On 6 July 2018, the Croatian Parliament adopted the new Capital Markets Act in order to align the Croatian legislation with the EU acquis. The act adjusts the Croatian legislation with the cornerstone of EU's financial markets regulation - the Directive on Markets in Financial Instruments repealing Directive 2004/39/EC and the Regulation on Markets in Financial Instruments, commonly referred to as MiFID II and MiFIR. Up until now, the Croatian Capital Markets Act was amended seven times, which was another reason to adopt the new one - in order to avoid opacity.
MiFID II and MiFIR ensure fairer, safer and more efficient markets and facilitate greater transparency for all participants. More precisely, MIFID II prescribes new rules of conduct for an extremely wide area of the capital markets: from trading venues, investment companies, central counter-parties, to investor product distributors. The investment companies are obliged to report on all transactions, both those carried out on a regulated market and the so-called OTC transactions. This is applicable to all financial instruments traded on EU markets, regardless of type - such as stocks, bonds, certificates, ETFs, structured finance products and derivatives.
The new Croatian Capital Markets Act grants broader competences to the Croatian Financial Services Agency ("HANFA"). Particularly, HANFA may now verify whether financial statements of the issuer, whose securities are admitted for trading on the Zagreb Stock Exchange, are prepared in accordance with the relevant financial reporting framework and impose measures if determined appropriate.
To protect the investors, the new act envisages more frequent reporting to clients, the presentation of all investment funding costs, as well as maintaining records of communication and business documentation. Additionally, MiFID II prescribes organisational responsibilities for the management board and the management bodies of the investment companies and stipulates the obligation of the investment companies from third countries to establish a subsidiary on EU capital markets.
The new provisions set up the rights and obligations of the participants in the capital markets, with an emphasis on bans to insider trading, illegal disclosure of privileged information and market manipulation. At the same time, they introduce the trading limit on commodity derivatives, emission allowances and derivatives thereof, as well as sanctions for not complying with those limits.
Given the development of technology and market infrastructure, more complex regulatory requirements have been introduced in relation to new trading platforms, high-frequency and algorithmic trading. In addition, broader obligations have been prescribed with respect to reporting to the European Securities and Markets Authority, and sanctions imposed to the participants in capital markets have become more stringent.
The new act is expected to contribute towards reducing systemic risks through better company organisation, limitations on risk appetite and the improvement of controls with all investment companies and market operators. Its aim is to enhance trust and the protection of investors and ultimately contribute to increasing the efficiency and liquidity of the capital market. We are yet to see its practical effects.