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6.6.3.  Stock exchanges and financial services in the EU

    European law on stock exchanges and other securities markets is directed towards widening the range of investments at European level while protecting investors. The conditions for the admission of securities to official stock exchange listing are coordinated and the single market in securities is a reality [Directive 2001/34]. The financial crisis [see section 6.6.1] has exposed, inter alia, the need to strengthen the framework for the regulation of markets in financial instruments, including where trading in such markets takes place over-the-counter (OTC), in order to increase transparency, better protect investors, reinforce confidence, address unregulated areas, and ensure that supervisors are granted adequate powers to fulfil their tasks. Therefore, Regulation 600/2014 and Directive 2014/65, were adopted to form together the legal framework governing the requirements applicable to investment firms, regulated markets, data reporting services providers and third country firms providing investment services or activities in the Union.

    In order to remove the remaining obstacles to trade and significant distortions of competition resulting from divergences between national laws, provisions in respect of trade and regulatory transparency requirements take the form of a Regulation directly applicable to all investment firms that should follow uniform rules in all Union markets [Regulation 600/2014]. This Regulation establishes uniform requirements in relation to the following: disclosure of trade data to the public; reporting of transactions to the competent authorities; trading of derivatives on organised venues; non-discriminatory access to clearing and non-discriminatory access to trading in benchmarks; product intervention powers of competent authorities; and provision of investment services or activities by third-country firms.

    Directive 2014/65, last amended by Regulations s 2017/565, 2017/566, 2017/567.  2017/568, 2017/569, 2017/570,  2017/571, 2017/572, 2017/573, 2017/574, 2017/574, 2017/575, 2017/576, 2017/577, 2017/574, 2017/578, 2017/580, 2017/5742017/581, 2017/582, 2017/583, 2017/584, 2017/585,  2017/586, 2017/587, 2017/588, 2017/589, 2017/590, 2017/591, 2017/592, OJ L 87, 31.03.2017, contains the provisions governing the authorisation of the business of investment firms, the acquisition of qualifying holding, the exercise of the freedom of establishment and of the freedom to provide services, the operating conditions for investment firms to ensure investor protection, the powers of supervisory authorities of home and host Member States and the regime for imposing sanctions. The form of a Directive was chosen in order to enable the implementing provisions, when necessary, to be adjusted to any existing specificities of the particular market and legal system in each Member State.

    The equity capital of investment firms and credit institutions must be adequate to safeguard market stability, guarantee an identical level of protection against bankruptcy to investors throughout the European Union and to ensure fair competition between banks, which are subject to specific prudential provisions, and investment societies on the securities market. In order to fulfil these objectives, a Directive lays down minimum initial capital requirements and sets the equity capital, which must permanently be held in order to cover position, settlement, exchange and interest rate risks [Directive 2006/49]. All Member States must provide for minimum compensation for investors in the event of the failure of an investment firm, authorised to provide services throughout the Union [Directive 97/9]. In cases of insolvency, the collateral security provided in connection with participation in payment and securities settlement systems must be realised first and foremost in order to satisfy the rights of these systems vis-à-vis the insolvent party [Directive 98/26]. The directive setting up common rules for collateral pledged to payment and securities settlement systems aims to limit credit risk and improve the functioning and stability of the European financial markets [Directive 2002/47, last amended by Regulation 2016/1675]. In order to ensure a high level of investor protection, a directive lays down the rules for the authorisation, ongoing operation and transparency of the managers of alternative investment funds (AIFMs) in the Union [Directive 2011/61, last amended by Directive 2014/65].

    Closely linked to AIFMS European long-term investment funds (ELTIFs) provide finance of lasting duration to various infrastructure projects, unlisted companies, or listed small and medium-sized enterprises (SMEs) that issue equity or debt instruments for which there is no readily identifiable buyer [Regulation 2015/760]. Long-term finance is a crucial enabling tool for putting the European economy on a path of smart, sustainable and inclusive growth, in accordance with the Europe 2020 strategy, high employment, and competitiveness for building tomorrow's economy in a way that is less prone to systemic risks and is more resilient. On the demand side, ELTIFs can provide a steady income stream for pension administrators, insurance companies, foundations, municipalities and other entities that face regular and recurrent liabilities and are seeking long-term returns within well-regulated structures.

    Due to their key position in the settlement process, the securities settlement systems operated by central securities depositories (CSDs) are of a systemic importance for the functioning of securities markets. Playing an important role in the securities holding systems through which their participants report the securities holdings of investors, the securities settlement systems operated by CSDs also serve as an essential tool to control the integrity of an issue, hindering the undue creation or reduction of issued securities, and thereby play an important role in maintaining investor confidence. Therefore, a Regulation lays down uniform requirements for the settlement of financial instruments in the Union and rules on the organisation and conduct of CSDs to promote safe, efficient and smooth settlement, which is of a systemic importance for the functioning of securities markets [Regulation 909/2014].

    In order to combat fraudulent use of privileged stock exchange information, ensure the integrity of European financial markets and enhance investor confidence in those markets a Regulation establishes a common regulatory framework on insider dealing, the unlawful disclosure of inside information and market manipulation (market abuse regulation) [Regulation 596/2014, last amended by Regulation 2016/1011]. Member States must prohibit any person who possesses inside information (as defined in the Regulation) from using that information by acquiring or disposing of for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates. "Market manipulation" means notably transactions or dissemination of information, which give false or misleading signals as to the supply of, demand for or price of financial instruments or which employ fictitious devices or any other form of deception or contrivance. Taking into account the legal framework established by Regulation 596/2014 and its implementing measures, a Directive establishes minimum rules for criminal sanctions for insider dealing, for unlawful disclosure of inside information and for market manipulation to ensure the integrity of financial markets in the Union and to enhance investor protection and confidence in those markets (market abuse directive) [Directive 2014/57].

    Credit rating agencies play an important role in global securities and banking markets, as their credit ratings are used by investors, borrowers, issuers and governments as part of making informed investment and financing decisions. Currently, most credit rating agencies have their headquarters outside the European Union and are subject to European law only in limited areas. These agencies are considered to have failed, first, to reflect early enough in their credit ratings the worsening market conditions in 2008, and second, to adjust their credit ratings in time following the deepening market crisis. As a response to the world financial crisis, a 2009 Regulation introduced a common regulatory approach in order to enhance the integrity, transparency, responsibility, good governance and reliability of credit rating activities, contributing to the quality of credit ratings issued in the European Union, thereby contributing to the smooth functioning of the internal market while achieving a high level of consumer and investor protection [Regulation 1060/2009, last amended by Directive 2014/51]. Three Commission Regulations fix the regulatory technical standards: (a) for the periodic reporting on fees charged by credit rating agencies for the purpose of ongoing supervision by the European Securities and Markets Authority (ESMA) [Regulation 2015/1, see section 7.3]; (b) for the presentation of the information that credit rating agencies make available to ESMA [Regulation 2015/2]; and (c) on disclosure requirements for structured finance instruments [Regulation 2015/3].

    The coordination of the conditions for the admission of securities to official listing on stock exchanges situated or operating in the Member States is aimed at providing uniform guarantees to investors in the various Member States [Directive 2001/34]. It facilitates both the admission to official stock exchange listing, in each such State, of securities from other Member States and the listing of any given security on a number of stock exchanges in the EU. It may accordingly make for greater interpenetration of national securities markets by removing those obstacles that may prudently be removed and therefore contribute to the prospect of establishing a European capital market. The "single passport" for issuers harmonises the requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading [Regulation 2017/1129. It aims to ensure that adequate and equivalent disclosure standards are in place in all Member States, so as to afford investors throughout the European Union a uniform degree of protection. Minimum guidelines and common principles are established for the conduct of takeover bids (OPA) for the securities of companies governed by the laws of Member States, where all or some of those securities are admitted to trading on a regulated market [Directive 2004/25, last amended by Regulation  2016/1675]. A Directive establishes requirements in relation to the disclosure of periodic and ongoing information about issuers whose securities are already admitted to trading on a regulated market situated or operating within a Member State [Directive 2004/109, last amended by Directive 2013/50].

    A central factor for the proper functioning of the internal market in transferable securities is the Directive relating to undertakings for collective investment in transferable securities (UCITS) [Directive 2009/65, last amended by Directive 2014/91]. It coordinates the rules governing such undertakings in the Member States with a view, on the one hand, to approximating the investment policies and the conditions of competition between these UCITS at European level and, on the other hand, to achieving effective and more uniform protection of shareholders in such undertakings. This coordination allows a "European passport" regime, whereby financial undertakings authorised to offer services in one Member State may offer their services throughout the internal market without additional authorisation.

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