NEW EU CAPITAL MARKET LEGISLATION November, 2012

Background Following the outbreak of the financial crisis in 2008, in 2009 the European Commission proposed financial reform programme, with five key objectives: a) Providing the EU with a supervisory framework that detects potential risks early, deals with them effectively before they have an impact, and meets the challenge of complex international financial markets; (b) Filling the gaps where European or national regulation is insufficient or incomplete, based on a "safety first" approach; (c) Ensuring that European investors and small and medium-sized companies can be confident about their savings, access to credit and their rights as investors in financial products; (d) Improving risk management in financial firms and aligning pay incentives with sustainable performance; (e) Ensuring more effective sanctions against market wrongdoing. The financial sector reform programme is aimed to be completed by 2013

Most ambitious reform programme in the area of capital market Amending almost all existing legislation in order to address short-termism, poor risk management and the lack of responsibility of certain actors in the financial sector and to correct the underlying weaknesses in the supervisory and regulatory framework; Filling in the regulatory gaps where European or national regulation is insufficient or incomplete; Using regulations instead of directives to the maximum extent allowed by the Treaty in order to achieve consistent implementation in the whole Union.

where European or national regulation is insufficient or incomplete, Directive 2011/61/EC on the Alternative investment funds managers Scope: Encompasses all funds that at present are not harmonized under the UCITS Directive: Hedge funds, Private equity funds, Commodity funds, Real estate funds, Infrastructure funds managing more than € 100m on aggregate or more than € 500m if they do NOT use leverage and have a lock-in period of more than 5 years; Objectives: Ensure that all AIFM are subject to appropriate authorization and registration requirements; Enhance transparency of AIFM; Monitor and respond to macro-prudential risks caused or amplified by AIFM; Improve risk management to mitigate micro- prudential risks, Enhance investor protection, Increase accountability for AIF holding controlling stakes in companies, Develop single market for AIFM, Insure an appropriate treatment of third-country entities; Deadline for transposition: 22 July, 2013

where European or national regulation is insufficient or incomplete, Revision of the Markets in Financial Instruments Directive (MiFID) Form: Directive (MIFID2) and Regulation (MIFIR). Most of the provisions from MIFID will be in the Regulation, including the definitions, list of financial instruments, enforcement! The Directive will deal with licensing and withdrawal, organisational and conduct of business requirements for the investment firms and markets; Objectives: introduces new regulated trading venues – organised trading facility (OTF) that encompass almost all existing trading platforms; introduces new safeguards for algorithmic and high frequency trading activities; aligns the requirements for all trading venues – RM, MTF and OTF; pre- and post-trading transparency requirements to be applied to all financial instruments – bonds, derivatives, structured products traded on all trading venues; harmonises the supervisory powers; Stage of the negotiations: COREPER, to be adopted in 2013

where European or national regulation is insufficient or incomplete, Revision of the Market Abuse Directive Form: Regulation on insider dealing and market manipulation (market abuse), and Directive on criminal sanctions for insider dealing and market manipulation. Objective of the Directive: to ensure that the criminal offences of insider dealing and market manipulation are subject to criminal sanctions. Objectives of the Regulation: to align the market abuse legislation with the new market reality and the technology advancement, extending the scope to all financial instruments (incl. OTC derivatives and commodities) traded on all market venues (incl. OTFs) to reinforce regulators' investigative and sanctioning powers; a new offence of "attempted market manipulation" is introduced; Stage of the negotiations: National experts; to be adopted in 2013

where European or national regulation is insufficient or incomplete, Proposal of a Directive modifying the Transparency Directive 2004/109/EC Scope of the proposal: To modify the reporting requirements for major holdings - investors would need to notify all financial instruments that have the same economic effect as holdings of shares; To increase transparency to the payments made by the extractive and logging industries to governments. Reporting taxes, royalties and bonuses that a multinational pays to a host government will show a company's financial impact in host countries; To harmonise reporting periods in EU. Only annual and 6-months reports can be required for transparency purposes. To harmonise and to reinforce the regulators’ enforcement powers, including the power to abolish the right to vote of shareholders that have violated the rules for major holdings reporting; To reduce the administrative burden for small companies by simplifying the preparation of financial statements; Stage of the negotiations: National experts; to be adopted in 2013

where European or national regulation is insufficient or incomplete, Regulation 236/2012 on Short selling and certain aspects of Credit Default Swaps Scope: Refers to all financial instruments defined by MIFID and admitted for trading in EU, including when traded OTC, and all physical and legal persons that enter in short positions with financial instruments, government debt or CDSs on government debt instruments; Main provisions: Prohibition of entering into naked short positions in shares, government debt or CDSs on government debt instruments; Reporting obligation to the national supervisor of all net short positions in shares exceeding 0.2% of the issued shareholder capital; Reporting obligation to the public of all net short positions in shares exceeding 0.5% of the issued shareholder capital; Only regulatory reporting of the short positions in government debt where the thresholds depend on the amount of the debt and its liquidity; Entering into force: 1 November, 2012

where European or national regulation is insufficient or incomplete, Regulation 648/2012 on OTC Derivatives, Central Counterparties and Trade Repositories ( known as "EMIR" - European Market Infrastructure Regulation ) Scope: Refers to all financial and non-financial counterparts trading in OTC derivatives, central counterparties (CCPs) and trade repositories. Main provisions: Requirement for standard derivative contracts to be cleared through Central Counterparties (CCPs); Requirement for margins for uncleared trades; Establishment of stringent organisational, business conduct and prudential requirements for the CCPs subject of licensing by the national regulators; All European derivative transactions to be reported to trade repositories and be accessible to supervisory authorities; ESMA to authorise and supervise the trade repositories. Entering into force: 16 August, 2012

where European or national regulation is insufficient or incomplete, Proposal for a Regulation on improving securities settlement in the European Union and on central securities depositories (CSDs) Scope: Refers to all central securities depositories. Main provisions: obligation of dematerialisation for all securities traded on regulated markets, harmonised T+2 settlement periods for transactions in such securities, settlement discipline measures; authorisation and supervision of CSDs by their national competent authorities; EU passport of CSDs; common rules for central securities depositories (CSDs): organisational, conduct of business and prudential requirements; CSDs in the EU to have access to any other CSDs or other market infrastructures such as trading venues or Central Counterparties (CCPs), whichever country they are based in. Stage of the negotiations: National experts; to be adopted in 2013

where European or national regulation is insufficient or incomplete, Proposal for a Regulation on a new Key Information Document for investment products (Known as Packaged retail investment products “PRIPS”) Scope of the proposal: Refers to investments where regardless of the legal form of the investment the return to the investor is exposed to fluctuations in reference values or in the performance of one or more assets which are not directly purchased by the investor; Improves the quality of the information provided to the consumers when considering investment in complex products; Introduces “Key Information Document” – standardised format for the information for investors, easy to understand that allows comparison between different products Each KID will provide information on the product's main features, as well as the risks and costs associated with the investment in that product; Stage of the negotiations: Initial phase

where European or national regulation is insufficient or incomplete, Proposal of a Directive amending Directive 2009/65/EC as regards depositary functions, remuneration policies and sanctions (UCITS V) Scope of the proposal: a precise definition of the tasks and liabilities of all depositaries acting on behalf of a UCITS fund; clear rules on the remuneration of UCITS managers: the way they are remunerated should not encourage excessive risk-taking but rather be linked with the long-term interest of investors and the achievement of the investment objectives of the UCITS; a common approach to how core breaches of the UCITS legal framework are sanctioned, introducing common standards on the levels of administrative fines so as to ensure they always exceed potential benefits derived from the violation of provisions; Stage of the negotiations: Initial phase