employ appropriate and proportionate systems, resources and
procedures.

5.
An investment firm shall ensure, when relying on a third
party for the performance of operational functions which are
critical for the provision of continuous and satisfactory service
to clients and the performance of investment activities on a
continuous and satisfactory basis, that it takes reasonable steps
to avoid undue additional operational risk. Outsourcing of
functions may not be undertaken in
important operational
such a way as to impair materially the quality of its internal
control and the ability of the supervisor to monitor the firm's
compliance with all obligations.

An investment
firm shall have sound administrative and
accounting procedures, internal control mechanisms, effective
risk assessment, and effective control and
procedures
safeguard arrangements for information processing systems.

for

6.
An investment firm shall arrange for records to be kept
of all services and transactions undertaken by it which shall be
sufficient
to enable the competent authority to monitor
compliance with the requirements under this Directive, and
firm has
to ascertain that
in particular
complied with all obligations with respect
to clients or
potential clients.

the investment

An investment

7.
firm shall, when holding financial
instruments belonging to clients, make adequate arrangements
so as to safeguard clients' ownership rights, especially in the
event of the investment firm's insolvency, and to prevent the
use of a client's instruments on own account except with the
client's express consent.

8.
An investment firm shall, when holding funds belonging
to clients, make adequate arrangements to safeguard the clients'
rights and, except in the case of credit institutions, prevent the
use of client funds for its own account.

9.3.2004

EN

Official Journal of the European Union

C 60 E/15

In the case of branches of

the
investment
9.
competent authority of
the Member State in which the
branch is located shall, without prejudice to the possibility of
the competent authority of the home Member State of the
to those records,
investment
enforce the obligation laid down in paragraph 6 with regard
to transactions undertaken by the branch.

firm to have direct access

firms,

10.
In order to take account of technical developments on
financial markets and to ensure the uniform application of
paragraphs 2 to 9, the Commission shall adopt, in accordance
with the procedure referred to in Article 64(2), implementing
measures which
organisational
requirements to be imposed on investment firms performing
different
investment services and/or activities and ancillary
services or combinations thereof.

concrete

specify

the

Article 14

Trading process and finalisation of transactions in an MTF

firms or
1. Member States shall require that
market operators operating an MTF,
in addition to meeting
the requirements laid down in Article 13, establish transparent
and non-discretionary rules and procedures for fair and orderly
trading and establish objective
efficient
execution of orders.

investment

criteria

the

for

rules, based on objective

transparent
access
conditions established in Article 42(3).

facility. These rules

to its

criteria, governing
shall comply with the

investment

5. Member States shall require that
firms or
market operators operating an MTF clearly inform its users
of their respective responsibilities for the settlement of the
facility. Member States shall
transactions executed in that
require that investment firms or market operators operating
an MTF have put
in place the necessary arrangements to
facilitate the efficient settlement of the transactions concluded
under the systems of the MTF.

6. Where a transferable security, which has been admitted to
is also traded on an MTF
trading on a regulated market,
without
the issuer shall not be
the issuer,
the consent of
subject to any obligation relating to initial, ongoing or ad
hoc financial disclosure with regard to that MTF.

7. Member States shall require that any investment firm or
market operator operating an MTF comply immediately with
to
any instruction from its competent authority pursuant
Article 50(1)
instrument
from trading.

to suspend or remove a financial

2. Member States shall require that
firms or
market operators operating an MTF establish transparent
regarding the criteria for determining the financial
rules
instruments that can be traded under its systems.

investment

Member States shall require that, where applicable, investment
firms or market operators operating an MTF provide, or are
satisfied that there is access to, sufficient publicly available
information to enable its users
to form an investment
judgment, taking into account both the nature of the users
and the types of instruments traded.

3. Member States shall ensure that Articles 19, 21 and 22
are not applicable to the transactions concluded under the rules
governing an MTF between its members or participants or
between the MTF and its members or participants in relation
the members of or
to the use of
participants in the MTF shall comply with the obligations
provided for in Articles 19, 21 and 22 with respect to their
clients when, acting on behalf of their clients, they execute
their orders through the systems of an MTF.

the MTF. However,

4. Member States shall require that
firms or
market operators operating an MTF establish and maintain

investment

Article 15

Relations with third countries

1. Member States shall
inform the Commission of any
general difficulties which their investment firms encounter in
establishing themselves or providing investment services and/or
performing investment activities in any third country.

2. Whenever it appears to the Commission, on the basis of
information submitted to it under paragraph 1, that a third
country does not grant Community investment firms effective
market access comparable to that granted by the Community
to investment firms from that third country, the Commission
for an appropriate
may submit proposals to the Council
mandate for negotiation with a view to obtaining comparable
competitive opportunities for Community investment
firms.
The Council shall act by a qualified majority.

3. Whenever it appears to the Commission, on the basis of
information submitted to it under paragraph 1,
that
firms in a third country are not
Community investment
granted national
treatment affording the same competitive
opportunities as are available to domestic investment firms
and that
the conditions of effective market access are not
fulfilled, the Commission may initiate negotiations in order
to remedy the situation.

C 60 E/16

EN

Official Journal of the European Union

9.3.2004

In the circumstances referred to in the first subparagraph, the
Commission may decide,
in accordance with the procedure
referred to in Article 64(2), at any time and in addition to
the initiation of negotiations, that the competent authorities
of the Member States must limit or suspend their decisions
regarding requests pending or future requests for authorisation
and the acquisition of holdings by direct or indirect parent
undertakings governed by the law of the third country in
question. Such limitations or suspensions may not be applied
to the setting-up of subsidiaries by investment firms duly auth-
orised in the Community or by their subsidiaries, or to the
acquisition of holdings in Community investment
firms by
such firms or subsidiaries. The duration of such measures
may not exceed three months.

Before the end of the three-month period referred to in the
second subparagraph and in the light of the results of the
negotiations, the Commission may decide, in accordance with
the procedure referred to in Article 64(2), to extend these
measures.

4. Whenever it appears to the Commission that one of the
situations referred to in paragraphs 2 and 3 arises, the Member
States shall inform it at its request:

(a) of any application for the authorisation of any firm which
is the direct or indirect subsidiary of a parent undertaking
governed by the law of the third country in question;

(b) whenever they are informed in accordance with Article
10(3) that such a parent undertaking proposes to acquire
a holding in a Community investment firm, in consequence
of which the latter would become its subsidiary.

That obligation to provide information shall
agreement
when the measures
subparagraphs of paragraph 3 cease to apply.

lapse whenever
is reached with the third country concerned or
referred to in the second and third

5. Measures taken under this Article shall comply with the
Community's obligations under any international agreements,
bilateral or multilateral, governing the taking-up or pursuit of
the business of investment firms.

CHAPTER II

Operating conditions for investment firms

S e c t i o n 1

G e n e r a l p r o v i s i o n s

Article 16

Regular review of conditions for initial authorisation

1. Member States shall require that an investment firm auth-
orised in their territory comply at all times with the conditions
for initial authorisation established in Chapter I of this Title.

2. Member States shall require competent authorities to
establish the appropriate methods to monitor that investment
firms comply with their obligation under paragraph 1. They
shall require investment firms to notify the competent auth-
orities of any material changes to the conditions for initial
authorisation.

investment

In the case of

3.
firms which provide only
investment advice, Member States may allow the competent
authority to delegate administrative, preparatory or ancillary
tasks related to the review of the conditions for initial author-
isation, in accordance with the conditions laid down in Article
48(2).

Article 17

General obligation in respect of on-going supervision

investment

1. Member States shall ensure that the competent authorities
monitor the activities of
firms so as to assess
compliance with the operating conditions provided for in
this Directive. Member States shall ensure that the appropriate
measures are in place to enable the competent authorities to
obtain the information needed to assess the compliance of
investment firms with those obligations.

investment

In the case of

2.
firms which provide only
investment advice, Member States may allow the competent
authority to delegate administrative, preparatory or ancillary
regular monitoring of operational
tasks
requirements, in accordance with the conditions laid down in
Article 48(2).

related to the

Article 18

Conflicts of interest

1. Member States shall require investment firms to take all
reasonable steps to identify conflicts of interest between them-
selves, including their managers, employees and tied agents, or
any person directly or indirectly linked to them by control and
their clients or between one client and another that arise in the
course of providing any investment and ancillary services, or
combinations thereof.

to manage conflicts of

2. Where organisational or administrative arrangements
firm in accordance with Article
made by the investment
to
interest are not sufficient
13(3)
ensure, with reasonable confidence, that risks of damage to
client interests will be prevented, the investment firm shall
clearly disclose the general nature and/or sources of conflicts
of interest to the client before undertaking business on its
behalf.

9.3.2004

EN

Official Journal of the European Union

C 60 E/17

In order to take account of technical developments on
3.
financial markets and to ensure uniform application of
paragraphs 1 and 2, the Commission shall adopt, in accordance
with the procedure referred to in Article 64(2), implementing
measures to:

(a) define the steps that investment firms might reasonably be
expected to take to identify, prevent, manage and/or
interest when providing various
disclose
investment and ancillary services and combinations thereof;

conflicts of

(b) establish appropriate criteria for determining the types of
conflict of
interest whose existence may damage the
interests of the clients or potential clients of the investment
firm.

S e c t i o n 2

P r o v i s i o n s t o e n s u r e i n v e s t o r p r o t e c t i o n

Article 19

Conduct

of

business

obligations when

providing

investment services to clients

that, when providing
require
shall
1. Member States
investment
ancillary
appropriate,
and/or, where
services
services to clients, an investment firm act honestly, fairly and
professionally in accordance with the best interests of its clients
in
and comply,
paragraphs 2 to 8.

in particular, with the principles set out

All

2.
information,
including marketing communications,
firm to clients or potential
addressed by the investment
clients shall be fair, clear and not misleading. Marketing
communications shall be clearly identifiable as such.

Appropriate information shall be provided in a compre-

3.
hensible form to clients or potential clients about:

— the investment firm and its services,

— financial

instruments and proposed investment strategies;
this should include appropriate guidance on and warnings
of
in those
instruments or in respect of particular investment strategies,

associated with investments

risks

the

to take investment decisions on an informed basis. This
information may be provided in a standardised format.

or

advice

providing

4. When
portfolio
investment
management, the investment firm shall obtain the necessary
information regarding
client's
knowledge and experience in the investment field relevant to
the specific type of product or service, his financial situation
and his investment objectives so as to enable the firm to
recommend to the client or potential client the investment
services and financial instruments that are suitable for him.

client's or potential

the

5. Member States shall ensure that investment firms, when
providing investment services other than those referred to in
paragraph 4, ask the client or potential client
to provide
information regarding his knowledge and experience in the
investment field relevant to the specific type of product or
service offered or demanded so as to enable the investment
firm to assess whether the investment service or product
envisaged is appropriate for the client.

In case the investment firm considers, on the basis of the
that
information received under the previous subparagraph,
the product or service is not appropriate to the client or
potential client, the investment firm shall warn the client or
potential client. This warning may be provided in a stan-
dardised format.

to

the

referred

information

to
In cases where the client or potential client elects not
provide
first
subparagraph, or where he provides insufficient information
regarding his knowledge and experience, the investment firm
shall warn the client or potential client that such a decision will
not allow the firm to determine whether the service or product
envisaged is appropriate for him. This warning may be
provided in a standardised format.

under

the

shall

allow investment

firms when
6. Member States
providing investment services that only consist of execution
and/or the reception and transmission of client orders with
or without ancillary services to provide those investment
the need to obtain the
services
in
information or make the determination provided for
paragraph 5 where all the following conditions are met:

to their clients without

— execution venues, and

— costs and associated charges,

— the above services relate to shares admitted to trading on a
regulated market, money market
instruments, bonds or
other forms of securitised debt (excluding those bonds or
securitised debt that embed a derivative), UCITS and other
non-complex financial instruments,

so that they are reasonably able to understand the nature and
risks of the investment service and of the specific type of
instrument that is being offered and, consequently,
financial

— the service is provided at the initiative of the client or

potential client,

C 60 E/18

EN

Official Journal of the European Union

9.3.2004

— the client or potential client has been clearly informed that
in the provision of this service the investment firm is not
required to assess the suitability of
the instrument or
service provided or offered and that therefore he does not
benefit from the corresponding protection of the relevant
conduct of business rules; this warning may be provided in
a standardised format,

— the investment firm complies with its obligations under

Article 18.

Article 20

Provision of services through the medium of another
investment firm

Member States shall allow an investment firm receiving an
instruction to perform investment or ancillary services on
behalf of a client through the medium of another investment
firm to rely on client information transmitted by the latter
firm which mediates the instructions
firm. The investment
will remain responsible for the completeness and accuracy of
the information transmitted.

7.
The investment firm shall establish a record that includes
the document or documents agreed between the firm and the
client that set out the rights and obligations of the parties, and
the other terms on which the firm will provide services to the
client. The rights and duties of the parties to the contract may
be incorporated by reference to other documents or legal texts.

The investment firm which receives an instruction to undertake
services on behalf of a client in this way shall also be able to
rely on any recommendations in respect of the service or trans-
action that have been provided to the client by another
investment
firm which mediates the
instructions will remain responsible for the appropriateness
for the client of the recommendations or advice provided.

firm. The investment

receive

The client must

8.
firm
adequate reports on the service provided to its clients. These
reports shall
include, where applicable, the costs associated
with the transactions and services undertaken on behalf of
the client.

from the investment

In cases where an investment service is offered as part of
9.
a financial product which is already subject to other provisions
of Community legislation or common European standards
institutions and consumer credits with
related to credit
respect
information
requirements, this service shall not be additionally subject to
the obligations set out in this Article.

to risk assessment of clients and/or

In order to ensure the necessary protection of investors
10.
the
and the uniform application of paragraphs 1 to 8,
Commission shall adopt,
in accordance with the procedure
referred to in Article 64(2), implementing measures to ensure
firms comply with the principles set out
that
therein when providing investment or ancillary services to
their clients. Those implementing measures shall
take into
account:

investment

(a) the nature of the service(s) offered or provided to the client
or potential client, taking into account the type, object, size
and frequency of the transactions;

(b) the nature of the financial

instruments being offered or

considered;

(c) the retail or professional nature of the client or potential

clients.

The investment
instructions or
firm which receives client
orders through the medium of another investment firm shall
remain responsible for concluding the service or transaction,
based on any such information or
in
accordance with the relevant provisions of this title.

recommendations,

Article 21

Obligation to execute orders on terms most favourable to
the client

1. Member States shall require that investment firms take all
reasonable steps to obtain, when executing orders, the best
for their clients taking into account price,
possible result
likelihood of execution and settlement, size,
costs, speed,
nature or any other consideration relevant to the execution
of
there is a specific
instruction from the client the investment firm shall execute
the order following the specific instruction.

the order. Nevertheless, whenever

2. Member States shall require investment firms to establish
and implement effective arrangements for complying with
require
paragraph 1.
In particular Member States
investment
an order
execution policy to allow them to obtain,
for their client
orders, the best possible result in accordance with paragraph 1.

to establish and implement

firms

shall

include,

The order execution policy shall
instruments,

in respect of
3.
information on the different
each class of
venues where the investment firm executes its client orders
and the factors affecting the choice of execution venue.
It
shall at least include those venues that enable the investment
firm to obtain on a consistent basis the best possible result for
the execution of client orders.

9.3.2004

EN

Official Journal of the European Union

C 60 E/19

firms provide
Member States shall require that
appropriate
clients on their order
information to their
execution policy. Member States shall require that investment
firms obtain the prior consent of their clients to the execution
policy.

investment

(c)

the nature and extent of the information to be provided to
clients on their execution policies, pursuant to paragraph 3.

Member States shall require that, where the order execution
policy provides for the possibility that client orders may be
executed outside a regulated market or an MTF, the investment
firm shall, in particular, inform its clients about this possibility.
Member States shall require that investment firms obtain the
prior express consent of their clients before proceeding to
execute their orders outside a regulated market or an MTF.
Investment firms may obtain this consent either in the form
of a general agreement or in respect of individual transactions.

Article 22

Client order handling rules

1. Member States shall require that investment firms auth-
orised to execute orders on behalf of clients
implement
procedures and arrangements which provide for the prompt,
fair and expeditious execution of client orders, relative to other
client orders or the trading interests of the investment firm.

These procedures or arrangements shall allow for the execution
of otherwise comparable client orders in accordance with the
time of their reception by the investment firm.

4. Member States shall require investment firms to monitor
the effectiveness of their order execution arrangements and
execution policy in order to identify and, where appropriate,
correct any deficiencies. In particular, they shall assess, on a
regular basis, whether the execution venues included in the
order execution policy provide for the best possible result for
the client or whether they need to make changes to their
require
execution
investment firms to notify clients of any material changes to
their order execution arrangements or execution policy.

arrangements. Member

States

shall

5. Member States shall require investment firms to be able
to demonstrate to their clients, at their request, that they have
executed their orders in accordance with the firm's execution
policy.

In order to ensure the protection necessary for investors,
6.
the fair and orderly functioning of markets, and to ensure the
uniform application of paragraphs 1, 3 and 4, the Commission
shall, in accordance with the procedure referred to in Article
64(2), adopt implementing measures concerning:

(a) the criteria for determining the relative importance of the
different factors that, pursuant to paragraph 1, may be
taken into account
for determining the best possible
result taking into account the size and type of order and
the retail or professional nature of the client;

(b) factors that may be taken into account by an investment
firm when reviewing its execution arrangements and the
circumstances under which changes to such arrangements
may be appropriate.
In particular, the factors for deter-
mining which venues enable investment firms to obtain
on a
for
executing the client orders;

the best possible

consistent basis

result

to take measures

2. Member States shall require that, in the case of a client
limit order in respect of shares admitted to trading on a
regulated market which are not immediately executed under
prevailing market conditions, investment firms are, unless the
client expressly instructs otherwise,
to
that order by
facilitate the earliest possible execution of
making public immediately that client
in a
manner which is easily accessible to other market participants.
Member States may decide that investment firms comply with
this obligation by transmitting the client
limit order to a
regulated market and/or MTF. Member States shall provide
that the competent authorities may waive the obligation to
make public a limit order that is large in scale compared
with normal market size as determined under Article 44(2).

limit order

3.
In order to ensure that measures for the protection of
investors and fair and orderly functioning of markets take
account of technical developments in financial markets, and
to ensure the uniform application of paragraphs 1 and 2, the
in accordance with the procedure
Commission shall adopt,
referred to in Article 64(2),
implementing measures which
define:

(a) the

conditions

and nature of

and
arrangements which result
and
expeditious execution of client orders and the situations
in which or types of
transaction for which investment
firms may reasonably deviate from prompt execution so
as to obtain more favourable terms for clients;

the procedures
fair

in the prompt,

(b) the different methods through which an investment firm
can be deemed to have met its obligation to disclose not
immediately executable client limit orders to the market.

C 60 E/20

EN

Official Journal of the European Union

9.3.2004

Article 23

Obligations of

investment firms when appointing tied

agents

1. Member States may decide to allow an investment firm to
appoint tied agents for the purposes of promoting the services
of the investment firm, soliciting business or receiving orders
from clients or potential clients and transmitting them, placing
financial instruments and providing advice in respect of such
financial instruments and services offered by that investment
firm.

2. Member States shall require that where an investment
firm decides to appoint a tied agent it remains fully and uncon-
ditionally responsible for any action or omission on the part of
the tied agent when acting on behalf of the firm. Member
States shall require the investment firm to ensure that a tied
agent discloses the capacity in which he is acting and the firm
which he is representing when contacting or before dealing
with any client or potential client.

Member States may allow, in accordance with Article 13(6), (7)
tied agents registered in their territory to handle
and (8),
clients' money and/or financial
instruments on behalf and
under the full responsibility of the investment firm for which
they are acting within their territory or, in the case of a cross-
in the territory of a Member State which
border operation,
allows a tied agent to handle clients' money.

Member States shall require the investment firms to monitor
the activities of their tied agents so as to ensure that they
continue to comply with this Directive when acting through
tied agents.

they possess appropriate
sufficiently good repute and that
general, commercial and professional knowledge so as to be
able to communicate accurately all
information
regarding the proposed service to the client or potential client.

relevant

Member States may decide that investment firms can verify
whether the tied agents which they have appointed are of
sufficiently good repute
as
referred to in the third subparagraph.

the knowledge

and possess

The register shall be updated on a regular basis. It shall be
publicly available for consultation.

that

shall

require

4. Member States
firms
appointing tied agents take adequate measures in order to
avoid any negative impact that the activities of the tied agent
not covered by the scope of this Directive could have on the
activities carried out by the tied agent on behalf of
the
investment firm.

investment

Member States may allow competent authorities to collaborate
with investment firms and credit institutions, their associations
and other entities in registering tied agents and in monitoring
compliance of tied agents with the requirements of paragraph
3. In particular, tied agents may be registered by an investment
firm, credit institution or their associations and other entities
under the supervision of the competent authority.

5. Member States shall require that investment firms appoint
only tied agents entered in the public registers referred to in
paragraph 3.

3. Member States that decide to allow investment firms to
appoint tied agents shall establish a public register. Tied agents
shall be registered in the public register in the Member State
where they are established.

6. Member States may reinforce the requirements set out in
this Article or add other requirements for tied agents registered
within their jurisdiction.

Where the Member State in which the tied agent is established
has decided, in accordance with paragraph 1, not to allow the
investment firms authorised by their competent authorities to
appoint tied agents, those tied agents shall be registered with
the competent authority of the home Member State of the
investment firm on whose behalf it acts.

Member States shall ensure that tied agents are only admitted
to the public register if it has been established that they are of

Article 24

Transactions executed with eligible counterparties

1. Member States shall ensure that investment firms auth-
orised to execute orders on behalf of clients and/or to deal on
own account and/or to receive and transmit orders, may bring
about or enter into transactions with eligible counterparties
without being obliged to comply with the obligations under
Articles 19, 21 and 22(1) in respect of those transactions or in
respect of any ancillary service directly related to those trans-
actions.

9.3.2004

EN

Official Journal of the European Union

C 60 E/21

financial

2. Member States shall recognise as eligible counterparties
for the purposes of this Article investment firms, credit insti-
tutions,
insurance companies, UCITS and their management
companies, pension funds and their management companies,
regulated under
institutions authorised or
other
law of a Member
Community legislation or
State, undertakings exempted from the application of
this
Directive under Article 2(1)(k) and (l), national governments
and their corresponding offices including public bodies that
deal with public debt, central banks and supranational organi-
sations.

the national

the first
Classification as an eligible counterparty under
subparagraph shall be without prejudice to the right of such
entities to request, either on a general form or on a trade-
by-trade basis, treatment as clients whose business with the
investment firm is subject to Articles 19, 21 and 22.

as

also

recognise

States may

3. Member
eligible
counterparties other undertakings meeting predetermined
including quantitative thresholds.
proportionate requirements,
transaction where
a
the prospective
event of
In the
counterparties
the
jurisdictions,
located in different
are
investment firm shall defer to the status of the other under-
taking as determined by the law or measures of the Member
State in which that undertaking is established.

Member States shall ensure that the investment firm, when it
enters into transactions in accordance with paragraph 1 with
such undertakings, obtains the express confirmation from the
prospective counterparty that it agrees to be treated as an
eligible counterparty. Member States shall allow the investment
firm to obtain this confirmation either in the form of a general
agreement or in respect of each individual transaction.

4. Member States may recognise as eligible counterparties
third country entities
categories of
equivalent
entities mentioned in paragraph 2.

to those

Member States may also recognise as eligible counterparties
those mentioned in
third country undertakings
paragraph 3 on the same conditions and subject to the same
requirements as those laid down at paragraph 3.

such as

5.
In order to ensure the uniform application of paragraphs
2, 3 and 4 in the light of changing market practice and to
facilitate the effective operation of
the
in accordance with the procedure
Commission may adopt,
implementing measures which
referred to in Article 64(2),
define:

the single market,

(a) the procedures for requesting treatment as clients under

paragraph 2;

(c)

including
the predetermined proportionate requirements,
quantitative thresholds that would allow an undertaking
to be
counterparty under
paragraph 3.

considered as

an eligible

S e c t i o n 3

M a r k e t t r a n s p a r e n c y a n d i n t e g r i t y

Article 25

Obligation to uphold integrity of markets, report trans-
actions and maintain records

1. Without prejudice to the allocation of responsibilities for
enforcing the provisions of Directive 2003/6/EC of
the
European Parliament and of the Council of 28 January 2003
on insider dealing and market manipulation (market abuse) (1),
Member States shall ensure that appropriate measures are in
the
place to enable the competent authority to monitor
activities of
they act
firms
honestly,
fairly and professionally and in a manner which
promotes the integrity of the market.

investment

to ensure

that

transactions

2. Member States shall require investment firms to keep at
the disposal of the competent authority, for at least five years,
the relevant data relating to all
in financial
instruments which they have carried out, whether on own
account or on behalf of a client. In the case of transactions
carried out on behalf of clients, the records shall contain all the
information and details of the identity of the client, and the
information required under Council Directive 91/308/EEC of
10 June 1991 on prevention of the use of the financial system
for the purpose of money laundering (2).

require investment

3. Member States shall
firms which
execute transactions in any financial instruments admitted to
trading on a regulated market to report details of such trans-
actions to the competent authority as quickly as possible, and
no later than the close of the following working day. This
obligation shall apply whether or not such transactions were
carried out on a regulated market.

The competent authorities shall, in accordance with Article 58,
establish the necessary arrangements in order to ensure that the
competent authority of the most relevant market in terms of
this
liquidity for
information.

instruments also receives

those financial

The reports shall,

include details of the
in particular,
4.
names and numbers of the instruments bought or sold, the
quantity, the dates and times of execution and the transaction
prices
firms
identifying
concerned.

and means of

investment

the

(b) the procedures for obtaining the express confirmation from

prospective counterparties under paragraph 3;

(1) OJ L 96, 12.4.2003, p. 16.
(2) OJ L 166, 28.6.1991, p. 77. Directive as last amended by Directive
2001/97/EC of the European Parliament and of the Council (OJ L
344, 28.12.2001, p. 76).

C 60 E/22

EN

Official Journal of the European Union

9.3.2004

5. Member States shall provide for the reports to be made to
the competent authority either by the investment firm itself, or
by a trade-matching or reporting system approved by the
competent authority or by the regulated market or MTF
In
through whose systems the transaction was completed.
cases where
to the
are
competent authority by a regulated market, an MTF, or a trade-
matching or reporting system approved by the competent
authority, the obligation on the investment firm laid down in
paragraph 3 may be waived.

reported directly

transactions

6. When, in accordance with Article 32(7), reports provided
this Article are transmitted to the competent
for under
authority of
this
information to the
the home
Member State of the investment firm, unless they decide that
they do not want to receive this information.

the host Member State,

authorities of

competent

transmit

it shall

In order to ensure that measures for the protection of
7.
market
technical
integrity are modified to take account of
developments in financial markets, and to ensure the uniform
application of paragraphs 1 to 5, the Commission may adopt,
in accordance with the procedure referred to in Article 64(2),
and
implementing measures which define
arrangements for reporting financial
the form
and content of these reports and the criteria for defining a
relevant market in accordance with paragraph 3.

the methods

transactions,

Article 27

Obligation for investment

firms to make public firm

quotes

1. Member States shall require systematic internalisers to
publish a firm quote in those shares admitted to trading on
a regulated market and for which they want to trade.

The quote shall include a firm bid and/or offer price or prices
as well as the size or sizes attached to those price or prices. It
shall also reflect
the prevailing market conditions for that
share.

The obligation referred to in the first subparagraph shall not
apply to transactions of a size which is large in scale compared
to the normal market size.

In case of shares for which there is not a liquid market,
systematic internalisers shall disclose quotes to their clients
on request.

2.
Systematic internalisers shall make public their quotes on
a regular and continuous basis during normal trading hours.
They shall be entitled to update their quotes. They shall also be
to withdraw
allowed, under exceptional market conditions,
their quotes.

Article 26

Monitoring of compliance with the rules of the MTF and
with other legal obligations

The quote shall be made public in a manner which is easily
accessible to other market participants on a reasonable
commercial basis.

1. Member States shall require that investment firms and
market operators operating an MTF establish and maintain
effective arrangements and procedures, relevant to the MTF,
for the regular monitoring of
the compliance by its users
and market operators
with its
operating an MTF shall monitor the transactions undertaken
by their users under
to identify
breaches of
those rules, disorderly trading conditions or
conduct that may involve market abuse.

Investment

in order

systems

rules.

firms

their

shall

2. Member States shall require investment firms and market
operators operating an MTF to report significant breaches of its
rules or disorderly trading conditions or conduct that may
involve market abuse to the competent authority. Member
and market
States
operators operating an MTF to supply the relevant information
without delay to the authority competent for the investigation
and prosecution of market abuse and to provide full assistance
to the latter in investigating and prosecuting market abuse
occurring on or through its systems.

also require

investment

firms

Systematic internalisers shall execute the orders they receive
from their retail clients at the quoted prices.

Systematic internalisers shall execute the orders they receive
from their professional clients at the quoted price. However,
they may execute those orders at a better price in justified
cases provided that
this price falls within a public range
close to market conditions and provided that the orders are
of a size bigger than the size customarily undertaken by a retail
investor.

Furthermore, systematic internalisers may execute orders they
receive from their professional clients at prices different than
their quoted ones without having to comply with the
conditions established in the fourth subparagraph, in respect
of transactions where execution in several securities is part of
one transaction or in respect of orders that are subject to
conditions other than price.

9.3.2004

EN

Official Journal of the European Union

C 60 E/23

Systematic internalisers shall be allowed to decide, on the
3.
basis of their commercial policy and in a non-discriminatory
way, the investors to whom they give access to their quotes.
firms may refuse to enter into or discontinue
Investment
relationships with investors on the basis of
business
commercial considerations such as the investor credit status,
the counterparty risk and the final settlement of the trans-
action.

conclude transactions in shares admitted to trading on a
regulated market outside a regulated market or MTF, to make
public the volume and price of those transactions and the time
at which they were concluded. This information shall be made
public as close to real-time as possible, on a reasonable
commercial basis, and in a manner which is easily accessible
to other market participants.

4.
In order to limit the risk of being exposed to multiple
transactions from the same client systematic internalisers shall
be allowed to limit in a non-discriminatory way the number of
transactions from that same client which they undertake to
enter at the published conditions.

5.
In order to ensure the uniform application of paragraphs
1 to 4, in a manner which supports the efficient valuation of
shares and maximises the possibility of investment firms of
obtaining the best deal
the Commission
shall, in accordance with the procedure referred to in Article
64(2), adopt implementing measures which:

for their clients,

(a) specify the criteria for application of paragraph 1 and, in
particular, for determining when a size of a transaction is
large in scale compared to normal market size, when a
quote reflects current market conditions and when there
is an illiquid market on specific shares;

2. Member States shall require that the information which is
made public in accordance with paragraph 1 and the time-
is published comply with the
limits within which it
requirements adopted pursuant
to Article 45. Where the
measures adopted pursuant to Article 45 provide for deferred
reporting for certain categories of transaction in shares, this
possibility shall apply mutatis mutandis to those transactions
when undertaken outside regulated markets or MTFs.

3.
In order to ensure the transparent and orderly func-
tioning of markets and the uniform application of paragraph
in accordance with the
1,
implementing
procedure
measures which:

the Commission shall adopt,

in Article 64(2),

referred

to

(a) specify the means by which investment firms may comply
with their obligations under paragraph 1 including the
following possibilities:

(b) specify the criteria for application of paragraph 2, with the
exception of the fourth subparagraph and, in particular, the
means by which investment firms may comply with their
obligation to make public their quotes, which shall include
the following possibilities:

(i) through the facilities of any regulated market which
has admitted the instrument in question to trading or
through the facilities of an MTF in which the share in
question is traded;

(i) through the facilities of any regulated market which
has admitted the instrument in question to trading;

(ii) through the offices of a third party;

(ii) through the offices of a third party;

(iii) through proprietary arrangements;

(iii) through proprietary arrangements;

(c) specify the criteria for application of paragraph 3;

(d) specify the criteria under which the quotes can be

withdrawn;

(e) by way of derogation from point (b), specify the criteria for
determining what is a size customarily undertaken by a
retail investor.

Article 28

Post-trade disclosure by investment firms

1. Member States shall, at least, require investment firms
which, either on own account or on behalf of clients,

(b) clarify the application of the obligation under paragraph 1
to transactions involving the use of shares for collateral,
lending or other purposes where the exchange of shares is
determined by factors other
than the current market
valuation of the share.

Article 29

Pre-trade transparency requirements for MTFs

least, require that

1. Member States shall, at
investment
firms and market operators operating an MTF make public
current bid and offer prices and the depth of
trading
interests at these prices which are advertised through their
shares admitted to trading on a
systems
regulated market. Member States
this
shall provide
information to be made available to the public on reasonable
commercial terms and on a continuous basis during normal
trading hours.

in respect of

for

C 60 E/24

EN

Official Journal of the European Union

9.3.2004

2. Member States shall provide for the competent authorities
to be able to waive the obligation for investment firms or
market operators operating an MTF to make public the
information referred to in paragraph 1 based on the market
the
model or the type and size of orders.
competent authorities shall be able to waive the obligation in
respect of transactions that are large in scale compared with
normal market size for the share or type of share in question.

In particular,

competent authorities may authorise the deferred publication
in respect of transactions that are large in scale compared with
the normal market size for that share or that class of shares.
Member States shall require MTFs to obtain the competent
for
authority's prior approval
deferred trade-publication,
these
arrangements be clearly disclosed to market participants and
the investing public.

to proposed arrangements
and shall

require

that

In order to ensure the uniform application of paragraphs
in accordance with the
implementing

3.
1 and 2,
the Commission shall,
procedure referred to in Article 64(2) adopt
measures as regards:

In order to provide for the efficient and orderly func-
3.
tioning of
financial markets, and to ensure the uniform
application of paragraphs 1 and 2, the Commission shall, in
accordance with the procedure referred to in Article 64(2)
adopt implementing measures in respect of:

(a) the range of bid and offers or designated market-maker
quotes, and the depth of trading interest at those prices,
to be made public;

(b) the size or type of orders for which pre-trade disclosure

may be waived under paragraph 2;

(c) the market model for which pre-trade disclosure may be
waived under paragraph 2 and in particular, the applica-
bility of the obligation to trading methods operated by an
MTF which conclude transactions under their rules by
reference to prices established outside the systems of the
MTF or by periodic auction.

Except where justified by the specific nature of the MTF, the
content of these implementing measures shall be equal to that
of the implementing measures provided for in Article 44 for
regulated markets.

Article 30

Post-trade transparency requirements for MTFs

least, require that

1. Member States shall, at
investment
firms and market operators operating an MTF make public
the transactions executed
the price, volume and time of
under its systems in respect of shares which are admitted to
trading on a regulated market. Member States shall require that
details of all such transactions be made public, on a reasonable
commercial basis, as close to real-time as possible. This
requirement shall not apply to details of trades executed on
an MTF that are made public under the systems of a regulated
market.

(a) the scope and content of
available to the public;

the information to be made

(b) the conditions under which investment firms or market
operators operating an MTF may provide for deferred
publication of trades and the criteria to be applied when
deciding the transactions for which, due to their size or the
type of share involved, deferred publication is allowed.

Except where justified by the specific nature of the MTF, the
content of these implementing measures shall be equal to that
of the implementing measures provided for in Article 45 for
regulated markets.

CHAPTER III

Rights of investment firms

Article 31

Freedom to provide investment services and activities

1. Member States shall ensure that any investment
firm
authorised and supervised by the competent authorities of
another Member State in accordance with this Directive, and
in respect of credit institutions in accordance with Directive
2000/12/EC, may freely perform investment services and/or
activities as well as ancillary services within their territories,
provided that such services and activities are covered by its
authorisation. Ancillary
services may only be provided
together with an investment service and/or activity.

2. Member States shall provide that the competent authority
may authorise investment firms or market operators operating
an MTF to provide for deferred publication of the details of
the
transactions based on their type or size.

In particular,

Member States shall not impose any additional requirements on
such an investment firm or credit institution in respect of the
matters covered by this Directive.

9.3.2004

EN

Official Journal of the European Union

C 60 E/25

Any investment

firm wishing to provide services or
2.
activities within the territory of another Member State for
time, or which wishes to change the range of
the first
shall communicate the
services or activities
so provided,
its
following information to the competent authorities of
home Member State:

(a) the Member State in which it intends to operate;

(b) a programme of operations

stating in particular

the
investment services and/or activities as well as ancillary
it
services which it
intends to use tied agents in the territory of the Member
States in which it intends to provide services.

to perform and whether

intends

firm shall, at

In cases where the investment firm intends to use tied agents,
the competent authority of the home Member State of the
investment
the competent
authority of the host Member State and within a reasonable
time, communicate the identity of the tied agents that the
investment firm intends to use in that Member State. The
host Member State may make public such information.

the request of

The competent authority of the home Member State shall,
3.
within one month of receiving the information, forward it to
the competent authority of the host Member State designated
in accordance with Article 56(1). The
as contact point
to provide the investment
investment
service or services concerned in the host Member State.

firm may then start

In the event of a change in any of

4.
the particulars
communicated in accordance with paragraph 2, an investment
firm shall give written notice of that change to the competent
authority of the home Member State at least one month before
implementing the change. The competent authority of
the
home Member State shall inform the competent authority of
the host Member State of those changes.

5. Member States shall, without further legal or adminis-
firms operating MTFs
trative requirement, allow investment
from other Member States to provide appropriate arrangements
on their territory so as to facilitate access to and use of their
systems by remote users or participants established in their
territory.

6.
The investment firm or the market operator that operates
an MTF shall communicate to the competent authority of its
home Member State the Member State in which it intends to
provide such arrangements. The competent authority of the
home Member State of the MTF shall communicate, within
one month, this information to the Member State in which
the MTF intends to provide such arrangements.

The competent authority of the home Member State of the
MTF shall, on the request of the competent authority of the
host Member State of the MTF and within a reasonable delay,

communicate the identity of the members or participants of
the MTF established in that Member State.

Article 32

Establishment of a branch

investment

1. Member States
services
shall ensure that
and/or activities as well as ancillary services may be provided
within their territories in accordance with this Directive and
Directive 2000/12/EC through the establishment of a branch
provided that those services and activities are covered by the
authorisation granted to the investment
firm or the credit
institution in the home Member State. Ancillary services may
only be provided together with an investment service and/or
activity.

Member States shall not impose any additional requirements
save those allowed under paragraph 7, on the organisation and
operation of the branch in respect of the matters covered by
this Directive.

2. Member States shall require any investment firm wishing
to establish a branch within the territory of another Member
State first
its home
to notify the competent authority of
Member State and to provide it with the following information:

(a) the Member States within the territory of which it plans to

establish a branch;

(b) a programme of operations setting out

inter alia the
investment
the
as
ancillary services to be offered and the organisational
structure of
the
branch intends to use tied agents;

the branch and indicating whether

activities

as well

services

and/or

(c)

the address
documents may be obtained;

in the host Member State from which

(d) the names of those responsible for the management of the

branch.

In cases where an investment firm uses a tied agent established
in a Member State outside its home Member State, such tied
agent shall be assimilated to the branch and shall be subject to
the provisions of this Directive relating to branches.

3.
Unless the competent authority of the home Member
State has reason to doubt the adequacy of the administrative
structure or the financial situation of an investment
firm,
it shall, within
taking into account the activities envisaged,
three months of receiving all the information, communicate
that
the host
Member State designated as contact point in accordance with
Article 56(1) and inform the investment
firm concerned
accordingly.

information to the competent authority of

C 60 E/26

EN

Official Journal of the European Union

9.3.2004

In addition to the information referred to in paragraph 2,
4.
the competent authority of
the home Member State shall
communicate details of the accredited compensation scheme
firm is a member in accordance
of which the investment
the
with Directive 97/9/EC to the competent authority of
host Member State. In the event of a change in the particulars,
the home Member State shall
the competent authority of
inform the competent authority of
the host Member State
accordingly.

Article 33

Access to regulated markets

1. Member States shall require that investment firms from
other Member States which are authorised to execute client
orders or
to deal on own account have the right of
membership or have access to regulated markets established
in their
following
arrangements:

territory by means of

any of

the

refuses

5. Where the competent authority of the home Member
information to the
to communicate
State
it shall give
competent authority of the host Member State,
reasons for
firm concerned
within three months of receiving all the information.

to the investment

its refusal

the

6.
On receipt of a communication from the competent
authority of the host Member State, or failing such communi-
cation from the latter at the latest after two months from the
date of transmission of the communication by the competent
authority of the home Member State, the branch may be estab-
lished and commence business.

7.
The competent authority of the Member State in which
the branch is located shall assume responsibility for ensuring
that the services provided by the branch within its territory
comply with the obligations laid down in Articles 19, 21, 22,
25, 27 and 28 and in measures adopted pursuant thereto.

The competent authority of the Member State in which the
branch is located shall have the right
to examine branch
arrangements and to request such changes as are strictly
needed to enable the competent authority to enforce the obli-
gations under Articles 19, 21, 22, 25, 27 and 28 and measures
adopted pursuant thereto with respect to the services and/or
activities provided by the branch within its territory.

that, where

shall provide

Each Member State

8.
an
investment firm authorised in another Member State has estab-
lished a branch within its territory, the competent authority of
the home Member State of the investment firm, in the exercise
of
informing the competent
authority of the host Member State, may carry out on-site
inspections in that branch.

responsibilities and after

its

In the event of a change in any of

9.
the information
communicated in accordance with paragraph 2, an investment
firm shall give written notice of that change to the competent
authority of the home Member State at least one month before
implementing the change. The competent authority of the host
Member State shall also be informed of that change by the
competent authority of the home Member State.

(a) directly, by setting up branches in the host Member States;

(b) by becoming remote members of or having remote access
to the regulated market without having to be established in
the home Member State of the regulated market, where the
trading procedures and systems of the market in question
do not require a physical presence for conclusion of trans-
actions on the market.

2. Member States shall not impose any additional regulatory
or administrative requirements, in respect of matters covered
by this Directive, on investment
firms exercising the right
conferred by paragraph 1.

Article 34

Access to central counterparty, clearing and settlement
facilities and right to designate settlement system

1. Member States shall require that investment firms from
other Member States have the right of access to central
counterparty,
in their
territory for the purposes of finalising or arranging the finali-
sation of transactions in financial instruments.

and settlement

clearing

systems

Member States shall require that access of those investment
firms to such facilities be subject to the same non-discrimi-
transparent and objective criteria as apply to local
natory,
participants. Member States shall not restrict the use of those
facilities to the clearing and settlement of
transactions in
financial
instruments undertaken on a regulated market or
MTF in their territory.

territory offer all

2. Member States shall require that regulated markets in
their members or participants the
their
right to designate the system for the settlement of transactions
in financial instruments undertaken on that regulated market,
subject to:

(a) such links and arrangements between the designated
settlement system and any other system or facility as are
necessary to ensure the efficient and economic settlement
of the transaction in question; and

9.3.2004

EN

Official Journal of the European Union

C 60 E/27

the

regulated market

(b) agreement by the competent authority responsible for the
technical
that
supervision of
conditions for settlement of
transactions concluded on
the regulated market through a settlement system other
than that designated by the regulated market are such as
to allow the smooth and orderly functioning of financial
markets.

This assessment of the competent authority of the regulated
market shall be without prejudice to the competencies of the
national central banks as overseers of settlement systems or
other supervisory authorities on such systems. The competent
the oversight/supervision
authority shall
take into account
to avoid
already exercised by those institutions in order
undue duplication of control.

The rights of investment firms under paragraphs 1 and 2
3.
shall be without prejudice to the right of operators of central
counterparty, clearing or securities settlement systems to refuse
on legitimate commercial grounds to make the requested
services available.

Article 35

Provisions regarding central counterparty, clearing and
settlement arrangements in respect of MTFs

1. Member States shall not prevent investment firms and
market operators operating an MTF from entering into appro-
priate arrangements with a central counterparty or clearing
house and a settlement system of another Member State with
a view to providing for the clearing and/or settlement of some
or all
trades concluded by market participants under their
systems.

2.
The competent authority of investment firms and market
operators operating an MTF may not oppose the use of central
counterparty, clearing houses and/or settlement systems in
another Member State except where this is demonstrably
necessary in order to maintain the orderly functioning of
that MTF and taking into account the conditions for settlement
systems established in Article 34(2).

In order to avoid undue duplication of control, the competent
authority shall
the oversight/supervision
already exercised by the national central banks as overseers
of clearing and settlement systems or by other supervisory
authorities with a competence in such systems.

take into account

TITLE III

REGULATED MARKETS

Article 36

Authorisation and applicable law

1. Member States shall reserve authorisation as a regulated
market to those systems which comply with the provisions of
this title.

Authorisation as a regulated market shall be granted only
where the competent authority is satisfied that both the
market operator and the systems of
the regulated market
comply at least with the requirements laid down in this title.

In the case of a regulated market that is a legal person and that
is managed or operated by a market operator other than the
regulated market itself, Member States shall establish how the
different obligations imposed on the market operator under
this Directive are to be allocated between the regulated
market and the market operator.

shall provide all
the regulated market
The operator of
information, including a programme of operations setting out
inter alia the types of business envisaged and the organisational
structure, necessary to enable the competent authority to
satisfy itself that the regulated market has established, at the
time of initial authorisation, all the necessary arrangements to
meet its obligations under the provisions of this title.

2. Member States shall require the operator of the regulated
market
to perform tasks relating to the organisation and
operation of the regulated market under the supervision of
the competent authority. Member States shall ensure that
competent
review the
compliance of regulated markets with the provisions of this
title. They shall also ensure
competent authorities
monitor that regulated markets comply at all times with the
conditions for initial authorisation established under this title.

authorities

regular

under

keep

that

3. Member States shall ensure that the market operator is
responsible for ensuring that
that he
manages complies with all requirements under this title.

the regulated market

Member States shall also ensure that the market operator is
entitled to exercise the rights that correspond to the regulated
market that he manages by virtue of this Directive.

4. Without prejudice to any relevant provisions of Directive
2003/6/EC, the public law governing the trading conducted
under the systems of the regulated market shall be that of
the home Member State of the regulated market.

The competent authority may withdraw the authorisation

5.
issued to a regulated market where it:

(a) does not make use of the authorisation within 12 months,
expressly renounces the authorisation or has not operated
for the preceding six months, unless the Member State
concerned has provided for authorisation to lapse in such
cases;

(b) has obtained the authorisation by making false statements

or by any other irregular means;

(c) no longer meets the conditions under which authorisation

was granted;

C 60 E/28

EN

Official Journal of the European Union

9.3.2004

(d) has seriously and systematically infringed the provisions

adopted pursuant to this Directive;

(e)

falls within any of the cases where national law provides
for withdrawal.

market and/or the market operator where there are objective
and demonstrable grounds for believing that they would pose a
threat to the sound and prudent management of the regulated
market.

Article 37

Article 39

Organisational requirements

Requirements for the management of the regulated market

Member States shall require the regulated market:

1. Member States shall require the persons who effectively
direct the business and the operations of the regulated market
to be of sufficiently good repute and sufficiently experienced as
to ensure the sound and prudent management and operation of
the regulated market. Member States shall also require the
operator of the regulated market to inform the competent
authority of the identity and any other subsequent changes
the business and the
of the persons who effectively direct
operations of the regulated market.

The competent authority shall refuse to approve proposed
changes where there are objective and demonstrable grounds
for believing that they pose a material threat to the sound and
prudent management and operation of the regulated market.

2. Member States shall ensure that, in the process of auth-
orisation of a regulated market, the person or persons who
effectively direct
the business and the operations of an
already authorised regulated market in accordance with the
conditions of this Directive are deemed to comply with the
requirements laid down in paragraph 1.

Article 38

Requirements relating to persons exercising significant
influence over the management of the regulated market

1. Member States shall require the persons who are in a
significant
position
influence over the management of the regulated market to be
suitable.

indirectly,

exercise,

directly

or

to

(a) to have arrangements to identify clearly and manage the
potential adverse consequences, for the operation of the
regulated market or for its participants, of any conflict of
interest between the interest of the regulated market,
its
owners or its operator and the sound functioning of the
regulated market, and in particular where such conflicts of
interest might prove prejudicial to the accomplishment of
any functions delegated to the regulated market by the
competent authority;

(b) to be adequately equipped to manage the risks to which it
is exposed, to implement appropriate arrangements and
systems to identify all significant risks to its operation,
and to put in place effective measures to mitigate those
risks;

(c)

to have arrangements for the sound management of the
technical operations of the system,
including the estab-
lishment of effective contingency arrangements to cope
with risks of systems disruptions;

(d) to have

transparent

and non-discretionary rules and
procedures that provide for fair and orderly trading and
establish objective criteria for the efficient execution of
orders;

(e)

to have effective arrangements to facilitate the efficient and
timely finalisation of the transactions executed under its
systems;

2. Member States shall require the operator of the regulated
market:

(f)

information regarding the ownership of

(a) to provide the competent authority with, and to make
the
public,
the market operator, and in
regulated market and/or
particular,
interests of any
parties in a position to exercise significant influence over
the management;

the identity and scale of

(b) to inform the competent authority of and to make public
any transfer of ownership which gives rise to a change in
the identity of the persons exercising significant influence
over the operation of the regulated market.

The

3.
to approve
proposed changes to the controlling interests of the regulated

competent

authority

refuse

shall

to have available, at the time of authorisation and on an
ongoing basis, sufficient financial resources to facilitate its
orderly functioning, having regard to the nature and extent
of the transactions concluded on the market and the range
and degree of the risks to which it is exposed.

Article 40

Admission of financial instruments to trading

1. Member States shall require that regulated markets have
clear and transparent rules regarding the admission of financial
instruments to trading.

Those rules shall ensure that any financial instruments admitted
to trading in a regulated market are capable of being traded in
a fair, orderly and efficient manner and, in the case of trans-
ferable securities, are freely negotiable.

9.3.2004

EN

Official Journal of the European Union

C 60 E/29

In the case of derivatives,

the rules shall ensure in
2.
particular that the design of the derivative contract allows for
its orderly pricing as well as for the existence of effective
settlement conditions.

(c) clarify the arrangements that the regulated market has to
establish pursuant to paragraph 3 in order to facilitate its
members or participants in obtaining access to information
which has been made public under the conditions estab-
lished by Community law.

3.
In addition to the obligations set out in paragraphs 1 and
2, Member States shall require the regulated market to establish
and maintain effective arrangements to verify that issuers of
transferable securities that are admitted to trading on the
comply with their obligations under
regulated market
Community law in respect of
initial, ongoing or ad hoc
disclosure obligations.

Member States shall ensure that the regulated market estab-
lishes arrangements which facilitate its members or participants
in obtaining access to information which has been made public
under Community law.

4. Member States shall ensure that regulated markets have
established the necessary arrangements to review regularly the
compliance with the admission requirements of the financial
instruments which they admit to trading.

A transferable security that has been admitted to trading
5.
on a regulated market can subsequently be admitted to trading
on other regulated markets, even without the consent of the
issuer and in compliance with the relevant provisions of
Directive 2003/71/EC of the European Parliament and of the
Council of 4 November 2003 on the prospectus
to be
published when securities are offered to the public or
admitted to trading and amending Directive 2001/34/EC (1).
The issuer shall be informed by the regulated market of the
fact that its securities are traded on that regulated market. The
issuer shall not be subject
to any obligation to provide
information required under paragraph 3 directly to any
regulated market which has admitted the issuer's securities to
trading without its consent.

In order to ensure the uniform application of paragraphs
in accordance with the
implementing

6.
1 to 5,
the Commission shall,
procedure referred to in Article 64(2) adopt
measures which:

(a) specify the characteristics of different classes of instruments
to be taken into account by the regulated market when
assessing whether an instrument is issued in a manner
consistent with the conditions laid down in the second
subparagraph of paragraph 1 for admission to trading on
the different market segments which it operates;

(b) clarify the arrangements that the regulated market is to
implement so as to be considered to have fulfilled its obli-
gation to verify that the issuer of a transferable security
complies with its obligations under Community law in
respect of initial, ongoing or ad hoc disclosure obligations;

Article 41

Suspension and removal of instruments from trading

1. Without prejudice to the right of the competent authority
under Article 50(2)(j) and (k) to demand suspension or removal
of an instrument from trading, the operator of the regulated
market may suspend or
remove from trading a financial
instrument which no longer complies with the rules of the
regulated market unless such a step would be likely to cause
significant damage to the investors'
interests or the orderly
functioning of the market.

Notwithstanding the possibility for the operators of regulated
markets to inform directly the operators of other regulated
markets, Member States shall require that an operator of a
regulated market that suspends or removes from trading a
and
financial
competent
communicates
authority.
inform the
competent authorities of the other Member States.

instrument make
relevant

public
information

competent

authority

decision

this
to

shall

The

the

2.
A competent authority which demands the suspension or
removal of a financial instrument from trading on one or more
regulated markets shall immediately make public its decision
and inform the competent authorities of the other Member
States. Except where it could cause significant damage to the
investors' interests or the orderly functioning of the market the
competent authorities of the other Member States shall demand
the suspension or removal of that financial instrument from
trading on the regulated markets and MTFs that operate under
their authority.

Article 42

Access to the regulated market

1. Member States shall require the regulated market
to
establish and maintain transparent and non-discriminatory
rules, based on objective criteria, governing access to or
membership of the regulated market.

Those rules shall specify any obligations for the members

2.
or participants arising from:

(a) the constitution and administration of the regulated market;

(1) OJ L 345, 31.12.2003, p. 64.

(b) rules relating to transactions on the market;

C 60 E/30

EN

Official Journal of the European Union

9.3.2004

(c) professional

standards

the
investment firms or credit institutions that are operating
on the market;

imposed on the

staff of

(d) the conditions established,

for members or participants
other than investment firms and credit institutions, under
paragraph 3;

(e) the rules and procedures for the clearing and settlement of

transactions concluded on the regulated market.

3.
Regulated markets may admit as members or participants
investment firms, credit institutions authorised under Directive
2000/12/EC and other persons who:

(a) are fit and proper;

(b) have a sufficient level of trading ability and competence;

(c) have,

where
arrangements;

applicable,

adequate

organisational

(d) have sufficient resources for the role they are to perform,
taking into account
financial arrangements
the different
that the regulated market may have established in order
to guarantee the adequate settlement of transactions.

4. Member States shall ensure that,
for the transactions
concluded on a regulated market, members and participants
are not obliged to apply to each other the obligations laid
down in Articles 19, 21 and 22. However, the members or
participants of the regulated market shall apply the obligations
provided for in Articles 19, 21 and 22 with respect to their
clients when they, acting on behalf of their clients, execute
their orders on a regulated market.

5. Member States shall ensure that the rules on access to or
membership of the regulated market provide for the direct or
remote participation of investment firms and credit institutions.

6. Member States shall, without further legal or adminis-
trative requirements, allow regulated markets
from other
Member States to provide appropriate arrangements on their
territory so as to facilitate access to and trading on those
markets by remote members or participants established in
their territory.

The regulated market shall communicate to the competent
its home Member State the Member State in
authority of
such arrangements. The
which it
competent
shall
this information to the
communicate, within one month,
Member State in which the regulated market
to
provide such arrangements.

intends
authority of

the home Member State

to provide

intends

The competent authority of the home Member State of the
regulated market shall, on the request of
the competent
authority of the host Member State and within a reasonable
time, communicate the identity of the members or participants
of the regulated market established in that Member State.

7. Member States shall require the operator of the regulated
market to communicate, on a regular basis, the list of the
members and participants of
to the
competent authority of the regulated market.

the regulated market

Article 43

Monitoring of compliance with the rules of the regulated
market and with other legal obligations

that

shall

require

1. Member States
regulated markets
establish and maintain effective arrangements and procedures
for the regular monitoring of the compliance by their members
or participants with their
shall
monitor the transactions undertaken by their members or
participants under their systems in order to identify breaches
of those rules, disorderly trading conditions or conduct that
may involve market abuse.

rules. Regulated markets

their

to report

significant breaches of

2. Member States shall require the operators of the regulated
markets
rules or
that may involve
disorderly trading conditions or conduct
market abuse to the competent authority of
the regulated
market. Member States shall also require the operator of the
regulated market to supply the relevant information without
delay to the authority competent for the investigation and
prosecution of market abuse on the regulated market and to
provide full assistance to the latter in investigating and pros-
ecuting market abuse occurring on or through the systems of
the regulated market.

Article 44

Pre-trade transparency requirements for regulated markets

1. Member States shall, at least, require regulated markets to
make public current bid and offer prices and the depth of
trading interests at those prices which are advertised through
their systems for shares admitted to trading. Member States
shall require this information to be made available to the
public on reasonable commercial terms and on a continuous
basis during normal trading hours.

Regulated markets may give access, on reasonable commercial
terms and on a non-discriminatory basis, to the arrangements
they employ for making public the information under the first
subparagraph to investment firms which are obliged to publish
their quotes in shares pursuant to Article 27.

9.3.2004

EN

Official Journal of the European Union

C 60 E/31

2. Member States shall provide that the competent auth-
orities are to be able to waive the obligation for regulated
markets
to make public the information referred to in
paragraph 1 based on the market model or the type and size
of orders. In particular, the competent authorities shall be able
to waive the obligation in respect of transactions that are large
in scale compared with normal market size for the share or
type of share in question.

the competent authorities may authorise the
In particular,
deferred publication in respect of transactions that are large
in scale compared with the normal market size for that share
or that class of shares. Member States shall require regulated
markets to obtain the competent authority's prior approval of
proposed arrangements for deferred trade-publication, and shall
require that these arrangements be clearly disclosed to market
participants and the investing public.

In order to ensure the uniform application of paragraphs
in accordance with the
implementing

3.
1 and 2,
the Commission shall,
procedure referred to in Article 64(2) adopt
measures as regards:

In order to provide for the efficient and orderly func-
3.
tioning of
financial markets, and to ensure the uniform
application of paragraphs 1 and 2, the Commission shall, in
accordance with the procedure referred to in Article 64(2)
adopt implementing measures in respect of:

(a) the range of bid and offers or designated market-maker
quotes, and the depth of trading interest at those prices,
to be made public;

(b) the size or type of orders for which pre-trade disclosure

may be waived under paragraph 2;

(c) the market model for which pre-trade disclosure may be
waived under paragraph 2, and in particular, the applica-
bility of the obligation to trading methods operated by
regulated markets which conclude
transactions under
their rules by reference to prices established outside the
regulated market or by periodic auction.

Article 45

Post-trade transparency requirements for regulated
markets

1. Member States shall, at least, require regulated markets to
make public the price, volume and time of the transactions
executed in respect of shares admitted to trading. Member
States shall require details of all such transactions to be made
public, on a reasonable commercial basis and as close to
real-time as possible.

Regulated markets may give access, on reasonable commercial
terms and on a non-discriminatory basis, to the arrangements
they employ for making public the information under the first
subparagraph to investment firms which are obliged to publish
the details of their transactions in shares pursuant to Article
28.

(a) the scope and content of
available to the public;

the information to be made

(b) the conditions under which a regulated market may
provide for deferred publication of trades and the criteria
to be applied when deciding the transactions for which,
due to their size or the type of share involved, deferred
publication is allowed.

Article 46

Provisions regarding central counterparty and clearing and
settlement arrangements

into appropriate

1. Member States shall not prevent regulated markets from
central
entering
counterparty or clearing house and a settlement system of
another Member State with a view to providing for the
clearing and/or settlement of some or all trades concluded by
market participants under their systems.

arrangements with a

2.
The competent authority of a regulated market may not
oppose the use of central counterparty, clearing houses and/or
settlement systems in another Member State except where this
is demonstrably necessary in order to maintain the orderly
functioning of that regulated market and taking into account
the conditions for settlement systems established in Article
34(2).

2. Member States shall provide that the competent authority
may authorise regulated markets to provide for deferred publi-
cation of the details of transactions based on their type or size.

In order to avoid undue duplication of control, the competent
authority shall
the oversight/supervision
already exercised by the national central banks as overseers
of clearing and settlement systems or by other supervisory
authorities with competence in relation to such systems.

take into account

C 60 E/32

EN

Official Journal of the European Union

9.3.2004

Article 47

List of regulated markets

list

Each Member State shall draw up a list of
the regulated
markets for which it is the home Member State and shall
forward that
to the other Member States and the
Commission. A similar communication shall be effected in
respect of each change to that
list. The Commission shall
publish a list of all regulated markets in the Official Journal of
the European Union and update it at least once a year. The
Commission shall also publish and update the list at
its
website, each time the Member States communicate changes
to their lists.

TITLE IV

COMPETENT AUTHORITIES

CHAPTER I

Designation, powers and redress procedures

Article 48

Designation of competent authorities

1.
Each Member State shall designate the competent auth-
orities which are to carry out each of the duties provided for
under the different provisions of this Directive. Member States
shall inform the Commission and the competent authorities of
other Member States of the identity of the competent auth-
orities responsible for enforcement of each of those duties,
and of any division of those duties.

implementing measures
authority or
paragraph 1.

competent
lie with
authorities designated in accordance with

shall

the

shall

inform the Commission and the
Member States
competent
any
arrangements entered into with regard to delegation of tasks,
including the precise conditions regulating such delegation.

authorities of other Member States of

3.
The Commission shall publish a list of the competent
authorities referred to in paragraphs 1 and 2 in the Official
Journal of the European Union at least once a year and update
it continuously on its website.

Article 49

Cooperation between authorities in the same Member
State

roles

this Directive,

If a Member State designates more than one competent
authority to enforce a provision of
their
shall be clearly defined and they shall
respective
cooperate closely. Each Member State shall require that such
cooperation also take place between the competent authorities
for the purposes of this Directive and the competent auth-
orities responsible in that Member State for the supervision
institutions, pension funds,
of credit and other
UCITS,
and
intermediaries
insurance undertakings.

reinsurance

insurance

financial

and

authorities
Member States
exchange any information which is essential or relevant to
the exercise of their functions and duties.

competent

require

shall

that

2.
The competent authorities referred to in paragraph 1
shall be public authorities, without prejudice to the possibility
of delegating tasks to other entities where that is expressly
provided for in Article 5(5), Article 16(3), Article 17(2) and
Article 23(4).

Powers to be made available to competent authorities

1.
Competent authorities shall be given all supervisory and
investigatory powers that are necessary for the exercise of their
functions. Within the limits provided for in their national legal
frameworks they shall exercise such powers:

Article 50

Any delegation of tasks to entities other than the authorities
referred to in paragraph 1 may not involve either the exercise
of public authority or the use of discretionary powers of
judgment. Member States shall require that, prior to delegation,
competent authorities take all reasonable steps to ensure that
the entity to which tasks are to be delegated has the capacity
and resources to effectively execute all
the
delegation takes place only if a clearly defined and documented
framework for the exercise of any delegated tasks has been
established stating the tasks
to be undertaken and the
conditions under which they are to be carried out. These
include a clause obliging the entity in
conditions
question to act and be organised in such a manner as to
avoid conflict of
interest and so that information obtained
from carrying out the delegated tasks is not used unfairly or
to prevent competition. In any case, the final responsibility for
supervising compliance with this Directive and with its

tasks and that

shall

(a) directly; or

(b) in collaboration with other authorities; or

(c) under their responsibility by delegation to entities to which
tasks have been delegated according to Article 48(2); or

(d) by application to the competent judicial authorities.

2.
The powers referred to in paragraph 1 shall be exercised
in conformity with national law and shall include, at least, the
rights to:

(a) have access to any document in any form whatsoever and

to receive a copy of it;

9.3.2004

EN

Official Journal of the European Union

C 60 E/33

(b) demand information from any person and if necessary to
summon and question a person with a view to obtaining
information;

(c)

carry out on-site inspections;

3. Member States shall provide that the competent authority
may disclose to the public any measure or sanction that will be
imposed for infringement of the provisions adopted in the
implementation of
such disclosure
would seriously jeopardise the financial markets or cause
disproportionate damage to the parties involved.

this Directive, unless

(d)

require existing telephone and existing data traffic records;

(e)

require the cessation of any practice that is contrary to the
provisions adopted in the implementation of this Directive;

(f)

request the freezing and/or the sequestration of assets;

(g)

request temporary prohibition of professional activity;

(h)

require authorised investment firms and regulated markets'
auditors to provide information;

(i)

adopt any type of measure to ensure that investment firms
and regulated markets continue to comply with legal
requirements;

(j)

require the suspension of trading in a financial instrument;

(k)

require the removal of a financial instrument from trading,
whether on a regulated market or under other trading
arrangements;

Article 52

Right of appeal

1. Member States shall ensure that any decision taken under
laws,
regulations or administrative provisions adopted in
accordance with this Directive is properly reasoned and is
subject
to
in respect of an
apply to the courts shall also apply where,
the
application
information required, no decision is taken within six months
of its submission.

to apply to the courts. The right

authorisation which

to the right

provides

for

all

2. Member States shall provide that one or more of the
following bodies, as determined by national law, may, in the
interests of consumers and in accordance with national
law,
take action before the courts or competent administrative
bodies to ensure that the national provisions for the implemen-
tation of this Directive are applied:

(a) public bodies or their representatives;

(l)

refer matters for criminal prosecution;

(b) consumer organisations having a legitimate interest

in

protecting consumers;

(m) allow auditors or experts to carry out verifications or

investigations.

Article 51

Administrative sanctions

1. Without prejudice to the procedures for the withdrawal
of authorisation or to the right of Member States to impose
criminal sanctions, Member States shall ensure, in conformity
law, that the appropriate administrative
with their national
sanctions be
taken or
can be
measures
imposed against the persons responsible where the provisions
adopted in the implementation of this Directive have not been
complied with. Member States shall ensure that these measures
are effective, proportionate and dissuasive.

administrative

(c) professional organisations having a legitimate interest in

acting to protect their members.

Article 53

Extra-judicial mechanism for investors' complaints

1. Member States shall encourage the setting-up of efficient
the
and effective complaints and redress procedures
out-of-court settlement of consumer disputes concerning the
provision of
investment and ancillary services provided by
investment firms, using existing bodies where appropriate.

for

2. Member States shall determine the sanctions to be applied
for failure to cooperate in an investigation covered by Article
50.

2. Member States shall ensure that those bodies are not
prevented by legal or regulatory provisions from cooperating
effectively in the resolution of cross-border disputes.

C 60 E/34

EN

Official Journal of the European Union

9.3.2004

Article 54

Professional secrecy

1. Member States shall ensure that competent authorities, all
persons who work or who have worked for the competent
authorities or entities to whom tasks are delegated pursuant
to Article 48(2), as well as auditors and experts instructed by
the competent authorities, are bound by the obligation of
information which they
professional secrecy. No confidential
may receive in the course of their duties may be divulged to
any person or authority whatsoever, save in summary or
aggregate form such that individual investment firms, market
operators, regulated markets or any other person cannot be
identified, without prejudice to cases covered by criminal law
or the other provisions of this Directive.

2. Where an investment firm, market operator or regulated
market has been declared bankrupt or is being compulsorily
wound up, confidential information which does not concern
third parties may be divulged in civil or
commercial
proceedings if necessary for carrying out the proceeding.

receive

competent

authorities which

3. Without prejudice to cases covered by criminal law, the
competent authorities, bodies or natural or legal persons other
than
confidential
information pursuant to this Directive may use it only in the
performance of
their
their duties and for the exercise of
functions,
in the case of the competent authorities, within
the scope of this Directive or, in the case of other authorities,
bodies or natural or legal persons, for the purpose for which
such information was provided to them and/or in the context
of administrative or judicial proceedings specifically related to
the exercise of those functions. However, where the competent
authority or other authority, body or person communicating
information consents
the authority receiving the
information may use it for other purposes.

thereto,

Any confidential

from exchanging

4.
information received, exchanged or
transmitted pursuant to this Directive shall be subject to the
conditions of professional secrecy laid down in this Article.
Nevertheless, this Article shall not prevent the competent auth-
orities
confidential
or
information in accordance with this Directive and with other
Directives applicable to investment firms, credit institutions,
and reinsurance
pension funds, UCITS,
inter-
insurance
regulated markets or
mediaries,
insurance undertakings
market operators or otherwise with the consent of
the
competent authority or other authority or body or natural or
legal person that communicated the information.

transmitting

This Article shall not prevent the competent authorities
5.
from exchanging or transmitting in accordance with national
law, confidential information that has not been received from a
competent authority of another Member State.

Article 55

Relations with auditors

1. Member States shall provide, at least, that any person
authorised within the meaning of Eighth Council Directive
84/253/EEC of 10 April 1984 on the approval of persons
responsible for carrying out the statutory audits of accounting
documents (1), performing in an investment
firm the task
described in Article 51 of Fourth Council Directive 78/660/EEC
of 25 July 1978 based on Article 54(3)(g) of the Treaty on the
annual accounts of certain types of companies (2), Article 37 of
Directive 83/349/EEC or Article 31 of Directive 85/611/EEC or
any other task prescribed by law, shall have a duty to report
promptly to the competent authorities any fact or decision
concerning that undertaking of which that person has
task and which is
become aware while carrying out
liable to:

that

(a) constitute a material breach of the laws, regulations or
administrative provisions which lay down the conditions
governing authorisation or which specifically govern
pursuit of the activities of investment firms;

(b) affect the continuous functioning of the investment firm;

(c)

lead to refusal to certify the accounts or to the expression
of reservations.

That person shall also have a duty to report any facts and
decisions of which the person becomes aware in the course
of carrying out one of
the tasks referred to in the first
subparagraph in an undertaking having close links with the
investment firm within which he is carrying out that task.

The disclosure in good faith to the competent authorities,
2.
by persons authorised within the meaning of Directive
84/253/EEC, of any fact or decision referred to in paragraph
1 shall not constitute a breach of any contractual or legal
restriction on disclosure of information and shall not involve
such persons in liability of any kind.

(1) OJ L 126, 12.5.1984, p. 20.
(2) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive

2003/51/EC.

9.3.2004

EN

Official Journal of the European Union

C 60 E/35

CHAPTER II

Cooperation between competent authorities of different
Member States

Article 56

Obligation to cooperate

Competent authorities of different Member States shall
1.
the
cooperate with each other whenever necessary for
purpose of carrying out
their duties under this Directive,
making use of their powers whether set out in this Directive
or in national law.

Competent authorities shall render assistance to competent
authorities of
they
shall exchange information and cooperate in any investigation
or supervisory activities.

the other Member States.

In particular,

the purposes of

In order to facilitate and accelerate cooperation, and more
particularly exchange of
information, Member States shall
designate one single competent authority as a contact point
for
shall
communicate to the Commission and to the other Member
States the names of the authorities which are designated to
receive requests for exchange of information or cooperation
pursuant to this paragraph.

this Directive. Member States

in the host Member State,

2. When, taking into account the situation of the securities
markets
the operations of a
regulated market that has established arrangements in a host
Member State have become of substantial importance for the
functioning of the securities markets and the protection of the
investors in that host Member State,
the home and host
competent authorities of the regulated market shall establish
proportionate cooperation arrangements.

3. Member States shall take the necessary administrative and
organisational measures to facilitate the assistance provided for
in paragraph 1.

Competent authorities may use their powers for the purpose of
cooperation, even in cases where the conduct under investi-
gation does not constitute an infringement of any regulation in
force in that Member State.

4. Where a competent authority has good reasons
to
suspect that acts contrary to the provisions of this Directive,
carried out by entities not subject to its supervision, are being
or have been carried out on the territory of another Member
State, it shall notify this in as specific a manner as possible to
the competent authority of the other Member State. The latter
authority shall
inform the
notifying competent authority of the outcome of the action
and, to the extent possible, of significant interim developments.
This paragraph shall be without prejudice to the competences
of the competent authority that has forwarded the information.

take appropriate action.

It shall

5.
2 the Commission may adopt,
referred
procedure

In order to ensure the uniform application of paragraph
in accordance with the
implementing

in Article 64(2),

to

measures to establish the criteria under which the operations
in a host Member State could be
of a regulated market
considered as of substantial
importance for the functioning
of the securities markets and the protection of the investors
in that host Member State.

Article 57

Cooperation in supervisory activities, on-the-spot
verifications or in investigations

A competent authority of one Member State may request the
cooperation of the competent authority of another Member
State in a supervisory activity or for an on-the-spot verification
or in an investigation. In the case of investment firms that are
remote members of a
competent
the regulated market may choose to address
authority of
them directly,
inform the competent
authority of the home Member State of the remote member
accordingly.

in which case it shall

regulated market

the

Where a competent authority receives a request with respect to
an on-the-spot verification or an investigation, it shall, within
the framework of its powers:

(a) carry out the verifications or investigations itself; or

(b) allow the requesting authority to carry out the verification

or investigation; or

(c) allow auditors or experts to carry out the verification or

investigation.

Article 58

Exchange of information

1.
Competent authorities of Member States having been
designated as
contact points
this
immediately
Directive in accordance with Article 56(1) shall
supply one another with the information required for the
purposes of carrying out the duties of the competent auth-
orities, designated in accordance with Article 48(1), set out
in the provisions adopted pursuant to this Directive.

the purposes of

for

Competent authorities exchanging information with other
competent authorities under this Directive may indicate at
the time of communication that such information must not
be disclosed without their express agreement,
in which case
such information may be exchanged solely for the purposes
for which those authorities gave their agreement.

The competent authority having been designated as the
2.
contact point may transmit the information received under
paragraph 1 and Articles 55 and 63 to the authorities
referred to in Article 49. They shall not transmit it to other
the express
bodies or natural or
agreement of
the competent authorities which disclosed it
and solely for the purposes for which those authorities gave
their agreement, except in duly justified circumstances. In this
last case,
immediately inform the
contact point that sent the information.

the contact point shall

legal persons without

C 60 E/36

EN

Official Journal of the European Union

9.3.2004

Authorities as referred to in Article 49 as well as other
3.
bodies or natural and legal persons receiving confidential
information under paragraph 1 of
this Article or under
Articles 55 and 63 may use it only in the course of their
duties, in particular:

(a) to check that the conditions governing the taking-up of the
business of investment firms are met and to facilitate the
monitoring, on a non-consolidated or consolidated basis, of
the conduct of that business, especially with regard to the
capital
imposed by Directive
93/6/EEC, administrative and accounting procedures and
internal-control mechanisms;

requirements

adequacy

(b) judicial proceedings have already been initiated in respect
of the same actions and the same persons before the auth-
orities of the Member State addressed;

(c)

final judgment has already been delivered in the Member
State addressed in respect of the same persons and the
same actions.

In the case of such a refusal, the competent authority shall
notify
accordingly,
competent
providing as detailed information as possible.

requesting

authority

the

(b) to monitor the proper functioning of trading venues;

Inter-authority consultation prior to authorisation

Article 60

(c) to impose sanctions;

(d) in administrative

appeals

against

decisions

by

the

competent authorities;

(e)

in court proceedings initiated under Article 52; or

(f)

in the extra-judicial mechanism for investors' complaints
provided for in Article 53.

The competent authorities of the other Member State
1.
involved shall be consulted prior to granting authorisation to
an investment firm which is:

(a) a subsidiary of an investment firm or credit

institution

authorised in another Member State; or

(b) a subsidiary of the parent undertaking of an investment
firm or credit institution authorised in another Member
State; or

The Commission may adopt,

4.
procedure
measures
information between competent authorities.

in Article 64(2),
the

referred
concerning

procedures

in accordance with the
implementing
of
exchange

for

to

5.
Articles 54, 58 and 63 shall not prevent a competent
authority from transmitting to central banks, the European
System of Central Banks and the European Central Bank,
in
their capacity as monetary authorities, and, where appropriate,
to other public authorities responsible for overseeing payment
and settlement systems, confidential information intended for
the performance of their tasks;
likewise such authorities or
bodies shall not be prevented from communicating to the
competent authorities such information as they may need for
the purpose of performing their functions provided for in this
Directive.

Article 59

Refusal to cooperate

A competent authority may refuse to act on a request for
cooperation in carrying out an investigation, on-the-spot verifi-
cation or supervisory activity as provided for in Article 57 or
to exchange information as provided for in Article 58 only
where:

(a) such an investigation, on-the-spot verification, supervisory
activity or exchange of information might adversely affect
the sovereignty, security or public policy of
the State
addressed;

(c) controlled by the same natural or legal persons as control
institution authorised in

firm or credit

an investment
another Member State.

2.
The competent authority of the Member State responsible
for the supervision of credit institutions or insurance under-
takings shall be consulted prior to granting an authorisation to
an investment firm which is:

(a) a subsidiary of a credit institution or insurance undertaking

authorised in the Community; or

(b) a subsidiary of the parent undertaking of a credit institution
or insurance undertaking authorised in the Community; or

(c) controlled by the same person, whether natural or legal,
who controls a credit institution or insurance undertaking
authorised in the Community.

the

the

The

relevant

authorities

competent

3.
referred to in
paragraphs 1 and 2 shall
in particular consult each other
shareholders or
suitability of
when assessing
members and the reputation and experience of persons who
effectively direct the business involved in the management of
another entity of the same group. They shall exchange all
shareholders or
information regarding the
members and the reputation and experience of persons who
effectively direct the business that is of relevance to the other
competent authorities involved, for the granting of an author-
isation as well as for the ongoing assessment of compliance
with operating conditions.

suitability of

9.3.2004

EN

Official Journal of the European Union

C 60 E/37

Article 61

Powers for host Member States

1.
Host Member States may, for statistical purposes, require
all investment firms with branches within their territories to
report to them periodically on the activities of those branches.

2.
In discharging their responsibilities under this Directive,
host Member States may require branches of investment firms
to provide the information necessary for the monitoring of
their compliance with the standards set by the host Member
State that apply to them for the cases provided for in Article
32(7). Those requirements may not be more stringent than
those which the same Member State imposes on established
firms for the monitoring of their compliance with the same
standards.

Article 62

Precautionary measures to be taken by host Member
States

1. Where the competent authority of the host Member State
has clear and demonstrable grounds for believing that an
investment firm acting within its territory under the freedom
to provide services is in breach of the obligations arising from
the provisions adopted pursuant to this Directive or that an
investment firm that has a branch within its territory is in
breach of the obligations arising from the provisions adopted
pursuant to this Directive which do not confer powers on the
competent authority of the host Member State, it shall refer
those findings to the competent authority of the home Member
State.

the orderly

If, despite the measures taken by the competent authority of
the home Member State or because such measures prove inad-
equate, the investment firm persists in acting in a manner that
to the interests of host Member State
is clearly prejudicial
the
investors or
functioning of markets,
competent
after
authority of
State,
the home Member
informing the competent authority of
State shall take all the appropriate measures needed in order
to protect investors and the proper functioning of the markets.
include the possibility of preventing offending
This
shall
transactions
firms
investment
within their territories. The Commission shall be informed of
such measures without delay.

from initiating any further

the host Member

to those provisions of this
adopted in that State pursuant
Directive which confer powers on the host Member State's
competent authorities,
require the
investment
firm concerned to put an end to its irregular
situation.

those authorities

shall

the competent authorities of
take all appropriate measures

If the investment firm concerned fails to take the necessary
the host Member State
steps,
that
to ensure
shall
the
investment
irregular
firm concerned puts an end to its
situation. The nature of those measures shall be communicated
to the competent authorities of the home Member State.

If, despite the measures taken by the host Member State, the
investment firm persists in breaching the legal or regulatory
provisions referred to in the first subparagraph in force in the
host Member State,
informing the
competent authorities of the home Member State, take appro-
priate measures to prevent or to penalise further irregularities
and,
in so far as necessary, to prevent that investment firm
from initiating any further transactions within its territory. The
Commission shall be informed of such measures without delay.

the latter may, after

3. Where the competent authority of the host Member State
of a regulated market or an MTF has clear and demonstrable
grounds for believing that such regulated market or MTF is in
breach of the obligations arising from the provisions adopted
pursuant to this Directive, it shall refer those findings to the
the
competent authority of
regulated market or the MTF.

the home Member State of

If, despite the measures taken by the competent authority of
the home Member State or because such measures prove inad-
equate, the said regulated market or the MTF persists in acting
in a manner that is clearly prejudicial to the interests of host
Member State investors or the orderly functioning of markets,
the host Member State, after
the competent authority of
informing the competent authority of
the home Member
State, shall take all the appropriate measures needed in order
to protect investors and the proper functioning of the markets.
This
include the possibility of preventing the said
regulated market or the MTF from making their arrangements
available to remote members or participants established in the
host Member State. The Commission shall be informed of such
measures without delay.

shall

2. Where the competent authorities of a host Member State
ascertain that an investment firm that has a branch within its
territory is in breach of the legal or regulatory provisions

4.
Any measure adopted pursuant to paragraphs 1, 2 or 3
involving sanctions or restrictions on the activities of an
investment firm or of a regulated market shall be properly
justified and communicated to the investment firm or to the
regulated market concerned.

C 60 E/38

EN

Official Journal of the European Union

9.3.2004

CHAPTER III

Cooperation with third countries

Article 63

Exchange of information with third countries

where appropriate, solely for the purposes for which those
authorities gave their agreement. The same provision applies
to information provided by third country competent auth-
orities.

for

the

exchange of

1. Member States may conclude cooperation agreements
providing
information with the
competent authorities of third countries only if the information
disclosed is subject to guarantees of professional secrecy at least
equivalent to those required under Article 54. Such exchange
of information must be intended for the performance of the
tasks of those competent authorities.

TITLE V

FINAL PROVISIONS

Article 64

Committee procedure

Member States may transfer personal data to a third country in
accordance with Chapter IV of Directive 95/46/EC.

1.
The Commission shall be assisted by the European
Securities Committee established by Commission Decision
2001/528/EC (1) (hereinafter referred to as the Committee).

Member States may also conclude cooperation agreements
providing for the exchange of information with third country
authorities, bodies and natural or legal persons responsible for:

2. Where reference is made to this paragraph, Articles 5 and
7 of Decision 1999/468/EC shall apply, having regard to the
provisions of Article 8 thereof, provided that the implementing
measures adopted in accordance with that procedure do not
modify the essential provisions of this Directive.

(i) the supervision of credit

financial
organisations, insurance undertakings and the supervision
of financial markets;

institutions, other

The period laid down in Article 5(6) of Decision 1999/468/EC
shall be set at three months.

(ii) the liquidation and bankruptcy of investment firms and

other similar procedures;

(iii) carrying out statutory audits of the accounts of investment
institutions
firms and other financial
and insurance undertakings,
in the performance of their
supervisory functions, or which administer compensation
schemes, in the performance of their functions;

institutions, credit

the application of

requiring the adoption of

3. Without prejudice to the implementing measures already
adopted, on the expiry of a four-year period following the
its
entry into force of
this Directive,
provisions
rules and
decisions in accordance with paragraph 2 shall be suspended.
On a proposal from the Commission, the European Parliament
and the Council may renew the provisions concerned in
accordance with the procedure laid down in Article 251 of
the Treaty and, to that end, they shall review them prior to
the expiry of that period.

technical

(iv) overseeing the bodies involved in the liquidation and bank-
ruptcy of investment firms and other similar procedures;

Article 65

Reports and review

(v) overseeing persons charged with carrying out statutory
audits of the accounts of insurance undertakings, credit
insti-
institutions,
tutions,

firms and other financial

investment

Before . . . (*),

1.
the Commission shall, on the basis of
public consultation and in the light of discussions with
competent authorities, report to the European Parliament and
the
Council on the possible extension of
provisions of the Directive concerning pre and post-trade trans-
parency obligations to transactions in classes of
financial
instrument other than shares.

the scope of

only if the information disclosed is subject to guarantees of
to those required
professional
secrecy at
under Article 54. Such exchange of
information must be
intended for the performance of the tasks of those authorities
or bodies or natural or legal persons.

least equivalent

2.
Before . . . (**), the Commission shall present a report to
the European Parliament and to the Council on the application
of Article 27.

2. Where the information originates in another Member
State, it may not be disclosed without the express agreement
of the competent authorities which have transmitted it and,

(1) OJ L 191, 13.7.2001, p. 45. Decision as last amended by Decision

2004/8/EC (OJ L 3, 7.1.2004, p. 33).

(*) 2 years after the entry into force of this Directive.
(**) 3 years after the entry into force of this Directive.

9.3.2004

EN

Official Journal of the European Union

C 60 E/39

Before . . . (*),

the Commission shall, on the basis of
3.
public consultations and in the light of discussions with
competent authorities, report to the European Parliament and
Council on:

(a) the continued appropriateness of

the exemption under
Article 2(1)(k) for undertakings whose main business is
dealing on own account in commodity derivatives;

1. Article 2(2) shall be replaced by the following:

‘2.

Investment firms shall mean all institutions that satisfy
the definition in Article 4(1) of Directive 2004/. . ./EC of
the European Parliament and of the Council of . . . on
markets in financial instruments (*), which are subject to
the requirements
imposed by the same Directive,
excluding:

(b) the content and form of proportionate requirements for the
authorisation and supervision of such undertakings as
investment firms within the meaning of this Directive;

(a) credit institutions;

(c) the appropriateness of rules concerning the appointment of
tied agents
services and/or
in performing investment
activities, in particular with respect to the supervision on
them;

(d) the continued appropriateness of

the exemption under

Article 2(1)(i).

Before . . . (*), the Commission shall present a report to
4.
the European Parliament and the Council on the state of the
removal of the obstacles which may prevent the consolidation
at the European level of the information that trading venues
are required to publish.

On the basis of the reports referred to in paragraphs 1 to
related

submit proposals

5.
4,
the Commission may
amendments to this Directive.

for

Before . . . (**),

the Commission shall,

in the light of
6.
discussions with
to the
report
European Parliament and Council on the continued appropri-
indemnity
ateness of
insurance imposed on intermediaries under Community law.

for professional

requirements

authorities,

competent

the

Article 66

Amendment of Directive 85/611/EEC

(b) local firms as defined in 20; and

(c)

firms which are only authorised to provide the
service of
investment advice and/or receive and
in both
transmit orders from investors without
cases holding money or securities belonging to
their clients and which for that reason may not at
any time place themselves in debit with their clients.

___________
(*) OJ L . . .’;

2. Article 3(4) shall be replaced by the following:

‘4.
The firms referred to in point (b) of Article 2(2) shall
have initial capital of EUR 50 000 in so far as they benefit
from the freedom of establishment or to provide services
under Articles 31 or 32 of Directive 2004/. . ./EC.’;

3. In Article 3 the following paragraphs shall be inserted:

Pending revision of Directive 93/6/EC,

‘4a.
referred to in point (c) of Article 2(2) shall have:

the firms

In Article 5 of Directive 85/611/EEC, paragraph 4 shall be
replaced by the following:

(a)

initial capital of EUR 50 000; or

Articles 2(2), 12, 13 and 19 of Directive
‘4.
the
2004/. . ./EC of
Council of
instruments (*),
shall apply to the provision of the services referred to in
paragraph 3 of this Article by management companies.

the European Parliament and of

. . . on markets in financial

___________
(*) OJ L . . .’.

Article 67

Amendment of Directive 93/6/EEC

Directive 93/6/EEC shall be amended as follows:

(*) 30 months after the entry into force of this Directive.
(**) One year after the entry into force of this Directive.

(b) professional

indemnity insurance covering the whole
territory of the Community or some other comparable
liability arising from professional
guarantee against
EUR 1 000 000
negligence,
applying
aggregate
in
EUR 1 500 000 per year for all claims; or

least
claim and

representing
each

to

at

(c) a

combination of

and professional
indemnity insurance in a form resulting in a level of
coverage equivalent to points (a) or (b).

capital

initial

The amounts referred to in this paragraph shall be period-
ically reviewed by the Commission in order to take account
of changes in the European index of consumer prices as
published by Eurostat, in line with and at the same time
as the adjustments made under Article 4(7) of Directive
2002/92/EC of the European Parliament and the Council
of 9 December 2002 on insurance mediation (*).

C 60 E/40

EN

Official Journal of the European Union

9.3.2004

firm referred to in Article
4b. When an investment
2(2)(c),
is also registered under Directive 2002/92/EC it
has to comply with the requirement established by Article
4(3), of that Directive and in addition it has to have:

(a)

initial capital of EUR 25 000; or

(b) professional

indemnity insurance covering the whole
territory of the Community or some other comparable
liability arising from professional
guarantee against
negligence,
EUR 500 000
applying to each claim and in aggregate EUR 750 000
per year for all claims; or

representing

least

at

(c) a

combination of

and professional
indemnity insurance in a form resulting in a level of
coverage equivalent to points (a) or (b).

capital

initial

___________
(*) OJ L 9, 15.1.2003, p. 3.’.

Article 68

Amendment of Directive 2000/12/EC

Annex I to Directive 2000/12/EC shall be amended as follows:

At the end of Annex I the following sentence is added:

‘The services and activities provided for in Section A and B
the European
to Directive 2004/. . ./EC of
of Annex I
Parliament and of
. . . on markets in
the Council of
financial
instruments (*) when referring to the financial
instruments provided for in Section C of Annex I to that
Directive are subject to mutual recognition according to
this Directive.

___________
(*) OJ L.’

Article 69

Repeal of Directive 93/22/EEC

Directive 93/22/EEC shall be repealed with effect from . . . (*).
References
to Directive 93/22/EEC shall be construed as
references to this Directive. References to terms defined in,
or Articles of, Directive 93/22/EEC shall be construed as
references to the equivalent
term defined in, or Article of,
this Directive.

at

. . . (*)
Commission thereof.

the

latest. They

shall

forthwith inform the

When Member States adopt these measures, they shall contain
a reference to this Directive or shall be accompanied by such
reference on the occasion of their official publication. The
methods of making such reference shall be laid down by the
Member States.

Article 71

Transitional provisions

Investment

firms already authorised in their home
1.
services before the
Member State to provide investment
. . . (*), shall be deemed to be so authorised for the purpose
of this Directive, if the laws of those Member States provide
that
they must comply with
conditions comparable to those imposed in Articles 9 to 14.

to take up such activities

2.
A regulated market or a market operator already auth-
orised in its home Member State before the . . . (*), shall be
deemed to be so authorised for the purposes of this Directive,
if the laws of such Member State provide that the regulated
market or market operator (as the case may be) must comply
with conditions comparable to those imposed in title III.

3.
Tied agents already entered in a public register before the
. . . (*), shall be deemed to be so registered for the purposes of
this Directive, if the laws of those Member States provide that
tied agents must comply with conditions comparable to those
imposed in Article 23.

Information communicated before the . . . (*),

4.
for the
purposes of Articles 17, 18 or 30 of Directive 93/22/EEC
shall be deemed to have been communicated for
the
purposes of Articles 31 and 32 of this Directive.

Article 72

Entry into force

This Directive shall enter into force on the day of its publi-
cation in the Official Journal of the European Union.

Article 73

Addressees

This Directive is addressed to the Member States.

Article 70

Transposition

. . .

Member States shall adopt the laws, regulations and adminis-
trative provisions necessary to comply with this Directive by

For the European Parliament

For the Council

The President

The President

(*) 24 months after the entry into force of this Directive.

9.3.2004

EN

Official Journal of the European Union

C 60 E/41

LIST OF SERVICES AND ACTIVITIES AND FINANCIAL INSTRUMENTS

ANNEX I

Section A: Investment services and activities

1. Reception and transmission of orders in relation to one or more financial instruments

2. Execution of orders on behalf of clients

3. Dealing on own account

4. Portfolio management

5. Investment advice

6. Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis

7. Placing of financial instruments without a firm commitment basis

8. Operation of multilateral trading facilities

Section B: Ancillary services

1. Safekeeping and administration of financial

instruments for the account of clients,

including custodianship and

related services such as cash/collateral management

2. Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments,

where the firm granting the credit or loan is involved in the transaction

3. Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to

mergers and the purchase of undertakings

4. Foreign exchange services where these are connected to the provision of investment services

5. Investment research and financial analysis or other forms of general recommendation relating to transactions in

financial instruments

6. Services related to underwriting

Section C: Financial Instruments

1. Transferable securities

2. Money market instruments

3. Units in collective investment undertakings

4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies,
interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled
physically or in cash

5. Options, futures, swaps, and any other derivative contract relating to commodities that can be settled in cash

6. Options, futures, swaps, and any other derivative contract relating to commodities that can only be physically settled

provided that they are traded on a regulated market and/or an MTF

7. Derivative instruments for the transfer of credit risk

8. Financial contracts for differences

C 60 E/42

EN

Official Journal of the European Union

9.3.2004

PROFESSIONAL CLIENTS FOR THE PURPOSE OF THIS DIRECTIVE

ANNEX II

Professional client is a client who possesses the experience, knowledge and expertise to make its own investment
decisions and properly assess the risks that it incurs. In order to be considered a professional client, the client must
comply with the following criteria:

I. Categories of client who are considered to be professionals

The following should all be regarded as professionals in all investment services and activities and financial instruments
for the purposes of the Directive.

1. Entities which are required to be authorised or regulated to operate in the financial markets. The list below should be
understood as including all authorised entities carrying out the characteristic activities of the entities mentioned:
entities authorised by a Member State under a directive, entities authorised or regulated by a Member State without
reference to a directive, and entities authorised or regulated by a non-Member State:

(a) credit institutions;

(b) investment firms;

(c) other authorised or regulated financial institutions;

(d)

insurance companies;

(e) collective investment schemes and management companies of such schemes;

(f) pension funds and management companies of such funds;

(g) commodity and commodity derivatives dealers;

(h) locals;

(i) other institutional investors.

2. Large undertakings meeting two of the following size requirements on a company basis:

— balance sheet total: EUR 20 000 000,

— net turnover: EUR 40 000 000,

— own funds: EUR 2 000 000.

3. National and regional governments, public bodies that manage public debt, Central Banks, international and supra-
national institutions such as the World Bank, the IMF, the ECB, the EIB and other similar international organisations.

The entities mentioned above are considered to be professionals. They must however be allowed to request
non-professional treatment and investment firms may agree to provide a higher level of protection. Where the client
of an investment firm is an undertaking referred to above, the investment firm must inform it prior to any provision of
services that, on the basis of the information available to the firm, the client is deemed to be a professional client, and
will be treated as such unless the firm and the client agree otherwise. The firm must also inform the customer that he
can request a variation of the terms of the agreement in order to secure a higher degree of protection.

It is the responsibility of the client, considered to be a professional client, to ask for a higher level of protection when it
deems it is unable to properly assess or manage the risks involved.

This higher level of protection will be provided when a client who is considered to be a professional enters into a
written agreement with the investment firm to the effect that it shall not be treated as a professional for the purposes of
the applicable conduct of business regime. Such agreement should specify whether this applies to one or more particular
services or transactions, or to one or more types of product or transaction.

9.3.2004

EN

Official Journal of the European Union

C 60 E/43

II. Clients who may be treated as professionals on request

II.1. Identification criteria

Clients other than those mentioned in section I, including public sector bodies and private individual investors, may also
be allowed to waive some of the protections afforded by the conduct of business rules.

Investment firms should therefore be allowed to treat any of the above clients as professionals provided the relevant
criteria and procedure mentioned below are fulfilled. These clients should not, however, be presumed to possess market
knowledge and experience comparable to that of the categories listed in section I.

Any such waiver of the protection afforded by the standard conduct of business regime shall be considered valid only if
an adequate assessment of the expertise, experience and knowledge of the client, undertaken by the investment firm,
gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of
making his own investment decisions and understanding the risks involved.

The fitness test applied to managers and directors of entities licensed under directives in the financial field could be
regarded as an example of the assessment of expertise and knowledge. In the case of small entities, the person subject to
the above assessment should be the person authorised to carry out transactions on behalf of the entity.

In the course of the above assessment, as a minimum, two of the following criteria should be satisfied:

— the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per

quarter over the previous four quarters,

— the size of the client's financial instrument portfolio, defined as including cash deposits and financial instruments

exceeds EUR 500 000,

— the client works or has worked in the financial sector for at least one year in a professional position, which requires

knowledge of the transactions or services envisaged.

II.2. Procedure

The clients defined above may waive the benefit of the detailed rules of conduct only where the following procedure is
followed:

— they must state in writing to the investment firm that they wish to be treated as a professional client, either

generally or in respect of a particular investment service or transaction, or type of transaction or product,

— the investment firm must give them a clear written warning of the protections and investor compensation rights

they may lose,

— they must state in writing, in a separate document from the contract, that they are aware of the consequences of

losing such protections.

Before deciding to accept any request for waiver, investment firms must be required to take all reasonable steps to
ensure that the client requesting to be treated as a professional client meets the relevant requirements stated in Section
II.1. above.

However, if clients have already been categorised as professionals under parameters and procedures similar to those
above, it is not intended that their relationships with investment firms should be affected by any new rules adopted
pursuant to this Annex.

Firms must implement appropriate written internal policies and procedures to categorise clients. Professional clients are
responsible for keeping the firm informed about any change, which could affect their current categorisation. Should the
investment firm become aware however that the client no longer fulfils the initial conditions, which made him eligible
for a professional treatment, the investment firm must take appropriate action.

C 60 E/44

EN

Official Journal of the European Union

9.3.2004

STATEMENT OF THE COUNCIL'S REASONS

I. INTRODUCTION

1. On 22 November 2002 the Commission presented its proposal for a directive of the European
Parliament and the Council on investment services and regulated markets (1) to replace the current
investment services Directive.

2. The European Central Bank delivered its opinion on 12 June 2003 (2) and the Economic and Social
Committee adopted its opinion on 18 June 2003 (3). The European Parliament gave its opinion in
the first reading on 25 September 2003 (4).

3. On 8 December 2003, the Council adopted its common position pursuant to Article 251 of the

Treaty.

II. OBJECTIVE

The Directive is a key element in the implementation of the Financial Services Action Plan.

Its overall objective is the creation of an integrated financial market in which investors are effectively
protected and the efficiency and integrity of the overall market are safeguarded. This is to be achieved
by the establishment of common regulatory requirements relating to investment firms wherever they
are authorised in the Community and governing the functioning of regulated markets and other trading
systems.

The Directive will increase harmonisation of national rules and give investment firms an effective ‘single
passport’, which will allow them to operate throughout the European Union on the basis of author-
isation in their home Member State. It will also ensure that investors enjoy a high level of protection
when making use of investment firms, wherever they are located in the European Union. It seeks to
establish, for the first time, a comprehensive regulatory framework governing the organised execution
of investor transactions by exchanges, other multilateral trading systems and investment firms.

The proposed directive will replace the previous investment services Directive, Directive 93/22/EEC,
which laid down a regulatory framework which no longer provides an adequate response to pressing
regulatory issues caused by evolving market structures and business and supervisory practices.

III. ANALYSIS OF THE COMMON POSITION

The common position is broadly in line with the Commission proposal. The main changes which the
Council has made to the Commission proposal are set out below. In addition, the common position
makes some minor changes to the Commission proposal, predominantly with regard to technical
aspects of the wording in order to enhance legal certainty, to make the text clearer or to facilitate
implementation.

The Council has aimed throughout to strike a balance between the need to ensure appropriate investor
protection and the need to avoid unnecessary regulatory requirements which might hinder the effective
functioning of the financial instruments markets.

(1) OJ C 71 E, 25.3.2003, p. 62.
(2) OJ C 144, 20.6.2003, p. 6.
(3) OJ C 220, 16.9.2003, p. 1.
(4) Not yet published in the Official Journal.

9.3.2004

EN

Official Journal of the European Union

C 60 E/45

There is a large degree of convergence between the approach taken by the Council in the common
position and that proposed by the European Parliament, although in many places the common position
is drafted in a way that is technically different. The common position includes 72 of the amendments
proposed by the European Parliament in full or in part. Thirty-six amendments (amendments 4, 14, 16,
22, 23, 28, 35, 39, 40, 44, 50, 51, 52, 53, 60, 63, 64, 65, 67, 77, 88, 151, 95, 99, 158, 101, 104,
106, 114, 116, 117, 118, 128, 133, 134, 135) are included, either as initially proposed or in a
reworded form that incorporates the spirit of the amendment, and an additional 36 amendments
(amendments 1, 3, 6, 9, 12, 15, 156, 157, 25, 27, 32, 33, 36, 38, 149, 54, 61, 66, 69, 70, 73,
75, 76, 78, 80, 82, 86, 94, 98, 103, 108, 109, 112, 122, 130, 132) have been included in part. It was
not possible to include the remaining 74 amendments.

Title I — Definitions and scope

The scope is essentially that proposed by the Commission.

Careful consideration was given to the issue as to which articles in the Directive should apply to banks,
in order to avoid subjecting banks authorised to provide investment services under banking legislation
to a second set of authorisation requirements, this being the concern which had inspired European
Parliament amendment 12. Article 1 has been amended accordingly. Recital 18 makes it clear that when
a bank decides to provide investment services or activities, the competent authorities shall verify that it
complies with the provisions of this Directive before granting an authorisation.

In addition to some more technical amendments to the exemptions proposed by the Commission, two
additional exemptions have been introduced in Article 2, since it was not deemed appropriate to subject
these groups to the requirements of the Directive:

— persons who do not provide any investment services or activities other than dealing on own
account and which cannot be categorised as market makers or as dealing on own account
outside a regulated market or an MTF on an organised, regular and systematic basis, Article
2(1)(d), and

— persons providing investment advice in the course of providing another professional activity not
covered by this Directive provided that the provision of such advice is not specifically remunerated,
Article 2(1)(j).

The changes made to Article 2(1)(k) (point (i) in the Commission proposal) include part of European
Parliament amendment 15 and the changes to Article 2(1)(l) (point (j) in the Commission proposal)
incorporate the spirit of amendment 16 of the European Parliament.

Additional clarification on how to understand the exemptions is given in the recitals:

— recital 8 makes it clear that persons administrating their own assets are not covered by the scope of
this Directive, this is in line with the spirit of amendment 4 proposed by the European Parliament,

— recital 16 makes it clear that in order to benefit from the exemptions laid down in Article 2 the
person concerned has to comply on a continuous basis with the conditions laid down in that
Article. In particular,
if an undertaking provides investment services and is exempted from this
Directive because such services or activities are ancillary to its main business, when considered on a
group basis, such services will no longer be covered by the exemption relating to ancillary services
where the provision of those services or activities ceases to be ancillary to its main business,

— where an investment firm provides one or more investment services not covered by its author-
isation, or performs one or more investment activities not covered by its authorisation, on a
it does not need an additional authorisation under this Directive, recital 19.
non-regular basis,

C 60 E/46

EN

Official Journal of the European Union

9.3.2004

Article 3 of the common position introduces an option for Member States to exempt persons allowed
essentially only to receive and transmit orders, and never hold clients' funds or securities. Such firms
were exempted from the scope of Directive 93/22/EEC, and the Council found it appropriate to grant
Member States the option of continuing to exempt such firms. The common position thus incorporates
parts of European Parliament amendments 156 and 157.

The definitions set out in Article 4 (Article 3 of the Commission proposal) have been adapted to take
account of the changes to the text of the enacting terms in the Commission proposal which are
‘market maker’,
explained below. New definitions of the terms ‘systematic internaliser’,
‘portfolio
management’ and ‘retail client’ have been added and the definition of
‘market order’ has been
deleted as unnecessary. European Parliament amendments 22, 23 and 28 have been included in full
in the common position and amendments 25, 27, 32 and 33 have been included in part.

Annex I has also been amended: in section A, point 4 has been clarified and point 6 of the Commission
proposal was split into two separate points, one relating to underwriting and one to the service of
placement. In section B the common position introduces a new ancillary service, namely services
relating to underwriting, and the text of section C has been refined and made more precise.
European Parliament amendment 1 on commodities has been incorporated in part into recital 4.

Recital 9 further makes it clear that where reference is made in the text to persons, this is to be
understood as both natural and legal persons, and thus includes the spirit of several of the European
Parliament's amendments (amendments 6, 14, 15, 16 and 130) which amended the Commission
proposal to make this clear.

Title II — Authorisation and operating conditions for investment firms

Chapter I — Conditions and procedures for authorisation

Regarding the conditions and procedures for authorisation, the common position largely follows the
Commission proposal.

In Article 5 (Article 4 of the Commission proposal):

— the provision giving natural persons the right to be authorised as investment firms has been
transferred to the definition of investment firm in Article 4(1) and the wording of Article 5(1)
and (2) has been made more specific,

— MTFs are made subject to all the provisions of Title II Chapter 1, thus including European

Parliament amendment 35,

— the provision relating to the head office of an investment firm, previously found in Article 3(2) of

Directive 93/22/EEC, remains in Article 5(4),

— the provision permitting delegation in recital 5 has been aligned with the common position's
general approach of the on delegation, which does not allow delegation of public authority or
discretionary powers.

9.3.2004

EN

Official Journal of the European Union

C 60 E/47

Articles 6 to 11 of the common position (Articles 5 to 10 of the Commission proposal) are essentially
unchanged compared to the Commission proposal. However,
the
Commission proposal) the functions of the competent authorities have been set out more clearly,
and Article 10(4) has been completed so that it also covers authorised UCITS management companies.

in Article 10(1)

(Article 9 of

Article 12 retains the text set out in Article 11(1) of the Commission proposal. The Council finds that
the provision set out in Article 11(2) of the Commission proposal amends Directive 93/6/EEC and for
this reason it is set out, in its amended form, in Article 67 of the common position, which amends that
Directive (see below).

The changes to Article 13 (Article 12 of the Commission proposal) must been read together with those
made to Article 18 (Article 16 of the Commission proposal). Without introducing any major changes
to the organisational requirements, the common position introduces wording aimed at separating the
provisions relating to conflicts of interest set out in Article 18 from the provisions on organisational
requirements set out in Article 13. The wording of the first five paragraphs, in particular, has been
made more specific, and paragraphs 5 and 6 of the Commission proposal have been merged. European
Parliament amendments 39 and 40 have been incorporated and amendment 38 partially incorporated
in the new wording of paragraph 2.

Recitals 25 and 26 make it clear that the principle of the separation of clients' funds from those of the
firm, set out in Article 13(8), should not prevent a firm from doing business in its own name but on
behalf of the investor, where that is required by the very nature of the transaction and the investor is in
agreement, for example stock lending. Likewise, where a client, in line with Community legislation and
in particular the financial collateral Directive (1), transfers full ownership of financial instruments or
funds to an investment firm for the purpose of securing or otherwise covering present or future, actual
or contingent or prospective obligations, such financial
instruments or funds shall no longer be
regarded as belonging to the client.

Article 14 (Article 13 of the Commission proposal) on the trading process and finalisation of trans-
actions in an MTF has been supplemented with additional provisions regarding the financial
instruments that can be traded, as well as the availability of information, drafted with a view to
ensuring the necessary flexibility, given the diverse nature of MTFs. The common position does not
retain the ‘best price’ requirement set out in the Commission proposal. This together with the built-in
flexibility in the drafting of the article meet some of the concerns which inspired European Parliament
amendment 149.

As proposed by the European Parliament in amendment 44, membership of an MTF is no longer linked
to the concept of eligible counterparties.
the rules concerning
membership must be transparent, based on objective criteria, and comply with the conditions for
membership of a regulated market set out in Article 42(3). In addition, it is stated that the client
protection provisions in Articles 19, 21 and 22 are not applicable to transactions concluded under the
rules governing an MTF between its members or participants or between the MTF and its members or
participants in relation to the use of the MTF.

the Article states that

Instead,

It was thought unnecessarily burdensome to require the rules and procedures of an MTF to be subject
to prior approval by the Member State, given that an investment firm operating an MTF is subject at all
times to ongoing supervision in accordance with the general provision in Article 17.

(1) Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral

arrangements (OJ L 168, 27.6.2002, p. 43).

C 60 E/48

EN

Official Journal of the European Union

9.3.2004

The Council did not find a need for implementing measures adopted at Community level in Article 14
and the last paragraph of Article 13 of the Commission proposal is therefore not included in the
common position.

Article 15 essentially retains the text of Article 14 of the Commission proposal.

Chapter II — Operating conditions for investment firms

Article 15 of the Commission proposal has been split into two separate articles in the common
position. One, Article 16 dealing with the regular review of conditions for initial authorisation, and
the other, Article 17 concerning general obligations in respect of ongoing supervision. The wording has
the
been made more flexible and dynamic,
provisions permitting delegation have been aligned with the general approach of
the common
position on delegation, which is not to allow delegation of public authority or discretionary powers.

focusing on supervisory processes. As in Article 5,

Article 18 (Article 16 of the Commission proposal) has been restructured together with Article 13, see
above, and its scope extended to cover also conflicts between an investment firm and persons linked
directly or indirectly by control.

Article 17 of the Commission proposal has been deleted as superfluous.

Article 19 (Article 18 of the Commission proposal) relating to conduct of business obligations has been
clarified and made more nuanced than in the Commission proposal. Regarding the requirement that an
investment firm should assess the client, his financial situation and investment objectives as well as his
knowledge of the investment field, in order to recommend a suitable financial instrument, the so-called
suitability test, the text now makes provision for a gradual approach. Depending on the service
demanded:

— a full suitability test must be applied when a firm is providing investment advice or portfolio

management, paragraph 4,

— Member States shall allow investment firms not to apply the suitability test for execution-only

business instigated by the client, paragraph 6, and

— a less rigorous suitability test to be required for circumstances in between, paragraph 5.

Recital 29 explains what is to be considered as a service provided at the initiative of a client.

The text of Article 19 includes European Parliament amendment 52 and incorporates amendments 50,
51 and 53 in a modified form as well as parts of amendments 54 and 69.

A special exemption is provided for in paragraph 9 where an investment service is offered as part of a
financial product which is already subject to other provisions of Community legislation or common
European standards relating to credit institutions and consumer credit with respect to risk assessment
of clients and/or information requirements.

The issues of home/host State control is dealt with in Article 32, and Article 18(11) and (12) in the
Commission proposal are therefore not included in Article 19 of the common position.

Article 18(10) of the Commission proposal is set out in a separate article, Article 20 of the common
position, concerning provision of services through the medium of another investment firm, thus
incorporating the spirit of amendment 60 of the European Parliament.

9.3.2004

EN

Official Journal of the European Union

C 60 E/49

Article 21 (Article 19 of the Commission proposal) sets out the provisions relating to the obligation to
execute orders on terms most favourable to the client, the best execution obligation, including the
provisions relating to execution venue, which is seen as a part of the execution policy. The focus is on
the processes leading to the best result for the client and on client rights. Member States shall require
that, when executing orders, investment firms take all reasonable steps to obtain the best possible result
for their clients and investment
firms must establish and implement effective arrangements for
complying with this requirement. Nevertheless, a specific client instruction must always be respected.
The order execution policy and execution arrangements must be monitored and assessed on a regular
basis, and investment firms must be able to demonstrate to their clients, at their request, that they have
executed their orders in accordance with the firm's execution policy.

The execution venue is an integral part of the execution policy, to which the client must give his
consent. Where the order execution policy makes provision for the possibility that client orders may be
executed outside a regulated market or an MTF, the investment firm must inform their clients or
potential clients of this possibility, and the prior express consent of the clients must be obtained before
their orders are executed outside a regulated market or an MTF. With a view to ensuring that they have
the necessary flexibility in their execution policy, investment firms may choose to obtain this consent
either in the form of a general agreement or in respect of individual transactions.

The text of Article 21 incorporates in full or in part the spirit of amendments 9, 61, 63, 64, 65 and 67
of the European Parliament. On the issue of host/home Member State control and amendment 66, see
the comments on Article 32 below.

The provisions on client order handling rules set out in Article 22 (Article 20 of the Commission
proposal) have been adapted to the amended wording of Article 21 of
the common position,
paragraphs 1 and 2 of the Commission proposal have been merged, paragraph 3 deleted and the
provision on implementing measures adapted. Article 22(2) of the common position has been restricted
to shares and an option has been introduced for Member States to decide that investment firms comply
with the obligation to make public unexecuted client limit orders by transmitting the order to a
regulated market and/or MTF. Amendment 70 of the European Parliament has thus been partially
included. On the issue of host/home Member State control and amendment 73, see the comments on
Article 32 below.

Article 23 of the common position laying down the provisions for tied agents has been amended as
compared with Article 21 of the Commission proposal.

Tied agents form an integral part of the financial services sector in some Member States while they are
not common in others. The Council has therefore found that while tied agents should be regulated by
this Directive, Member States should not be obliged to introduce a regulatory regime permitting
investment firms to appoint such agents and has therefore decided to make it optional for Member
States to allow investment firms to appoint tied agents. The text of the article has thus been adapted to
the optional nature of the use of tied agents, and has been redrafted to give Member States a high
degree of flexibility in the regulation of these agents. In these circumstances the Council finds it
appropriate also to permit Member States which make use of the option to allow tied agents registered
in their territory to handle clients' money and/or financial instruments on their behalf and under the
full responsibility of the investment firm for which they are acting. This can only be allowed within the
territory of the Member State in which the tied agent is registered, or, in the case of a cross-border
in the territory of a Member State which allows a tied agent to handle clients' money.
operation,

C 60 E/50

EN

Official Journal of the European Union

9.3.2004

The Directive is without prejudice to the right of tied agents to undertake activities covered by other
directives and related activities in respect of financial services or products not covered by the Directive.
Paragraph 4 therefore contains an obligation for Member States to require that investment firms
appointing tied agents take adequate measures in order to avoid any negative impact that such
other activities of a tied agent could have on the activities carried out by the tied agent on behalf
of the investment firm.

The common position has removed the link between the status of eligible counterparty and
membership of an MTF or a regulated market and the wording of Article 24 (Article 22 of the
Commission proposal) has been adapted accordingly. In addition, the article has been clarified: the
provisions regarding persons that Member States must recognise as eligible counterparties and those
they may recognise as such have been separated into two paragraphs, paragraphs 2 and 3 respectively,
in order to ensure adequate treatment of each category and the obligation previously set out in
paragraph 2 of the Commission proposal relating to agreement to be treated as an eligible counterparty
is now set out in paragraph 3. Some firms have been moved from the optional to the mandatory
category,
in particular UCITS management companies and pension funds, commodities dealers and
national governments. A provision on third country entities has been added in paragraph 4. Finally,
paragraph 5 on the committee procedure has been clarified and amended to take account of the above
changes. European Parliament amendment 77 has thus been included, with different wording, and
amendments 75, 76 and 78 have been partially included.

The thrust of Article 25 remains the same as that of Article 23 of the Commission proposal. The main
change has been to stipulate which authority is to receive the information set out in the Article and
how the information should be channelled. Amendment 80 has been partially incorporated. On the
issue of host/home Member State control and amendment 82, see the comments on Article 32 below.

The information referred to in paragraph 3 must be reported to the competent authority of the home
Member State. The competent authorities shall, in accordance with Article 58, establish the necessary
arrangements in order to ensure that it is the competent authority of the most relevant market in terms
of liquidity for those financial instruments which receives this information. When, in accordance with
Article 32(7) reports are transmitted to the competent authority of the host Member State, it shall
transmit this information to the competent authorities of the home Member State of the investment
firm, unless they decide that they do not want to receive the information.

Article 26 (Article 24 of the Commission proposal) has been redrafted to focus on monitoring
compliance with the rules of the MTF and with other legal obligations more than on monitoring
trading, and the provision on implementing measures has been deleted as unnecessary.

Article 27 of the common position (Article 25 of the Commission proposal) deals with the obligation to
make public firm quotes for investment firms which are systematic internalisers. A systematic inter-
naliser is defined in Article 4(1)(7) as an investment firm which on an organised, regular, and
systematic basis deals on its own account by executing client orders outside a regulated market or
an MTF.

However, the common position is structured in a slightly different manner from Article 25 of the
Commission proposal and includes some conditions the latter did not make provision for, with a view
to preventing market distortion and ensuring the protection of investors.

For transactions of a size which is not large in scale compared to the normal market size, investment
firms will need to reveal to the market the terms on which they themselves stand ready to buy or sell a
specified share; see also Article 22(2) concerning the obligation to make public unexecuted client limit
orders.

9.3.2004

EN

Official Journal of the European Union

C 60 E/51

Systematic internalisers are not bound to publish quotes in case they do not want to trade. For larger
transactions (namely transactions of a size which is large in scale compared to the normal market size),
the above pre-trade transparency requirements do not apply, allowing prices to be negotiated with the
client. Firms are also allowed, in justified cases, to selectively improve the published prices with regard
to transactions to be entered into with professional clients provided that this price falls within a public
range close to market conditions and the transactions are of a size bigger than the size customarily
undertaken by a retail investor.

Systematic internalisers shall be allowed to decide, on the basis of their commercial policy and in a non
discriminatory way, the investors to whom they give access to their quotes. They are also allowed to
update their quotes, and, under exceptional market conditions, to withdraw them.

The common position thus includes the spirit of amendment 88 of the European Parliament and parts
of amendment 86.

Article 28 on post-trade disclosure by investment firms is largely unchanged in comparison with Article
26 of the Commission proposal. The term ‘at least’ has been introduced to make the minimum nature
of the provision clear.

The wording of Articles 29 and 30 (Articles 27 and 28 of the Commission proposal) on pre- and
post-trade transparency requirements for MTFs is now aligned with the wording of the corresponding
articles on pre- and post-trade transparency requirements for regulated markets, Articles 44 and 45,
with the minimum adaptation necessary to take into account the nature of MTFs. As in the case of
Article 44 and 45, the Council deemed that implementing measures were necessary and stipulated that,
except where justified by the specific nature of the MTF, the content of the implementing measures
should be equivalent to that of the implementing measures provided for in Article 44 and 45 for
regulated markets. European Parliament amendment 95 has thus been incorporated as proposed and
amendment 94 partially included in the common position.

Chapter III — Rights of investment firms

Chapter III largely follows the approach of the Commission proposal with the following changes:

— Articles 31 and 32 (Articles 29 and 30 of the Commission proposal) on freedom to provide services
and the establishment of a branch, state that ancillary services may only be provided together with
an investment service and/or activity and a new provision is introduced in both articles to clarify
the situation where tied agents are used in a host Member State,

— a special notification procedure, modelled on the communication provisions for the provision of
services, has been introduced in Article 31(6) where an investment firm or market operator intends
to arrange for access to and use of their systems by users established in a host Member State,

— the main change in comparison with the Commission proposal is that the scope of Article 32(7) is
extended to cover articles 21, 22, 25, 27 and 28, and that it has been made clear that the
competent authority of the host Member State of the branch shall assume responsibility only
with regard to services provided by the branch within its territory. Services provided by a
branch outside the Member State in which the branch is located, remain under the responsibility
of the home Member State. The common position thus incorporates parts of European Parliament
amendments 66, 73, 82 and 98,

— in Article 33 (Article 31 of the Commission proposal) paragraph 1(b) has been deleted and

paragraph 3 has been deleted as superfluous,

C 60 E/52

EN

Official Journal of the European Union

9.3.2004

— in Article 34 (Article 32 of the Commission proposal) it is stipulated, as proposed by the European
Parliament in amendment 99, that investment firms should have the right, and not just the
possibility, of access to central counterparty, clearing and settlement facilities. A provision has
further been introduced in paragraph 2(b) on the competence of the national central banks as
overseers of settlement systems or of other supervisory authorities over such systems,

— the provision on implementing rules in Article 32(4) of the Commission proposal has not been
maintained in Article 34, since the Council did not wish to leave open the possibility of prejudicing
any future measures on clearing and settlement arrangements,

— a new Article 35 is introduced regarding central counterparty and clearing and settlement
included in the Commission proposal, but which the

arrangements in respect of MTFs not
Council found necessary to complement to the provisions of Article 34.

Title III — Regulated markets

Title III has been amended mainly to bring about some technical clarifications and provisions have been
introduced, where appropriate, to clarify the distinction between the market operator and the market
itself.

In the light of the corresponding provisions on investment firms, Article 36 (Article 33 of the
Commission proposal) on authorisation and applicable law for regulated markets has been amended
mainly as regards ongoing supervision of compliance with the conditions for initial authorisation and
the requirements of the applicable part of the Directive, and withdrawal of the authorisation. European
Parliament amendments 158 and 101 are both incorporated in the common position as well as a part
of amendment 103. The wording of Article 37 has been made more precise and the spirit of European
Parliament amendment 104 has been included. The provision set out
the
Commission proposal has been transferred to Article 36(3) of the common position.

in Article 34(2) of

Only minor changes have been made to Articles 38, 39 and 40 Articles 35, 36 and 37 of the
Commission proposal). Article 38 now refers to ‘significant influence’ over the management of the
regulated market as opposed to the term ‘effective control’ used in the Commission proposal, and
Article 39(d) no longer refers to the approval of the rules of the regulated market in view of the
ongoing obligation of compliance with the initial conditions for authorisation and the requirements
under title III, set out in Article 36(2) and (3). In Article 40 a new provision has been added in
paragraph 6 on the clarification of arrangements referred to in paragraph 3. European Parliament
amendments 106 and 114 have been accepted in a redrafted form, and amendments 108 and 112
have been partially included.

The financial requirements are now set out in Article 39(f) which requires the regulated market to have
available, at the time of authorisation and on an ongoing basis, sufficient financial resources to facilitate
its orderly functioning, having regard to the nature and extent of the transactions concluded on the
market and the range and degree of the risks to which it is exposed. The requirements set out in Article
34(3) and (4) of the Commission proposal have been deleted in order not to preclude any future
revision of Directive 93/6/EEC (the capital adequacy Directive). Recital 50 thus recalls that the revision
of Directive 93/6/EEC should fix the minimum capital requirements with which regulated markets
should comply in order to be authorised.

Article 41 (Article 38 of the Commission proposal) on the suspension and removal of instruments from
trading has been complemented by a provision stipulating that, upon being informed of a suspension
or removal, the competent authorities of Member States other than the one which demanded the
suspension or removal of an instrument shall
in turn demand the suspension or removal of that
financial
from trading on the regulated markets and MTFs that operate under their
authority.

instrument

9.3.2004

EN

Official Journal of the European Union

C 60 E/53

Article 42 (Article 39 of the Commission proposal) has been redrafted, as proposed by the European
Parliament in amendment 116, to avoid restricting access to regulated markets to the concept of
eligible counterparties. Provisions have further been introduced to regulate remote participation,
including information requirements between home and host Member States.

The wording of Article 43 (Article 40 of the Commission proposal) now focuses more on the moni-
toring of compliance with the rules of the market as opposed to the monitoring of transactions. The
text has been amended to take account of the fact that the authority competent for the investigation
and prosecution of market abuse may be different
from the normal competent authority. Only
significant breaches of rules should be reported to the authority and the common position thus
includes the spirit of amendment 117 of the European Parliament.

The second subparagraph of Article 44(1) and the second subparagraph of Article 45(1) (Articles 41 and
42 of the Commission proposal) have been amended to include the possibility for a regulated market to
charge systematic internalisers for access to their arrangements for the publication of prices. Article
44(2) has been made more flexible, allowing pre-trade transparency to be waived on the basis of the
market model and the type and size of orders, thus incorporating the flexibility proposed by the
European Parliament in amendment 118. Article 45(2)
is also now more flexible and allows for
deferred publication of transactions on the basis of their type or size. In Articles 44 and 45 the
provisions on implementing measures have been adapted to the changes in the text and restricted
to what the Council found necessary.

Article 46 largely follows Article 43 of the Commission proposal except for certain details. A provision
aimed at avoiding duplication of control has been introduced in paragraph 2. Article 47 (Article 44 of
the Commission proposal) also amends the Commission proposal only slightly, by requiring the
Commission to update its website each time a Member State communicates changes to its list of
regulated markets.

Title IV — Competent authorities

Title IV has been restructured to make the text more logical and coherent. The provisions concerning
the competent authorities within one Member State are set out in Chapter I. They include provisions on
the designation of the competent authorities, the obligation of these authorities to cooperate on a
national level and rules on professional secrecy. Chapter II sets out the rules on cooperation between
competent authorities of different Member States, including provisions on cooperation and cross-border
to facilitate and accelerate cooperation, and exchanges of
exchanges of
information, the common position introduces an obligation for Member States to designate a single
competent authority as a contact point for the purposes of this Directive.

information.

In order

Chapter I — Designation, powers, resources and redress procedures

Without changing the basic thrust of Article 45 of the Commission proposal Article 48 of the common
position has been drafted in a manner which lays down more clearly the powers and obligations of the
competent authorities. Paragraph 1 stipulates that a Member State can designate more than one
competent authority and the wording of the Article has been amended to reflect this principle.
Recital 53 stipulates that such authorities should be of a public nature, guaranteeing their independence
of economic actors and avoiding conflicts of interest. In accordance with national law, Member States
should ensure appropriate financing of the competent authority. The provision on delegation has been
drafted in a more precise manner. While delegation under the responsibility of the competent authority
is not ruled out, paragraph 2 now clearly states that any delegation of tasks to entities other than the
authorities referred to in paragraph 1 may not involve either the exercise of public authority or the use
of discretionary powers of judgment.

A new Article 49 has been introduced, setting out the obligation to cooperate found in Article 45(3) of
the Commission proposal. The obligation has been extended to include cooperation between competent
authorities for the supervision of pension funds, UCITS and insurance and reinsurance intermediaries.

C 60 E/54

EN

Official Journal of the European Union

9.3.2004

The wording of Article 50 (Article 46 of the Commission proposal) has been aligned with the wording
of the corresponding provision, Article 12,
in Directive 2003/6/EC on insider dealing and market
manipulation (market abuse), and the powers set out under (a) to (m) have been adapted accordingly.
A new competence, the right to allow auditors or experts to carry out verifications or investigations,
has been added in (m) as a necessary addition to the powers and rights set out in the Commission
proposal.

Article 51 on administrative sanctions remains largely as proposed by the Commission in Article 47,
but the wording stresses the administrative nature of the sanctions, and strengthens the provision on
their disclosure.

Article 52 of the common position on the right of appeal strikes a balance between the text proposed
by the Commission in Article 48 of its proposal and European Parliament amendment 122. Under
Article 52(2), Member States must provide that at least one of the bodies set out under (a) to (c) may
take action, and may provide that two or more have the right to act. In order not to prejudice national
redress procedures in general Article 52 refers also to actions before competent administrative bodies.

Article 53 (Article 49 of the Commission proposal) has been made optional in order not to prejudice
national arrangements for conflict resolution. Recital 56 specifies that the extra-judicial mechanisms for
investors' complaints which Member States are encouraged to establish should take into account
Commission Recommendation 98/257/EC of 30 March 1998 on the principles applicable to the
bodies responsible for out-of-court settlement of consumer disputes (1). Member States are also
encouraged to use existing cross-border cooperation mechanisms, notably the Financial Services
Complaints Network (FIN-Net).

Article 54 (Article 50 of the Commission proposal) has been redrafted following the introduction of the
new structure of Title IV as set out above. The two first paragraphs largely correspond to Article 54(1)
and (2) of the Commission proposal, but three new paragraphs have been added. In accordance with
the new structure of the provisions, Article 54(3) and (4) which regulate how authorities are to treat
confidential information they receive pursuant to the Directive, formerly set out in Article 54 of the
Commission proposal, are contained in Chapter 1. Paragraph 3, which imposes the obligation of
professional secrecy, is largely aligned with the corresponding provision in the last subparagraph of
Article 16(2) of Directive 2003/6/EC (market abuse). Paragraph 4, which lays down the extent to which
information may nevertheless be transmitted, is set out more clearly and coherently than in Article 54
of the Commission proposal. The wording has been adapted to the new structure, in particular Article
48 (Member States may designate more than one competent authority) and Article 56 (Member States
shall designate a contact point for the purposes of cooperation and exchange of information). To avoid
any misunderstanding, paragraph 5 makes it clear that this article shall not prevent the competent
authorities from exchanging or transmitting, in accordance with national law, confidential information
that has not been received from a competent authority of another Member State.

Article 55 retains the text of Article 51 of the Commission proposal practically unchanged.

Chapter II — Cooperation between competent authorities of different Member States

Article 56 (Article 54 of the Commission proposal) introduces the concept of a single contact point, see
above. A new provision has been introduced in paragraph 2 to ensure cooperation between host and
home Member States in cases of cross-border regulated markets, where a regulated market authorised
in its home Member State has established arrangements in a host Member State which have become of
substantial importance for the functioning of the securities markets and the protection of the investors
in that host Member State. The Commission may adopt implementing measures to establish criteria to
determine when the operations of a regulated market in a host Member State could be considered to be
of substantial importance.

(1) OJ L 115, 17.4.1998, p. 31.

9.3.2004

EN

Official Journal of the European Union

C 60 E/55

Article 53 of the Commission proposal has been divided into two articles, Article 57 and Article 59, in
order to clarify the text. The wording of Article 57 has been adapted to give the competent authority of
a regulated market the power to address remote members of that market directly, but the rest of the
text of the Commission proposal has been largely maintained.

Article 58 (Article 54 of the Commission proposal) has been adapted to the new structure, see above.
The text now concerns only exchanges of information between Member States through the contact
points. The Commission may adopt implementing measures concerning procedures for the exchange of
information between competent authorities. It is made clear in recital 57 that any exchange or trans-
mission of information between the various authorities, bodies or persons involved should be in
accordance with the rules on transfer of personal data as laid down in Directive 95/46/EC on the
protection of individuals with regard to the processing of personal data and on the free movement of
such data.

Articles 60, 61 and 62(1) retain the text of Articles 55, 56 and 57 of the Commission proposal with the
necessary technical adaptations. Article 62(2) and (3) introduce new provisions on the competences of
the host Member State of a branch and of regulated markets/MTFs modelled on paragraph 1, while
paragraph 4 introduces an obligation to justify and communicate any sanctions.

Chapter III — Cooperation with third countries

Article 63 of the common position largely retains the text of Article 58 of the Commission proposal
but the wording has been adapted to the new structure of Title IV.

Title V — Final provisions

Article 64 retains unchanged Article 59 of the Commission proposal.

In Article 65(1) the date for the completion of the review has been brought forward in the light of the
importance the Council attaches to this subject.

Given the importance of certain subjects, the Council has decided to ask for additional Commission
reports on the basis of which the Commission may, where relevant, submit proposals for related
amendments to this Directive, on the following subjects:

— the application of Article 27, thus partially including European Parliament amendment 132,

— the appropriateness of rules concerning the appointment of tied agents to perform investment

services and/or activities, in particular with respect to supervision of them,

— the continued appropriateness of the exemption under Article 2(1)(i),

— progress on the removal of obstacles which may prevent consolidation and publication at the
European level of the information trading venues are required to make public. In this respect it
should be noted that recital 33 states that fair competition requires market operators and investors
to be able to compare the prices that trading venues (i.e. regulated markets, MTF and intermediaries)
are required to publish. To this end, it is recommended that Member States remove any obstacles
which may prevent the consolidation at the European level of the relevant information and its
publication,

— the continued appropriateness of the requirements for professional indemnity insurance imposed on

intermediaries under Community law.

C 60 E/56

EN

Official Journal of the European Union

9.3.2004

Article 66 retains the text of Article 61 of the Commission proposal.

Article 67 amends Directive 93/6/EEC in a different manner from that proposed by the Commission in
Article 62 of its proposal. The definition of an investment firm has been adapted to the text of the
Directive and made more specific. The necessary technical amendments have been made to Article 3(4)
of Directive 93/6/EEC, and the capital requirements for the firms which are only authorised to give
investment advice and to receive and transmit orders, are set out in a new Article 3(4a). As proposed
by the European Parliament in amendment 36 it is possible to choose between a minimum initial
capital requirement, professional indemnity insurance or a combination thereof. A similar, but less
stringent, regime has been introduced for companies which are also registered under Directive
2002/92/EC on insurance mediation and subject to the requirements of that Directive as well. The
spirit of amendments 133 and 134 of the European Parliament has been included.

Articles 68, 69 and 70 largely retain the texts of Articles 63, 64 and 65 of the Commission proposal,
but with more precise wording for Article 68, which incorporates the spirit of European Parliament
amendment 135.

The Council has found it necessary to introduce a new Article 71 setting out the necessary technical
transitional provisions to ensure the smooth entry into force of the new Directive.

The recitals

The recitals have been amended in line with the changes to the enacting terms of the Directive set out
above.

IV. CONCLUSIONS

The Council considers that all the amendments made to the amended Commission proposal are fully in
line with the objectives of the Directive.

The common position incorporates a substantial number of
the amendments proposed by the
European Parliament either in full (as drafted or in a reformulated drafting) or in part. While the
Council has in many instances chosen a different wording from that proposed by the European
Parliament, the intention and the basic approach of the two institutions remain largely the same on
a great number of issues. The Council finds that the wording of the common position ensures a
regulatory framework which is sufficiently flexible to be able to respond to market developments
instruments markets in the European Union,
and to promote the proper functioning of financial
including appropriate protection for investors.