Amendment to Capital Markets Act eases investments and protects against malpractices
The new amendment of the Act CXX of 2001 on Capital Markets, being effective from 1 July 2005, ensures compliance with the provisions of the Prospectus Directive (2003/71/EC) and the Market Abuse Directive (2003/6/EC). Greater investor protection, market efficiency and the adoption of higher regulatory standards are the most important objectives of the updated act. The amendment comprise the following:
1. Private offering of securities
The amendment re-defines the notion of private offering of securities. It shall be construed as a private offering of securities when securities are offered:
- solely to qualified investors;
- to fewer than 100 natural or legal persons per Member State, other than qualified investors;
- to investors who acquire securities for a total consideration of at least EUR 50,000 or its equivalent per investor, for each separate investor;
- whose denomination per unit amounts to at least EUR 50,000 or its equivalent; or
- with a total consideration of less than EUR 100,000 or its equivalent which shall be calculated over a period of 12 months.
The amendment sets out the criteria when natural persons or small and medium-sized enterprises can be considered as qualified investors.
2. Public offering of securities
The relevant chapter of the Capital Markets Act was amended in conformity with the Prospectus Directive. The "single passport" and the "country of origin" principles, being the key factors of the directive, were implemented into Hungarian law. In addition to the provisions of the Capital Markets Act, the mandatory format and elements of prospectuses and advertisements are set out in Commission Regulation (EC) No 809/2004 which is now directly applicable in Hungary.
3. Reporting requirements
The amendment also improves the disclosure requirements of the Capital Markets Act. Issuers whose securities are admitted to trading on a foreign regulated market as well shall indicate in their summary report that is sent annually to the Hungarian Financial Services Supervisory Authority ("PSZÁF") all information they have published to the public over the preceding 12 months. This summary report should be published as well.
Publication under the Capital Markets Act shall take place
- in a daily newspaper of nationwide circulation; or
- on the website of the company and the broker of the securities (if any); or
- on the website of that recognised market where the shares of the company are traded; or
- on the website of the PSZÁF.
Until 31 December 2005, certain ordinary and extraordinary publications of the issuer should also be made in a daily news medium published by the PSZAF. In practice, this medium is the Hungarian Capital Market (Magyar Tőkepiac).
Issuers and investment fund managers should inform the PSZÁF of the publication medium they have chosen within 60 days from 1 July 2005. Missing this deadline will be considered as infringing the reporting requirements and the PSZÁF may impose sanctions. Should the company decide on using its website as publication media, the relevant website shall be established by 30 June 2006.
4. Insider dealing and market manipulation
The amendment widens the scope of inside information and insider persons and introduces the term "market manipulation", ensuring conformity with the Market Abuse Directive and relieving the narrower notion of "unfair manipulation of market prices", used by the Capital Markets Act prior to this new amendment. Issuers shall inform the public as soon as possible of inside information that directly concerns such issuer. Issuers may under own responsibility delay the public disclosure of inside information in exceptional cases such as not to prejudice their legitimate interests provided that such omission would not be likely to mislead the public and provided that the issuer is able to ensure the confidentiality of such information. Issuers shall without delay inform the PSZÁF of the decision to delay the public disclosure of inside information. The detailed rules of this delayed public disclosure will be determined by a new law.
Issuers or entities acting on their behalf shall draw up a list of those persons working for them under a contract of employment or otherwise and having access to inside information and transmit such list to the PSZÁF upon request. The amendment contains the mandatory elements of such list.
Investment recommendations shall be fairly presented and disclose their interests or indicate conflicts of interest concerning the financial instruments to which it relates. Detailed rules of the preparation and publication of investment recommendations will be set out in a new law.
The amendment sets out certain prohibitions and disclosure obligations pertaining to the transactions concluded in connection with securities of a certain issuer by persons discharging managerial responsibilities within such issuer.
The PSZÁF has supervisory and investigatory powers in respect of actions carried out or having effect in the territory of Hungary. In case of insider dealing or market manipulation, it may impose a fine between HUF 100,000 (approximately EUR 400) and HUF 100,000,000 (approximately EUR 400,000) or maximum 400% of the financial gain achieved. The amendment further details the provisions regarding the co-operation of the PSZÁF with other EU supervisory authorities as well.
5. Trading with greenhouse emissions and other miscellaneous amendments
As a novum, certain transactions related to greenhouse emissions will be introduced as new type of investment instruments, which can be traded in the stock exchange in Hungary. The detailed rules of the greenhouse emissions trading and the related tax benefits are set out in a separate law. Furthermore, there are minor but significant amendments in the Capital Markets Act pertaining to investment funds, transfer of accounts and portfolio management activities.
Should have any questions or queries with regard to the above topics, please contact Dr. Anikó Kircsi on +36 1 483 4800 or at aniko.kircsi@cms-cmck.com.
