1. 1 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 9 – Financial Services Bilateral screening: Chapter 9 PRESENTATION OF MONTENEGRO Brussels, 10 - 11 June 2013

2. 2 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services MARKETS IN FINANCIAL INSTRUMENTS Nikola D. Pejović Securities and Exchange Commission of Montenegro npejovic@scmn.me

3. 3 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services OUTLINE OF PRESENTATION  LEGAL FRAMEWORK  FULLY COMPLIANCE WITH DIRECTIVE  PARTIALLY COMPLIANCE WITH DIRECTIVE  MiFID – DYNAMICS  CAPITAL ADEQUACY – DYNAMICS  OTC - DYNAMICS

4. 4 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services DIRECTIVE 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. DIRECTIVE 2006/49/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 on the capital adequacy of investment firms and credit institutions REGULATION (EU) No 648/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 4 July 2012 on OTC derivatives, central counterparties and trade repositories

5. 5 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services LEGAL FRAMEWORK IN FORCE Law on Securities (Official Gazette of RoM No. 59/00 of 27/12/2000 and Official Gazette of MN No. 06/13 of 31/01/2013) Law on investment funds ("Official Gazette of Montenegro", No. 54/11 of 17/11/2011) Rules on control over securities business (Official Gazette of RoM, No.28/07 of 23/05/2007 and Official Gazette of MN No. 09/13of 12/02/2013) Rules on conduct of business of licensed participants at the capital market (Of. Gazette of MN, No. 78/09 of 27/11/2009 and No.49/11 of 14/10/2011)

6. 6 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON SECURITIES Directive 2004/39/EC is incorporated as follows: Article 4 paragraph 1 sentence 5 of the Directive is incorporated in article 62 paragraph 1 number 1: ‘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; Brokerage in purchase and sale of securities upon the order of the client (on its own behalf and for the client's account) in exchange for the commission ("broker"). Article 4 paragraph 1 sentence 6 of the Directive is incorporated in article 62 paragraph 1 number 2: ‘Dealing on own account’ means trading against proprietary capital resulting in the conclusion of transactions in one or more financial instruments; Securities trade on its own behalf and for its own account in order to make a profit ("dealer").

7. 7 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON SECURITIES Directive 2004/39/EC is incorporated as follows: Article 4 paragraph 1 sentence 9 of the Directive is incorporated in article 62 paragraph 1 number 3: ‘Portfolio management’ means managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments; managing the portfolio of securities belonging to another person("investment manager"). Article 5 paragraph 3 of the Directive is incorporated in article 21: Member States shall establish a register of all investment firms. This register shall be publicly accessible and shall contain information on the services and/or activities for which the investment firm is authorised. It shall be updated on a regular basis; The Commission shall keep registers and other records. The Commission shall keep the registers of issuers of securities; granted and withdrawn approvals of public offers of securities; refused applications for approval of public offer; granted, suspended and revoked licenses; refused applications for licenses; natural persons professionally engaged in transactions with securities; and other registers as needed.

8. 8 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON SECURITIES Directive 2004/39/EC is incorporated as follows: Article 7 paragraph 1 of the Directive is incorporated in article 65 paragraphs 1 and 2: The competent authority shall not grant authorization unless and until such time as it is fully satisfied that the applicant complies with all requirements under the provisions adopted pursuant to this Directive; No person may carry on securities business unless he is licensed to do so by the Commission under this Law. A license granted under this Law shall specify the securities business activity or activities that the licensee is permitted to undertake. Article 9 paragraph 2 of the Directive is incorporated in article 68: 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; Where a licensee ceases to carry on the business to which the license relates; or a change occurs in any particulars which are required to be entered in the register of licensees, the licensee shall within 7 days give to the Commission notice in writing of the event concerned.

9. 9 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON SECURITIES Directive 2004/39/EC is incorporated as follows: Article 18 paragraph 1 of the Directive is incorporated in article 78 paragraphs 1 number 6: Member States shall require investment firms to take all reasonable steps to identify conflicts of interest between themselves, 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; In the conduct of securities business, a licensee shall at all times act according to the principles of best practice and in particular shall avoid any conflict of interest with customers and, where such a conflict unavoidably arises, ensure fair treatment to the customer by complete disclosure or by declining to act.

10. 10 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON SECURITIES Directive 2004/39/EC is incorporated as follows: Article 21 paragraph 5 of the Directive is incorporated in article 81: 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; A licensee is obliged to immediately inform the Client about every transaction conducted upon the Client's order. The Client cannot give up the reporting right.

11. 11 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON INVESTMENT FUNDS Directive 2004/39/EC is incorporated as follows: Article 4 paragraph 1 sentence 18 number(a) of the Directive is incorporated in article 3 paragraph 1 number 4 sentence 1: ‘Transferable securities’ means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (a) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; Transferable securities means: shares in companies and other securities equivalent to shares in companies. Article 4 paragraph 1 sentence 18 number(b) of the Directive is incorporated in article 3 paragraph 1 number 4 sentence 2: ‘Transferable securities’ means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (b) bonds or other forms of securitised debt, including depositary receipts in respect of such securities; Transferable securities means bonds and other forms of securitized debt (“debt securities”).

12. 12 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON INVESTMENT FUNDS Directive 2004/39/EC is incorporated as follows: Article 4 paragraph 1 sentence 18 number(c) of the Directive is incorporated in article 3 paragraph 1 number 4 sentence 3: ‘Transferable securities’ means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (c) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures; Transferable securities means other transferable securities which carry the right to acquire any such transferable securities by subscription or exchange. Article 4 paragraph 1 sentence 19 of the Directive is incorporated in article 3 paragraph 1 number 5: ‘Money-market instruments’ means those classes of instruments which are normally dealt in on the money market, such as treasury bills, certificates of deposit and commercial papers and excluding instruments of payment; Money market instruments means instruments normally dealt in on the money market, which are liquid and have a value which can be accurately determined at any time.

13. 13 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON INVESTMENT FUNDS Directive 2004/39/EC is incorporated as follows: Article 4 paragraph 1 sentence 24 of the Directive is incorporated in article 2 paragraph 1 and article 5 paragraph 1: ‘UCITS management company’ means a management company as defined in Council Directive 85/611/EEC of 20 December 1985, on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (1); Investment fund is a collective investment undertaking the sole objective of which is public rising of funds of natural and legal persons and investment of those funds in securities and other important issues regarding investment funds’ operations; and Mutual funds may be organized and operate as: Open-end mutual fund which is organized with the aim of joint investment of capital collected from the public into transferable securities or other liquid financial assets referred to in Article 25, paragraph 1 of this Article, and which operates under the principle of risk diversification, with investment units that are, at the holder's request, redeemed or paid, directly or indirectly, out of the funds of the respective company (hereinafter referred to as: open-end fund).

14. 14 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE LAW ON INVESTMENT FUNDS Directive 2004/39/EC is incorporated as follows: Article 4 paragraph 1 sentence 27 of the Directive is incorporated in article 3 paragraph 1 number 6: ‘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; Qualifying holding means any direct or indirect holding in a management company, which represents 10 % or more of the capital or of the voting rights, or which makes it possible to exercise a significant influence over the management of the management company in which that holding subsists. Article 4 paragraph 1 sentence 31 number(a) of the Directive is incorporated in article 3 paragraph 1 number 3 sentence 1: ‘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; Persons acting in concert means mutually related legal and natural persons where one of them exercises, directly or indirectly, control over another or other persons, i.e. If he holds, either directly or indirectly, no less than 20% of share in registered capital, or no less than 20% of voting rights at the shareholders meeting of the respective legal person.

15. 15 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE RULES ON CONTROL OVER SECURITIES BUSINESS Directive 2004/39/EC is incorporated as follows: Article 18 paragraph 1 of the Directive is incorporated in article 9 paragraph 1 number 8: Member States shall require investment firms to take all reasonable steps to identify conflicts of interest between themselves, 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; By the control of business operation of licensees the Commission shall control particularly avoiding conflict of interests with the client.

16. 16 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services FULLY COMPLIANCE WITH DIRECTIVE RULES ON CONDUCT OF BUSINESS OF LICENSED PARTICIPANTS AT THE CAPITAL MARKET Directive 2004/39/EC is incorporated as follows: Article 21 paragraph 1 of the Directive is incorporated in article 21: 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; When a licensee manage client order, he is obliged to conclude it in the most effective manner for client and, arrange the execution of the order as soon as is reasonably practicable in the circumstances i.e. in the moment of receiving the order and his input into the book of orders.

17. 17 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services PARTIALLY COMPLIANCE WITH DIRECTIVE STARTING POINT OF HARMONIZATION.

18. 18 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services MiFID - DYNAMICS  Current status: Partially compliance with.  Current status: Partially compliance with DIRECTIVE 2004/39/EC.  Full compliance shall be achieved with adoption of the new Law on Capital Market;  Dynamics of convergence: IV quarter of 2013.

19. 19 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services CAPITAL ADEQUACY - DYNAMICS  Current status: No compliance with.  Current status: No compliance with Directive 2006/49/EC.  Full compliance shall be achieved with adoption of the new Law on Capital Market;  Dynamics of convergence: IV quarter of 2013.

20. 20 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 9 Financial Services OTC - DYNAMICS  Current status: No compliance with.  Current status: No compliance with Regulation No 648/2012 (EMIR).  Full compliance shall be achieved with adoption of the new Law on Capital Market;  Dynamics of convergence: IV quarter of 2013.

21. 21 Thank you for your attention! QUESTIONS