CZECH IMPLEMENTATION OF MIFID (Investor Protection) Conference Conference on Implementation of MiFID Split – 15 June 2007 Jan Šovar Ministry of Finance

2Jan Sovar DISCLAIMER The Ministry of Finance of the Czech Republic, as a matter of policy, disclaims responsibility for any private publication or statements by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Ministry or of the author’s colleagues on the staff of the Ministry.

3Jan Sovar Agenda Transposition status Transposition status Process of the transposition Process of the transposition Client classification (eligible counterparties) Client classification (eligible counterparties) Best execution Best execution Transaction reporting Transaction reporting Passporting Home - Host Passporting Home - Host Minimum standard for the mandate and powers Minimum standard for the mandate and powers

4Jan Sovar Transposition status Czech Republic Czech Republic 31 January 2007 – deadline for MiFID transposition was not met 31 January 2007 – deadline for MiFID transposition was not met no Article 4 notifications made no Article 4 notifications made 1 November 2007: application date for firms and Member States 1 November 2007: application date for firms and Member States A questionnaire-based survey of the COM A questionnaire-based survey of the COM

5Jan Sovar Process of the transposition 03/ /2006 Project Group at the Ministry Project Group at the Ministry Work program Work program / /2006 Analyses of discrepancies and deficiencies Analyses of discrepancies and deficiencies Consultative working groups Consultative working groups Draft and release of consultation papers (CP) Draft and release of consultation papers (CP)

6Jan Sovar Process of the transposition Publications of Consultation Papers Publications of Consultation Papers CP on Conduct of Business Rules (09/2006) CP on Conduct of Business Rules (09/2006) CP on Market Infrastructure (11/2006) CP on Market Infrastructure (11/2006) CP on Scope and Definitions (11/2006) CP on Scope and Definitions (11/2006) CP on Organisational Requirements (12/2006) CP on Organisational Requirements (12/2006)

7Jan Sovar Process of the transposition 1 st drafting of the legislation 1 st drafting of the legislation (12/ /2007) CWGs – round tables CWGs – round tables Intra-Ministry Consultation Intra-Ministry Consultation 2 nd drafting of the legislation (re-draft) 2 nd drafting of the legislation (re-draft)(04-05/2007) Extra-Ministry Consultation Extra-Ministry Consultation Some conceptual rifts Some conceptual rifts

8Jan Sovar Process of the transposition Submission to the Government (06/2007) Submission to the Government (06/2007) Endorsement of the Government (summer/autumn) Endorsement of the Government (summer/autumn) Parliament (House of Deputies, Senate) Parliament (House of Deputies, Senate) Simultaneous work of CNB on the secondary legislation (2007) Simultaneous work of CNB on the secondary legislation (2007)

9Jan Sovar How do we protect investors? Eligible counterparties – no nanny approach Eligible counterparties – no nanny approach Investor need to receive sufficient information to make informed decisions Investor need to receive sufficient information to make informed decisions Retail client agreements Retail client agreements But information is not enough. Firms should always act in the best interest of their clients But information is not enough. Firms should always act in the best interest of their clients Strict limits on inducements Strict limits on inducements Management of conflicts of interest Management of conflicts of interest KYC rules KYC rules Best execution Best execution Safeguarding of client assets Safeguarding of client assets Differentiation between retail and professional client Differentiation between retail and professional client

10Jan Sovar Choice of client classification Source: rket/securities/ docs/isd/dir implement/dir- backgroundnote _en.pdf Background note

11Jan Sovar Best execution  take all reasonable steps to obtain the best possible result for its client when executing an order, taking into account a number of specified factors and any other consideration relevant to the execution of the order;  establish and implement effective arrangements for complying with the above requirement, including the creation of an order execution policy;  provide appropriate information about the policy to its clients and obtain their consent to it; and  monitor the effectiveness of its order execution arrangements and policy.

12Jan Sovar Best execution Commission’s view – best execution will only apply in dealer markets where the firm is action on client’s behalf when executing an order Commission’s view – best execution will only apply in dealer markets where the firm is action on client’s behalf when executing an order CESR feedback on best execution – CP CESR feedback on best execution – CP

13Jan Sovar Transaction reporting Maintain or tune up the current transaction reporting regime Maintain or tune up the current transaction reporting regime Shape of CESR Level 3 guidelines Shape of CESR Level 3 guidelines To which authority do branches make their transaction reports? To which authority do branches make their transaction reports? Firm’s option, all transaction can be reported to the host authority only Firm’s option, all transaction can be reported to the host authority only Scope of the reporting obligation Scope of the reporting obligation Interim solution, regulators are allowed to collect reports of the client facing as well as market facing Interim solution, regulators are allowed to collect reports of the client facing as well as market facing CESR will launch a review after 12 months CESR will launch a review after 12 months

14Jan Sovar Passporting: Home & Host Who’s responsible for oversight of investment business done by a branch with clients outside the host jurisdiction? Who’s responsible for oversight of investment business done by a branch with clients outside the host jurisdiction? Not to leave gaps in consumer protection Not to leave gaps in consumer protection Interpretation of Art 32 (7) of the MiFID Interpretation of Art 32 (7) of the MiFID Essential the CNB is able adequately to oversee branch’s activities within the Czech territory Essential the CNB is able adequately to oversee branch’s activities within the Czech territory CESR CP on the Passport under MiFID CESR CP on the Passport under MiFID

15Jan Sovar Minimum standards for the mandate and powers  Setting minimum standards for the mandate and powers that national competent authorities must have at their disposal and establishing effective mechanisms for real-time cooperation in investigating and prosecuting breaches of the rules.

16Jan Sovar Future efforts (?)  To enhance the level of represention of retail investors’ voice in Europe  To streamline current ombudsman schemes and compensation schemes across member-states  To develop adequeate qualification of investors and correlation to categories of products

17Jan Sovar Thank you for your attention ! or