Communication from the Commission to the European Parliament pursuant to the second subparagraph of Article 251 (2) of the EC Treaty concerning the common position of the Council on the adoption of a Directive of the European Parliament and of the Council on markets in 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: 2004-01-12
Institutions: European Commission
Subjects: approximation of laws, financial instrument, financial market, investment company

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 12.1.2004
COM(2004) 15 final

2002/0269 (COD)

COMMUNICATION FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT

pursuant to the second subparagraph of Article 251 (2) of the EC Treaty

concerning the

common position of the Council on the adoption of a Directive of the European
Parliament and of the Council on markets in 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

EN

  EN

2002/0269 (COD)

COMMUNICATION FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT

pursuant to the second subparagraph of Article 251 (2) of the EC Treaty

concerning the

common position of the Council on the adoption of a Directive of the European
Parliament and of the Council on markets in 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

1.

BACKGROUND

Date of transmission of the proposal to the EP and the Council
(document COM(2002) 625 final – 2002/0269 (COD):

Date of the opinion of the European Economic and Social Committee:

Date of the opinion of the European Parliament, first reading:

Date of transmission of the amended proposal:

Date of adoption of the common position:

19.11.2002

18.6.2003

25.9.2003

---

8.12.2003

2.

OBJECTIVE OF THE COMMISSION PROPOSAL

The main objectives of this proposal for a Directive are:
1. The protection of investors and market integrity by establishing harmonised requirements
governing the activities of authorised intermediaries; and
2. The promotion of fair, transparent, efficient and integrated financial markets: this goal will,
in particular, be furthered by the development of ground-rules governing the negotiation and
execution  of  transactions  in  financial  instruments  on  organised  trading  systems  and
marketplaces, and by investment firms.

3.

COMMENTS ON THE COMMON POSITION

3.1.

GENERAL COMMENTS

The Greek and Italian Presidencies have treated this Commission’s proposal for a directive as
a  matter  of  priority.  The  European  Council  has  asked  the  Council  and  the  European
Parliament to adopt the Directive as early as possible. The Council has adopted by qualified
majority its  Common Position on 8 December  2003. Therefore, the Commission can accept
the Common Position.

The  common  position  preserves  the  essence  of  the  Commission's  proposal;  therefore,  the
Commission accepts the text in its main lines.

2

 
The common position takes account of an important number of amendments proposed by the
European  Parliament  and  accepted  by  the  Commission.  Some  of  them  have  been  directly
incorporated, whereas the majority of the European Parliament's amendments included in the
common position have been reformulated or included in other parts of the text for reasons of
internal  coherence  (some  parts  of  the  text  have  been  restructured)  or  for  reasons  linked  to
legislative drafting rules.

The  changes  introduced  define  and  clarify  more  precisely  the  system  proposed  by  the
Commission.  Some  of  them  have  been  inspired  by  the  relevant  European  Parliament's
amendments adopted at the first reading which were accepted by the Commission.

The main changes to the Commission's amended proposal contained in the Council common
position are dealt with in the detailed comments that follow.

3.2.

Response to Parliament's amendments adopted at first reading

The European Parliament adopted one hundred and forty-six amendments. The Commission
accepted the text or spirit of ninety of them, in whole or in part.

3.2.1. Amendments accepted by the Commission and included in the common position

(a)

Recitals

Recital 4 of the common position

It specifies that physically settable commodity derivatives are under the scope of the Directive
if traded on a regulated market or MTF.

This recital, which relates to Section C of Annex 1 of the common position, takes account of
amendment 1.

Recital 6 of the common position

It provides for clarification on the concept of MTF and regulated market. It incorporates part of
the Parliament's amendment 3 and 25.

Recital 7 of the common position

The proposal for a Directive only covers undertakings whose regular occupation or business is
to perform investment services and/or activities on a professional basis. This Directive should
not cover persons who perform investment services and activities on an occasional basis.

This  recital,  coupled  with  recital  8,  which  relates  to  the  scope  of  the  Directive,  is  an
improvement  compared  to  the  initial  drafting  of  the  Commission's  proposal  and  takes  into
account part of the Parliament's amendment 4.

Recital 8 of the common position

The Common position includes a new recital to clarify the extent of the exemption of article 2
(1) d). Persons dealing on own account as far as they are not market makers or 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.  The  recital  reflects  Parliament's
amendment 4.

3

 
Recital 9 of the common position

This recital clarifies  that when using the  term  "persons"  the  Directive  is  referring to natural
and legal persons. This issue was raised in the following Parliament's amendment 6, 14, 15, 16
and130.

Recital 18 of the common position

This  recital  has  been  inserted  to  clarify  that  credit  institutions,  authorised  under  Directive
2000/12/EC,  when  providing  investment  services  or  activities  do  not  need  another
authorisation under this Directive. This recital reflects article 1 (2) of the text and incorporates
part of Parliament's amendment 34.

Recital 48 of the common position

The  firms  have  the  possibility  to  decide  to  whom  they  give  access  for  each  specific  quote,
provided  this  it  is  done  on  a  non-discriminatory  basis.  Recital  48  clarifies  that  the  firms
restricting  access  to  a  specific  quote  only  to  retail  or  only  to  professional  clients  is  not
discriminatory. It reflects article 27 (3) of the text and follows part of Parliament's amendment
88 in this issue.

(b)

Substantive provisions

Title I - definitions and scope

Article 1 (2)

This paragraph lists the articles of this proposal which will be applicable to credit institutions
when providing investment services, in addition to the provisions of Directive 2000/12/EC. It
incorporates part of the European Parliament's amendment 12.

Article 2 (1) (d)

The common position, taking into account the spirit of European Parliament's amendment 4,
has introduced a new exemption that excludes from the scope of the Directive those persons
which 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) k)

This  provision  relates  to  the  exemption  of  persons  dealing  on  own  account  in  commodity
and/or commodity derivatives from the scope of the Directive. The common position, inspired
by  part  of  Parliament's  amendment  15,  provides  that  this  exemption  will  not  apply  to  those
persons that are part of a group of whose main business is the provision of other investment
services.

Article 2 (1) l)

The  common  position,  inspired  by  the  EP  amendment  16,  enlarges  the  scope  of  this
exemption, if compared with the Commission's proposal, since it includes also those dealers
that deal on derivatives other than options and futures.

4

 
Article 3

The  Common  position  has  introduced  the  possibility  for  Member  States  not  to  apply  the
Directive  to  persons  who  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, provided some conditions are met.

This new article is in line with the Parliament's amendment 156 and 157.

Article 4 (1) 7

The  common  position  has  introduced  the  definition  of  "systematic  internaliser"  taking  into
account  the  spirit  of  the  Parliament's  amendment  33.  It  does  not,  however,  include  in  the
definition all the elements that were present in the Parliament's amendment. In particular it does
not make reference to those elements which were useful only for defining the scope of pre-trade
transparency obligations such as the financial instruments and the size of the orders internalised.
The  Commission  agrees  with  the  Council  that  those  elements  should  not  be  part  of  the
definition of "systematic internaliser" but should be taking into account when establishing the
obligation for investment firms to make public firm quotes under Article 27.

Article 4 (1) 15)

The  definition  of  MTFs  has  been  reformulated,  taking  into  account  the  Parliament's
amendment  25,  in  order  to  clarify  that  MTFs  must  be  authorized  and  function  in  accordance
with the provision of Title II of the Directive.

Article 4 (1) 10

The definition of "client" has been redrafted in line with Parliament's amendment 22.

Article 4 (1) 11

The  definition  of  "professional  client"  has  been  redrafted  taking  into  account  Parliament's
amendment 23.

Article 4 (1) 12

The definition of "retail client" has been redrafted taking into account Parliament's amendment
23.

Article 4 (1) 16

The  definition  of  "limit  order"  has  been  redrafted  taking  into  account  part  of  Parliament's
amendment 27.

Article 4 (1) 26

The definition of "branch" has been redrafted taking into account the objective of Parliament's
amendment 32.

5

 
Article 4 (1) 28) b)

The definition of "transferable securities" has been reformulated It now includes the depositary
receipts in respect of bonds or other securitised debt, reflecting Parliament's amendment 28.

Title  II  -  authorisation  and  operating  conditions  for  investment
firms

Chapter I - conditions and procedures for authorisation

Article 5 (2)

This article clarifies the obligations a market operator operating an MTF has to comply with.
It takes into account the Parliament's amendment 35.

Article 13 (2)

In the common position the last sentence of article 12 (2) of the initial Commission proposal
has been deleted. Firms are not obliged anymore to demonstrate to the supervisors that they
have  acted  in  accordance  with  the  obligations  arising  from  this  paragraph.  It  will  be  for
supervisors to demonstrate the non-compliance of investment firms. It takes into account part
of the Parliament's amendment 38.

Article 13 (4)

The provision requires investment firms to "take reasonable steps" to ensure the continuity and
regularity  in  the  performance  of  investment  services  and  activities.  In  the  common  position
this paragraph has been redrafted following the Parliament's amendment 39.

Article 14 (1)

This paragraph has been reworded by the Council. It has eliminated the need for MTFs'  rules
and procedures to enable their users to obtain the best price available on or through the MTF. It
takes into account part of the Parliament's amendment 149.

Article 14 (2)

The common position incorporates a new obligation for investment firms or market operators
operating  an  MTF.  According  to  this  new  obligation,  they  have  to  provide,  or  ensure  that
there  is  access  to,  sufficient  publicly  available  information  to  enable  their  users  to  form  an
investment judgement. In doing so, they have to take into account both the nature of the users
and  the  types  of  instruments  traded.  This  new  paragraph  follows  the  spirit  of  Parliament's
amendment 149.

Article 14 (4)

The limitation on access to MTFs only to eligible counterparties contained in the Commission's
proposal has been deleted in the common position. A more flexible regime has been introduced
on access to MTFs. It takes into account the Parliament's amendment 44.

6

 
Moreover, the spirit of the Parliament's amendment 7 has  been  accepted through this change,
although  this  amendment  is  not  directly  included  in  the  text.  This  amendment  intended  to
modify recital 21 of the Commission's proposal but the common position eliminated this recital
as it was considered superfluous and repeated the text of the Article.

Chapter II - operating conditions for investment firms

Article 19 (1)

This  paragraph  has  been  amended  in  the  common  position  to  extend  the  obligation  that
investment  firms  shall  act  honestly,  fairly  and  professionally  in  accordance  with  the  best
interests of its clients and comply, in particular, with the principles set out in paragraphs 2 to 8
of that article, where appropriate, to the provision of ancillary services to clients. It reflects The
Parliament's amendment 50.

Article 19 (2)

This  provision  requires  that  all  the  information  an  investment  firm  addresses  to  clients  or
potential  clients  to  be  fair,  clear  and  not  misleading  and  should  identify  marketing
communications. It reflects the spirit of The Parliament's amendment 51.

Article 19 (3)

This article requires investment firms to provide appropriate information in a comprehensible
form  to  clients  or  potential  clients  in  order  to  ensure  that  clients  or  potential  clients  are
reasonably  able  to  understand  the  nature  and  risks  of  the  investment  service  and  of  the
specific type of financial instrument that is being offered. It reflects part of the spirit of The
Parliament's amendment 54.

Taking into account the Parliament's amendment 52, the text also allows investment firms to
provide this information in a standardised format.

Article 19 (4)

The common position requires that investment firms providing investment advice or portfolio
management services should obtain the necessary information so as to carry out the suitability
test. It takes into account the spirit of the Parliament's amendments 8 and 53. Moreover, the
spirit of the Parliament's amendment 8 has been accepted, although not directly included in the
text.  This  amendment  intended  to  modify  recital  24  of  the  Commission's  proposal  but  the
common  position  eliminated  this  recital  as  it  was  considered  superfluous  and  repeated  the
content of the respective Article.

Article 19 (6)

According  to  the  common  position,  Member  States  will  allow  that  when  investment  firms
provide  investment  services  which  only  consist  of  execution  and/or  the  reception  and
transmission  of  client  orders  with  or  without  ancillary  services  to  provide  those  investment
services to their clients without the need to obtain the information or make the determination
provided  for  in  the  previous  paragraph where  some  conditions  are  met.  This  article  is
complemented with the new recital 20.

It takes into account the objective of the the Parliament's amendments 8 and 53.

7

 
Article 20

This  article  deals  with  the  provision  of  services  through  the  medium  of  another  investment
firm. The first paragraph has been redrafted in the common provision in order to clarify the text
and to take into account the spirit of the Parliament's amendment 60.

Article 21

Article  21  (1)  requires  investment  firms  that  they  take  all  reasonable  steps  to  obtain,  when
executing orders, the best possible result for their  clients. To do so,  they shall establish  and
implement effective arrangements, in particular an order execution policy, for complying with
this  obligation.  They  are  also  obliged  to  monitor  the  effectiveness  of  their  order  execution
arrangements  and  execution  policy.  The  common  position  has  been  redrafted  while
maintaining  the  main  lines  of  the  Commission's  proposal  and  takes  into  consideration  the
spirit of the Parliament's amendments 63 and 64. It also takes into account part of amendment
61.

Paragraph  4  includes  an  obligation  for  investment  firms  to  notify  their  clients  any  material
changes to their order execution arrangements or execution policy. This paragraph takes into
account part of the Parliament's amendment 69.

Paragraph  5  includes  for  investment  firms  an  obligation  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. This paragraph follows the spirit of the Parliament's amendment 9.

Article 21(6) a) states that comitology measures should take account of the nature of the client
taking into account the objective of the Parliament's amendment 65.

Article 22 (2)

This paragraph has been redrafted in the Common position. It establishes that the obligation to
make public a limit order only applies for orders in respect of shares admitted to trading on a
regulated market. It also allows member States to consider that investment firms comply with
this obligation when transmitting the order to a regulated market and/or MTF. The provision
takes into account the spirit of The Parliament's amendment 70.

Article 24

The common position has introduced some amendments to the initial Commission proposal in
relation  to  the  transactions  executed  with  eligible  counterparties.  The  text  of  the  common
position  allows  the  counterparty  regime  in  respect  of  the  services  of  reception  and
transmission to modify the procedure for obtaining the express confirmation from prospective
counterparties  to  enlarge  the  list  of  eligible  counterparties  and  gives  the  possibility  to  third
country  firms  to  be  treated  as  eligible  counterparties.  This  article  incorporates  The
Parliament's amendment 78 and part of amendments 75, 76 and 77.

Article 25 (5)

Some changes have been introduced in order to include the possibility for firms to make their
reports available to the competent authority by a trade matching or reporting system. It takes
into account part of The Parliament's amendment 80.

8

 
Article 26 (1)

The  common  position  has  introduced  some  changes  with  respect  to  the  obligation  for
investment  firms  and  market  operators  operating  an  MTF,  to  establish  and  maintain
arrangements  for  regular  monitoring  of  compliance  with  its  rules.  The  intention  of  the
changes  is  to  include  some  flexibility  to  the  Commission's  initial  proposal.  It  takes  into
account part of the spirit of The Parliament's amendment 84.

Article 27 (1)

The common position, in line with The Parliament's amendment 86, restricts the application
of the quote disclosure rule to "systematic internalisers".

The common position proposes to enlarge the scope of transactions covered by the pre-trade
transparency obligation to those that are not large in scale compared to normal market size. In
this  respect  the  common  position  takes  into  account  the  spirit  of  the  The  Parliament's
amendment  88  although  the  scope  of  the  pre-trade  transparency  obligation  is  somehow
narrower  in  the  amendment  which  proposes  to  apply  the  rule  to  "standard  market  size
transactions".  The  Commission  considers  that  the  spirit  enshrined  both  in  the  common
position  and  in  the  Parliament's  amendment  is  acceptable:  the  pre-trade  transparency
obligations is defined in both cases in a more proportionate way than the initial proposal by
ensuring a higher degree of investor protection and market efficiency.

Article 27 (2)

According  to  this  paragraph,  the  quote  will  be  made  public  in  a  manner  which  is  easily
accessible  to  other  market  participants  on  a  reasonable  commercial  basis,  and  not  free  of
charge as requested by the Commission proposal. This corresponds to part of The Parliament's
amendment 88 – which has been slightly redrafted.

This paragraph also includes an exemption from the obligation to trade at the quoted prices in
respect  of  transactions  where  execution  in  several  securities  is  part  of  one  transaction.  This
corresponds with part of the Parliament's amendment 33.

Article 27 (3)

The firms have the possibility to decide to  whom they  give access to their quotes, provided
this is done on a non-discriminatory basis. It follows The Parliament's amendment 88 in this
issue.

Article 28 (1)

This  paragraph  has  been  reworded  in  the  common  position  in  order  to  introduce  more
flexibility  on  the  time  period  within  which  investment  firms  have  to  make  public  the  post-
trade information. According to the Common position, this information will be made public
"as close to real time as possible" and not "immediately" as requested by the Commission's
proposal. It follows the Parliament's amendment 151.

Article 30 (1)

The common position provides that requirements for post-trade transparency for MTFs do not
apply where the trades are made public under the rules of a regulated market. It incorporates the
Parliament's amendment 95.

9

 
Chapter III - rights of investment firms

Article 34 (1)

This  article  deals  with  the  right  of  the  investment  firms  to  have  access  to  a  central
counterparty,  clearing  and  settlement  facilities  and to designate settlement systems.  In  the
common position the term "possibility" used in the Commission's proposal has been replaced
by the term "right" incorporating the Parliament's amendment 99.

Title III - regulated markets

Article 36 (1) third sub-paragraph

A new sub-paragraph has been introduced in the common position to clarify the obligations
laid down in the directive in those cases where the regulated market is a legal person and is
managed or operated by a market operator other than the regulated market itself. It reflects the
Parliament's amendments 11, 158 and part of 80 and 112.

Article 36 (1) fourth sub-paragraph

A new sub-paragraph has been introduced in the common position replacing article 33 (4) of
the initial Commission's proposal. According to the new formulation, the responsibility lies to
the  operator  of  the  regulated  market  to  provide  all  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. Consequently, the market operator will
also  be  responsible  for  notifying  the  competent  authority  of  any  intended  change  to  the
conditions  or  programme  of  operations  of  the  regulated  market.  This  paragraph  takes  into
account the Parliament's amendment 103.

Article 36 (2)

This  paragraph  has  been  redrafted  in  the  common  position  in  order  to  require  market
operators to perform tasks relating to the organisation and operation of the regulated market.
It incorporates therefore the Parliament's amendment 101.

Article 39 (d)

The requirements of the trading rules and procedures of regulated markets have been simplified
in the common position taking into account the objective of the Parliament's amendment 108.

Article 40 (1)

New  drafting  has  been  introduced  with  respect  to  the  rules  regarding  the  admission  of
financial instruments to trading, following the Parliament's amendment 109.

Article 40 (5)

This paragraph requires the regulated market to inform the issuer of the fact that its securities
are traded on that regulated market. It also requires compliance with the relevant provisions of
the Prospectus Directive. It reflects the spirit of the Parliament's amendment 112.

10

 
Article 40 (6) c)

This  indent  states  that  comitology  measures  should  clarify  the  arrangements  that  Regulated
markets are to put in place in order to facilitate their members access to the information which
has  been  made  public  in  the  conditions  established  under  Community  law.  It  takes  into
account the Parliament's amendment 114.

Article 42

Article 39 (2) of the Commission's proposal (access to the regulated market) has been modified
in  the  common  position.  The  limitation  on  access  to  regulated  markets  only  to  eligible
counterparties has been deleted. A more flexible regime on access to regulated market has been
included  in  the  text  of  the  common  position.  It  takes  into  account  of  the  Parliament's
amendment 116.

Article 43 (2)

The  common  position  has  introduced  some  changes  to  the  initial  Commission  proposal  in
relation  to  the  obligations  of  the  market  operators.  The  text  of  the  common  position  obliges
them to report significant breaches of their rules or disorderly trading conditions or  conduct
that  may  involve  market  abuse  to  the  competent  authority  of  the  regulated  market.  Market
operators  will  not  be  obliged  to  provide  details  of  insignificant  rule  breaches.  This  change
takes into account the Parliament's amendment 117.

Article 44

This article provides for pre-trade transparency requirements for regulated markets. Paragraph
3  which  is  a  comitology  provision  takes  into  account  the  Parliament's  amendment  118  and
provides that the implementing measures should  define the size or type of  orders  for  which
pre-trade disclosure may be waived.

Title V final provisions

Article 67 (3)

This Article amends Directive 93/6/EEC by including, inter alia, a modification in relation to
the guarantees required to certain investment firms which are only authorised to provide the
service of investment advice and/or receive and transmit orders from investors without in both
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. These persons will be able to choose
either to hold capital or professional indemnity insurance or a combination or both. It reflects
the Parliament's amendment 134 and part of 36.

By  establishing  a  particular  regime  for  those  investment  firms  carrying  out  both  the  services
abovementioned  and  the  activity  of  insurance  mediation,  this  new  provision  implicitly
recognises that the investment firms considered can cumulate the two activities. This provision
is in line with the spirit of the Parliament's amendment 133.

Article 68

This  article  introduces  a  new  paragraph  in  Annex  I  of  Directive 2000/12/EC  according  to
which  the  services  and  activities  considered  in  the  ISD,  when  referring  to  the  financial
instruments  provided  for  there,  are  also  subject  to  mutual  recognition  according  to  the

11

 
Banking  Directive.  Therefore  the  passport  granted  to  credit  institutions  under  the  Banking
Directive  may  cover  the  services  and  activities  of  the  ISD.  It  takes  into  account  the
Parliament's amendment 135.

3.2.2. Amendments accepted by the Commission and not included in the common
position

Parliament's amendment 20

The intention of the amendment is to clarify that the service of order execution also includes
acting on behalf of clients on a regulated market, MTFs or any other comparable third country
system. Although  the Council's  common position  does  not  include  the  wording  proposed  in
the amendment, the Commission considers that the current wording is sufficiently broad and
flexible.

Parliament's amendment 62

The amendment specifies that best execution shall take into account the type and size of order
and the nature of the client.

The Commission considers that the common position is still acceptable, pursuant to article 21
(6)  a),  these  factors  will  be  taken  into  account  in  the  implementing  measures  on  the
application  of  the  best  execution  requirements.  They  are  contained  in  the  concept  of  best
execution.

Parliament's amendment 68

The  amendment  proposes  to  include  flexibility  to  the  "time  of  reception  rule",  by  adding  a
particular reference to the aggregation policy or to the agreement of the client;

The  Commission  agrees  that  a  reference  to  the  aggregation  policy  of  the  firm  could  be
included in the text since it reflects current market practice. Although the Council's common
position does not refer explicitly to it, the Commission considers it can be dealt through the
implementing measures following article 22 (3) a).

Parliament's amendment 74

The  amendment  aims  at  introducing  some  changes  to  the  tied  agents'  regime.  It  gives  the
possibility to investment firms to directly appoint tied agents. The Common position  allows
Member  States  to  grant  that  possibility  to  firms.  The  Commission  considers  it  is  more
reasonable to leave the option to Member States to decide whether they recognise the activity
of tied agent in their territory in a coherent manner – and establish national rules and practices
which will regulate this activity if they wish to– than leave this option at the discretion of each
individual firm.

In  relation to paragraph 2 of the amendment, the Commission  considers there  is  no  need  to
introduce such a change in article 23 as the guarantees requirements are adequately covered in
Article 67 taking this point into account.

In relation to Paragraph 7 the Commission considers that the requirements of this proposal are
already aligned with the ones provided for in the Insurance mediation Directive – thus there is
no addition to include an express reference in this text.

12

 
Parliament's amendment 87

According  to  this  amendment,  pre-trade  transparency  obligation  should  not  apply  to  those
systematic internalisers that do not represent an important provider of liquidity for the share in
question on a regular or continuous basis.

The common position does not contain such a provision. Even if the absence of this provision
does  not  substantially  affect  the  scope  of  the  obligation,  the  Commission  considers  that  it
could be useful, in terms of market efficiency, to explore the possibility to include the spirit of
the European Parliament's amendment.

Parliament's amendment 89

The  amendment  provides  for  comitology  when  defining  what  standard  market  size  is.  The
Common  position  uses  the  term  "normal  market  size".  The  Commission  accepts  that
comitology  is  needed  in  order  to  define  this  term  (standard  market  size)  if  used  in  the
Directive.

Parliament's amendment 92

The  intention  of  the  amendment  is  to  specify  that  where  the  information  contained  in  the
transaction is of little or no use it should not be disclosed.

The  Commission  considers  that  the  spirit  of  this  amendment  is  already  contained  in  the
current text. In particular it is implicit in the comitology provisions of article 28.

Parliament's amendment 96

The aim of the amendment is to eliminate the need for investment firms to wait for the home
member State to notify the host before exercising the freedom to provide services.

According to the Common position, investment firms may only start their activities after such
notification. The Commission can also agree with it as this approach is in line with the Life
Insurance Directive.

Parliament's amendment 97

The  aim  of  the  amendment  is  to  avoid  the  application  of  host  country  rules  to  branch
operations of credit institutions.

According  to  the  common  position,  both  credit  institutions  and  investment  firms  will  be
subject  to  the  same  rules  when  providing  investment  services  or  performing  investment
activities  through  branches.  The  Commission  considers  this  approach  will  ensure  a  level
playing field between these entities.

Parliament's amendment 111

The first subparagraph of the amendment proposes a drafting change so as to clarify the scope
of the obligation for regulated markets when admitting financial instruments to trading.

The  Commission  considers  that  the  substance  of  part  of  this  amendment,  which  a  mere
drafting suggestion, is already included in article 40.3.

13

 
Parliament's amendment 121

The aim of the amendment is to avoid restricting the possibility for Regulated markets to use
third countries' clearing systems.

The Commission  considers that this is an  important  issue,  however  taking  into  account  that
targeted  actions  in  the  field  of  clearing  and  settlement  are  about  to  be  launched,  the
Commission could accept with the Common position.

Parliament's amendment 123

The  amendment  intends  to  ensure  the  cooperation  between  extra-judicial  mechanisms  for
investor complaints in order to identify, share and encourage best practices. The Commission
favours  this  approach  that  was  not  taken  on  board  on  the  Council's  common  position.
Nevertheless  the  approach  finally  followed  by  the  Council  is  in  line  with  the  approach
followed in other Directives in the field of investment services.

Parliament's amendment 125

The  amendment  intended  to  stress  that  the  intervention  by  the  host  competent  authorities
should only occur in exceptional circumstances.

The  Commission  considers  that,  although  this  amendment  has  not  been  included  in  the
common  position,  according  to  the  text  host  competent  authorities  will  in  practice  only
intervene in exceptional cases.

Parliament's amendment 126

The  amendment  states  that  the  Commission  should  take  into  account  the  impact  of  the
implementing measures on the market participants and their proportionality to the regulatory
goals. The Commission would have this amendment incorporated in a recital as a reminder of
a generally accepted principle governing the legislative activity of EU institutions, but not in
the text of the Directive. In this context, though such a recital has not been proposed by the
Council, the substance of the Directive is not affected.

Parliament's amendment 129

The amendment proposes to extend to five years the deadline established for the Commission
to report to the European Parliament and Council on different issues.

The  Council's  common  position  has  agreed  on  a  deadline  of  30  months.  To  ensure  better
monitoring of the effectiveness of the  provisions of the  Directive, the Commission can  also
agree with this deadline.

Parliament's amendment 140

The  intention  of  the  amendment  is  to  include  charitable  trusts  as  possible  professional
investors.

The  Commission  considers  that  those  charitable  trusts,  when  holding  significant  funds  to
invest,  will  usually  be  included  in  this  category  of  clients  that,  according  to  number  2  of
Annex  II, may be  treated as professional on  request.  This  solution  provides  a  more  flexible
regime than that proposed by the European Parliament amendment.

14

 
Other amendments

A  series  of  amendments  which  had  been  accepted  by  the  Commission,  in  their  entirety  or
partly or in spirit, have not been included in the common position. Some of those amendments
provided  for  clarification  or  explicative  guidance  or  were  substantial  or  linguistic
improvements  to  the  text  without  affecting  the  substance  of  the  text.  Although  the
Commission  would  have  preferred  these  improvements  in  the  text,  it  can  still  accept  the
common  position  since  the  main  lines  are  the  same  in  all  three  texts,  i.e.  the  initial
Commission  proposal,  the  EP  amendments  and  the  Council  common  position.  The
amendments referred to are amendments 2, 56, 110, 115, 124, 139, 143 and 144. Along the
same lines amendments 7 and 8 have not been literally incorporated in the common position;
they  were  intended  to  modify  respectively  recitals  21  and  24  of  the  initial  proposal  which
were finally deleted from the text of the common position because they were redundant to the
text  of  the  Articles  of  the  Directive.  Nevertheless,  the  substance  of  the  text  is  not  affected
since the parallel amendments (44 and 53) to the Articles of the Directive – Art 14 (4) and 19
(4) - were included in the common position; we consider that Amendments 7 and 8 are still
accepted in spirit in the common position. Amendment 26 refers to the definition of "market
order"; it has not been introduced because that definition has been deleted.

3.3. New provisions introduced by the Council

A  number  of  new  elements  have  been  introduced  in  the  common  position  compared  to  the
initial Commission  proposal  and  the  amendments  proposed  by  the  EP.  The  majority  of  those
new  elements  complete  or  make  clearer  the  text  of  the  initial  proposal  or  add  nuances  to  the
initial text to take account of the different types of instruments, services and activities covered
by this Directive. The main new provisions are dealt with in the detailed comments that follow.
These comments do not refer to those changes introduced by the Council that only relates to the
internal structure of the text, such as part of the modifications introduced in articles 4, 16, 17,
18, 19, 20, 21, 22, 48 and 49.

The common position is largely in line with the Commission  proposal  and the new provisons
introduced by the Council do not alter its substance.

Recitals

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

Recital 16

It  makes  clear  that  the  person  concerned  has  to  comply  on  a  continuous  basis  with  the
conditions laid down in Article 2 in order to benefit from the exemptions.

Recital 19

It  clarifies  that  investment  firms  providing  one  or  more  investment  services  not  covered  by
their  authorisation,  or  performing  one  or  more  investment  activities  not  covered  by  its
authorisation, on a non-regular basis do not need an additional authorisation.

15

 
Recital 20

In relation with the definition of "reception and transmission of orders", the common position
has introduced a recital in order to clarify that it also includes bringing together two or more
investors thereby bringing about a transaction between those investors.

Recital 26

In relation to Article 13 (7) and (8), the common position has introduced this recital to make it
clear that where a  client,  in  line  with  Community  legislation  and  in  particular  the  Financial
Collateral  Directive,  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.

Recital 29

In relation to article 19 (6), the Council has introduced a new recital that clarifies one for the
conditions  for  not  carrying  out  the  suitability  test,  i.e.  that  the  service  is  provided  at  the
initiative of the client or potential client.

Recital 33

The text includes a recital on the need to remove obstacles that may prevent the consolidation at
the  European  level  of  the  relevant  information  and  its  publication  in  order  to  ensure  fair
competition and allow investors to compare the prices of different trading venues.

Recital 34

It clarifies that investment firms might ask the client or potential client to consent at the same
time  to  their  execution  policy  as  well  as  to  the  possibility  that  its  orders  may  be  executed
outside a regulated market or an MTF.

Recital 35

It clarifies that persons providing 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.

Recital 38

Following  the  approach  taken  on  investment  firms,  Member  States'  competent  authorities
should only register those tied agents which intend to carry on their activities or carry out the
greater part of their activities in their territories.

Recital 39

This  recital  is  linked  to  the  changes  introduced  in  article  24  and  provides  that  eligible
counterparties should be considered as acting as clients. The Commission considers that this
modification  was  necessary  in  order  to  take  account  of  the  modifications  that  the  common
position introduced in respect of the scope of the eligible counterparty regime.

16

 
Recital 41

This recital refers to new Article 24 (1) and explains that the obligation to disclose client limit
orders only applies in the case that the  counterparty is  explicitly sending a limit order to  an
investment firm for its execution.

Recital 42

A new recital has been introduced to remind the obligation for Member States to protect the
right to privacy of natural persons.

Recital 44

This  recital  explains  the  cases  where  Member  States  may  decide  to  apply  the  pre-  and
post-trade transparency requirements laid down in this Directive to financial instruments other
than shares.

Recital 47

It comments on the scope of the authorisation of  regulated  markets.  It  also  provides  further
explanations on which transactions should be considered as concluded within the system of a
regulated market.

Recital 49

This  recital  explains  that  the  minimum  capital  requirements  with  which  regulated  markets
should comply in order to be authorised under this Directive will be fixed through the revision
of Directive 93/6/EEC and not through comitology as initially foreseen in the Commission's
proposal.

Recital 52

A  new  sentence  has  been  included  to  remind  that  Member  States  (obligations  cannot  be
included in recitals), in accordance with national law, should ensure appropriate financing of
the competent authority.

Recital 56

It  recalls  that  any  exchange  or  transmission  of  information  between  competent  authorities,
other  authorities,  bodies  or  persons  should  be  in  accordance  with  the  rules  on  transfer  of
personal data to third countries as laid down in Directive 95/46/EC.

Substantive provisions

Title I - definitions and scope

Article 2

The common position has introduced one additional exemption in Article 2  (1)  (j)  for those
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.

17

 
Article 4

The definition of investment advice (article 4.1.4) has been complemented to clarify that this
kind  of  service  can  be  provided  either  upon  clients'  request  or  at  the  initiative  of  the
investment firm.

A new definition on "market maker" (article 4.1.8) has been introduced as it was considered
necessary for the correct delimitation of the exemptions.

The definition of portfolio management (article 4.1.9) which was previously included in  the
Annex I has been moved to this article.

The  definition  of  Host  Member  State  (article  4.1.21)  has  been  complemented  to  consider
regulated markets.

Title  II  -  authorisation  and  operating  conditions  for  investment
firms

Chapter I - conditions and procedures for authorisation

In article 9 (Persons who effectively direct the business) the common position has introduced
a  new  subparagraph  in  paragraph  1  in  order  to  avoid  duplication  of  work  when  the  market
operator of a regulated market seeks authorisation to operate an MTF.

In  paragraph  1  of  Article  10  the  common  position  clarifies  the  functions  of  the  competent
authorities  and  paragraph  4  has  been  amended  to  include  also  authorised  management
companies of UCITS.

In  article  14  (Trading  process  and  finalisation  of  transactions  in  an  MTF),  the  Council
eliminated the comitology provision as it did not consider it necessary.

Chapter II - operating conditions for investment firms

The  common  position  has  eliminated  Article  17  of  the  Commission  proposal  (On-going
capital endowment) as it was considered superfluous.

In Article 19, the common position has introduced the following changes

(cid:1)  A new paragraph (number 5) on the information investment firms have to obtain
when providing services other than investment advice or portfolio management. It
also sets up the obligation of the investment firms to warn the client or potential
client  if the investment firm considers,  on  the  basis  of  the  information  received,
that the product or service is not appropriate or if the client does not provide the
information or where he provides insufficient information

(cid:1)  a new paragraph (number 9) to clarify that the obligations set out in that Article do
not  apply  in  case  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 related to credit institutions and consumer credits with respect
to risk assessment of clients and/or information requirement.

18

 
On tied agents (Article 23), the common position provides that Member States may allow tied
agents  registered  in  their  territory  to  handle  clients'  money  and/or  financial  instruments  on
behalf and under the full responsibility of the investment firm for which they are acting. In the
case of a cross-border operation, these tied agents authorised to  handle  clients'  funds and/or
financial instruments may continue with this practice in the territory of another Member State
only if this allows their tied agent to handle them.

In  Article  24 (transactions  executed  with  eligible  counterparties),  the  Council's  common
position has introduced some changes. This regime will not only cover the execution of orders
but  also  its  reception  and  transmission  and  ancillary  services  directly  related  to  those
transactions. It also provides that only paragraph 1 of article 22 shall not apply in transactions
between eligible counterparties.

Some persons have been automatically considered as eligible counterparties, namely UCITS,
pension  funds  and  their  management  companies,  commodities  dealers  and  national
governments.

The  article  includes  now  a  paragraph,  number  4,  on  third  country  entities.  Comitology
provision is more precise and takes into account of above changes.

The main changes in Article 25 relate to the reporting obligation. The reports must be sent to
the competent authority of the home Member State, except in the case of branches where, in
accordance with Article 32 (7), reports are transmitted to the competent authority of the host
Member State. This authority will transmit this information to the competent authorities of the
home Member State  of  the  investment  firm,  unless  they  decide  they  do  not  want  to  receive
this information.

Other  changes  relate  to  the  need  for  competent  authorities  to  establish  the  necessary
arrangements in order to ensure  that the  competent authority  of  the  most  relevant  market in
terms of liquidity for those financial instruments also receives this

Article 26 has been redrafted to clarify that investment firms and market operators operating
an MTF should only report to the competent authorities significant breaches of their rules or
disorderly  trading  conditions  or  conduct  that  may  involve  market  abuse  to  the  competent
authority. The provision on implementing measures has been deleted.

Article  27  allows  for  the  possibility  to  improve  quoted  prices  in  respect  of  transactions
undertaken  with  professional  investors  provided  that  the  improvement  falls  under  a  public
spread and provided that the investment firm complies with the conditions established in that
provision.

On  Article  28  (post-trade  disclosure  by  investment  firms)  the  main  changes  refer  to  the
introduction  of the term "at  least"  so  as to make  clear  the minimum nature of  the  provision
(i.e.  Member  States  may  go  beyond  this  minimum  requirement)  and  the  replacement  of  the
term "immediately" by "as close to real time as possible" to provide for  more flexibility  for
investment firms.

Articles  29  and  30  on  pre-and  post-trade  transparency  requirements  for  MTFs  have  been
aligned  with  Articles  44  and  45  (transparency  requirements  for  regulated  markets).  Council
has  also  introduced  a  comitology  provision  clarifying  that,  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  and  45  respectively  for  regulated

19

 
markets. Amendment 95 of the European Parliament has been incorporated as proposed  and
amendment 94 has been partially included in the common position.

Chapter III - rights of investment firms

Chapter III follows largely the approach of the Commission proposal.

Articles 31 and 32 on free provision of services and establishment of a branch make it clear
that  ancillary  services  may  only  be  provided  together  with  an  investment  service  and/or
activity.

Both articles also include a new paragraph obliging home member State competent authorities
to communicate the identity of the tied agents when requested by the host authorities.

A  new  paragraph  has  been  included  in  article  31  obliging  investment  firms  or  market
operators  to  provide  information  when  intending  to  arrange  for  access  and  use  of  their
systems by users established in a host Member State.

On article 32, the  main  change  compared to  the  Commission's  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 only assume
responsibility regarding services provided by the branch within its territory. Services provided
by  the  branch  outside  the  Member  State  in  which  the  branch  is  located,  remain  under  the
responsibility of the home Member State. This paragraph shall apply both to investment firms
and credit institutions.

In  Article 33 Council  has  eliminated the reference  to indirect  access  as  it was  unnecessary.
Paragraph 3 has also been deleted. It was redundant with article 42 (1).

In Article 34 the main changes refer to the replacement of the term "possibility" by "right" to
provide for more flexibility for investment firms.

The article includes a new paragraph clarifying the competences of the national central banks
as  overseers  of  settlement  systems  or  other  supervisory  authorities  on  such  systems.  The
comitology  provision  has  been  eliminated  to  avoid  interferences  on  any  future  measures  on
clearing and settlement arrangements;

A  new  article  35  on  provisions  regarding  central  counterparty,  clearing  and  settlement
arrangements in respect of MTFs has been introduced.

Title III - regulated markets

Article 36

The common position  has aligned this article  on authorisation  and  applicable law following
the  corresponding  provisions  on  investment  firms.  It  also  provides  further  clarity  on  the
distinction between the market operator and the market.

20

 
Article 37

The common position has reworded Commission's proposal to clarify these requirements for
the management of the regulated market. The issue of financial resources are now included in
Article  39(f)  and  will  not  be  established  through  comitology  but  on  the  revision  of  the
Directive 93/6/EEC (Capital Adequacy Directive).

Article 38

The Common position has replaced the term "effective control of the regulated market" used
in the Commission proposal by "significant influence over the management of the regulated
market". In paragraph 2 it refers to the operator of the regulated market and not the regulated
market itself.

Article 39

Paragraph d) has been redrafted and eliminates the need for prior approval by the competent
authorities  of  the  rules  of  the  regulated  market.  As  mentioned  above,  it  also  includes  the
financial requirements for regulated markets.

Article 40

The common position has eliminated the need for prior approval by the competent authorities
of the rules regarding the  admission of financial instruments to trading.  It also has  added in
Paragraph  6  a  new  indent  concerning  the  arrangements  that  the  regulated  market  has  to
establish in order to facilitate its members or participants in obtaining access to information
which has been made public in the conditions established under Community law.

Article 41

The Council common position has added a provision stipulating the competent authorities of
Member  States,  other  than  the  one  which  has  demanded  the  suspension  or  removal  of  an
instrument,  upon  being  informed  the  suspension  or  removal,  shall  in  turn  demand  the
suspension or removal of that financial instrument from trading on the regulated markets and
MTFs that operate under their authority.

Article 42

In paragraph 2, the common position has replaced the limits for access to regulated markets to
the  concept  of  eligible  counterparties  proposed  by  the  Commission  with  a  more  flexible
regime.

It has also eliminated unnecessary references to indirect members or participants.

A new paragraph on the provision by the regulated markets of arrangements in the territory of
other  Member  States  has  been  introduced.  It  follows  the  approach  adopted  for  investment
firms.

21

 
Article 43

The common position has amended this article on monitoring of compliance with the rules of
the regulated market and with other legal obligations. Now the monitoring should focus on the
compliance  by  its  members  or  participants  with  the  rules  of  the  market  and  not  on  the
transactions undertaken by the members.

The  text  has  been  amended  to  clarify  that  the  authority  competent  for  the  investigation  and
prosecution of market abuse may be different from the competent  authority of the regulated
market.

The text only requires reporting to the authority significant breaches of the rules.

Article 44 and 45

The  text  allows  regulated  markets  to  charge  systematic  internalisers  for  the  access  to  their
arrangements for the publication of prices.

Paragraph 2 of article 44 has been broadened and allows pre-trade transparency to be waived
based on the market model and the type and size of orders. Paragraph 2 of article 45 has also
been modified and allows  deferred publication  of the details of transactions  not only on the
basis of their size but also on their type.

The comitology provision has been simplified.

Articles 46

The  article  on  central  counterparty  and  clearing  and  settlement  arrangement  includes  a  new
paragraph, like article 35, aiming at avoiding duplication of control.

Article 47

According to the change introduced by the Council, the Commission is obliged to update its
website each time a Member State communicates changes to its list of regulated markets.

Title IV - competent authorities

This Title IV has been restructured in three Chapters. The first one refers to their designation,
their powers and redress procedures. It also establishes the obligation for these authorities to
cooperate on a national level and the rules of professional secrecy.  The second one  sets  out
the rules on cooperation between competent authorities of different Member States, including
provisions on cooperation and  cross  border  exchange  of  information.  The  last  chapter  deals
with the cooperation with third countries.

Chapter I - designation, powers and redress procedures

Article 48

The  common  position  has  reworded  the  provision  on  delegation  in  a  more  precise  manner.
Any delegation of tasks to entities other than the authorities referred to will not involve either
the exercise of public authority or the use of discretionary powers of judgement.

22

 
Article 49

It replaces Article 45 (3) of the Commission's proposal. The obligation has been extended to
also include cooperation between competent authorities for the supervision of pension funds,
UCITS and insurance and reinsurance intermediaries.

Article 50

The Council has aligned this article with Article 12 of Directive 2003/6/EC on insider dealing
and market manipulation.

A new competence, the right to allow auditors or experts to carry out verifications, has been
added in (m) as a necessary complement to the powers and rights set out in the Commission
proposal.

Paragraph 2 of article 46 of the Commission's proposal, on the need for competent authorities
to  have  adequate  resources,  has  been  replaced  by  a  new  sentence  in  Recital  52,  following
Directive 2003/6/EC on insider dealing and market manipulation.

Article 53

Member States are no longer obliged to set up redress procedures but to encourage its setting.

Article 54

The common position has added three new paragraphs

Paragraph 3 and 4 regulate the use of confidential information received. Paragraph 3, which
imposes the rule of professional secrecy, is largely aligned to Article 16(2) last subparagraph
of Directive 2003/6/EC (market abuse).

Paragraph 4 stipulates to which extent information may be transmitted, and sets out in a more
clear and coherent manner than in Article 54  of the  Commission proposal. The  drafting  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).

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.

Chapter II - cooperation between competent authorities of
different Member States

Article 56

The  Council  has  introduced  an  obligation  for  Member  States  to  designate  one  single
competent  authority  as  a  contact  point  in  order  to  facilitate  and  accelerate  cooperation,  and
more particularly exchange of information.

23

 
New paragraph 2 obliges host and home competent authorities to ensure cooperation between
in  cases  of  cross-border  regulated  markets,  where  the  operations  of  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.  New  paragraph  6  provides  for
implementing  measures  in  order  to  determine  the  criteria  in  which  to  establish  when
operations of a  regulated market in a  host  Member  State  could  be  considered  of  substantial
importance.

Article  53  of  the  Commission  proposal  has  been  divided  into  two  articles,  Article  57  and
Article 59, in order to make the text more clear. Article 57 allows the competent authority of
a regulated market to address remote members of that market directly.

Article 58 has been restructured. It only deals with exchange 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.

In Article 62, Council has extended precautionary powers for host competent authorities
for the cases of branches and regulated markets and MTFs.

Chapter III - cooperation with third countries

Article 63

Changes in this article reflect the new structure of Title IV.

Title V final provisions

Article 65

In paragraph 1 the common position has brought forward by two years the date of the report.

A  new  paragraph  2  has  been  introduced  requesting  the  commission  to  report  on  the
application of Article 27 (pre-trade transparency).

In  paragraph  3,  the  common  position  requests  the  Commission  to  report  on  the  following
additional subject issues:

(cid:1)  the  appropriateness  of  rules  concerning  the  appointment  of  tied  agents  in
performing investment services and/or activities, in particular with respect to the
supervision on them,

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

New paragraph 4 requires the Commission to report on the state of the removal of obstacles
which  may  prevent  the  consolidation  at  European  level  of  the  relevant  information  and  its
publication. In this respect it is recalled that recital 33 states that fair competition requires that
market  operators  and  investors  are  able  to  compare  the  prices  that  trading  venues  (i.e.
regulated  markets,  MTF  and  intermediaries)  are  required  to  publish.  To  this  end,  it  is

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recommended that Member States remove any obstacles which may prevent the consolidation
at European level of the relevant information and its publication,

New paragraph 5 requires the Commission to report on the continued appropriateness of the
requirements  for  professional  indemnity  insurance  imposed  on  intermediaries  under
Community law.

On  the  basis  of  those  reports,  the  Commission  may,  where  relevant,  submit  proposals  for
related amendments to this Directive.

Article 66

The text of Article 61 of the Commission proposal remains unchanged.

Article 67

The common position modifies Article 62 of Commission's proposal. The necessary technical
amendments have been made to Article 3(4) Directive 93/6/EEC, and the capital requirements
for  the  firms  which  are  only  authorised  to  provide  the  service  of  investment  advice  and/or
receive and transmit orders from investors without in both 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 have a particular regime under Article 3(4) Directive 93/6/EEC.

These  firms  may  choose  between  a  minimum  initial  capital  requirement,  professional
indemnity  insurance  or  a  combination  thereof.  These  persons  will  have  a  less  stringent
regime,  if  they  are  also  registered  under  Directive 2002/92/EC  on  insurance  mediation  and
subject to the requirements of that Directive as well.

Articles 68

The common position amends annex I of the Banking Directive in a different manner than the
Commission's  proposal.  Instead  of  introducing  in  it  references  to  new  activities  or  financial
instruments,  it  adds  a  new  paragraph  stating  that  the  services  and  activities  provided  for  in
Section  A  and  B  of  Annex  I  of  this  Directive when  referring  to  the  financial  instruments
provided  for  in  Section  C  of  Annex  I  of  that  Directive  are  subject  to  mutual  recognition
according to the Banking Directive.

Articles 69 and 70

These  articles  remain  broadly  in  the  same  line  as  the  Commission's  proposal.  The
transposition period has been extended from 18 to 24 months.

Article 71

The  Council  has  introduced  a  technical  transitional  provision  to  facilitate  the  smooth  entry
into force of the new directive.

ANNEX I

Section A

The  common  position  has  simplified  the  drafting  of  the  investment  services  as  some
definitions have been included in article 4. It has also split number 6 in two.

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Section B

A new service has been introduced: Services related to underwriting.

Section C

The  list  of  financial  instruments  has  been  reworded  in  order  to  provide  further  clarity,  in
particular in relation to the commodities derivatives.

ANNEX II

The  common  position  has  introduced  some  minor  amendments  in  the  categories  of  clients
who  are  to  be  considered  to  be  professional  by  including  locals  and  other  institutional
investors.

4.

CONCLUSION

The Commission considers that the Common Position adopted by the Council on 8 December
2003 is faithful to the objectives and the spirit of the Commission proposal of 29 November
2002.

The  Commission  also  considers  that  the  Common  Position  meets  the  main  concerns  of  the
European Parliament and follows some of the key elements of the Parliament’s amendments.

The Commission believes that the Common Position achieves a good balance.

The Commission therefore recommends this Common Position to the European Parliament.

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