This past July, Croatia’s parliament adopted a new Capital Markets Act in order to align Croatian legislation with the EU acquis.
The at meets the EU’s cornerstone 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.
MiFID II and MiFIR are designed to ensure fair, safe and more efficient markets, and to better facilitate greater transparency for all market participants. More precisely, MIFID II prescribes new rules of conduct for an extremely wide area of capital markets: from trading venues, investment companies, central counter-parties, to investor product distributors. Investment companies are obliged to report on all transactions, both those carried out on a regulated market and the so-called OTC (over-the-counter) transactions. This is applicable to all financial instruments traded on EU markets, regardless of type – i.e., stocks, bonds, certificates, ETFs, structured finance products and derivatives.
Croatia’s new act grants broader competences to the Croatian Financial Services Agency (“HANFA”), which will now be able to verify whether financial statements of the issuer, whose securities are admitted for trading on the Zagreb Stock Exchange, are prepared in accordance with relevant financial reporting framework. HANFA can even impose measures if deemed appropriate (much in keeping with more mature Western regulators).
In terms of investor protection, Croatia’s reforms mandate greater client reporting frequency, the presentation of all investment funding costs, as well as maintaining records of communication and business documentation. Additionally, MiFID II prescribes organizational responsibilities for the management board and the management bodies of the investment companies; whilst stipulating the obligation in regards to investment companies from third countries to establish a subsidiary on EU capital markets.
There are reforms related to a ban on insider trading, illegal disclosure of privileged information and market manipulation. There is also a trading limit on commodity derivatives, emission allowances and derivatives thereof, as well as sanctions for not complying with such limits.
To keep Croatia in step with Western markets, the reforms include requirements related 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 more stringent sanctions imposed on participants.