THE IMPACT OF MIFID ON THE BULGARIAN CAPITAL MARKET: ONE YEAR LATER APOSTOL APOSTOLOV, CHAIRMAN FINANCIAL SUPERVISION COMMISSION 16 September 2008

Why MiFID was needed ? To increase the integration rate between the European financial markets; To replace the outdated Investment Services Directive (ISD) and to tackle the following issues: Passport did not work well enough; Retail investor protection needed to be updated; “Concentration rule”: a barrier to the emergence of an integrated and competitive trading infrastructure; New services (investment advice) and financial instruments (derivatives) needed to be covered.

Implementation of MiFID MiFID and MiFID’s implementing measures have been transposed in the Bulgarian legislation through the following acts: Markets in Financial Instruments Act (promulgated in State Gazette, issue 52, effective of November 1, 2007); Ordinance No 38 of 25 July, 2007 on the requirements to the activities of investment intermediaries, in effect as of November 1, 2007.

MiFID Impact 1 The scope of the financial instruments subject to regulation and supervision was expanded (securities and various forms of derivative financial instruments with underlying assets: securities, currency, commodities, interest rates, indexes, etc.). In Bulgaria the impact of MiFID has not yet resulted in an increase of the variety of the products offered; Detailed requirements regarding the internal organization of the investment intermediaries were established in view of ensuring the organizational and administrative stability of the investment firms as one of the major participants on the capital market in the EU. On the basis of the conducted inspections by the FSC a conclusion can be drawn that the organizational and administrative stability of the investment intermediaries in Bulgaria has improved; Investment firms and market operators can freely perform activities (investment services, regulated markets/ Multilateral Trading Facility (MTF) access facilitation) in other Member States based on the home Member State authorisation.

Statistics as of 10 September 2008 Market operators: 4 market operators notified FSC about their intention to provide arrangements on the Bulgarian territory to facilitate access to their systems for trading on regulated markets and to their Multilateral Trading Facilities. Investment intermediaries: 597 investment intermediaries from other Member States have notified their intention to provide services in Bulgaria since 2007 (483 under MiFID and 114 under ISD); Only one has become member of the BSE-Sofia; Two branches have been established in Bulgaria; Four Bulgarian investment intermediaries have expressed their intentions to provide financial services in another Member State. 5

MiFID Impact 2 A new type of service is introduced as part of the activities of investment firms – organization of Multilateral Trading Facilities. It is envisaged that such a system could also be organized by a market operator. At this stage in Bulgaria there are no other regulated markets but the Bulgarian Stock Exchange and no MTFs despite the removed concentration requirement; MiFID gives many new opportunities to the Bulgarian market participants to develop their activity and to take the desired place at the capital market; The detailed requirements which the investment intermediaries should comply with when providing investment services have resulted in higher level of investor protection in Bulgaria. 6

Benefits of MiFID Improved market access due to the “Single Passport”; Improved functioning of markets; More flexibility for the investment intermediaries in organizing their activity; Reduced authorisation costs; Reduced compliance costs; Reduced operating costs; Improved investor protection. 7

Single Passport Impact The impact of the Single Passport in practice was not considerably high as most of the notifications were not followed by immediate action towards the provision of services. Most of the investment intermediaries register in EU Member States as a technical act to make sure that they would have an opportunity to conduct cross-border services whenever the need and occasion arise. At this stage there is no considerable competitive pressure on the Bulgarian investment intermediaries. The Markets in Financial Instruments Directive is considered to be one of the most comprehensive reforms ever made on the European Capital Market. Short period since coming into force – the results of the impact of MiFID on the Bulgarian capital market are yet to evince. 8

Thank you for the attention!