Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments 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: 2004-04-21
Institutions: Council of the European Union, European Parliament
Subjects: credit institution, financial instrument, investment company, official market, provision of services, securities

30.4.2004

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Official Journal of the European Union

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I

(Acts whose publication is obligatory)

DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 21 April 2004

on markets in financial instruments 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

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUR-
OPEAN UNION,

(2)

Having regard to the Treaty establishing the European Com-
munity, 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:

(1)

Council Directive 93/22/EEC of 10 May 1993 on in-
vestment services in the securities field (5) sought
to
establish the conditions under which authorised invest-
ment 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 pro-
vided for the harmonisation of some conditions govern-
ing the operation of regulated markets.

(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
published in the Official Journal), Council Common Position of 8
December 2003 (OJ C 60 E, 9.3.2004, p. 1), Position of
the
European Parliament of 30 March 2004 (not yet published in the
Official Journal) and Decision of the Council of 7 April 2004.
(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).

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 developments the legal framework of
the Community should encompass the full range of
investor-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
the
investment
Community, being a Single Market, on the basis of
home country supervision.
the preceding,
Directive 93/22/EEC should be replaced by a new
Directive.

firms to provide services throughout

In view of

(3)

(4)

(5)

Due to the increasing dependence of investors on per-
sonal recommendations, it is appropriate to include the
provision of investment advice as an investment service
requiring authorisation.

is appropriate to include in the list of

It
financial
instruments certain commodity derivatives and others
which are constituted and traded in such a manner as to
give rise to regulatory issues comparable to traditional
financial instruments.

investor

It is necessary to establish a comprehensive regulatory
regime governing the execution of transactions in finan-
cial instruments irrespective of the trading methods used
to conclude those transactions so as to ensure a high
quality of execution of
transactions and to
uphold the integrity and overall efficiency of the finan-
cial system. A coherent and risk‑sensitive framework for
regulating the main types of order-execution arrange-
ment currently active in the European financial market-
place 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 effi-
cient and orderly functioning of financial markets. With
a view to establishing a proportionate regulatory frame-
work provision should be made for the inclusion of a
new investment service which relates to the operation of
an MTF.

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Official Journal of the European Union

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(6)

(7)

(8)

regulated market and MTF should be
Definitions of
introduced and closely aligned with each other to reflect
the fact that they represent the same organised trading
functionality. The definitions should exclude bilateral
systems where an investment
firm enters into every
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 com-
posed 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 instruments
to trading,
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 rules set
they are brought
by the system operator means that
together under the system's rules or by means of the
system's protocols or internal operating procedures (in-
cluding procedures embodied in computer software).
The term ‘non‑discretionary rules’ means that these rules
leave the investment firm operating an MTF with no
discretion as to how interests may interact. The defini-
tions 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.

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.

Persons administering their own assets and undertak-
ings, who do not provide investment services and/or
perform investment activities other than dealing on own
account unless they are market makers or they dealon
own account outside a regulated market or an MTF on
an organised, frequent and systematic basis, by provid-
ing a system accessible to third parties in order
to
engage in dealings with them 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.

(10)

(11)

(12)

(13)

(14)

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 Feb-
ruary 1964 on the 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 coordina-
tion of
laws, regulations and administrative provisions
relating to the taking up and pursuit of direct insurance
other
Council
Directive 2002/83/EC of 5 November 2002 concerning
life assurance (3) should be excluded.

assurance (2)

than

and

life

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

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

Persons who provide investment services consisting ex-
clusively 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.

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

(15)

It
this
is necessary to exclude from the scope of
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.

(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.

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(16)

(17)

(18)

(19)

(20)

(21)

to benefit

In particular,

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

Persons who provide the investment services and/or
perform investment activities covered by this Directive
should be subject to authorisation by their home Mem-
ber States in order to protect investors and the stability
of the financial system.

of

up

are

and

that

pursuit

authorised

institutions

Credit
under
Directive 2000/12/EC of the European Parliament and
of
the Council of 20 March 2000 relating to the
of
taking
credit institutions (1) should not need another authorisa-
tion under this Directive in order to provide investment
services or perform investment activities. When a credit
institution decides to provide 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.

business

the

In cases where an investment
firm provides one or
more investment services not covered by its authorisa-
tion, 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.

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 bring-
ing about a transaction between those investors.

the forthcoming revision of

In the context of
the
Capital Adequacy framework in Basel II, Member States
recognise the need to re-examine whether or not invest-
ment
firms who execute client orders on a matched
principal basis are to be regarded as acting as principals,
and thereby be subject to additional regulatory capital
requirements.

(25)

(22)

recognition and of home
The principles of mutual
Member State supervision require that
the Member
States' competent authorities should not grant or should
withdraw authorisation where factors such as the con-
the geographical
tent of programmes of operations,

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
authorised 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 addition, Member
in which it has its head office.
States
firm's
that
head office must always be situated in its home Member
State and that it actually operates there.

investment

require

should

an

(23) An investment

firm authorised in its home Member
State should be entitled to provide investment services
or perform investment activities throughout the Com-
munity without the need to seek a separate authorisa-
tion from the competent authority in the Member State
in which it wishes to provide such services or perform
such activities.

(24)

institutions (2),

firms and credit

Since certain investment firms are exempted from cer-
tain obligations imposed by Council Directive 93/6/EEC
of 15 March 1993 on the capital adequacy of invest-
ment
they should be
obliged to hold either a minimum amount of capital or
professional
indemnity insurance or a combination of
both. The adjustments of the amounts of that insurance
should take into account adjustments made in the
framework
the
European Parliament and of the Council of 9 Decem-
ber 2002 on insurance mediation (3). This particular
treatment for the purposes of capital adequacy should
be without prejudice to any decisions regarding the
appropriate
future
changes to Community legislation on capital adequacy.

treatment of

firms under

2002/92/EC

Directive

these

of

of

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, enti-
ties which deal on own account in financial instruments,
including those commodity derivatives covered by this
those that provide investment
Directive, as well as
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 invest-
this Directive,
ment services within the meaning of
should be excluded from the scope of this Directive.

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

last amended by

Directive 2002/87/EC.

Directive 2002/87/EC.
(3) OJ L 9, 15.1.2003, p. 3.

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

last amended by

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(26)

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 transac-
tion and the investor is in agreement, for example stock
lending.

Directive

particular

Parliament

2002/47/EC
of

(27) Where a client, in line with Community legislation and
the
in
European
of
and
6 June 2002 on financial collateral arrangements (1),
transfers
instruments or
funds to an investment firm for the purpose of securing
or otherwise covering present or future, actual or con-
tingent or prospective obligations, such financial instru-
ments or funds should likewise no longer be regarded as
belonging to the client.

full ownership of

of
Council

financial

the

(28)

The procedures for the authorisation, within the Com-
munity, of branches of investment firms authorised in
third countries should continue to apply to such firms.
Those branches should not enjoy the freedom to pro-
vide services under the second paragraph of Article 49
of the Treaty or the right of establishment in Member
States other than those in which they are established. 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 that
treat-
Community investment
ment in the third countries concerned.

firms receive reciprocal

(29)

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.

and addressed to the public or a larger group or
category of clients or potential clients.

(31) One of

the objectives of

this Directive is to protect
investors. Measures
should be
to protect
adapted to the particularities of each category of inves-
tors (retail, professional and counterparties).

investors

(32)

(33)

(34)

the competent authority of

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 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 author-
ity is closest
to the branch, and is better placed to
detect and intervene in respect of infringements of rules
governing the operations of the branch.

It is necessary to impose an effective ‘best execution’
obligation to ensure that investment firms execute client
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.

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

the investment

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

to consent at

(30) 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 the firm to that particular client, which con-
tains an invitation or is intended to influence the client
in respect of a specific financial
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 communication
containing a promotion or offer of financial instruments
made by any means that by its very nature is general

(36)

(37)

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

Persons who provide investment services on behalf of
more than one investment firm should not be consid-
ered 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.

This Directive should be 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 this Directive,
including on behalf of parts of the same financial group.

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(38)

for conducting activities outside the
The conditions
premises of the investment firm (door‑to‑door selling)
should not be covered by this Directive.

(39) 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.

(40)

For the purposes of this Directive eligible counterparties
should be considered as acting as clients.

(41)

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.

(42)

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

(43) Member States shall protect

the right

to privacy of
natural persons with respect to the processing of perso-
nal data in accordance with Directive 95/46/EC of the
European Parliament and of the Council of 24 Octo-
ber 1995 on the protection of individuals with regard
to the processing of personal data and of
the free
movement of such data. (1)

laid down for

(44) 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
that
the rules
purpose apply to investment firms when they operate
on the markets. In order to enable investors or market
participants
to assess at any time the terms of a
transaction 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 pub-
lication of details of completed transactions in shares
and for the disclosure of details of current opportunities
to trade in shares. These rules are needed to ensure the
effective integration of Member State equity markets, to

(1) OJ L 281, 23.11.1995, p. 31.

the overall price formation
promote the efficiency of
process for equity instruments, and to assist the effective
operation of ‘best execution’ obligations. These consid-
erations require a comprehensive transparency regime
transactions in shares irrespective of
applicable to all
firm on a bilateral
their execution by an investment
basis or through regulated markets or MTFs. The obliga-
tions for investment firms under this Directive to quote
a bid and offer price and to execute an order at the
quoted price do not relieve investment
the
obligation to route an order to another execution venue
when such internalisation could prevent the firm from
complying with ‘best execution’ obligations.

firms of

(45) Member States should be able to apply transaction
reporting obligations of the Directive to financial instru-
ments that are not admitted to trading on a regulated
market.

(46) A Member State may decide to apply the pre‑ and
post‑trade transparency requirements laid down in this
Directive to financial instruments other than shares. In
that case those requirements should apply to all invest-
ment firms for which that Member State is the 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.

(47)

joining or having access

Investment firms should all have the same opportunities
of
to regulated markets
throughout the Community. Regardless of the manner
in which transactions are at present organised in the
Member States, it is important to abolish the technical
and legal restrictions on access to regulated markets.

(48)

In order
to facilitate the finalisation of cross-border
it is appropriate to provide for access to
transactions,
clearing and settlement systems throughout the Com-
munity by investment
irrespective of whether
firms,
transactions have been concluded through regulated
markets in the Member State concerned.
Investment
firms which wish to participate directly in other Mem-
ber States' settlement systems should comply with the
relevant operational and commercial requirements for
membership and the prudential measures to uphold the
smooth and orderly functioning of the financial mar-
kets.

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(49)

financial

The authorisation to operate a regulated market should
extend to all activities which are directly related to the
display, processing, execution, confirmation and report-
ing 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
instru-
ments 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 be considered as transactions concluded
outside a regulated market or an MTF for the purposes
of
In such a
case the obligation for investment firms to make public
firm quotes should apply if the conditions established
by this Directive are met.

the definition of systematic internaliser.

(50)

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.

(51) Article 27 does not oblige systematic internalisers to
publish firm quotes in relation to transactions above
standard market size.

(52) Where an investment firm is a systematic internaliser
both in shares and in other financial
instruments, the
obligation to quote should only apply in respect of
shares without prejudice to Recital 46.

(53)

It is not the intention of this Directive to require the
application of pre-trade transparency rules to transac-
tions carried out on an OTC basis, the characteristics of
which include that they are ad-hoc and irregular and are
carried out with wholesale counterparties and are part
of a business relationship which is itself characterised by
dealings above standard market size, and where the
deals are carried out outside the systems usually used
by the firm concerned for its business as a systematic
internaliser.

(54)

The standard market size for any class of share should
not be significantly disproportionate to any share in-
cluded in that class.

(55)

Revision of Directive 93/6/EEC should fix the minimum
capital
requirements with which regulated markets
should comply in order to be authorised, and in so
doing should take into account the specific nature of
the risks associated with such markets.

(56) Operators of a regulated market should also be able to
operate an MTF in accordance with the relevant provi-
sions of this Directive.

(57)

Parliament

The provisions of this Directive concerning the admis-
sion 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
of
Council
and
28 May 2001 on the admission of securities to official
stock exchange listing and on information to be pub-
lished on those securities (1). A regulated market should
not be prevented from applying more demanding re-
the issuers of securities or
quirements in respect of
instruments which it
is considering for admission to
trading than are imposed pursuant to this Directive.

the

of

(58) Member States should be able to designate different
competent authorities to enforce the wide‑ranging ob-
ligations laid down in this Directive. Such authorities
should be of a public nature guaranteeing their indepen-
dence from economic actors and avoiding conflicts of
interest. In accordance with national law, Member States
should ensure appropriate financing of the competent
authority. The designation of public authorities should
not exclude delegation under the responsibility of the
competent authority.

(59) 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.

(60)

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.

(1) OJ L 184, 6.7.2001, p. 1. Directive as last amended by European
L 345,

and Council Directive 2003/71/EC (OJ

Parliament
31.12.2003, p. 64.).

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(61) With a view to protecting clients and without prejudice
to the right of customers to bring their action before
the courts, it is appropriate that Member States encou-
rage 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
principles applicable to the bodies responsible for out‑-
of‑court settlement of consumer disputes (1). When im-
plementing provisions on complaints and redress proce-
dures for out‑of‑court settlements, Member States should
be encouraged to use existing cross‑border cooperation
mechanisms, notably the Financial Services Complaints
Network (FIN‑Net).

(62) Any exchange or transmission of information between
competent authorities, other authorities, bodies or per-
sons should be in accordance with the rules on transfer
of personal data to third countries as laid down in
Directive 95/46/EC.

(63)

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 enforce-
ment of
including in situations where
infringements or suspected infringements may be of
concern to authorities in two or more Member States.
In the exchange of information, strict professional se-
crecy is needed to ensure the smooth transmission of
that information and the protection of particular rights.

this Directive,

(64) 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
techniques based on a four‑level approach, namely fra-
mework principles, implementing measures, cooperation
and enforcement. Level 1, the Directive, should confine
‘framework’ principles while
itself
Level 2 should contain technical implementing measures
to be adopted by the Commission with the assistance of
a committee.

to broad general

(65)

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 Commu-
nity securities legislation more efficient and transparent.

(66) 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.

(67)

(68)

(69)

The Resolution of the European Parliament of 5 Febru-
ary 2002 on the implementation of financial services
legislation 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.

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 for the exercise of implementing powers
conferred on the Commission (2).

The European Parliament should be given a period of
three months from the first transmission of draft im-
plementing measures to allow it to examine them and
to give its opinion. However, in urgent and duly justified
cases,
If, within that
period, a resolution is passed by the European Parlia-
the Commission should re‑examine the draft
ment,
measures.

this period could be shortened.

(70) With a view to taking into account

further develop-
ments 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 trans-
parency rules and the possible authorisation of specia-
lised dealers in commodity derivatives as investment
firms.

(71)

The objective of creating an integrated financial market,
in which investors are effectively protected and the
efficiency and integrity of the overall market are safe-
guarded, requires the establishment of common regula-
tory requirements relating to investment firms wherever
they are authorised in the Community and governing
the functioning 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 objec-
tive may be better achieved at Community level,
the
Community may adopt measures in accordance with the
principle of subsidiarity as set out in Article 5 of the
Treaty. In accordance with the principle of proportion-
ality, as set out in that Article, this Directive does not
go beyond what is necessary in order to achieve this
objective,

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

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

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HAVE ADOPTED THIS DIRECTIVE:

TITLE I

DEFINITIONS AND SCOPE

Article 1

Scope

This Directive shall apply to investment firms and regu-

1.
lated markets.

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

— Articles 2(2), 11, 13 and 14,

— Chapter II of Title II excluding Article 23(2) second sub-

paragraph,

— 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;

(b) persons which provide investment services exclusively for
for

their parent undertakings,
other subsidiaries of their parent undertakings;

their subsidiaries or

for

(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 regulatory provisions or a code of ethics governing the
profession which do not exclude the provision of
that
service;

(d) persons who do not provide any investment services or
activities other than dealing on own account unless they
are market makers or deal on own account outside a
regulated market or an MTF on an organised,
frequent
and systematic basis by providing a system accessible to
third parties in order to engage in dealings with them;

(f) persons which provide investment services which only
employee‑participation
involve both administration of
schemes and the provision of investment services exclu-
sively for their parent undertakings, for their subsidiaries
or for other subsidiaries of their parent undertakings;

(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
or derivative contracts included in Annex I, Section C 10
to the clients of their main business, provided this is an
ancillary activity to their main business, when considered
the
on a group basis, and that main business is not
investment services within the meaning of
provision of
this
under
Directive 2000/12/EC;

Directive

banking

services

or

(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 on own account in commodities and/or commodity
derivatives are part of a group the main business of which
is the provision of other investment services within the
meaning of this Directive or banking services under Direc-
tive 2000/12/EC;

(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 markets or
make prices for them and which are guaranteed by clear-
ing 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;

(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;

(e) persons which provide investment services consisting ex-
clusively in the administration of employee‑participation
schemes;

(n) ‘agenti di cambio’ whose activities and functions are
Italian Legislative Decree

governed by Article 201 of
No 58 of 24 February 1998.

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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
the European System of Central Banks performing their
of
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 na-
tional provisions.

3.
In order to take account of developments on financial
markets, and to ensure the uniform application of this Direc-
tive, the Commission, acting in accordance with the 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

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

transmit orders only to:

(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
and others, are required by Member States of compa-
nies within the meaning of the 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
in a
are listed or dealt
Member State;

in on a regulated market

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

2.
Persons excluded from the scope of this Directive accord-
ing 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.

Article 4

Definitions

For the purposes of this Directive, the following defini-

1.
tions shall apply:

1) ‘Investment firm’ means any legal person whose regular
occupation or business is the provision of one or more
the perfor-
investment services to third parties and/or
mance of one or more investment activities on a profes-
sional basis;

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

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

interests equivalent

parties'
persons, and

(i) investment
Directive;

firms authorised in accordance with this

(b) they are subject to equivalent prudential supervision

appropriate to their legal form.

(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
in
down
Directive 2000/12/EC or in Directive 93/6/EEC;

this Directive,

those

laid

in

However, where a natural person provides services invol-
funds or transferable
third parties'
ving the holding of
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 condi-
tions:

(a) the ownership rights of

third parties in instruments
and funds must be safeguarded, especially in the event
its proprietors,
of
seizure, set‑off or any other action by creditors of the
firm or of its proprietors;

the insolvency of

the firm or of

(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;

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

Act of Accession.

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

the firm's solvency and that of its proprietors;

ary client-by-client basis where such portfolios include one
or more financial instruments;

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

10) ‘Client’ means any natural or legal person to whom an
investment firm provides investment and/or ancillary ser-
vices;

(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;

2) ‘Investment services and activities’ means any of the ser-
vices and activities listed in Section A of Annex I relating
to any of the instruments listed in Section C of Annex I;

The Commission shall determine, acting in accordance
with the procedure referred to in Article 64(2):

— the derivative contracts mentioned in Section C 7 of
Annex I that have the characteristics of other derivative
inter
financial
alia, they are cleared and settled through recognised
clearing houses or are subject to regular margin calls

instruments, having regard to whether,

— the derivative contracts mentioned in Section C 10 of
Annex I that have the characteristics of other derivative
financial
inter
alia, they are traded on a regulated market or an MTF,
are cleared and settled through recognised clearing
houses or are subject to regular margin calls;

instruments, having regard to whether,

3) ‘Ancillary service’ means any of

the services listed in

Section B of Annex I;

4) ‘Investment advice’ means the provision of personal re-
commendations 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;

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;

11) ‘Professional client’ means a client meeting the criteria laid

down in Annex II;

12) ‘Retail client’ means a client who is not a professional

client;

13) ‘Market operator’ means a person or persons who man-
ages 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 instru-
ments – in the system and in accordance with its non-
discretionary rules – in a way that results in a contract, in
respect of
instruments admitted to trading
under its rules and/or systems, and which is authorised
and functions regularly and in accordance with the provi-
sions of Title III;

the financial

15) ‘Multilateral

trading facility (MTF)’ means a multilateral
firm or a market
system, operated by an investment
operator, which brings together multiple third‑party buy-
ing 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;

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;

17) ‘Financial instrument’ means those instruments specified in

Section C of Annex I;

6) ‘Dealing on own account’ means trading against proprie-
tary capital resulting in the conclusion of transactions in
one or more financial instruments;

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

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

8) ‘Market maker’ means a person who holds himself out on
the financial markets on a continuous basis as being
willing to deal on own account by buying and selling
financial
instruments against his proprietary capital at
prices defined by him;

9) ‘Portfolio management’ means managing portfolios in ac-
cordance with mandates given by clients on a discretion-

(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 se-
interest rates or yields, commod-
curities, currencies,
ities or other indices or measures;

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19) ‘Money-market instruments’ means those classes of instru-
ments which are normally dealt in on the money market,
such as treasury bills, certificates of deposit and commer-
cial papers and excluding instruments of payment;

20) ‘Home Member State’ means:

(a) in the case of investment firms:

(i) if

the investment

the
Member State in which its head office is situated;

firm is a natural person,

(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;

26) ‘Branch’ means a place of business other than the head
office which is a part of an investment firm, which has no
legal personality and which provides investment services
and/or
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;

and which may

activities

also

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 de-
Seventh Council
and
on
1983
of

in Articles

1
fined
Directive
83/349/EEC
consolidated accounts (2);

2
13

June

of

(b) in the case of a regulated market, the Member State in
if under
which the regulated market is registered or,
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;

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;

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;

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

23) ‘Credit

institutions’ means credit

institutions as defined

under Directive 2000/12/EC;

24) ‘UCITS management company’ means a management com-
pany as defined in Council Directive 85/611/EEC of
20 December 1985, on the coordination of laws, regula-
tions and administrative provisions relating to undertak-
ings for collective investment
in transferable securities
(UCITS) (1);

25) ‘Tied agent’ means a natural or legal person who, under
the full and unconditional
responsibility of only one
investment firm on whose behalf it acts, promotes invest-
ment and/or ancillary services to clients or prospective
clients, receives and transmits instructions or orders from
investment services or financial
the client in respect of
instruments, places financial
instruments and/or provides
advice to clients or prospective clients in respect of those
financial instruments or services;

(1) OJ L 375, 31.12.1985, p. 3. Directive as last amended by Directive
the Council

the European Parliament and of

2001/108/EC of
(OJ L 41, 13.2.2002, p. 35).

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:

(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,

similar

(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
or
legal person and an undertaking, any subsidiary under-
taking of a subsidiary undertaking also being consid-
ered a subsidiary of the parent undertaking which is at
the head of those undertakings.

relationship

between

natural

any

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.

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

(2) OJ L 193, 18.7.1983, p. 1. Directive as

the European Parliament and of

last amended by
the

Directive 2003/51/EC of
Council (OJ L 178, 17.7.2003, p. 16).

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TITLE II

AUTHORISATION AND OPERATING CONDITIONS FOR IN-
VESTMENT FIRMS

CHAPTER I

CONDITIONS AND PROCEDURES FOR AUTHORISATION

Article 5

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

to additional

3.
The authorisation shall be valid for the entire Commu-
nity 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.

Requirement for authorisation

Article 7

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 authorisa-
tion 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.
By way of derogation from paragraph 1, Member States
shall allow any market operator to operate an MTF, subject to
the prior verification of their compliance 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 con-
tain information on the services and/or activities for which the
investment firm is authorised. It shall be updated on a regular
basis.

4.

Each Member State shall require that:

— 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
its
firm which is a legal person but under
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
administrative, preparatory or ancillary tasks related to the
granting of an authorisation, in accordance with the conditions
laid down in Article 48(2).

Article 6

Scope of authorisation

The home Member State shall ensure that the authorisa-
1.
tion 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.

Procedures for granting and refusing requests for author-
isation

The competent authority shall not grant authorisation
1.
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 information, includ-
2.
ing a programme of operations setting out inter alia the types
of business envisaged and the organisational structure, neces-
sary to enable the competent authority to satisfy itself that the
investment firm has established, at the time of initial author-
isation, all the necessary arrangements to meet its obligations
under the provisions of this Chapter.

3.
An applicant shall be informed, within six months of the
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 con-
cerned 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, such as compliance with the conditions set
out in Directive 93/6/EEC;

(d) has seriously and systematically infringed the provisions
adopted pursuant to this Directive governing the operating
conditions for investment firms;

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

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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 subpara-
graph.

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.

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

sufficiently experienced, or

if

4. Member States shall
the management of
investment firms is undertaken by at least two persons meet-
ing the requirements laid down in paragraph 1.

require that

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

The competent authorities shall not authorise the perfor-
1.
mance of
investment services or 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.

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.

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 the supervisory functions of the competent author-
ity.

2.
The competent authority shall refuse authorisation if the
laws, regulations or administrative provisions of a third coun-
try 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.

to acquire or

first to notify,

sell, directly or

3. Member States shall require any natural or legal person
indirectly, a
that proposes
qualifying holding in an investment firm,
in
accordance with the second subparagraph,
the competent
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.

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

If

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

the assessment of

firm, credit

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

investment

firm is

that

to

3,

L 145/14

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30.4.2004

investment firms shall also inform the
At least once a year,
competent authority of the names of shareholders and mem-
bers 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 result of compliance with the regulations applicable to
companies whose transferable securities are admitted to trading
on a regulated market.

Article 13

Organisational requirements

The home Member State shall require that

investment
1.
firms comply with the organisational requirements set out in
paragraphs 2 to 8.

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.

2.
An investment firm shall establish adequate policies and
procedures sufficient to ensure compliance of the firm includ-
ing its managers, employees and tied agents with its obliga-
tions under the provisions of this Directive as well as appro-
priate rules governing personal transactions by such persons.

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.

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.

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 compe-
tent 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,
the
nullity of the votes cast or for the possibility of their annul-
ment.

for

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
investor‑compensation
Council
3 March
of
schemes (1) at the time of authorisation.

the European Parliament and of

1997

on

Article 12

Initial capital endowment

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

initial capital

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
important operational
functions may not be undertaken in
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 ac-
internal control mechanisms, effective
counting procedures,
procedures for risk assessment, and effective control and safe-
guard arrangements for information processing systems.

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 com-
pliance with the requirements under
this Directive, and in
particular to ascertain that the investment firm has complied
with all obligations with respect to clients or potential clients.

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

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

An investment firm shall, when holding financial instru-
7.
ments 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.

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An investment firm shall, when holding funds belonging
8.
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.

firms or
4. Member States shall require that
market operators operating an MTF establish and maintain
transparent rules, based on objective criteria, governing access
to its facility. These rules shall comply with the conditions
established in Article 42(3).

investment

9.
In the case of branches of investment firms, the compe-
tent authority of the Member State in which the branch is
located shall, without prejudice to the possibility of the com-
petent authority of the home Member State of the investment
firm to have direct access to those records, enforce the obliga-
tion laid down in paragraph 6 with regard to transactions
undertaken by the branch.

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 specify the concrete organisational require-
ments to be imposed on investment firms performing different
investment services and/or activities and ancillary services or
combinations thereof.

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 criteria for the efficient execu-
tion of orders.

investment

firms or
2. Member States shall require that
market operators operating an MTF establish transparent rules
regarding the criteria for determining the financial 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
there is access to, sufficient publicly available
satisfied that
information to enable its users to form an investment judge-
ment, taking into account both the nature of the users and the
types of instruments traded.

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 trans-
actions executed in that facility. Member States shall 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
is also traded on an MTF
to 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
authority pursuant
any
to Article 50(1) to suspend or remove a financial instrument
from trading.

instruction from its

competent

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
may submit proposals
for an appropriate
mandate for negotiation with a view to obtaining comparable
competitive opportunities for Community investment
firms.
The Council shall act by a qualified majority.

to the Council

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 to the use of the MTF. However, the members of or
participants in the MTF shall comply with the obligations
provided for in Articles 19, 21 and 22 with respect to their
their clients, they execute
clients when, acting on behalf of
their orders through the systems of an MTF.

3. Whenever it appears to the Commission, on the basis of
information submitted to it under paragraph 1, that Commu-
firms in a third country are not granted
nity investment
national
treatment affording the same competitive opportu-
nities 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.

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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
suspend their decisions
limit or
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 authorised 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
negotiations, the Commission may decide, in accordance with
to extend these
the procedure referred to in Article 64(2),
measures.

the results of

4. Whenever it appears to the Commission that one of the
the
situations referred to in paragraphs 2 and 3 obtains,
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;

they are informed in accordance with Arti-
(b) whenever
that such a parent undertaking proposes to
cle 10(3)
acquire a holding in a Community investment
in
consequence of which the latter would become its subsidi-
ary.

firm,

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

General provisions

Article 16

Regular review of conditions for initial authorisation

1. Member States shall
authorised in their

require that an investment

firm
times with the

territory comply at all

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 autho-
rities 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 Arti-
cle 48(2).

Article 17

General obligation in respect of on‑going supervision

1. Member States shall ensure that the competent authori-
ties monitor the activities of investment 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
tasks related to the regular monitoring of operational require-
ments,
in accordance with the conditions laid down in Arti-
cle 48(2).

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.

administrative

2. Where organisational or
arrangements
made by the investment firm in accordance with Article 13(3)
interest are not sufficient to ensure,
to manage conflicts of
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.

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

tion regarding the client's or potential 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 instru-
ments that are suitable for him.

(a) define the steps that investment firms might reasonably be
expected to take to identify, prevent, manage and/or dis-
close conflicts of interest when providing various invest-
ment and ancillary services and combinations thereof;

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

S e c t i o n 2

Provisions to ensure investor protection

Article 19

Conduct of business obligations when providing invest-
ment services to clients

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

in particular, with the principles set out

All

information,

2.
including marketing communications,
addressed by the investment firm to clients or potential clients
shall be fair, clear and not misleading. Marketing communica-
tions 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
the risks associated with investments in those instru-
ments or in respect of particular investment strategies,

— execution venues, and

— costs and associated charges

the investment service and of

so that they are reasonably able to understand the nature and
risks of
the specific type of
financial instrument that is being offered and, consequently, to
take investment decisions on an informed basis. This informa-
tion may be provided in a standardised format.

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.

firm considers, on the basis of

In case the investment
the
information received under the previous subparagraph, that 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 standardised format.

In cases where the client or potential client elects not
to
provide the information referred to under the first subpara-
graph, 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 envi-
saged is appropriate for him. This warning may be provided in
a standardised format.

6. Member States shall allow investment firms when provid-
ing 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 services to their
clients without the need to obtain the information or make the
determination provided for
the
following conditions are met:

in paragraph 5 where all

instruments, bonds or other

— the above services relate to shares admitted to trading on a
regulated market or in an equivalent third country market,
money market
forms of
securitised debt (excluding those bonds or securitised debt
that embed a derivative), UCITS and other non‑complex
instruments. A third country market shall be
financial
considered as equivalent to a regulated market if it com-
plies with equivalent
to those established
requirements
under Title III. The Commission shall publish a list of those
markets that are to be considered as equivalent. This list
shall be updated periodically,

4. When providing investment advice or portfolio manage-
ment the investment firm shall obtain the necessary informa-

— the service is provided at

the initiative of

the client or

potential client,

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30.4.2004

— 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 instrument or
the suitability of
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
Article 18.

firm complies with its obligations under

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.

8.
The client must receive from the investment firm ade-
quate reports on the service provided to its clients. These
reports shall
the costs associated
with the transactions and services undertaken on behalf of
the client.

include, where applicable,

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
related to credit institutions and consumer credits with respect
to risk assessment of clients and/or information requirements,
this service shall not be additionally subject to the obligations
set out in this Article.

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

(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
considered;

the financial

instruments being offered or

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

clients.

Article 20

Provision of services through the medium of another
investment firm

firm receiving an
Member States shall allow an investment
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. The investment firm which mediates the instructions will
remain responsible for the completeness and accuracy of the
information transmitted.

The investment firm which receives an instruction to under-
take services on behalf of a client in this way shall also be able
to rely on any recommendations in respect of the service or
transaction 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

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 recommendations, in accor-
dance with the relevant provisions of this Title.

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
possible result for their clients taking into account price, costs,
speed,
likelihood of execution and settlement, size, nature or
any other consideration relevant to the execution of the order.
Nevertheless, whenever there is a specific instruction from the
client the investment firm shall execute the order following the
specific instruction.

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

include,

The order execution policy shall

3.
in respect of
each class of instruments, information on the different 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.

require that

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

investment

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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
their clients before proceeding to
prior express consent of
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.

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
execution arrangements. Member States shall require invest-
ment firms to notify clients of any material changes to their
order execution arrangements or execution policy.

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.

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.

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 take measures to facil-
itate the earliest possible execution of that order by making
public immediately that client limit order 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).

6.
In order to ensure the protection necessary for investors,
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 Arti-
cle 64(2), adopt implementing measures concerning:

In order to ensure that measures for the protection of
3.
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:

factors that, pursuant

(a) the criteria for determining the relative importance of the
different
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;

(a) the conditions and nature of the procedures and arrange-
ments which result
fair and expeditious
in the prompt,
execution of client orders and the situations in which or
types of transaction for which investment firms may rea-
sonably deviate from prompt execution so as to obtain
more favourable terms for clients;

(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 determin-
ing which venues enable investment firms to obtain on a
consistent basis the best possible result for executing the
client orders;

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

Article 22

Client order handling rules

firms
1. Member States
authorised to execute orders on behalf of clients implement

investment

require

shall

that

(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.

Article 23

Obligations of

investment

firms when appointing tied

agents

1. Member States may decide to allow an investment firm
tied agents for the purposes of promoting the
to appoint
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 invest-
ment firm.

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2. Member States shall require that where an investment
firm decides to appoint a tied agent
it remains fully and
unconditionally responsible for any action or omission on the
part of
the firm.
the tied agent when acting on behalf of
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 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 para-
In particular, tied agents may be registered by an
graph 3.
institution or their associations and
investment
other entities under the supervision of the competent author-
ity.

firm, credit

tied agents registered in their

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

financial

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.

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.

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
investment firm on whose behalf it acts.

the home Member State of

Member States shall ensure that tied agents are only admitted
to the public register if it has been established that they are of
sufficiently good repute and that
they possess appropriate
general, commercial and professional knowledge so as to be
able to communicate accurately all relevant information regard-
ing the proposed service to the client or potential client.

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

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

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

investment

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

investment

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

Article 24

Transactions executed with eligible counterparties

that

shall

ensure

investment

firms
1. Member States
authorised 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 transactions.

2. Member States shall recognise as eligible counterparties
for the purposes of this Article investment firms, credit in-
stitutions, insurance companies, UCITS and their management
companies, pension funds and their management companies,
other financial institutions authorised or regulated under Com-
munity legislation or the national
law of a Member 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 organisations.

as

an

eligible

the
Classification
first 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.

counterparty

under

3. Member States may also recognise as eligible counter-
parties other undertakings meeting pre‑determined proportion-
ate requirements, including quantitative thresholds. In the event
of a transaction where the prospective counterparties are
located in different jurisdictions, the investment firm shall defer
to the status of the other undertaking as determined by the
law or measures of the Member State in which that under-
taking is established.

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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
in the form of a
firm to obtain this confirmation either
general agreement or in respect of each individual transaction.

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

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

In order

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

(a) the procedures for requesting treatment as clients under

paragraph 2;

(b) the procedures for obtaining the express confirmation from

prospective counterparties under paragraph 3;

(c) the predetermined proportionate requirements,

including
quantitative thresholds that would allow an undertaking to
be considered as an eligible counterparty under para-
graph 3.

S e c t i o n 3

Market transparency and integrity

Article 25

Obligation to uphold integrity of markets, report transac-
tions and maintain records

1. Without prejudice to the allocation of responsibilities for
enforcing the provisions of Directive 2003/6/EC of the Eur-
opean 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 investment firms to ensure that they act honestly,
fairly and professionally and in a manner which promotes the
integrity of the market.

(1) OJ L 96, 12.4.2003, p. 16.

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 transactions in financial instru-
ments 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 informa-
tion and details of the identity of the client, and the informa-
tion
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).

required

shall

require investment

firms which
3. Member States
instruments admitted to
execute transactions in any financial
trading on a regulated market
such
transactions 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.

to report details of

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
instruments also receives this
of
information.

liquidity for those financial

The reports shall,

4.
the
in particular,
names and numbers of the instruments bought or sold, the
quantity, the dates and times of execution and the transaction
prices and means of
firms con-
cerned.

identifying the investment

include details of

5. Member States shall provide for the reports to be made
to the competent authority either by the investment firm itself,
a third party acting on its behalf or by a trade-matching or
reporting system approved by the competent authority or by
the regulated market or MTF through whose systems the
transaction was completed.
In cases where transactions are
reported directly to the 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.

6. When, in accordance with Article 32(7), reports provided
for under this Article are transmitted to the competent author-
ity 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 this information.

(2) OJ L 166, 28.6.1991, p. 77. Directive as

the European Parliament and of

last amended by
the

Directive 2001/97/EC of
Council (OJ L 344, 28.12.2001, p. 76).

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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),
implementing measures which define the methods and arrange-
ments for reporting financial transactions, the form and con-
tent of these reports and the criteria for defining a relevant
market in accordance with paragraph 3.

Article 26

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

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 with
its rules. Investment firms and market operators operating an
MTF shall monitor the transactions undertaken by their users
under their systems in order to identify breaches of
those
rules, disorderly trading conditions or conduct that may in-
volve market abuse.

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
States shall also require investment firms and market 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 occur-
ring on or through its systems.

Article 27

Obligation for investment

firms to make public firm

quotes

1. Member States shall require systematic internalisers in
shares to publish a firm quote in those shares admitted to
trading on a regulated market for which they are systematic
internalisers and for which there is a liquid market. In the case
of shares for which there is not a liquid market, systematic
internalisers shall disclose quotes to their clients on request.

The provisions of this Article shall be applicable to systematic
internalisers when dealing for sizes up to standard market size.
Systematic internalisers that only deal in sizes above standard
this
market size shall not be subject
Article.

to the provisions of

Systematic internalisers may decide the size or sizes at which
they will quote. For a particular share each quote shall include

a firm bid and/or offer price or prices for a size or sizes which
could be up to standard market size for the class of shares to
which the share belongs. The price or prices shall also reflect
the prevailing market conditions for that share.

Shares shall be grouped in classes on the basis of the arith-
metic average value of the orders executed in the market for
that share. The standard market size for each class of shares
shall be a size representative of the arithmetic average value of
the orders executed in the market for the shares included in
each class of shares.

The market for each share shall be comprised of all orders
executed in the European Union in respect of
that share
excluding those large in scale compared to normal market
size for that share.

2.
The competent authority of the most relevant market in
terms of liquidity as defined in Article 25 for each share shall
the arithmetic
least annually, on the basis of
determine at
average value of the orders executed in the market in respect
of that share, the class of shares to which it belongs. This
information shall be made public to all market participants.

3.
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 at any time. They
shall also be allowed, under exceptional market conditions, to
withdraw their quotes.

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

Systematic internalisers shall, while complying with the provi-
sions set down in Article 21, execute the orders they receive
from their retail clients in relation to the shares for which they
are systematic internalisers at the quoted prices at the time of
reception of the order.

Systematic internalisers shall execute the orders they receive
from their professional clients in relation to the shares for
which they are systematic internalisers at the quoted price at
the time of reception of the order. 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 condi-
tions established in the fourth subparagraph,
in respect of
transactions where execution in several securities is part of
to
one transaction or in respect of orders that are subject
conditions other than the current market price.

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lower than the standard market size,

Where a systematic internaliser who quotes only one quote or
whose highest quote is lower than the standard market size
than its
receives an order from a client of a size bigger
quotation size, but
it
may decide to execute that part of the order which exceeds its
quotation size, provided that it is executed at the quoted price,
except where otherwise permitted under the conditions of the
previous two subparagraphs. Where the systematic internaliser
is quoting in different sizes and receives an order between
those sizes, which it chooses to execute,
it shall execute the
the quoted prices in compliance with the
order at one of
provisions of Article 22, except where otherwise permitted
under the conditions of the previous two subparagraphs.

4.

The competent authorities shall check:

(a) that

investment

firms regularly update bid and/or offer
prices published in accordance with paragraph 1 and
maintain prices which reflect the prevailing market condi-
tions;

(b) that investment firms comply with the conditions for price
laid down in the fourth subparagraph of

improvement
paragraph 3.

Systematic internalisers shall be allowed to decide, on the
5.
basis of
their commercial policy and in an objective non-
discriminatory way, the investors to whom they give access to
their quotes. To that end there shall be clear standards for
governing access to their quotes. Systematic internalisers may
refuse to enter into or discontinue business relationships with
investors on the basis of commercial considerations such as
the investor credit status, the counterparty risk and the final
settlement of the transaction.

6.
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 the same client which they undertake to
enter at the published conditions. They shall also be allowed,
in a non-discriminatory way and in accordance with the
provisions of Article 22, to limit the total number of transac-
tions from different clients at the same time provided that this
is allowable only where the number and/or volume of orders
sought by clients considerably exceeds the norm.

In order

to ensure the uniform application of para-
7.
graphs 1 to 6,
in a manner which supports the efficient
valuation of shares and maximises the possibility of investment
firms of obtaining the best deal for their clients, the Commis-
in accordance with the procedure referred to in
sion shall,
Article 64(2), adopt implementing measures which:

(a) specify the criteria for application of paragraphs 1 and 2;

(b) specify the criteria determining when a quote is published
on a regular and continuous basis and is easily accessible
as well as 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;

(ii) through the offices of a third party;

(iii) through proprietary arrangements;

(c) specify the general criteria for determining those transac-
tions where execution in several securities is part of one
transaction or orders that are subject to conditions other
than current market price;

(d) specify the general criteria for determining what can be
considered as exceptional market circumstances that allow
for the withdrawal of quotes as well as conditions for
updating quotes;

(e) specify the criteria for determining what is a size customa-

rily undertaken by a retail investor.

(f) specify the criteria for determining what constitutes con-
siderably exceeding the norm as set down in paragraph 6;

(g) specify the criteria for determining when prices fall within

a public range close to market conditions.

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, 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.

2. Member States shall require that the information which is
made public in accordance with paragraph 1 and the time‑-
limits within which it is published comply with the require-
ments 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 un-
dertaken outside regulated markets or MTFs.

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In order to ensure the transparent and orderly function-
3.
ing of markets and the uniform application of paragraph 1,
the Commission shall adopt, in accordance with the procedure
referred to in Article 64(2), implementing measures which:

ity of the obligation to trading methods operated by an
MTF which conclude transactions under
rules by
reference to prices established outside the systems of the
MTF or by periodic auction.

their

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

(ii) through the offices of a third party;

(iii) through proprietary arrangements;

(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 valua-
tion 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 systems in
respect of shares admitted to trading on a regulated market.
Member States shall provide for this information to be made
available to the public on reasonable commercial terms and on
a continuous basis during normal trading hours.

2. Member States shall provide for the competent authori-
ties to be able to waive the obligation for investment firms or
market operators operating an MTF to make public the infor-
mation referred to in paragraph 1 based on the market model
in the cases defined in
or
accordance with paragraph 3.
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 type and size of orders

In particular,

In order

to ensure the uniform application of para-
3.
graphs 1 and 2, the Commission shall,
in accordance with
the procedure referred to in Article 64(2) adopt implementing
measures as regards:

(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 applicabil-

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 price, volume and time of the transactions executed 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 re-
quirement shall not apply to details of trades executed on an
MTF that are made public under the systems of a regulated
market.

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.
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
authority's prior approval to proposed arrangements for de-
ferred trade-publication, and shall require that these arrange-
ments be clearly disclosed to market participants and the
investing public.

In particular,

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

(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.

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CHAPTER III

RIGHTS OF INVESTMENT FIRMS

Article 31

Freedom to provide investment services and activities

firm
1. Member States shall ensure that any investment
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.

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.

Any investment

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

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

(b) a programme of operations stating in particular the invest-
ment services and/or activities as well as ancillary services
which it intends to perform and whether it intends to use
tied agents in the territory of the Member States in which
it intends to provide services.

the home Member State of

In cases where the investment firm intends to use tied agents,
the competent authority of
the
investment firm shall, at the request of the competent author-
ity of the host Member State and within a reasonable time,
communicate the identity of the tied agents that the invest-
ment
firm intends to use in that Member State. The host
Member State may make public such information.

The competent authority of

to the competent authority of

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

further

shall, without

legal or admi-
5. Member States
nistrative requirement, allow investment
firms and market
operators operating MTFs from other Member States to pro-
vide 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

1. Member States shall ensure that investment services an-
d/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
the credit
authorisation granted to the investment
institution in the home Member State. Ancillary services may
only be provided together with an investment service and/or
activity.

firm or

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
its home
to notify the competent authority of
State first
Member State and to provide it with the following informa-
tion:

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

establish a branch;

(b) a programme of operations

inter alia the
investment services and/or activities as well as the ancillary
services to be offered and the organisational structure of
the branch and indicating whether the branch intends to
use tied agents;

setting out

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
inform the competent authority of
home Member State shall
the host Member State of those changes.

(c) the address in the host Member State from which docu-

ments may be obtained;

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

branch.

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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.

its responsibilities and after informing the competent authority
of the host Member State, may carry out on‑site inspections in
that branch.

Unless the competent authority of

the financial situation of an investment

3.
the home Member
State has reason to doubt the adequacy of the administrative
structure or
firm,
it shall, within
taking into account
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 ac-
cordingly.

information to the competent authority of

the activities envisaged,

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

5. Where the competent authority of
the home Member
State refuses to communicate the information to the compe-
tent authority of the host Member State, it shall give reasons
for its refusal to the investment firm concerned within three
months of receiving all the information.

6.
On receipt of a communication from the competent
authority of the host Member State, or failing such commu-
nication from the latter at the latest after two months from
the date of transmission of the communication by the compe-
tent authority of the home Member State, the branch may be
established 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
obligations 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.

8.
Each Member State shall provide that, where an invest-
ment firm authorised in another Member State has established
a branch within its territory, the competent authority of the
home Member State of the investment firm, in the exercise of

In the event of a change in any of

the information
9.
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.

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 member-
ship or have access to regulated markets established in their
territory by means of any of the following arrangements:

(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
transactions on the market.

2. Member States shall not impose any additional regulatory
in respect of matters covered
or administrative requirements,
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, clearing and settlement systems in their territory
for the purposes of finalising or arranging the finalisation of
transactions in financial instruments.

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

the use of

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

instruments undertaken on that

TITLE III

REGULATED MARKETS

Article 36

(a) such links and arrangements between the designated settle-
ment
facility as are
necessary to ensure the efficient and economic settlement
of the transaction in question; and

system and any other

system or

for

settlement of

(b) agreement by the competent authority responsible for the
supervision of the regulated market that technical condi-
transactions concluded on the
tions
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
authority shall
the oversight/supervision
already exercised by those institutions in order to avoid undue
duplication of control.

take into account

3.
The rights of investment firms under paragraphs 1 and 2
shall be without prejudice to the right of operators of central
counterparty, clearing or securities settlement systems to refuse
to make the requested
on legitimate commercial grounds
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 take into account the oversight/supervision of
the clearing and settlement system 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.

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.

The operator of the regulated market shall provide all informa-
tion, including a programme of operations setting out inter alia
the types of business envisaged and the organisational struc-
ture, 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
to perform tasks relating to the organisation and
market
the regulated market under the supervision of
operation of
shall ensure that
the competent authority. Member States
competent authorities keep under regular review the compli-
ance of regulated markets with the provisions of
this Title.
They shall also ensure that competent authorities monitor that
regulated markets comply at all times with the conditions for
initial authorisation established under this Title.

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.

prejudice

of
relevant
4. Without
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.

provisions

any

to

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;

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(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;

(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.

Article 37

Requirements for the management of the regulated mar-
ket

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
to inform the competent
operator of
authority of the identity and any other subsequent changes of
the persons who effectively direct the business and the opera-
tions of the regulated market.

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.

shall ensure that,

in the process of
2. Member States
authorisation of a regulated market,
the person or persons
who effectively direct the business and the operations of an
in accordance with the
already authorised regulated market
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
position to exercise, directly or indirectly, significant influence
over the management of the regulated market to be suitable.

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

(a) to provide the competent authority with, and to make
public,
information regarding the ownership of the regu-
lated market and/or the market operator, and in particular,
the identity and scale of
interests of any parties in a
position to exercise significant influence over the manage-
ment;

The competent authority shall refuse to approve pro-
3.
posed changes to the controlling interests of
the regulated
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 regu-
lated market.

Article 39

Organisational requirements

Member States shall require the regulated market:

for the operation of

(a) to have arrangements to identify clearly and manage the
potential adverse consequences,
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 establish-
ment of effective contingency arrangements to cope with
risks of systems disruptions;

(d) to have transparent and non‑discretionary rules and proce-
dures 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
the transactions executed under its

timely finalisation of
systems;

(f) 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.

(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.

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

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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
regulated market comply with their obligations under Commu-
nity 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.

5.
A transferable security that has been admitted to trading
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..... on the prospectus to be published when secu-
rities are offered to the public or admitted to trading and
amending Directive 2001/34/EC (1). The issuer shall be in-
formed 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

6.
to ensure the uniform application of para-
graphs 1 to 5, the Commission shall, in accordance with the
implementing
procedure referred to in Article 64(2) adopt
measures which:

Article 41

Suspension and removal of instruments from trading

1. Without prejudice to the right of the competent author-
ity 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
the
cause significant damage to the investors'
orderly functioning of the market.

interests or

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
financial instrument make public this decision and communi-
information to the competent authority. The
cates relevant
competent authority shall inform the competent authorities of
the other Member States.

instrument

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

interests or the orderly functioning of

removal of

that

Article 42

Access to the regulated market

(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
obligation 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;

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

require 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 mar-

ket;

(1) OJ L

(b) rules relating to transactions on the market;

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(c) professional standards imposed on the staff of the invest-
ment firms or credit institutions that are operating on the
market;

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.

(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.

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

the regulated market

the list of

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

Article 43

(a) are fit and proper;

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

(c) have, where applicable, adequate organisational arrange-

ments;

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

for

4. Member States shall ensure that,
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
institu-
investment
tions.

firms and credit

further

shall, without

6. Member States
legal or admi-
nistrative 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
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 shall communicate, with-
in one month, this information to the Member State in which
the regulated market intends to provide such arrangements.

The competent authority of the home Member State of the
the competent
shall, on the request of
regulated market

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

1. Member States shall require that regulated markets estab-
lish and maintain effective arrangements and procedures for
the regular monitoring of the compliance by their members or
participants with their rules. Regulated markets 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 in-
volve market abuse.

2. Member States shall require the operators of the regu-
lated markets to report significant breaches of their 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
for the investigation and
delay to the authority competent
prosecution of market abuse on the regulated market and to
provide full assistance to the latter in investigating and prose-
cuting 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.

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2. Member States shall provide that the competent autho-
rities are to be able to waive the obligation for regulated
markets to make public the information referred to in para-
graph 1 based on the market model or the type and size of
orders in the cases defined in accordance with paragraph 3. 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.

In order

to ensure the uniform application of para-
3.
graphs 1 and 2, the Commission shall,
in accordance with
the procedure referred to in Article 64(2) adopt implementing
measures as regards:

(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;

In order to provide for the efficient and orderly function-
3.
ing 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 imple-
menting measures in respect of:

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

the information to be made

(b) the conditions under which a regulated market may pro-
vide 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 publica-
tion is allowed.

Article 46

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

may be waived under paragraph 2;

Provisions regarding central counterparty and clearing and
settlement arrangements

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

1. Member States shall not prevent regulated markets from
entering into appropriate arrangements with a central counter-
party 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 partici-
pants under their systems.

Article 45

Post‑trade transparency requirements for regulated mar-
kets

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.

2. Member States shall provide that the competent authority
may authorise regulated markets to provide for deferred pub-
lication of the details of transactions based on their type or
size. In particular, the 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 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.

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
systems established in Arti-
cle 34(2).

settlement

for

In order to avoid undue duplication of control, the competent
authority shall take into account the oversight/supervision of
the clearing and settlement system 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.

Article 47

List of regulated markets

the regulated
Each Member State shall draw up a list of
markets for which it
is the home Member State and shall
forward that list to the other Member States and the Commis-
sion. 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
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.

Journal of

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TITLE IV

Article 49

COMPETENT AUTHORITIES

Cooperation between authorities in the same Member
State

CHAPTER I

DESIGNATION, POWERS AND REDRESS PROCEDURES

Article 48

Designation of competent authorities

1.
Each Member State shall designate the competent autho-
rities 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 autho-
rities responsible for enforcement of each of those duties, and
of any division of those duties.

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 Articles 5(5), 16(3), 17(2) and 23(4).

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
judgement. Member States shall require that, prior to delega-
tion, 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 tasks and that
the delegation takes place only if a clearly defined and docu-
mented 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
conditions shall include a clause obliging the entity in 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 competi-
tion. In any case, the final responsibility for supervising com-
pliance with this Directive and with its implementing measures
shall lie with the competent authority or authorities designated
in accordance with paragraph 1.

If a Member State designates more than one competent
authority to enforce a provision of this Directive, their respec-
tive roles shall be clearly defined and they shall 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 authorities responsible in
that Member State for the supervision of credit and other
financial
insurance and
institutions, pension funds, UCITS,
reinsurance intermediaries and insurance undertakings.

Member States shall require that competent authorities ex-
change any information which is essential or relevant to the
exercise of their functions and duties.

Article 50

Powers to be made available to competent authorities

Competent authorities shall be given all supervisory and
1.
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:

(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;

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

inform the Commission and the compe-
Member States shall
tent authorities of other Member States of any arrangements
entered into with regard to delegation of tasks, including the
precise conditions regulating such delegation.

(c) carry out on-site inspections;

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.

(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;

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(g) request temporary prohibition of professional activity;

(h) require authorised investment firms and regulated markets'

auditors to provide information;

the
2. Member States shall provide that one or more of
in the
following bodies, as determined by national
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 imple-
mentation of this Directive are applied:

law, may,

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

(a) public bodies or their representatives;

(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;

(l) refer matters for criminal prosecution;

(b) consumer organisations having a legitimate interest

in

protecting consumers;

(c) professional organisations having a legitimate interest

in

acting to protect their members.

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

investigations.

Article 53

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
with their national
the appropriate administrative
measures can be taken or administrative sanctions be imposed
against the persons responsible where the provisions adopted
in the implementation of this Directive have not been com-
plied with. Member States shall ensure that these measures are
effective, proportionate and dissuasive.

that

law,

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

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 this Directive, unless such disclosure would
seriously jeopardise the financial markets or cause dispropor-
tionate damage to the parties involved.

Article 52

Right of appeal

Extra-judicial mechanism for investors' complaints

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

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.

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 profes-
sional secrecy. No confidential
information which they 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.

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

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 proceed-
ings if necessary for carrying out the proceeding.

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3. Without prejudice to cases covered by criminal law, the
competent authorities, bodies or natural or legal persons other
than competent authorities which receive confidential informa-
tion pursuant to this Directive may use it only in the perfor-
mance of their duties and for the exercise of their 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 thereto, the authority receiving the information may
use it for other purposes.

(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 subpara-
graph in an undertaking having close links with the investment
firm within which he is carrying out that task.

Any confidential

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

insurance undertakings

authorised

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

meaning

the

CHAPTER II

COOPERATION BETWEEN COMPETENT AUTHORITIES OF
DIFFERENT MEMBER STATES

5.
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 56

Obligation to cooperate

Article 55

Relations with auditors

of

task

Eighth

described

the meaning

in Article 51 of

1. Member States shall provide, at least, that any person
authorised within
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
Fourth Council
the
Directive 78/660/EEC of 25 July 1978 on the annual accounts
of
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 become aware while carrying out that task and which is
liable to:

companies (2),

certain

Article

types

37

of

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

render assistance to competent
Competent authorities shall
authorities of the other Member States. In particular, they shall
exchange information and cooperate in any investigation or
supervisory activities.

information, Member States

In order to facilitate and accelerate cooperation, and more
particularly exchange of
shall
designate one single competent authority as a contact point
for the purposes of this Directive. Member States shall com-
municate 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.

(a) constitute a material breach of

the laws, regulations or
administrative provisions which lay down the conditions
governing authorisation or which specifically govern pur-
suit of the activities of investment firms;

(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 of the European Parliament and of the Council (OJ L
178, 17.7.2003, p. 16).

2. When, taking into account the situation of the securities
markets in the host Member State, the operations of a regu-
in a host
that has established arrangements
lated market
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.

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

Article 58

Exchange of information

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

that acts contrary to the provisions of

4. Where a competent authority has good reasons to sus-
pect
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.
In order to ensure the uniform application of paragraph 2
the Commission may adopt, in accordance with the procedure
referred to in Article 64(2),
implementing measures to estab-
lish the criteria under which the operations of a regulated
in a host Member State could be considered as of
market
substantial
the securities
markets and the protection of
the investors in that host
Member State.

importance for the functioning of

Article 57

Cooperation in supervisory activities, on-the-spot verifica-
tions 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 regulated market the competent author-
the regulated market may choose to address them
ity of
directly, in which case it shall inform the competent authority
of the home Member State of the remote member accordingly.

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

Competent authorities exchanging information with other com-
petent 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 informa-
tion 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 bodies or
natural or legal persons without the express agreement of the
competent authorities which disclosed it and solely for the
purposes for which those authorities gave their agreement,
the
except
contact point shall immediately inform the contact point that
sent the information.

in duly justified circumstances.

In this last case,

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 Arti-
cles 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
by
Directive 93/6/EEC, administrative and accounting proce-
dures and internal-control mechanisms;

requirements

adequacy

imposed

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

(c) to impose sanctions;

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:

(d) in administrative appeals against decisions by the compe-

tent authorities;

(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.

(e) in court proceedings initiated under Article 52; or

(f) in the extra-judicial mechanism for investors' complaints

provided for in Article 53.

The Commission may adopt,

4.
in accordance with the
procedure referred to in Article 64(2), implementing measures
information be-
concerning procedures for the exchange of
tween competent authorities.

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Articles 54, 58 and 63 shall not prevent a competent
5.
the European
authority from transmitting to central banks,
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
information intended for
and settlement systems, confidential
the performance of
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.

their tasks;

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 ver-
ification 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;

(b) judicial proceedings have already been initiated in respect
the same actions and the same persons before the

of
authorities of the Member State addressed;

(c) final

judgment has already been delivered in the Member
the same persons and the

State addressed in respect of
same actions.

In the case of such a refusal, the competent authority shall
notify the requesting competent authority accordingly, provid-
ing as detailed information as possible.

Article 60

Inter-authority consultation prior to authorisation

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
institution authorised in another Member

firm or credit
State; or

(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 institu-
tion or insurance undertaking authorised in the Commu-
nity; or

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

The relevant competent authorities referred to in para-
3.
graphs 1 and 2 shall
in particular consult each other when
assessing the suitability of the shareholders or 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 information regarding
the suitability of shareholders or members and the reputation
and experience of persons who effectively direct the business
that
is of relevance to the other competent authorities in-
volved, for the granting of an authorisation as well as for the
ongoing assessment of compliance with operating conditions.

Article 61

Powers for host Member States

Host Member States may, for statistical purposes, require
1.
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 Arti-
cle 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 Mem-
ber State.

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If, despite the measures taken by the competent authority of
the home Member State or because such measures prove
inadequate, the investment firm 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 competent
informing the
the host Member State, after
authority of
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 shall include
the possibility of preventing offending investment firms from
initiating any further transactions within their territories. The
Commission shall be informed of such measures without delay.

2. Where the competent authorities of a host Member State
ascertain that an investment firm that has a branch within its
the legal or regulatory provisions
territory is in breach of
adopted in that State pursuant
this
to those provisions of
Directive which confer powers on the host Member State's
competent authorities, those authorities shall require the in-
vestment firm concerned to put an end to its irregular situa-
tion.

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

those measures

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, the latter may, after informing the compe-
tent authorities of the home Member State, take appropriate
measures to prevent or to penalise further irregularities and, in
so far as necessary,
firm from
initiating any further
transactions within its territory. The
Commission shall be informed of such measures without delay.

to prevent

investment

that

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
competent authority of the home Member State of the regu-
lated market or the MTF.

If, despite the measures taken by the competent authority of
the home Member State or because such measures prove
inadequate, 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 competent authority of the host Member State,
after 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.
include the possibility of preventing the said regu-
This shall
the MTF from making their arrangements
lated market or

available to remote members or participants established in the
host Member State. The Commission shall be informed of such
measures without delay.

Any measure adopted pursuant to paragraphs 1, 2 or 3
4.
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.

CHAPTER III

COOPERATION WITH THIRD COUNTRIES

Article 63

Exchange of information with third countries

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

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

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:

(i) the supervision of credit institutions, other financial orga-
insurance undertakings and the supervision of

nisations,
financial markets;

(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

(iv) overseeing the bodies

involved in the liquidation and
bankruptcy of investment firms and other similar proce-
dures;

(v) overseeing persons charged with carrying out statutory
insurance undertakings, credit
institu-

investment firms and other financial

the accounts of

audits of
institutions,
tions,

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 authorities or bodies or
natural or legal persons.

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

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:

TITLE V

FINAL PROVISIONS

Article 64

Committee procedure

The Commission shall be assisted by the European Secu-
1.
Commission
established
rities
Decision 2001/528/EC (1) (hereinafter referred to as ‘the Com-
mittee’).

Committee

by

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 imple-
menting measures adopted in accordance with that procedure
do not modify the essential provisions of this Directive.

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

3. Without prejudice to the implementing measures already
adopted, on the expiry of a four‑year period following the
entry into force of this Directive, the application of its provi-
sions requiring the adoption of technical rules and decisions in
accordance with paragraph 2 shall be suspended. On a propo-
sal 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.

(a) the continued appropriateness of

the exemption under
for undertakings whose main business is

Article 2(1)(k)
dealing on own account in commodity derivatives;

(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;

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

(d) the continued appropriateness of the exemption under of

Article 2(1)(i).

4.
Before............... (***), the Commission shall present a re-
port to the European Parliament and the Council on the state
the
of
consolidation at the European level of
the information that
trading venues are required to publish.

the obstacles which may prevent

the removal of

On the basis of the reports referred to in paragraphs 1 to
5.
4, the Commission may submit proposals for related amend-
ments to this Directive.

6.
Before............ (****), the Commission shall, in the light of
discussions with competent authorities, report to the European
Parliament and Council on the continued appropriateness of
the requirements for professional indemnity insurance imposed
on intermediaries under Community law.

Article 65

Reports and review

Article 66

Amendment of Directive 85/611/EEC

Before.......... (*),

the Commission shall, on the basis of
1.
public consultation and in the light of discussions with com-
petent authorities,
to the European Parliament and
Council on the possible extension of the scope of the provi-
sions of the Directive concerning pre and post-trade transpar-
instru-
ency obligations to transactions in classes of financial
ment other than shares.

report

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

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

12,

2(2),

Articles

‘4.
of Directive
13
2004//EC (1) of the European Parliament and of the Coun-
instruments (*), shall
cil of........ on markets in financial
apply to the provision of
referred to in
paragraph 3 of this Article by management companies

the services

and

19

(1) OPECE to insert reference to this Directive.
(*) OJ L’.

(1) OJ L 191, 13.7.2001, p. 45.
(*) 2 years after the entry into force of this Directive.
(**) 3 years after the entry into force of this Directive.

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

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Article 67

Amendment of Directive 93/6/EEC

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

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 (1) 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, exclud-
ing:

(a) credit institutions,

(b) local firms as defined in 20, and

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

(1) OPECE to insert reference to this Directive.
(*) 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 2004/39/EC.’;

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

‘(4a)
Pending revision of Directive 93/6/EC,
referred to in point (c) of Article 2(2) shall have:

the firms

(a) initial capital of EUR 50 000; or

(b) professional

indemnity insurance covering the whole
territory of the Community or some other comparable
guarantee against liability arising from professional neg-
ligence, representing at least EUR 1 000 000 applying to
each claim and in aggregate EUR 1 500 000 per year
for all claims; or

(c) a combination of initial capital and professional indem-
nity insurance in a form resulting in a level of coverage
equivalent to points (a) or (b).

The amounts referred to in this paragraph shall be periodi-
cally 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
of
the

adjustments made

Article

under

4(7)

Directive 2002/92/EC of the European Parliament and the
Council of 9 December 2002 on insurance mediation (*).

investment

an
2(2)(c),

in
(4b) When
under
Article
Directive 2002/92/EC it has to comply with the require-
ment established by Article 4(3), of that Directive and in
addition it has to have:

firm referred
registered

also

to

is

(a) initial capital of EUR 25 000; or

(b) professional

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

(c) a combination of initial capital and professional indem-
nity insurance in a form resulting in a level of coverage
equivalent to points (a) or (b).

(*) OJ L 9, 15.1.2003, p. 3.’

Article 68

Amendment of Directive 2000/12/EC

Annex
follows:

I of Directive 2000/12/EC shall be amended as

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

‘The services and activities provided for in Section A and B
of Annex I of Directive 2004//EC (1) of
the European
Parliament and of
the Council of......... on markets in
financial
instruments (*) when referring to the financial
instruments provided for in Section C of Annex I of that
Directive are subject to mutual recognition according to
this Directive.

(1) OPECE to insert reference 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 refer-
ences to this Directive. References to terms defined in, or
Articles of, Directive 93/22/EEC shall be construed as refer-
ences to the equivalent
this
Directive.

term defined in, or Article of,

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

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Article 70

Transposition

Member States shall adopt
the laws, regulations and admi-
nistrative provisions necessary to comply with this Directive
by....... (*) at the latest. They shall forthwith inform the Com-
mission thereof.

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

Article 71

Transitional provisions

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

the purpose of

a market operator

A regulated market or

already
2.
authorised in its home Member State before the........ (*), shall
be deemed to be so authorised for
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.

the purposes of

Any existing system falling under the definition of an
5.
MTF operated by a market operator of a regulated market,
shall be authorised as an MTF at the request of the market
the regulated market provided it complies with
operator of
rules equivalent
to those required by this Directive for the
authorisation and operation of MTFs, and provided that the
request concerned is made within 18 months of
the date
referred to in Article 70.

6.
Investment firms shall be authorised to continue consid-
ering existing professional clients as such provided that this
categorisation has been granted by the investment firm on the
basis of an adequate assessment of the expertise, experience
and knowledge of the client which gives reasonable assurance,
in light of
services
envisaged, that the client is capable of making his own invest-
ment decisions and understands the risks involved. Those
investment firms shall inform their clients about the conditions
established in the Directive for the categorisation of clients.

transactions or

the nature of

the

Article 72

Entry into force

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

Article 73

Addressees

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

This Directive is addressed to the Member States.

Done at Strasbourg, 21 April 2004

Information communicated before the......... (*),

4.
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.

for

For the European Parliament

The President

P. COX

For the Council

The President

D. ROCHE

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

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ANNEX I

LIST OF SERVICES AND ACTIVITIES AND FINANCIAL INSTRUMENTS

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
related services such as cash/collateral management;

instruments for the account of clients,

including custodianship and

(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.

(7)

Investment services and activities as well as ancillary services of the type included under Section A or B of Annex
1 related to the underlying of the derivatives included under Section C – 5, 6, 7 and 10 - where these are
connected to the provision of investment or ancillary services.

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, forward rate agreements and any other derivative contracts relating to commodities that
must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of
a default or other termination event);

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

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

(7) Options,

futures, swaps,

that can be
physically settled not otherwise mentioned in C.6 and not being for commercial purposes, which have the
characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and
settled through recognised clearing houses or are subject to regular margin calls;

forwards and any other derivative contracts relating to commodities,

(8) Derivative instruments for the transfer of credit risk;

(9)

Financial contracts for differences.

(10) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables,
freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash
or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other
termination event), as well as any other derivative contracts relating to assets, rights, obligations,
indices and
measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial
instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and
settled through recognised clearing houses or are subject to regular margin calls.

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ANNEX II

PROFESSIONAL CLIENTS FOR THE PURPOSE OF THIS DIRECTIVE

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
instruments for the purposes of the Directive.

investment services and activities and financial

(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:

— own funds:

EUR 40 000 000,

EUR 2 000 000.

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

(4) Other institutional

investors whose main activity is to invest

in financial

instruments,

including entities

dedicated to the securitisation of assets or other financing transactions.

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.

L 145/44

EN

Official Journal of the European Union

30.4.2004

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
the client, undertaken by the
only if an adequate assessment of the expertise, experience and knowledge of
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
instruments exceeds EUR 500 000,

instrument portfolio, defined as including cash deposits and financial

— 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
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

the detailed rules of conduct only where the following

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.

implement appropriate written internal policies and procedures to categorise clients. Professional
Firms must
their current
clients are responsible for keeping the firm informed about any change, which could affect
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.