SECURITIES MARKETS LEGISLATION SSESSMENT ROJECT · capital market in the Czech Republic. The Prague...

SECURITIES MARKETS LEGISLATION ASSESSMENT PROJECT

2007 ASSESSMENT

based on legislation in force on 1 June 2007

CZECH REPUBLIC

CMS CAMERON MCKENNA V.O.S. KAROLÍNY SVĚTLÉ 25, 110 00 PRAGUE 1

CZECH REPUBLIC 0H

www.law-now.com

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TABLE OF CONTENTS General Information ______________________________________________________________________________________________________ iv

Section I – Basic Information about Securities Market Related Laws and Regulations _________________________________________________ vi

Section II – Identity of the Relevant Market Regulatory Authorities (Statutory and Non-statutory) by Activities Regulated ____________________ xi

Section A – Regulator ______________________________________________________________________________________________________ 1 Responsibilities of the Regulator _________________________________________________________________________________________________________________ 1 Independence of the Regulator___________________________________________________________________________________________________________________ 2 Accountability of the Regulator __________________________________________________________________________________________________________________ 3 Regulator’s powers and resources ________________________________________________________________________________________________________________ 5 Clear and Equitable Procedures ________________________________________________________________________________________________________________ 12 Professional Standards _______________________________________________________________________________________________________________________ 15 Cooperation among Regulators _________________________________________________________________________________________________________________ 16

Section B – Self-regulation ("SROs") ________________________________________________________________________________________ 19 Performance and Functions of SROs _____________________________________________________________________________________________________________ 19 Authorisation or delegation subject to oversight ____________________________________________________________________________________________________ 21 Oversight __________________________________________________________________________________________________________________________________ 23 Misuse of Information and Conflict of Interests_____________________________________________________________________________________________________ 24

Section C – Issuers and their Information-Disclosure Obligation __________________________________________________________________25 Content of the Prospectus______________________________________________________________________________________________________________________ 25 Foreign Issuers______________________________________________________________________________________________________________________________ 26 Full Disclosure______________________________________________________________________________________________________________________________ 27 Liability ___________________________________________________________________________________________________________________________________ 30 Derogations ________________________________________________________________________________________________________________________________ 31 Regulator’s Powers __________________________________________________________________________________________________________________________ 31 Other Listing Documents ______________________________________________________________________________________________________________________ 32 Ongoing Disclosure Requirements_______________________________________________________________________________________________________________ 32 Fair and Equitable Treatment of Shareholders _____________________________________________________________________________________________________ 35 Change in Corporate Control __________________________________________________________________________________________________________________ 38

Section D – Collective Investment Schemes (CISs) ______________________________________________________________________________40 Entry and Eligibility Criteria ___________________________________________________________________________________________________________________ 40 Supervision and Ongoing Monitoring ____________________________________________________________________________________________________________ 42 Delegation of Functions _______________________________________________________________________________________________________________________ 43

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Legal Form/Investors Rights ___________________________________________________________________________________________________________________ 44 Separation of Assets __________________________________________________________________________________________________________________________ 45 Disclosure _________________________________________________________________________________________________________________________________ 46 Asset Valuation______________________________________________________________________________________________________________________________ 52 Pricing and Redemption of Interest ______________________________________________________________________________________________________________ 53

Section E – Market Intermediaries ___________________________________________________________________________________________ 56 Authorisation and Licensing ___________________________________________________________________________________________________________________ 56 Ongoing Requirements________________________________________________________________________________________________________________________ 59 Investment Advisers __________________________________________________________________________________________________________________________ 63 Custodians _________________________________________________________________________________________________________________________________ 64 Capital Adequacy Requirements ________________________________________________________________________________________________________________ 64 Management and Supervision __________________________________________________________________________________________________________________ 67 Customer Protection _________________________________________________________________________________________________________________________ 69 Procedures for Dealing with intermediary in Financial Difficulty ______________________________________________________________________________________ 72

Section F – Secondary Market ______________________________________________________________________________________________74 Licensing of Exchanges and Trading Systems ______________________________________________________________________________________________________ 74 Ongoing supervision _________________________________________________________________________________________________________________________ 77 Transparency of Trading ______________________________________________________________________________________________________________________ 80 Detection of Unfair Practices___________________________________________________________________________________________________________________ 81 Monitoring of Large Exposures _________________________________________________________________________________________________________________ 86 Default Procedures __________________________________________________________________________________________________________________________ 87

Section G – Clearing and Settlement _________________________________________________________________________________________ 88 Authorisation and Licensing of Securities Settlement Systems__________________________________________________________________________________________ 88 Trade Confirmation and Delivery Versus Payment __________________________________________________________________________________________________ 90 Transparency _______________________________________________________________________________________________________________________________ 90 Central Depository___________________________________________________________________________________________________________________________ 91 Oversight __________________________________________________________________________________________________________________________________ 92 Derivatives _________________________________________________________________________________________________________________________________ 92 Protection of customers’ securities ______________________________________________________________________________________________________________ 92

Section H – Accounting and Auditing of Financial Reports _______________________________________________________________________94 Disclosure of Financial Results _________________________________________________________________________________________________________________ 94 External Auditor_____________________________________________________________________________________________________________________________ 96 Accounting Standards ________________________________________________________________________________________________________________________ 98 Auditing Standards__________________________________________________________________________________________________________________________ 101

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Section I – Money Laundering _____________________________________________________________________________________________104 Scope of the criminal offence of money laundering _________________________________________________________________________________________________ 104 Customer due diligence and record-keeping ______________________________________________________________________________________________________ 105 Reporting of Suspicious Transactions and Compliance______________________________________________________________________________________________ 105 International Cooperation ____________________________________________________________________________________________________________________ 106

Section J –Financial Instruments ___________________________________________________________________________________________ 107 Variety of financial instruments traded __________________________________________________________________________________________________________ 107 Derivatives ________________________________________________________________________________________________________________________________ 108 Cross-Border Issuance_______________________________________________________________________________________________________________________ 108 Sponsor/Underwriter ________________________________________________________________________________________________________________________ 109 Concentration Rule _________________________________________________________________________________________________________________________ 109 Private Placement __________________________________________________________________________________________________________________________ 109

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GENERAL INFORMATION

In the Czech Republic the basic legislation on the securities market is comprised by the following laws (each act as amended): • Act No. 256/2004 Coll., on Undertaking on the Capital Market (general regulation of capital market, provision of investment services, listed securities and public

offering of securities, clearing system, securities on a dematerialised basis, central depository, notification obligations relating to provision of services on capital market, notification obligations of issuers of public securities, rating agencies, etc.);

• Act No. 591/1992 Coll., the Securities Act (general provisions on securities and contracts relating to securities); • Act No. 190/2004 Coll., on Bonds (provisions on bonds); • Act No. 189/2004 Coll., on Collective Investment (provisions on collective investment schemes, UCITS and non-UCITS funds, etc.); • Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts (authority of the Czech National Bank as a capital market

surveillance body, administrative proceedings and sanctions); and • other laws listed in Section I hereof (for further details regarding the above Acts, their effective dates and amendments, please see Section I hereof). The securities market legal framework was most recently amended in 2006, when the previous supervisory body (Czech Securities Commission) ceased to exist and the Czech National Bank became the only surveillance authority for the capital market in the Czech Republic (as of 1 April 2006). Furthermore, a new regulation of non-UCITS funds has been introduced by the amendment to the Act on Collective Investment in 2006. As there are still some issues in respect of the new capital market regulation in the Czech Republic, it is possible that some minor “technical” amendments of certain acts may be expected in the next years; they should not, however, materially change the concept and structure of the current capital market regulation. The securities market regulator is the Czech National Bank (

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www.cnb.cz), which is competent in surveillance in the capital market as the only supervisory body, which supervises banks, investment firms and investment advisers, collective investment funds, insurance companies, pension funds, and other entities active on the capital market in the Czech Republic. The Prague Stock Exchange (Burza cenných papírů Praha, a.s.), a stock exchange operating under the Act on Undertaking on the Capital Market, is the only operator of official securities market in the Czech Republic, and RM-System a.s., being the only OTC Market

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1 operator in the Czech Republic. (Number of OTC markets operators is not limited; however, no other entity has been granted a license so far). According to the information published on the official website of the Czech National Bank, the market capitalisation of the stock market achieved values of CZK 1,592 billion (i.e., approx. EUR 40,453 million) in 2006, of which CZK 953.9 billion (i.e., approx. EUR 33,294.9 million) fell to domestic issues and CZK 638.1 billion (i.e., approx. EUR 22,281.1 million) to foreign issues. Market capitalisation increased year-to-year by 19.6%. The overall trade volume of the bond market at the Prague Stock Exchange reached the value of CZK 598.9 million (i.e., approx. EUR 20,903.3), showing year-to-year growth of 12.3%. Government bonds contributed approximately 90.0% to the trade volume. According to the official list of issuers published by the Czech National Bank, there are 84 issuers of listed securities in the Czech Republic as of the date of this Assessment.

1 Over-the-counter (OTC) trading of financial instruments occurs directly between the parties to the transaction. An OTC trade is often entered into over the telephone, facsimile or electronic network. OTC markets, being relatively decentralised, are the opposite of trading on an exchange. For example, a large over-the-counter market has grown up in derivatives.

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There are the following SROs in the Czech Republic: • 1 stock exchange operator: “Burza cenných papírů Praha, a.s.” (Prague Stock Exchange); • 1 OTC market operator: RM-SYSTÉM, a. s.; • 1 operator of a central depository system in respect of dematerialised securities: Středisko cenných papírů (Securities Centre; established by the Ministry of

Finance). The structure of CISs providing services in the Czech Republic, which are registered with the Czech National Bank as of the date of this assessment, is as follows:

• 63 investment funds (i.e., CIS in the form of a joint stock company with fixed capital); • 33 Czech investment companies managing (in total) 31 standard open-end unit trusts (UCITS) and 74 special open-end investment trusts (non-UCITS); there

are 1354 foreign CISs in the regime of a single European passport, 29 investment companies from other EU member countries, and 14 foreign special funds (non-UCITS) registered with the Czech National Bank.

The aggregate value of property invested to CISs in the Czech Republic in 2006 is approx. CZK 271,2.9 billion (i.e., approx. EUR 9,477.5).1F

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2 According to information published on the website of the Association of Funds and Asset Management of the Czech Republic.

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2007 ASSESSMENT CHECKLIST FOR SECURITIES MARKET LEGISLATION Section I – Basic Information about Securities Market Related Laws and Regulations

# Official Title of Law/Regulation (in English) Promulgating Authority Date of Effectiveness Dates of Past

Amendments

1. Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Parliament of the Czech Republic 1 May 2004

6 amendments; the last amendment

effective as of 1 July 2007

2. Act No. 591/1992 Coll., the Securities Act, as amended Czech National

Council (former Czech Parliament)

1 January 1993

20 amendments; the last amendment effective as of 8

March 2006

3. Act No. 190/2004 Coll., on Bonds, as amended Parliament of the Czech Republic 1 May 2004


effective as of 1 April 2006

4. Act No. 189/2004 Coll., on Collective Investment, as amended Parliament of the Czech Republic 1 May 2004


effective as of 26 May 2006

5. Act No. 6/1993 Coll., on Czech National Bank, as amended Czech National

Council (former Czech Parliament)

1 January 1993


effective as of 1 June 2006

6. Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

Parliament of the Czech Republic 1 April 1998



7. Act No. 57/2006 Coll. Amending Certain Acts in respect of Unification of Surveillance in the Financial Market

Parliament of the Czech Republic 1 April 2006

8. Act No. 377/2005 Coll., on Financial Conglomerates, as amended Parliament of the 29 September 2005 3 amendments; the

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Amendments Czech Republic last amendment


9. Act No. 513/1991 Coll., the Commercial Code, as amended (certain relevant provisions)

Federal Assembly of the Czech and Slovak

Federal Republic (former federal

Parliament)

1 January 1992


January 2009

10. Act No. 40/1964 Coll., the Civil Code, as amended (certain relevant provisions)



Parliament)

1 April 1964


January 2008

11. Act No. 568/1992 Coll., on Income Taxes, as amended (certain relevant provisions)

Czech National Council (former Czech

Parliament) 1 January 1993


January 2011

12. Act No. 21/1992 Coll., on Banks, as amended



Parliament)

1 February 1992


January 2008

13. Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended

Parliament of the Czech Republic 1 July 1996



14. Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended

Parliament of the Czech Republic 21 March 2004


January 2009

15. Act No 363/1999 Coll., the Insurance Act, as amended Parliament of the Czech Republic 1 April 2000


effective as of 1 April

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Amendments 2006

16. Act No. 254/2000 Coll., on Auditors, as amended Parliament of the Czech Republic 1 January 2001



17.

Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as

regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and

dissemination of advertisements

Commission of the European Communities 7 March 2006

18. Decree No. 123/2007 Coll., on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives, and Investment Firms Czech National Bank 1 July 2007

19. Decree No. 258/2004 Coll., stipulating the details of compliance with the rules

for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients

Securities Commission 1 May 2004

20. Decree No. 59/2007 Coll., on types of professional Undertaking of an investment firm performed through a broker, on types of professional

specialization of a broker, and on broker examination Czech National Bank 15 April 2007

21. Decree No. 260/2004 Coll., on requisites of technical layout of listed physical securities Securities Commission 1 May 2004

22.

Decree No. 261/2004 Coll., on the requisites and the manner of keeping a transactions and orders book of an investment firm, and on principles of

keeping records of received and transmitted orders of an investment , intermediary, as amended

Securities Commission 1 May 2004 1 amendment


23. Decree No. 264/2004 Coll., on form and manner of communicating of annual report and half-yearly annual report of issuer of listed security and on manner

of fulfilling disclosure duty, as amended Securities Commission 1 May 2004

1 amendment effective as of 1 September 2004

24. Decree No. 115/2007 Coll., on particular fulfilment of duties of depository of a collective investment fund Czech National Bank 15 July 2007

25. Decree No. 266/2004 Coll., on reports of trading with investment instruments admitted to trading on a regulated market Securities Commission 1 May 2004

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Amendments 26. Decree No. 605/2006Coll., on certain information duties of an investment firm Czech National Bank 1 January 2007

27. Decree No. 268/2004 Coll., on the requisites and enclosures of applications under the Act No. 256/2004 Coll., on Undertaking on Capital Market Securities Commission 1 May 2004

28. Decree No. 269/2004 Coll., on the requisites and enclosures of applications under the Act No. 1896/2004 Coll., on Collective Investment Securities Commission 1 May 2004

29.

Decree No. 270/2004 Coll., on a manner of determining the actual value of assets and liabilities of a collective investment fund and on a manner of determining the current value of a share or unit certificate of a collective

investment fund

Securities Commission 1 May 2004 1 amendment

effective as of 15 September 2006

30. Decree No. 603/2006 Coll., on disclosure duties of a collective investment fund and investment company Czech National Bank 31 December 2006

31. Decree No. 347/2004 Coll., on a matter of compliance with the rules of prudent Undertaking in the internal organization rules of an investment

company or investment fund Securities Commission 1 July 2004

32. Decree No. 355/2004 Coll., stipulating the form, timing and method of

publication of the price of an investment instrument admitted to trading on a regulated market

Securities Commission 1 July 2004

33. Decree No. 408/2004 Coll., stipulating requisites for approval of Ministry of Finance of the issuance of municipal bonds and annexes to the request

Ministry of Finance of the Czech Republic 8 July 2004

34. Decree No. 414/2004 Coll., on a method of remuneration and reimbursement of cash expenses of a forced administrator, liquidator and receiver of certain

providers of services on the capital market Securities Commission 30 July 2004

35.

Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal

audit mechanisms required for the due performance of activities of an investment broker

Securities Commission 26 July 2004

36. Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund Czech National Bank 25 November 2006

37. Decree No. 536/2004 Coll., implementing certain provisions of the Act on Undertaking on Capital Market in the area of protection against market abuse Securities Commission 1 January 2005

1 amendment effective as of 1 May

2007

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Amendments

38. Decree No. 604/2006 Coll., on usage of techniques and instruments for

effective management of the assets of a standard fund and a special fund collecting finances from the public

Czech National Bank 1 January 2007

39. Decree No. 114/2006 Coll., on Fair Presentation of Investment Recommendations Securities Commission 31 March 2006

40. Decree No. 58/2006 Coll., on the manner of keeping separate records of investment instruments Securities Commission 8 March 2006

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Section II – Identity of the Relevant Market Regulatory Authorities (Statutory and Non-statutory) by Activities Regulated

# Activities Regulated Name of the Relevant Regulator Date of Establishment Legal Basis

1. Securities issuance and offering3 Czech National Bank 1 January 1993 (replacing the Securities Commission

as at 1 April 2006)

Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Act No. 6/1993 Coll., on the Czech National Bank, as amended; Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

Office for the Protection of Economic Competition; 1 November 1996

Act No. 273/1996 Coll., on the Competence of the Office for the Protection of Economic Competition, as amended; Act No. 143/2001 Coll., on Protection of Economic Competition, as amended

2. Change of control transactions4 Czech National Bank in respect of acquisition of

shares of issuer, whose shares are admitted for trading on

the official market

1 January 1993

Act No. 6/1993 Coll., on the Czech National Bank, as amended; Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

3. Securities markets5 Czech National Bank 1 January 1993 (replacing the Securities Commission

as at 1 April 2006)

Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Act No. 6/1993 Coll., on the Czech National Bank, as amended; Act No. 256/2004 Coll., on Undertaking on

3 Including prospectus and disclosure requirements, share registrations, tender offers, shareholder rights, beneficial ownership reporting, etc. 4 e.g., mergers, take-overs, monopoly positions, and other transactions affecting control in a company. 5 e.g., including establishment of exchanges and trading systems, admission to listing, trading, clearing and settlement, depository, etc.

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the Capital Market, as amended

4. Brokerage or dealing related activities6


5. Fund (or portfolio) and asset management

(including investment advisers, asset managers, etc.)


6. Collective investment schemes

Czech National Bank 1 January 1993 (replacing the Securities Commission

as at 1 April 2006)

Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Act No. 6/1993 Coll., on the Czech National Bank, as amended; Act No. 189/2004 Coll., on Collective Investment, as amended; Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

7. Accounting and auditing standards/services Ministry of Finance of the Czech Republic 1 August 1969

Act No. 2/1969 Coll., on Establishment of Ministries and Other Central Administration Bodies of the Czech Republic, as amended (Ministry of Finance of the Czech Republic);

6 e.g., including licensing, conduct of business requirements, prudential requirements, etc.

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Chamber of Auditors of the Czech Republic 20 November 1992

Act No. 254/2000 Coll., on Auditors, as amended (Chamber of Auditors of the Czech Republic)

8. Investment services providers Czech National Bank 1 January 1993 (replacing the Securities Commission

as at 1 April 2006)


9. Money Laundering

Financial Analytical Department of the Ministry of

Finance of the Czech Republic

1 July 1996

Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended; Decree of the Ministry of Finance No. 344/2004 Coll., on the Fulfilment of Information Duties under the Act 61/1996 Coll. on Selected Measures against the Legalisation of the Proceeds of Crime, as amended

Section A – Regulator

6F

7

# Issue Yes ( )

No ( )

Relevant provision number/citation of law/regulation;

Remarks/Other Comments

IOSCO Relevance

RESPONSIBILITIES OF THE REGULATOR

1. Whether the regulator responsibilities, powers and authority are clearly defined in the law?

The Czech National Bank has been established pursuant to Article 98 of the Constitution of the Czech Republic (No. 1/1993 Coll.) and the Act No. 6/1993 Coll., on the Czech National Bank, as amended. Its responsibilities, powers and authority in the areas of supervision of the banking sector, the capital market, the insurance industry, pension funds, credit unions and electronic money institutions, as well as foreign exchange supervision are clearly defined, inter alia, by the following provisions: Sections 44, 44a and 45 of the Act No. 6/1993 Coll., on the Czech National Bank, as amended; Sections 1, 3, 7 et seq. of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Section 135 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 25 et seq. of the Act No. 21/1992

1

7 Please answer the questions of this section considering the regulator (see Section II, above) in charge for: Securities issuance and offering; Securities markets; Brokerage or dealing related activities and Collective investment schemes

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# Issue Yes ( )

No ( )



IOSCO Relevance

Coll., on Banks, as amended; Sections 6, 6a and 26 et seq. of the Act No 363/1999 Coll., the Insurance Act, as amended; Section 13 et seq. of the Act No. 377/2005 Coll., on Financial Conglomerates, as amended; Section 22 et seq. of the Act No. 87/1995 Coll., on Credit Unions, as amended; Section 31 et seq. of the Act No. 124/2002 Coll., on Transfers of Funds, Electronic Payment Instruments and Payment Systems (the Payment System Act), as amended;

2. Whether the regulator has discretion to interpret its responsibilities based on clear and transparent criteria and process so to prevent abuse of discretion?

No, the Czech National Bank must perform its competences strictly in compliance with the laws. Moreover, this principle must comply with the constitutional law requirement (stated in Article 2(2) of the Act No. 2/1993 on declaration of the Charter of Fundamental Rights and Freedoms) that the state powers may only be executed where specified by the law and only in the extent specified by the law.

1

INDEPENDENCE OF THE REGULATOR

3. Whether the term of office, the procedures for appointment and removal and the criteria for removal of the head and members of the governing body of the regulator are specified under the relevant law?

These terms and procedures are specified in detail by the provisions of Section 6 et seq. of the Act No. 6/1993 Coll., on the Czech National Bank, as amended (based on a general provision of Article 98 of the Constitution of the Czech Republic No.

2

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# Issue Yes ( )

No ( )



IOSCO Relevance

1/1993 Coll.)

4. Whether the operational independence of the regulator is assured by the law from external political, commercial, or other interest interference when exercising its respective functions and powers?

The independence of the Czech National Bank is laid down in Section 9 of the Act No. 6/1993 Coll., on the Czech National Bank, as amended. The constitutional basis of the independence of the Czech National Bank is its regulation as an autonomous institution in Article 98 of the Constitution of the Czech Republic.

2

5. Whether the law provides legal protection (for bona fide actions only) to the regulator, the head and members of the governing body and its staff against lawsuits for actions taken in their functions?

In case of damage caused in the course of the exercise of public authority by decisions or incorrect official procedure, a party which suffered a damage may claim damages to be paid by the state (pursuant to Sections 3 et seq. 7 et seq., 13 et seq. of the Act No. 82/1998 Coll.), which in certain cases may request that the officers reimburse the value of damages paid up to certain limit to the state (the limit does not apply if a damage was caused as a consequence of an officer’s wilful misconduct).

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ACCOUNTABILITY OF THE REGULATOR

6. In the exercise of its regulatory powers, whether the regulator is required by the law to consult with or obtain an approval by the government, ministry or other authorities?

No, the Czech National Bank exercises its regulatory powers independently (within the scope of authorisation granted to it by law).

2

If the answer to the above question is "yes" (if "no" in the above, please tick "no" in the following sub-questions): 7. (1) whether the circumstances in which consultation or approval is required are clearly defined and the relevant process is sufficiently transparent?

(See section 6 above)

2

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# Issue Yes ( )

No ( )



IOSCO Relevance

(2) whether the circumstances where consultation or approval is required are limited to policy issues and not to day-to-day technical matters?

(See section 6 above)

8. Is the regulator accountable to the Parliament or another government body on an ongoing basis?

Pursuant to Sections 3 and 45d of the Act No. 6/1993 Coll., the Czech National Bank only presents its annual reports to the Chamber of Deputies of the Parliament of the Czech Republic, but it is not accountable to it as regards its regulatory authority.

2

9.

Are the regulator and the other parties to which the regulator is accountable required by the law to treat as confidential information received as part of the supervisory process and only to disclose information in certain defined circumstances?

The duty to maintain confidentiality in respect of the information received as part of the supervisory process and certain exceptions are expressly regulated in Section 26 of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended.

2

10. Is the regulator’s receipt and use of funds subject to review or audit?

Generally, the annual report of the Czech National Bank is verified by one or more auditors appointed after the consultation of the Bank Council (supreme body of the Czech National) with the Minister of Finance. However, Acts 6/1993 Coll. and 15/1998 Coll. expressly set out that the monies received from fines imposed are income of the state budget (or of the Guarantee Fund in case of fines imposed to the investment firms).

2

11. Does the regulator have to provide written reasons for its material decisions?

Material decisions of the Czech National Bank (as a financial market surveillance authority) are issued in administrative proceedings in accordance with Section 10 et seq. of the Act 15/1998 Coll. on

2

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# Issue Yes ( )

No ( )



IOSCO Relevance

Surveillance in the Capital Market and Section 67 et seq. of the Act No. 500/2004 Coll., the Code of Administrative Procedure, and they shall contain written reasons.

12. Are affected persons permitted to make representations prior to a regulator’s decision in appropriate cases?

The affected persons, as participants of administrative proceedings, generally have a right to make representations prior to issuance of the decision (Act 15/1998 Coll. on Surveillance in the Capital Market and Act No. 500/2004 Coll., the Code of Administrative Procedure).

2

13. Are all decisions taken by the regulator subject to a sufficient, independent review process, ultimately including judicial review?

Decisions issued in administrative proceedings and listed in Section 4(1) of the Act No. 150/2002 Coll., Code of Administrative Justice are all subject to judicial review under the conditions set out in Section 32 et seq. therein.

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REGULATOR’S POWERS AND RESOURCES

14. Whether the regulator is empowered by the law to receive routine financial reports from regulated entities

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8? If "yes", please identify from whom the regulator receives such routine reports.

The obligation of regulated entities to disclose and deliver to the Czech National Bank their financial reports is regulated by the following laws: Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, sets out in its Section 16(1) Investment Firm’s, Section 80(7) Off-exchange Market Operator’s and in Section 118(1) a Listed security Issuer’s

2, 10

8 “Regulated entity” includes authorised or licensed entities or persons

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# Issue Yes ( )

No ( )



IOSCO Relevance

obligation to submit to the regulator its routine financial reports; Act No. 189/2004 Coll., on Collective Investment, as amended, sets out such obligation for an Investment Company in its Section 85(1), for an Investment Fund in its Section 85(2); Act No. 21/1992 Coll., on Banks, as amended, sets out such obligation for banks in its Section 23(1); Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended, its Section 36(3) sets out the obligation of Pension Fund to submit to the regulator its routine financial reports; Act No. 363/1999 Coll., the Insurance Act, as amended, in its Section 26a(3) sets out obligation of inland insurance and reinsurance companies to disclose and deliver their financial reports; Act No. 87/1995 Coll., on Credit Unions, as amended sets out in Section 6(6) such obligation for Cooperative Savings Companies; Section 1 et seq. of the Decree No. 264/2004 Coll., on form and manner of communicating of annual report and half-yearly annual report of issuer of listed security and on manner of fulfilling disclosure duty, as amended;

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# Issue Yes ( )

No ( )



IOSCO Relevance

Section 1 et seq. of the Decree No. 266/2004 Coll., on reports of trading with investment instruments admitted to trading on a regulated market; Decree No. 605/2006Coll., on certain information duties of an investment firm; Decree No. 603/2006 Coll., on disclosure duties of a collective investment fund and investment company

15. Whether the regulator is empowered by the law to inspect a regulated entity business operation without giving prior notice?

Generally, a prior written notice is required; in certain cases, the Czech National Bank may inspect a regulated entity business operation without giving prior notice (Sections 8(1) letter f), 8(2) to 8(5) of the Act 15/1998 Coll. on Surveillance in the Capital Market, as amended)

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16.

Whether the regulator is empowered by the law to have access to books and records and request data or information from regulated entities without judicial actions, even in absence of suspected misconduct, in response to (i) a particular inquiry? (ii) on a routine basis?

The Czech National Bank is empowered to have access to books and any other relevant information within the scope of its supervisory authorities both (i) in respect of a particular inquiry and (ii) on a routine basis (subject to its discretion). Such delegation of right is set out in the following provisions:: Section 8 of the Act 15/1998 Coll. on Surveillance in the Capital Market, as amended; Sections 41(2) to 41(5), 44 and 44a Act No. 6/1993 Coll., on the Czech National Bank, as amended; Sections 80(7), 118, 123 of the Act No.

8

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# Issue Yes ( )

No ( )



IOSCO Relevance

256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 86 and 86 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 23 of the Act No. 21/1992 Coll., on Banks, as amended; Section 36 of the Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended; Section 26a(3) of the Act No. 363/1999 Coll., the Insurance Act, as amended; Section 6(6) of the Act No. 87/1995 Coll., on Credit Unions, as amended

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# Issue Yes ( )

No ( )



IOSCO Relevance

Does the regulator have the investigative and enforcement power to require from any persons involved in relevant conduct of who may have information relevant to a regulatory or enforcement investigation:

(a) data?

(b) information?

(c) documents?

(d) records?

17.

(e) statements or testimony?

The investigative and enforcement powers of the Czech National Bank are set out in general in the following Acts regulating the administrative procedures and the powers of the Czech National Bank in the administrative procedure: Section 41(2) of the Act No. 6/1993 Coll., on the Czech National Bank, as amended; Section 8 of the Act No. 15/1998 Coll. on Surveillance in the Capital Market, as amended; and Section 58 et seq. of the Act No. 500/2004 Coll., the Code of Administrative Procedure; The scope of data information, documents, records and statements relating to the investigative and enforcement powers of the Czech National Bank result from the Acts regulating particular sectors of the Capital market and the obligations of regulated entities, in particular: Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Act No. 189/2004 Coll., on Collective Investment, as amended; Act No. 21/1992 Coll., on Banks, as amended; Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended; Act No. 363/1999 Coll., the Insurance Act, as amended; Act No. 377/2005 Coll., on Financial Conglomerates, as amended; Act No. 87/1995 Coll., on Credit Unions, as amended.

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# Issue Yes ( )

No ( )



IOSCO Relevance

18.

Whether, under the law or regulation, the regulator has the power to impose administrative sanctions? If "yes", please briefly describe the kinds of sanctions that can be imposed. If "no", please briefly describe what the regulator can do in case of non-compliance with laws.

The Czech National Bank may generally levy a fine amounting in certain cases up to CZK 50,000,000 (i.e., approx. EUR 1,800,000) – see: Under the Section 9b(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market, as amended, the fine may amount CZK 50,000,000; and Section 62 of the Act No. 500/2004 Coll., the Code of Administrative Procedure; further requirements are set out in the following laws: Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, grants power to impose administrative sanctions (mainly fines) in its Sections 157 et seq. Certain administrative sanctions are set out by Sections 119 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 26(1) letter e) of the Act No. 21/1992 Coll., on Banks, as amended; Sections 43a et seq. of the Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended; Sections 26, 35 et seq. of the Act No. 363/1999 Coll., the Insurance Act, as amended; Sections 27a et seq. of the Act No. 87/1995

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Coll., on Credit Unions, as amended

19. Whether, under the law or regulation, the regulator has the power to order suspension of trading in securities?

The Czech National Bank may under conditions of Sections 136 et seq. and Section 156(1) letter (c) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, order suspension of trading in securities under conditions set out in (for other remedial measures and licence’s withdrawal see also Sections 104 et seq. of the Act No. 15/1998 Coll. on Surveillance in the Capital Market, as amended and Act No. 189/2004 Coll., on Collective Investment, as amended)

9

20. Whether, under the law or regulation, the regulator has the power to initiate or refer matters for criminal prosecution?

The Czech National Bank has the obligation to notify any information indicating that a criminal offence has been committed to relevant authorities under the Section 8(1) of the Act 141/1961 Coll., the Criminal Procedure code, as amended, and the Section 8(3) of the Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended

9

21. Whether the regulator is assured by the law and/or regulation to have sufficient financial and other resources to properly discharge its functions?

8F

9 If "no", please indicate the areas of insufficiency.

The budget of the Czech National Bank is

taken from the state budget (Section 47 of the Act No. 6/1993 Coll., on the Czech National Bank, as amended)

2

9 The points of consideration in financial aspect should include: competitive salary scales, ability to hire external experts if necessary, training budget and programme, information technology equipment, and travel budget, etc.

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CLEAR AND EQUITABLE PROCEDURES

22. Whether the regulator has the power to issue legally binding rules and regulations? If yes, is the regulator obliged to make all rules and regulations available to the public?

The Czech National Bank issues decrees setting forth a more detailed regulation of certain matters regulated by Acts (see e.g. Section 199(2) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, and Section 139 of the Act No. 189/2004 Coll., on Collective Investment, as amended; see also Act No. 6/1993 Coll., on the Czech National Bank, as amended, and Article 79 of the Constitution of the Czech Republic (No. 1/1993 Coll.)); The decrees issued by the Czech National Bank are published in the Collection of Laws available to public (see Act 309/1999 Coll., on Collection of Laws and Collection of International Treaties)

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23. Whether the law or regulation sets forth the general criteria for granting, suspending or revoking licenses?

The general criteria for granting, suspending or revoking licenses are set out especially by the following laws: Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, sets out general criteria for granting licenses in its Section 6(1) [for an Investment Firm], Section 28(2) [for a Branch of a foreign person with a registered office in a state other than a member state of the European union], Section 57(1) [for an Exchange], Section 74(1) [for an Off-exchange Market], Section 83(3) [for an Settlement System],

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Section 103(2) [for an Central Depository]; for revoking licences see Section 144 et seq. ibid.; for suspending licences see Section 136 ibid.; Act No. 189/2004 Coll., on Collective Investment, as amended, sets out general criteria for granting licenses in its Section 60 for an Investment Company, Section 64 for an Investment Fund and Section 66 to establish a Unit Trust for revoking licences see ibidem provisions of Section 63 for information relating to an Investment Company, Section 114 for information relating to an Investment Fund, Section 115 for information relating to a Unit Trust; for suspending licences see Sections 103(1) letter (c), 109(10) letter (a); Section 4 et seq. of the Act No. 21/1992 Coll., on Banks, as amended; Sections 5 and 43(1) letter d) of the Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended; Sections 7 and 27(3) letter e) of the Act No. 363/1999 Coll., the Insurance Act, as amended; Sections 2a, 2h, 2j, 28(1) of the Act No. 87/1995 Coll., on Credit Unions, as amended;

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(The Requisites of the application for licenses are set out e.g. in the following decrees: Decree No. 268/2004 Coll., on the requisites and enclosures of applications under the Act No. 256/2004 Coll., on Undertaking on Capital Market; Decree No. 59/2007 Coll., on types of professional Undertaking of an investment firm performed through a broker, on types of professional specialization of a broker, and on broker examination; and Decree No. 269/2004 Coll., on the requisites and enclosures of applications under the Act No. 189/2004 Coll., on Collective Investment)

24.

Whether the regulator is required by the law or regulation to publicly disclose and explain its policies in important operational areas, such as through interpretations of regulatory actions, settings of standards, or issuance of opinions stating the reasons for regulatory actions?

The Czech National Bank publishes in its official Journal and on its website material decisions relating to the regulation of the capital market (after their entry in force), its opinions relating to the capital market and other notifications or communications relevant for the capital market. The scope of information to be published by the Czech National Bank (such as legally effective decisions, etc.) is set out especially in Section 14 of the Act No. 15/1998 Coll. on Surveillance in the Capital Market, as amended and Section 49a of the Act No. 6/1993 Coll., on the Czech National Bank, as amended.

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# Issue Yes ( )

No ( )



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PROFESSIONAL STANDARDS

25.

Whether the staff of the regulator is required by law, regulation or other, [please explain] to observe a "Code of Conduct" or other written standards/guidance of the same nature in exercising their regulatory powers and discharging their functions?

The Bank Board of the Czech National Bank has adopted the Ethics Code (last update effective as of 1 April 2006) Section 50(4) of the Act No. 6/1993 Coll., on the Czech National Bank, as amended, provides the legal basis for adoption of the internal Code of Ethics which shall be approved by the Bank Board, and which shall be binding for the officers of the Czech National Bank.

5

If the answer to the above question is "yes", whether the relevant "Code of Conduct" addresses issues in the following areas:

(1) conflicts of interest? Section 50 (3) of the Act No. 6/1993 Coll.,

on the Czech National Bank, as amended; Ethics Code of the Czech National Bank

(2) dealing with information obtained in the course of the exercise of powers and discharge of duties?

Section 50 (3) of the Act No. 6/1993 Coll., on the Czech National Bank, as amended; Ethics Code of the Czech National Bank

26.

(3) observance of confidentiality and secrecy provisions and protection of personal data?

Act No. 6/1993 Coll., on the Czech National Bank, as amended; Section 26 of the Act No. 15/1998 Coll. on Surveillance in the Capital Market; as amended Ethics Code of the Czech National Bank;

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(4) ensuring procedural fairness?

Section 6 of the Act No. 15/1998 Coll. on Surveillance in the Capital Market; as amended Sections 2(4), 8(1) of the Act No. 500/2004 Coll., the Code of Administrative Procedure; Section 45(2) of the Act No. 6/1993 Coll., on the Czech National Bank, as amended; Ethics Code of the Czech National Bank

(5) restriction on the holding or trading of securities and requirement to disclose financial affairs or interest.

Section 50 of the Act No. 6/1993 Coll., on the Czech National Bank, as amended; Ethics Code of the Czech National Bank

27. Whether there are legal or other sanctions against the staff of the regulator who fails to adhere to the above mentioned "Code of Conduct"?

Section 50 of the Act No. 6/1993 Coll., on the Czech National Bank, as amended; Ethics Code of the Czech National Bank

5

COOPERATION AMONG REGULATORS

28. If there is more than one regulator listed in Section II above, whether the division of the responsibility among regulators are clearly and objectively set out by law?

As of 1 April 2006, the Czech National Bank is the main regulator in respect of the Securities Market in the Czech Republic; its responsibilities are clearly set out by the Act No. 15/1998 Coll. on Surveillance in the Capital Market, as amended and by other acts regulating the financial market.

1

29. If there is more than one regulator listed in Section II, whether they are required by the law to co-operate and share information with each other?

Cooperation of the Czech National Bank with the Chamber of Auditors – see Section 19 of the Act No. 15/1998 Coll. on Surveillance in the Capital Market, as amended; Cooperation of state authorities in the

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administrative proceedings is regulated by Section 8 of the Act No. 500/2004 Coll., the Code of Administrative Procedure.

30. Whether the regulator has the authority under the law to share information with regulators in foreign jurisdictions? [please specify with which countries]

The Czech National Bank cooperates especially with regulators from the member countries of the European Union and the European Economic Area – see e.g. the following laws: Section 26(2) letters d) and f) of the Act No. 15/1998 Coll. on Surveillance in the Capital Market, as amended, set down the exception to the rule of confidentiality for the event the information is shared with EU member states institutions and EEA states institutions. Sections 21 et seq., 26, 27, 57(5), 74(5), 89(1), 146, 147 and 152 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended;, Act No. 189/2004 Coll., on Collective Investment, as amended, sets out rules for cooperation of the Czech National Bank with the Commission of the European Communities (Sections 47 and 48) and with the Supervisory Authorities of other Member States of the European Union (Section 130); Sections 25a(5) and 25a (6) of the Act No. 21/1992 Coll., on Banks, as amended; Section 42 of the Act No. 42/1994 Coll., on State-Contributory Supplementary Pension

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Insurance, as amended; Section 39b of the Act No. 363/1999 Coll., the Insurance Act, as amended; Sections 13 et seq. of the Act No. 377/2005 Coll., on Financial Conglomerates, as amended; Sections 8(8), 25d and 25g of the Act No. 87/1995 Coll., on Credit Unions, as amended

31. Whether the regulator is permitted by the law to provide assistance to regulators in foreign jurisdictions? [please specify with which countries]

The Czech National Bank cooperates especially with regulators from the member countries of the European Union and the European Economic Area; it also cooperates with regulators from some other states. Updated information about the cooperating regulators is available on the website of the Czech National Bank. (For references to the legal regulation, please see the answer to question No. 30 in this section.)

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Section B – Self-regulation ("SROs")9F

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# Issue Yes ( )

No ( )



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PERFORMANCE AND FUNCTIONS OF SROS

Are there any organisations in your country, that: 1.

a) establish rules of eligibility that must be satisfied in order for individuals or firms to participate in any significant securities activity?

Sections 56 et seq., 74 et seq., 82 et seq. and pro futuro Sections 100 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, are dealing with: Burza cenných papíru Praha, a.s. (in English: Prague Stock Exchange a.s.) acts as an exchange pursuant to Sections 56 et seq.; RM-Systém a.s. acts as an off-exchange market operator pursuant to Sections 74 et seq.; Univyc a.s. acts as a keeper of settlement system pursuant to Sections 82 et seq.; Central depository is not yet established and its function is for now executed on the basis of the Securities Act; the license for acting as a central depository has not been granted yet. Internal Rules of the Prague Stock Exchange (Part I. - Trading Rules;

6

10 A self-regulatory organisation (SRO) is any organisation that has been given the power or responsibility to regulate any part of the securities market of industry. The term

“self-regulatory organisation” means any national securities exchange , registered securities association, or registered clearing agency, which have been granted the right to regulate themselves and enforce such regulation. This section applies to all SROs in your country – i.e. stock exchange, central depository to the extent that they fit within the SRO definition]

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b) establish and enforce binding rules of trading or business conduct for individuals or firms engaging in securities activities?

Section 4 of the Part II – Membership rules) Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, sets out such requirement for: Burza cenných papíru Praha, a.s. (in English: Prague Stock Exchange a.s.) acts as an exchange pursuant to Section 66(1) letter a); RM-Systém a.s. acts as an off-exchange market operator pursuant to Section 80(2); Internal Rules of the Prague Stock Exchange (Part I. - Trading Rules and Part II. - Membership Rules, as a whole, set down binding rules of trading and business conduct for firms engaging in securities activities )

c) establish disciplinary rules and/or conduct disciplinary proceedings, which have the potential to impose enforceable fines, or other penalties, or to bar or suspend a legal or natural person from participating in securities activities or professional activities related to securities activities?

Burza cenných papíru Praha, a.s. (in English: Prague Stock Exchange a.s.) acts as an exchange pursuant to Section 66(1) letter f) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended;. Internal Rules of the Prague Stock Exchange (Article 32 et seq. of the Part II. - Membership Rules)

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AUTHORISATION OR DELEGATION SUBJECT TO OVERSIGHT

Whether, as a condition of ongoing authorisation, the regulatory framework requires SROs to:

(1) have the necessary capacity to enforce compliance by its members and associated persons with laws, regulations and rules?

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Internal Rules of the Prague Stock Exchange (Articles 3(2), 4, 31, 32, 33 of the Part II. – Membership Rules)

(2) treat all members of the SRO and applicants for membership in a fair and consistent manner?

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, sets out such requirement in its Section 71 for the Prague Stock Exchange and Section 80(3) for the RM-Systém; Internal Rules of the Prague Stock Exchange (Part II. - Membership Rules, Sections 6 et seq. an d Section 9)

2.

(3) develop rules that (i) are designed to set standards for its members and (ii) to promote investor protection?

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, sets out such requirement in its Section 66(1) for the Prague Stock Exchange and Section 80(2) for the RM-Systém; Internal Rules of the Prague Stock Exchange (Part II. - Membership Rules, Sections 11 et seq.)

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(4) submit to the regulator its rules and any amendments thereto for review and/or approval?

According to Section 57(1) letter h) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, the proposed Prague Stock Exchange rules are submitted to the Czech National Bank together with the application for a license to act as a stock exchange in spite of that the Czech National Bank does not particularly approve (only reviews) the rules; however, the revision of the rules is a part of the procedure of granting a license. RM-Systém [Off-exchange Market Operator] pursuant to Section 74(1) letter i) in connection with Sections 74(3) and UNIVYC [Settlement System Operator] pursuant to Section 83(3) letter f) in connection with 83(5) letter b) have to have their rules approved by the regulator .

(5) co-operate with the regulator and other SROs in your jurisdiction to investigate and enforce applicable laws, regulations and rules?

(6) enforce its own rules and impose appropriate sanctions for non-compliance with its own rules?

A stock exchange may pursuant to Section 66(1) letter f) in connection with Section 66(3) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, enforce its own rules and impose sanctions against its members. Internal Rules of the Prague Stock Exchange (Part II. - Membership Rules, Section 32 et seq.)

(7) assure fair representation of members on its board of directors and administration of its affairs?

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(8) assure that its rules do not create anti-competitive situations?

A stock exchange is established pursuant to the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended. On the current securities market in the Czech Republic, there are Prague Stock Exchange (Burza cenných papírů Praha, a.s.), an operator of the official securities market, and RM-Systém, a.s., an operator of OTC securities market.

OVERSIGHT

3.

Whether the regulator is required by the law or regulation to establish a programme/procedure/process to oversee the operations of SROs (including inspections, periodic reviews, reporting requirements, review/revocation of SRO rules, monitoring of continuing compliance with conditions of authorisation)?

The Czech National Bank pursuant to Section 135(1) letters g), h), i) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, carries out state supervision over the activities of an exchange, off-exchange market operator and settlement system operator.

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4. In matters related to SRO responsibility, whether the regulator retains authority to (i) inquire and (ii) intervene into matters affecting investors or the market?

Generally, investors and the market are protected by the law. The Board of the Stock Exchange may adopt a change of the Trading Rules or Membership Rules, in the consequence of which the position of the investors trading on the stock exchange may be indirectly affected. In certain cases explicitly specified in Section 68 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, and clauses 25 et seq. of the Trading Rules (Part II. Of the Internal Rules of the Prague Stock Exchange), the General Director of the Exchange may adopt measures, the purpose

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of which is to avoid a jeopardy to the operation of the Exchange or of interests of its members and participants of the capital market (such as a change of a trading day schedule, suspension of trading on the Exchange, etc.)

MISUSE OF INFORMATION AND CONFLICT OF INTERESTS

Does the law or regulation require SROs to:

(1) ensure that potential conflicts of interest at the SRO are avoided and resolved?

In case of the Prague Stock Exchange, disputes are decided by the Stock Exchange Arbitration Court. Sections 56 et seq. and 73 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Internal Rules of the Prague Stock Exchange ( Part II, Section 25(5) letter r) of the –Membership Rules)

5.

(2) address prevention of misuse of information and observance of confidentiality of information?

Sections 56 et seq. and 73 et seq. Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended;

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Section C – Issuers and their Information-Disclosure Obligation

# Issue Yes ( )

No ( )



IOSCO Relevance

CONTENT OF THE PROSPECTUS

In a public offering of securities10F

11, whether issuers are required to: (i) prepare a prospectus (or an information document of similar nature) (ii) distribute it, and

1.

(iii) file the prospectus with the regulator/stock exchange for review/approval

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; sets out in its Section 36 et seq. general information relating to prospectus contents; details regarding prospectus distribution is set out in Section 35 ibid., Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements; Section 164(4) of the Act No. 513/1991 Coll., the Commercial Code, as amended; Sections 7, 8, 10, 12, 13 and 14 of the Act No. 190/2004 Coll., on Bonds, as amended

14

11 The term Public Offering of Securities refers to the issuance and/or sale of the securities to the public.

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Whether the prospectus is required to include information on: (i) key financial information, including capitalisation and indebtedness of the issuer and reason for the offer and use of proceeds and risk factors (ii) the company, including history and development of the company, business overview, organisational structure, property, plants and equipment (iii) operating and financial review and prospects, including operating results, liquidity and capital resources, research and development, patents and licenses. (iv) directors, senior management and employees, including compensation of directors, board practices, number of employees and share ownership (v) major shareholders and related party transactions

2.

(vi) the identity and holdings of persons who hold a substantial beneficial ownership interest in the company

(to the extent known to

the issuer)

For information regarding compulsory prospectus content see Section 36 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 84 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements Section 7 of the Act No. 190/2004 Coll., on Bonds, as amended; Section 164(4) of the Act No. 513/1991 Coll., the Commercial Code, as amended; The prospectus must contain complete information about the respective investment instrument and its issuer; a detailed description is required.

IOSCO – International Disclosure

standards for cross-border offerings and

Initial listings by

foreign issuers

FOREIGN ISSUERS

3. Whether a foreign issuer is required to disclose additional information in the prospectus? If "yes", please briefly describe 14

4. Whether a foreign issuer is allowed to use a prospectus, which has been approved by a foreign regulator? If "yes", please briefly describe

Such possibility sets out Section 36f of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended;

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Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements; The Czech law recognises the European concept of a single European passport of securities.

FULL DISCLOSURE

5. Whether there are different disclosure requirements for different types of securities or according to the different circumstances in which securities are offered? If "yes", please briefly describe

There are certain differences in respect the type of securities and specific relevant information relating thereto (could you please provide an example?); see e.g.: Sections 34 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements; Section 26(1) letter a) of the Act No. 189/2004 Coll., on Collective Investment, as amended, refers to the Act No. 256/2004 Coll., on Undertaking on the Capital

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Market, as amended; Sections 7, 13 of the Act No. 190/2004 Coll., on Bonds, as amended, Sections 164, 209 of the Act No. 513/1991 Coll., the Commercial Code, as amended

6. In addition to public offering of equity, whether prospectus requirements also apply to other types of public offerings (e.g., debt securities, warrants, pre-emptive rights offering to existing shareholders, etc.)? Please specify.

Sections 39, 44, 118 et seq. and 125 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements; Conditions for admission of shares, securities representing shares and bonds to trading on an official market and disclosure duties of the issuer related to their admission to trading on an official market shall be set out by the Act on Undertaking on the Capital Market. The regulated market operator may set out further conditions or disclosure duties in its general business terms and conditions Conditions for admission of other securities (other than the above-mentioned) to trading on an official market shall be set out by the regulated market operator in its general business terms and conditions. Disclosure duties related to their admission to trading

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on an official market shall be set out by the Act on Undertaking on the Capital Market and eventually by the regulated market operator in its general business terms and conditions. Conditions for admission of investment instruments that are not securities to trading on a special market (i.e., a regulated market where investment instruments other than securities are traded) shall be set out by the regulated market operator in its general business terms and conditions. Disclosure duties related to their admission to trading on the special market shall be set out by the Act on Undertaking on the Capital Market and eventually also by the regulated market operator in its general business terms and conditions.

7.

Whether there are any restrictions on, or disclosure requirements with regard to, the content of information that an issuer discloses outside the prospectus during an offering (e.g., in advertisement, "road-show" materials or on the issuer's web-site)?

Any sole information must fully comply with the prospectus and must not contain any information or misleading information that is contrary to the contents of the prospectus. Section 34 et seq., 36k of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and

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dissemination of advertisements; Sections 169, 203 of the Act No. 513/1991 Coll., the Commercial Code, as amended

8. If the answer to the above question is "yes", whether any such restrictions or requirements extend to those acting on behalf of the issuer in connection with the offering (e.g., underwriters or advisors)?

The prospectus shall be prepared and published by the person who intends to publicly offer securities (there are exceptions in respect of offering to qualified investors). Sections 36(5), 36k of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements; Sections 164, 204 of the Act No. 513/1991 Coll., the Commercial Code, as amended

14

LIABILITY

9. Whether the issuer is liable for the content of the prospectus? If "yes", please describe if there are any exceptions provided for under the law.

Pursuant to Section 36b(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, the person/entity who has prepared the prospectus and the guarantor (in case a guarantor is specified in the prospectus and it has undertaken to guarantee the correctness of the contents of the prospectus) may be held liable for the

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# Issue Yes ( )

No ( )



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content of the prospectus. Exception is given in Section 36b(2); Act No. 513/1991 Coll., the Commercial Code, as amended

10. Other than the issuer, whether there are any other persons/entities that may be held liable for the content of the prospectus (e.g., underwriter, auditor)? If "yes", please describe.

In certain cases, other persons who intend to publicly offer securities or who apply for listing of securities may be held liable for the contents of the prospectus. Pursuant to Section 36(5) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, there are, in certain cases, other persons specified who intend to publicly offer securities or who apply for listing of securities may be held liable for the contents of the prospectus;

14

DEROGATIONS

11. Whether there are circumstances where an issuer is permitted to proceed with a public offering without full disclosure of relevant information? If "yes", please briefly describe.

Certain categories of securities are subject to exemption from general provisions on public offering and prospectus (e.g., securities issued by member states of the European Union or central banks, securities with a high issue price, securities offered to professional/qualified investors, etc.). Sections 36 (2) and (3) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

14

REGULATOR’S POWERS

12. Whether the regulator has the power to enforce prospectus and/or other listing documents disclosure requirements by delaying or stopping the offering or If the prospectus does not comply with all

statutory requirements, the Czech National 9, 14

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# Issue Yes ( )

No ( )



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through other regulatory actions? If "yes", please briefly describe the nature of these actions (e.g., civil, administrative or criminal) and indicate whether these actions if taken are with immediate effect (e.g., trading halt or injunction).

Bank may pursuant to Section 36c(7) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, require amendment of the prospectus (this may result in delay of the offering); Section 8 (1) letter g) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

OTHER LISTING DOCUMENTS

13. Apart from the prospectus, are issuers required to prepare or distribute documents for listing purposes? (e.g., listing particulars

11F

12 or a document of similar nature)?

14

14. Does the regulator have the power to enforce listing document disclosure requirements by delaying or refusing a listing?

N/A (The relevant information required by law must be contained in the prospectus completely.)

14

ONGOING DISCLOSURE REQUIREMENTS

15. Whether open/public/listed/admitted to trading companies are required to prepare annual reports and/or periodic reports, under a certain timeframe? Please specify.

Listed companies are required to prepare annual reports and half-yearly reports – see: Sections 118 and 123 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 1 et seq. of the Decree No. 264/2004 Coll., on form and manner of communicating of annual report and half-yearly annual report of issuer of listed

14

12 Listing particulars: details which a company is obliged to publish about itself together with any securities it issues before it obtains a listing on a recognised stock exchange.

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# Issue Yes ( )

No ( )



IOSCO Relevance

security and on manner of fulfilling disclosure duty, as amended; Act No. 189/2004 Coll., on Collective Investment, as amended, in its Section 85(1) and Section 85(2) sets out such obligation for Investment Companies and Investment Funds;

16. If the answer to the above question is "yes", whether the annual and the periodic reports are made available to the public? If yes, please explain how they are distributed.

The annual reports and half-yearly reports are published in a manner allowing remote access ; the annual report is also filed with the publicly accessible Collection of Deeds of the Commercial Register. See: Sections 118(1) and 119(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, refer to the publicity of annual and periodic reports; Sections 1 et seq. of the Decree No. 264/2004 Coll., on form and manner of communicating of annual report and half-yearly annual report of issuer of listed security and on manner of fulfilling disclosure duty, as amended; Sections 38i (1) letter c) of the Act No. 513/1991 Coll., the Commercial Code, as amended; Act No. 189/2004 Coll., on Collective Investment, as amended, sets out such fact for Investment Companies [Section 85(1)] and for Investment Funds [Section 85(2)];

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17. Whether issuers are required to file the annual and periodic reports with the regulator for review/approval? See Sections 118(1) and 119(1) of the Act

No. 256/2004 Coll., on Undertaking on the 14

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Capital Market, as amended;

18. Whether the regulator has the power to enforce the disclosure requirements of the reports? If yes, please describe the available actions.

The Czech National Bank may levy a fine up to CZK 10,000,000 (i.e., approx. EUR 350,000). Section 171 letters a) and b) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 1 et seq. of the Decree No. 264/2004 Coll., on form and manner of communicating of annual report and half-yearly annual report of issuer of listed security and on manner of fulfilling disclosure duty, as amended.

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19. Whether the issuer is liable for the content of the reports? If "yes", please describe if there are any exceptions provided for under the law

The issuer is liable for the contents of the annual report. As the annual report of an issuer of listed securities shall be approved by its general meeting, there is generally no such exception. Act No. 254/2000 Coll., on Auditors, as amended; Section 21 of the Act No. 563/1991 Coll., on Accounting, as amended (in respect of Czech entities).

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20. Other than the issuer, whether there are any other persons/entities which may be held liable for the content of the annual/periodic reports (e.g., auditor)? If "yes", please describe.

The auditor/auditing company may be held liable for any damage caused in relation to its auditing activities to the audited entity. Section 17 of the Act No. 254/2000 Coll., on Auditors, as amended.

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21. Whether issuers are subject to a general and continuing obligation to disclose promptly any material information that would significantly affect the price of their securities? If "yes", please describe whether such requirement varies

Section 120(1) letter e) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, states that the

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# Issue Yes ( )

No ( )



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according to types of issuers. issuer of a listed security shall notify, without delay, the operator of the regulated market on which the security is listed of any fact important for the protection of investors or for the orderly functioning of the market and publish the same in a manner allowing remote access Sections 1 et seq. of the Decree No. 536/2004 Coll., implementing certain provisions of the Act on Undertaking on Capital Market in the area of protection against market abuse; Sections 91(1) et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 13 et seq. of the Decree No. 604/2006 Coll., on usage of techniques and instruments for effective management of the assets of a standard fund and a special fund collecting finances from the public.

22. Whether there are circumstances where an issuer is permitted to derogate from its disclosure obligations (e.g., confidentiality)?

The issuer may postpone publishing of an inside information for the public; however, such information must be notified to the Czech National Bank. Section 36j of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

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FAIR AND EQUITABLE TREATMENT OF SHAREHOLDERS

23. Whether the relevant law or regulation stipulates the right of fair and equitable treatment of shareholders?

Section 120(1) letter a) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, states that an

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No ( )



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issuer of a listed security shall ensure equal treatment for all owners of securities issued by the issuer that have the same position arising from the ownership of such securities; Act No. 513/1991 Coll., the Commercial Code, as amended requires a fair and equitable treatment of shareholders; the Commercial Code provides, however, in its section 56a, for prohibition of (i) misuse of a majority or a minority of votes in a company and (ii) any acting which is intended to put some of the company’s members at a disadvantage by means of malpractice.

24. Whether issuers are required to disclose information to shareholders in order to help them make voting decisions? If "yes", please briefly describe the types of voting decisions that would trigger such disclosure requirement.

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25. Whether investors have the right to petition the regulator? If "yes", please indicate the grounds based upon which a petition can be made. 15

26.

Whether minority shareholders have the right to appoint an auditor to re-examine the books and accounts of the company? If yes, please specify the minority shareholding percentage requirement and other specific conditions and whether the shareholder or the company must pay for this audit

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27.

Whether shareholders of a company have the right to start derivative suit (i.e., in the name of the company) against the directors of the company? If "yes", please indicate the shareholding percentage requirement, if any, for exercising such right.

Section 182(2) of the Act No. 513/1991 Coll., the Commercial Code, as amended 15

28. Whether shareholders of a company have the right to request an extraordinary general meeting of shareholders to be held? If "yes", please indicate the shareholding percentage requirement, if any, for exercising such right.

Section 181(1) of the Act No. 513/1991 Coll., the Commercial Code, as amended; Shareholders who have shares with a

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nominal value exceeding 3% of registered capital (if the company’s registered capital exceeds CZK 100 million) or 5% (if the company’s registered capital is CZK 100 million or less) have the right to request an extraordinary general meeting to be held.

29. Whether beneficial shareholders are required to publicly disclose their ownership and identity in specific circumstances? If yes, please specify the circumstances and the disclosure procedures

The provisions of Section 122 (1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended apply to both nominee and beneficiary shareholders; the Czech law does not distinguish between these categories in this case, but its aim is to cover all cases when a person/entity reaches or exceeds a share in voting rights – for further details, please see the answer to question number 30 below.

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30.

Whether the shareholders who are required to disclose their identity and ownership position due to their shareholding percentage have an on-going obligation to report changes in their shareholding? If "yes", please indicate how significant the change has to be to trigger such reporting obligation.

Section 122(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; A person that reaches or exceeds a share in all the voting rights of an issuer with a registered office in the Czech Republic whose shares are admitted to trading on an official market in the Czech Republic or an official market of an exchange in another Member State of the European Union, namely a 3% share if the issuer’s registered capital exceeds CZK 100,000,000, a share amounting to 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50% or 75%, or if he/it reduces his/its share in all the voting rights below such limits, shall notify the issuer and the

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Commission. The same obligation shall apply to a person whose share in the voting rights of a company with a registered office in the Czech Republic whose shares have been admitted, for the first time, to trading on an official market in the Czech Republic or on an official market of an exchange in another Member State of the European Union amounts to at least 5%.

CHANGE IN CORPORATE CONTROL

31. Does the relevant law or regulation provide for the circumstances in which a mandatory tender offer must be made? If "yes", please describe the circumstances.

Provisions of the Sections 183a et seq. Act No. 513/1991 Coll., the Commercial Code, as amended, set out the conditions under which a shareholder who acquires control over the target company must make a tender offer. (A “Controlling shareholder person” is a shareholder having more than 50% share or 50% of voting rights; a shareholder having 40% of voting rights is deemed to be a controlling person, unless evidenced that any other shareholder has at least the same percentage of voting rights.) There are certain additional notification obligations in respect of listed shares. Upon request of minority shareholders, the Czech National Bank may order to shareholders having 95% of voting rights of company with listed shares to make a redemption offer.

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Shareholders owning 90% of company’s registered capital have the right to buy out participating securities (squeeze-out); Section 47 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended.

32. Whether public/open/listed/admitted to trading companies are required to disclose adequate information in connection with a change in corporate control (e.g., take-over etc.) to enable minority shareholders to assess the offer?

Sections 183a et seq. of the Act No. 513/1991 Coll., the Commercial Code, as amended; Section 120 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended.

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33. Does the regulatory framework provide minority shareholders with the opportunity to vote eventual manoeuvres (e.g., poison pills) made up by the management to resist the tender offer?

The Commercial Code sets out obligations relating to the mandatory tender offer on acquiring control of target company. (Theoretically, statutes of a joint stock company may contain a similar regulation setting out e.g. lower limits; however, such provisions are not common in statues of Czech joint stock companies.) Sections 182, 183b and 183c of the Act No. 513/1991 Coll., the Commercial Code, as amended

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34. In connection with a proposed transaction involving the company, whether the directors or other members of senior management of a company are required to disclose compensation or personal benefits that they may receive?

Such disclosure obligations are generally imposed to issuers of listed shares under Czech law; the compensations or benefits must be approved by the general meeting.

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35. Does the regulatory framework provide minority shareholders with the concrete opportunity to sell their shares to the bidder at the same conditions as the controlling shareholder?

Sections 183c and 183m of the Act No. 513/1991 Coll., the Commercial Code, as amended.

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Section D – Collective Investment Schemes (CISs)12F

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1. Does you country have a specific legislation on collective investment schemes? [Please specify is the regulation is specifically on CIS or instead on other investment funds (e.g., privatisation funds)]

Act No. 189/2004 Coll., on Collective Investment, as amended; this Act regulates specifically CIS (both UCITS and non-UCITS funds)

ENTRY AND ELIGIBILITY CRITERIA

Whether there are specific standards or requirements set forth in the relevant law or regulation for eligibility13F

14 to:

(i) promote and sell a CIS? Sections 58, 81a and 44 of the Act No. 189/2004 Coll., on Collective Investment, as amended 2.

(ii) operate a CIS?

Sections 4 et seq., 14 et seq., 36 et seq., 39 et seq. and 69 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

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Whether the eligibility standards or requirements for licensing or registration of operators of CIS include the following factors: (1) fitness and propriety of operator (including persons who hold a material interest in the operator)? Sections 60 et seq. of the Act No. 189/2004

Coll., on Collective Investment, as amended

(2) honesty and integrity? Sections 60 and 72 of the Act No. 189/2004 Coll., on Collective Investment, as amended

3.

(3) competence to carry out the functions and duties of a scheme operator (i.e., human and technical resources)? Sections 60 et seq. of the Act No. 189/2004


17

13 CIS includes open-end funds that redeem their shares or units (whether on a continuous basis or periodically), closed-end funds whose shares or units are traded in securities markets, unit investment trusts, contractual models and the European UCITS model. For purposes of this assessment checklist, CIS excludes schemes investing in property/real estate, mortgages or venture capital. 14 The term “eligibility” is intended to include authorisation, licensing, registration or other preconditions to operating or marketing a CIS.

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(4) financial capacity? Sections 69 et seq. and Sections 60, 64 and 66 of the Act No. 189/2004 Coll., on Collective Investment, as amended

(5) capacity to discharge operator-specific powers and duties? Sections 4, 17, 67 and 78 of the Act No. 189/2004 Coll., on Collective Investment, as amended

(6) adequacy of internal management procedures? Sections 74 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

4. Whether, in assessing eligibility to market or operate a CIS, it is required by the law or regulation to assess the qualifications of key individuals employed by the CIS operator or manager?

Sections 72 and 73 of the Act No. 189/2004 Coll., on Collective Investment, as amended;

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If the answer to the above question is "yes", whether the following factors are considered:

(1) educational requirements? Section 72(3) of the Act No. 189/2004 Coll., on Collective Investment, as amended

(2) fitness and propriety? Section 72(3) of the Act No. 189/2004 Coll., on Collective Investment, as amended

(3) honesty and integrity? Section 72(3) of the Act No. 189/2004 Coll., on Collective Investment, as amended

(4) past experience in marketing or operating of CIS? Section 72(3) of the Act No. 189/2004 Coll., on Collective Investment, as amended

5.

(5) continual professional training?

The Act No. 189/2004 Coll., on Collective Investment, as amended, does not explicitly require that such individuals attend trainings on a regular basis; however, a sufficient experience in investment is required under Section 72(3) of the Act on Collective Investment

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6. Whether CIS operators are required to make public disclosure of the information listed in the preceding questions? Please briefly describe what is the disclosure procedure

This information is subject to notification to the Czech National Bank. 17

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7. Whether there are sanctions against unlicensed operation of a CIS? If "yes", please briefly describe.

Sections 119, 120 and 124 of the Act No. 189/2004 Coll., on Collective Investment, as amended. The Czech National Bank may levy a fine amounting up to CZK 5,000,000 (i.e., approx. EUR 174,000) to an entity operating a CIS without a license or up to CZK 10,000,000 to an entity (i.e., approx. EUR 348,000) to an entity breaching the conditions set out in the granted license.

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SUPERVISION AND ONGOING MONITORING

8. Whether CIS operators are subject to a general and continuing obligation to report to the regulator or to investors any information regarding material changes in its management or organisation?

Sections 93 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended 17

9. If the answer to the above question is "yes", whether the regulator's approval of these changes is required?

Sections 60 (3), 66 (6), 84a (4) and (5) and 101a of the Act No. 189/2004 Coll., on Collective Investment, as amended

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10. Whether there are provisions to prohibit, restrict or disclose conduct likely to give rise to conflicts of interests between a CIS and its operators or their associates or related parties? If "yes", please briefly describe.

The Czech National Bank may decide that the management of the CIS (or its assets) shall be conducted by another investment company, order a change of a depository. Sections 105 and 106 of the Act No. 189/2004 Coll., on Collective Investment, as amended

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11. Whether there are regulatory means14F

15 available to minimise conflict of interest The law requires that each CIS adopts 17

15 Possible means include direct prohibition of particular transactions under the law, use of a code of conduct, review and/or approval of certain transactions and activities by the regulatory authority, disclosure by the operator, prior approval or ratification of certain transactions by the investors, record keeping by the operator, limitation of the activities of the operator and independent review by a third party, etc.

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situations to ensure that any conflicts if they arise do not adversely affect the interests of investors? If "yes", please describe.

internal rules regulating, inter alia, conflict of interest situations; in case of breach of internal rules, the Czech National Bank may levy a fine. Sections 74 et seq., 119 and 120 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 1 et seq. of the Decree No. 347/2004 Coll., on a matter of compliance with the rules of prudent Undertaking in the internal organisation rules of an investment company or investment fund

12.

Whether there is an ongoing monitoring of the conduct of CIS operators throughout the life of a CIS (including compliance with licensing or registration requirements)? If "yes", please briefly describe the monitoring method(s) adopted.

CIS operators have a statutory obligation to inform the Czech National Bank in wide extent; in case of breach of this obligation the Czech National Bank may levy a fine to CIS operators. Section 91 of the Act No. 189/2004 Coll., on Collective Investment, as amended

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13. Whether the regulator has the power under the law to take actions in the event of suspected or actual breaches or default by CIS operators? If "yes", please briefly describe what actions the regulator can take.

The Czech National Bank may a levy fine, order an extraordinary audit, order a change in an investment company, order a change in a depository, order a change in management of a unit trust or impose a forced administration. Sections 102 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

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DELEGATION OF FUNCTIONS

14. Whether CIS operators are permitted to delegate their functions to other The operators may delegate the management 17

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No ( )



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persons? of a CIS to another investment company. Sections 4, 17, 67 and 78 of the Act No. 189/2004 Coll., on Collective Investment, as amended

If the delegation by CIS operators of their functions is permissible: (1) whether the regulatory system require the CIS operator to (i) monitor the activity and (ii) evaluate the performance of the delegate?

Section 67, 78, 102, 103 and 105 of the Act No. 189/2004 Coll., on Collective Investment, as amended

(2) whether the delegating operator is required to disclose to investors the delegation arrangements and the identity of the delegate?

The information on delegation shall be published in the statute of the CIS. Section 78 and 84 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 3 and 14 of the Decree No. 482/2004 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(3) whether the delegating operator will be held responsible for actions or omissions of the delegate as though they were done as its own? Section 78 (6) of the Act No. 189/2004


15.

(4) whether the CIS operator can terminate the delegation and make alternative arrangements for the performance of the delegated function, where available?

Sections 103 (3) and (4), 105 and 107 of the Act No. 189/2004 Coll., on Collective Investment, as amended;

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LEGAL FORM/INVESTORS RIGHTS

16. Whether there are requirements as to the legal form and structure of a CIS? Sections 4 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended 18

17. Whether the rights of investors to a CIS, the ways to exercise them and the risks associated with the investment are required to be disclosed to investors?

Sections 83, and 84 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

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18.

Does the regulatory framework provide that where changes are made to investor rights that do not require prior approval from investors, notice is given to (i) investors and to (ii) the regulator before the changes take effect?

Generally, any change of statute that may affect investors’ rights must be approved by the general meeting (or investors meeting in case of a unit trust, if established) and approved by the Czech National Bank; only minor changes to the statute which do not affect the investors’ rights may be made without the approval by the Czech National Bank – see Section 84a(5) of the Act No. 189/2004 Coll., on Collective Investment, as amended .

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SEPARATION OF ASSETS

19. Whether the operator of a CIS is required to separate and segregate CIS assets from the assets of managers, its related entities and other schemes?

Sections 7, 16 and 22(1) letter f) of the Act No. 189/2004 Coll., on Collective Investment, as amended

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20. Whether there are qualification requirements for the entities holding CIS assets? If "yes", please briefly describe.

Investment companies must meet requirements set out by law as a precondition for being granted a license by the Czech National Bank; these requirements regard the corporate structure of the investment company, its registered capital, professional and personal requirements for managers, etc. Sections 60 et seq. and 69 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

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21. If CIS assets are required to be held in safekeeping on behalf of the investors by a third party, whether it is required that the third party be independent of the CIS operator? If "yes", please briefly describe such independence requirement.

A depository of a CIS shall keep records of the assets of a CIS and control whether the CIS disposes of the assets in accordance with the Act on Collective Investment and with the statute.

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Sections 20 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

22. If the custodian and investment functions may be performed by the same legal entity or related entities, whether there are special legal or regulatory safeguards with respect to the CIS assets? If "yes", please briefly describe.

A custodian (depository) and an investment company must not be identical entities. Sections 20 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

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23. Whether CIS operators are required to maintain a register of holders of shares or units in the scheme?

The registers (lists) of shareholders /unit holders are maintained by investment funds/investment companies (see Sections 9, 15(2) letter f), 20 and 22 of the Act No. 189/2004 Coll., on Collective Investment, as amended )

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24. Whether CIS operators are required to keep all books and records in relation to transactions involving CIS assets and all transactions in CIS shares or units? Sections 20 et seq. of the Act No. 189/2004

Coll., on Collective Investment, as amended 18

25. Whether there are auditing requirements in relation to CIS assets? Sections 16, 85 and 104 of the Act No. 189/2004 Coll., on Collective Investment, as amended

18

26. If the answer to the above question is "yes", whether the auditors are required to report to the regulator any irregularities or non-compliance? 18

DISCLOSURE

In making a public offering of a CIS, whether the CIS operator is required to 27.

(i) issue an offering document (e.g., a prospectus)?

CIS publish a statute providing for a complete information about the CIS and its shares to investors. Sections 84 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended

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(ii) deliver it to investors?

Statute is filed with the Czech National Bank and published on the website of the CIS operator; any potential investor has a right to be provided free of charge with a copy of the simplified prospectus and (upon request) the current version of the statute. Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended

(iii) deposit it to the regulator and obtain its prior approval?

Statute is filed with the Czech National Bank and it is subject to the approval by the Czech National Bank Sections 64(2), 66(6) and 84a(4) of the Act No. 189/2004 Coll., on Collective Investment, as amended

Whether CIS offering document is required to include the following information:

(1) the date of the issue of the offering document?

Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 15(2) letter d) of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

28.

(2) information concerning the legal constitution of the CIS?

Section 84 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 4 and 5 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

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(3) the rights of investors in the CIS?

Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 10, 11, 16, 17, 18 et seq. and 21 et seq. of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(4) any pending material legal proceedings involving the CIS?

(5) procedures for purchase, redemption, and pricing of units?

Sections 12(1) and (11) and Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 16 and 25 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(6) relevant, audited financial information concerning the CIS?

The audited annual and half-yearly reports are not a part of the offering document; it is disclosed separately in the same way like the statute (i.e., by delivering to the Czech National Bank and publishing on the Internet). However, the statute contains the information on the manner and frequency of publishing of the annual/half-yearly report. Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 15(3) e) of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

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(7) information on the custodian?

Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 13 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(8) the investment policy of the CIS (i.e., indicating the markets and instruments in which investments are made)?

Sections 84 (1) and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 6 and 23 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(9) information on the risks involved in achieving the investment objectives?

Sections 84(2) and 90 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 7 and 23 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(10) the appointment of any external administrators or investment managers or advisers who have a significant and independent role in relation to the CIS?

Section 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 3 letter k) and 14 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

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(11) fees and charges in relation to the CIS?

Section 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 12 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(12) the regulatory authority, auditors and other independent third parties and their responsibilities in relation to the CIS?

Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 15 (4), 4 (1) letter e), 22 and 26 of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

(13) description of the methodology of asset valuation?

Sections 84 and 84a of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 8 and 23 (5) of the Decree No. 482/2006 Coll., on minimum requisites of a statute and the requisites of a simplified statute of a collective investment fund

29. Whether CIS operators are subject to a general disclosure obligation to allow investors to evaluate the suitability of the CIS for them?

Sections 83 et seq. of the Act No. 189/2004 Coll., on Collective Investment, as amended;

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30.

Whether the regulator has the power under the law to take actions in the event that the issuing documentation is inaccurate, misleading or false or fails to satisfy the filing/approval requirements? If "yes", please list all regulatory actions available.

The Czech National Bank may levy a fine, order an extraordinary audit, order a change in an investment company, order a change in a depository, order a change in management of a unit trust or impose a forced administration. Sections 103 et seq. of the Act No.

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189/2004 Coll., on Collective Investment, as amended

31. Whether the offering document is required to be kept up-to-date to take account of any material changes affecting the CIS? Section 84 (3) Act No. 189/2004 Coll., on

Collective Investment, as amended 19

32. Whether prior notification is required to be given to the regulator regarding changes to information in an offering document? If "yes", please indicate whether the regulator's approval is required.

Changes of the statute are subject to prior approval by the Czech National Bank. Sections 84a (4) of the Act No. 189/2004 Coll., on Collective Investment, as amended

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33. Whether CIS operators are required to submit to the regulator a report setting forth the activities in respect of a CIS on a periodic basis (please specify the report’s periodic basis: annual, semi-annual, quarterly)?

CIS operators shall submit to the Czech National Bank annual reports and half-yearly reports. Sections 85 and 86 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 1 et seq. of the Decree No. 603/2006 Coll., on disclosure duties of a collective investment fund and investment company

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If the answer to the above question is "yes": 34.

(1) whether the law or regulation require a timely distribution of the report?

The report is available on the internet and in the offices of the CIS operator and it shall be distributed to the investors upon their request. Sections 85, 86 and 87 of the Act No. 189/2004 Coll., on Collective Investment, as amended

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(2) whether the regulatory framework requires that the accounts of a CIS be prepared in accordance with high quality, internationally acceptable accounting standards?

Sections 85 and 86 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 36 of the Act No.563/1991 Coll., On Accounting, as amended Sections 5, 9, 12 and 16 of the Decree No. 270/2004 Coll., on a manner of determining the actual value of assets and liabilities of a collective investment fund and on a manner of determining the current value of a share or unit certificate of a collective investment fund; Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards

ASSET VALUATION

35. Whether CIS operators are required to have the CIS net asset value (NAV)15F

16 calculated on a regular basis? If "yes", please indicate the frequency.

The information should be published every 2 weeks; the Czech National Bank may permit that it is published once a month under certain conditions. Sections 82 and 88 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 1 et seq. Decree No. 270/2004 Coll., on a manner of determining the actual

20

16 The calculation of the net asset value (NAV) of a CIS is extremely important, as the NAV reflects the price which an investor pays when investing in a CIS (subject to any additional up-front charges) and the price an investor will receive (subject to any additional exit charges) should a holding be liquidated.

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# Issue Yes ( )

No ( )



IOSCO Relevance

value of assets and liabilities of a collective investment fund and on a manner of determining the current value of a share or unit certificate of a collective investment fund;

36. Whether the valuation of the CIS assets is required to be checked by independent auditors? 20

37. Whether there are specific regulatory requirements in respect of fair valuation of assets where market prices are not available?

Section 82 (4) of the Act No. 189/2004 Coll., on Collective Investment, as amended; Section 1 et seq. of the Decree No. 270/2004 Coll., on a manner of determining the actual value of assets and liabilities of a collective investment fund and on a manner of determining the current value of a share or unit certificate of a collective investment fund

20

PRICING AND REDEMPTION OF INTEREST

38. Whether the operator of a CIS is required to disclose or publish the price of the CIS unit on a regular basis?

Section 88 of the Act No. 189/2004 Coll., on Collective Investment, as amended; Sections 1 and 9 of the Decree No. 270/2004 Coll., on a manner of determining the actual value of assets and liabilities of a collective investment fund and on a manner of determining the current value of a share or unit certificate of a collective investment fund

20

39. Whether CIS operators are subject to an on-going obligation to disclose, in a timely fashion by way of notices or announcements, information which is material to the value of a CIS or otherwise significant to holders of interests in

Section 91 (1) of the Act No. 189/2004 Coll., on Collective Investment, as amended;

19

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# Issue Yes ( )

No ( )



IOSCO Relevance

a CIS? Sections 1 and 17 of the Decree No. 603/2006 Coll., on disclosure duties of a collective investment fund and investment company

40. Whether there is a maximum time period for making payment of redemption proceeds? Please specify

An investment company shall repurchase a unit certificate of an open-end unit trust promptly after receiving a request for the repurchase thereof, however, not later than within 15 working days, unless repurchasing of unit certificates is suspended. Special real estate funds and special funds of qualified investors may set out a longer period in their statute, which shall not exceed 6 months. Section 12 (2) of the Act No. 189/2004 Coll., on Collective Investment, as amended

20

41. Whether there are rules governing the fees or charges payable by investors on the purchase or redemption of shares or units of a CIS? 20

42. Whether there are rules or mechanisms in place to address errors in respect of the price of the CIS units or the value of CIS assets? 20

43. Whether suspension or deferral of routine valuation and pricing and regular redemption of shares or units of a CIS is permissible under certain circumstances? If "yes", please briefly the circumstances.

An investment company may suspend issuing and repurchasing of unit certificates of an open-end unit trust for a period not exceeding 3 months if this is required for the protection of the rights or legally protected interests of the unit certificate holders; the repurchase may also be suspended under certain conditions by a special funds or ordered by the Czech National Bank. Section 12 of the Act No. 189/2004 Coll.,

20

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# Issue Yes ( )

No ( )



IOSCO Relevance

on Collective Investment, as amended

44. Whether the regulator has the power to demand, delay or stop the deferral or suspension of redemption rights?

Sections 12 (8) and 103 (1) letter a) of the Act No. 189/2004 Coll., on Collective Investment, as amended

20

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Section E – Market Intermediaries

# Issue Yes ( )

No ( )



IOSCO Relevance

AUTHORISATION AND LICENSING

Whether licensing is required to conduct business as: 1.

(i) Market intermediaries16F

17?

(Note: The Czech law distinguishes two categories of persons/entities providing services on the capital market: (i) the investment firms (in Czech “obchodník s cennými papíry” and (ii) the investment intermediaries (in Czech “investiční zprostředkovatel”). Under Czech law, an investment firm may only have the legal form of a joint stock company and it provides for certain investment services, the scope of which is specified in the license granted by the Czech National Bank. The investment intermediary is an individual or an entity who was registered with the Czech National Bank and may provide for intermediary services on the capital market only. As the definition of the “Market Intermediary” in this Questionnaire includes also the business of managing individual portfolios, which may be provided only by investment firms under Czech law (whereas investment intermediaries are not allowed to provide such services), some of the answers to questions in this section apply to investment firms only. See: Sections 5 et seq. and 29 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

21

17 “Market intermediaries” include those who are in the business of managing individual portfolios, executing orders and dealing in, or distributing, securities.

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# Issue Yes ( )

No ( )



IOSCO Relevance

(ii) Investment Advisers17F

18?

If an Investment Adviser (defined as an investment intermediary under Czech law, i.e., an individual providing services on the capital market) provides for intermediary services regarding investment instruments, a registration with the Czech National Bank is required. If the Investment Adviser only provides intermediary services regarding other financial products, only a trade license is required. Section 29 of the Act No. 256/2004 Coll. on Undertaking on the Capital Market, as amended.

2. Whether the relevant law or regulations establish minimum standards or criteria that all applicants for licensing must meet before a license is granted?

For Market Intermediaries (investment firms) see Section 6 et seq. and for Investment Advisers (investment intermediaries) see Sections 30 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

21

3. Whether the circumstances in which a license application may be refused are clearly set forth in the law or regulation? If "yes", please briefly describe.

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended The law specifies clearly conditions under which a license shall be granted (see references above); i.e., otherwise a license cannot be granted and the application is refused.

21

18 “Investment advisers” for the purpose of this assessment are those engaged in the business of advising others regarding the value of securities or the advisability of investing in, purchasing or selling securities. They offer only advisory services without offering other investment services.

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# Issue Yes ( )

No ( )



IOSCO Relevance

For more detailed information see the answer to question 2 above.

If the answer to the above question is "yes", whether these requirements include:

(1) an assessment of whether the applicant has the appropriate financial resources (e.g., minimum initial capital) to carry on the proposed business? If "yes", please specify

Section 6(3) and 6(4) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Initial capital of an investment firm must be at least EUR 730,000 or EUR 125,000 (depending on the scope of investment services provided).

(2) an assessment of whether the applicant has adequate operational systems and controls for the businesses it proposes to carry on, such as proper books and records, internal controls, risk management, and supervisory systems?

Sections 6 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended (applicable to investment firms)

(3) an assessment of whether the applicant has senior management and directors with the knowledge, skills and experience necessary to perform their proposed roles?

Section 6(1) letter e) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended (applicable to investment firms)

4.

(4) an assessment of whether the applicant has a proven track record/past conduct?

Certain professional expertise is required – see: Section 6 (1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended (applicable to investment firms); Section 30 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended (applicable to investment intermediaries).

21

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# Issue Yes ( )

No ( )



IOSCO Relevance

ONGOING REQUIREMENTS

In the event that a market intermediary fails to meet ongoing requirements, whether the regulator has the power to:

(1) suspend the intermediary's license?

Section 136 (1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 3 and 9 of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

(2) revoke the intermediary's license?

Sections 136 (1), 145(6) and 145(7) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 3 and 9 of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

(3) impose conditions or restrictions on the intermediary's business operations?

Section 136(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 and 9 of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

5.

(4) take effective steps to seek the removal of persons employed at the intermediary which have committed securities violations?

See Section 136(1) letter f) in connection with Sections 138 and 139(7) letter c) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 and 9 of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

21

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# Issue Yes ( )

No ( )



IOSCO Relevance

(5) impose other sanctions? If "yes", please specify.

Pursuant to Sections 136 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, the Czech National Bank may impose a corrective measure in relation to the ascertained insufficiency, which measure shall correspond to the nature and gravity of the default, on a person that is subject to state supervision and that has violated this Act or a decision issued pursuant to this Act. In addition, the Czech National Bank may (i) order an extraordinary audit to be carried out, (ii) order a change of auditor, (iii) suspend an activity that is subject to state supervision for not longer than one year, (iv) prohibit an activity that is subject to state supervision, (v) suspend trading in securities, (vii) introduce forced administration, (viii) change the scope of a license or (ix) withdraw a license. Further, provisions of Section 158 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, authorise the regulator to impose administrative fines in the amount up to CZK 5,000,000. Section 9a (2) of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

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# Issue Yes ( )

No ( )



IOSCO Relevance

Whether intermediaries are required to immediately report to the regulator on the occurrence of the following events:

(1) significant change in the ownership of the firm?

Sections 11 and 18 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 4 et seq. of the Regulation No. 605/2006 Coll. on the Subject of Disclosure Duties of an Investment Firms.

(2) change in the senior management or directors of the firm?

Section 10 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 4 et seq. of the Regulation No. 605/2006 Coll. on the Subject of Disclosure Duties of an Investment Firms.

6.

(3) change in the information delivered during the licensing process or a material change in the intermediary's circumstances?

Sections 16 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 4 et seq. of the Regulation No. 605/2006 Coll. on the Subject of Disclosure Duties of an Investment Firms.

21

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# Issue Yes ( )

No ( )



IOSCO Relevance

(4) other specific events? If "yes", please specify.

Besides other specific events, which are subject to notification to the Czech National Bank pursuant to sections 16 et seq. of the of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, an investment firm has a general obligation to notify any changes of conditions under which the license was granted (see section 16 (2) letter e) of the above Act). Sections 16 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 4 et seq. of and annexes to the Regulation No. 605/2006 Coll. on the Subject of Disclosure Duties of an Investment Firms.

Whether the following information about intermediaries is required to be made publicly available:

(1) the existence of a license, its category and status?

Section 15 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 10 of the Regulation No. 605/2006 Coll. on the Subject of Disclosure Duties of an Investment Firms. 7.

(2) the scope of its permitted activities, the names of its senior management and other individuals authorised to act in the name of the intermediary?

Section 15 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 10 of the Regulation No. 605/2006 Coll. on the Subject of Disclosure Duties of an Investment Firms.

21

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# Issue Yes ( )

No ( )



IOSCO Relevance

INVESTMENT ADVISERS18F19

Does the regulatory framework on investment adviser include detailed requirements setting out the disclosures to be made by the adviser to potential clients, including: (Note: This section applies to investment intermediaries (in Czech: “investiční zprostředkovatel”))

(i) descriptions of the adviser’s educational qualifications, (ii) investment strategies, (iii) fee structure and other client charges, (iv) potential conflicts of interest, and

8.

(v) past investment performance?

The Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended contains a general regulation of dealing of investment advisers with clients (see Section 32 of the Act). The following decrees set out further requirements in respect of the disclosures to be made by the adviser to potential clients regarding the matters specified under (i) to (v): Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal audit mechanisms required for the due performance of activities of an investment broker; Decree No. 268/2004 Coll., on the requisites and enclosures of applications under the Act No. 256/2004 Coll., on Undertaking on Capital Market The following decree sets out the requirements for adviser’s educational qualification: Decree No. 59/2007 Coll., on types of professional Undertaking of an investment firm performed through a broker, on types of professional specialization of a broker, and on broker examination

21

19 See footnote 17, above.

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# Issue Yes ( )

No ( )



IOSCO Relevance

CUSTODIANS19F

20

9. In case of custodians, does regulation provides for the protection of client assets, including segregation and periodic or risk-based inspections (either by the regulator or an independent third party)?

Sections 4 (3) letter a) and b), Sections 5 and 135 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 1 et seq. of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients

21

CAPITAL ADEQUACY REQUIREMENTS

10. Whether intermediaries are required to calculate and maintain a minimum amount of capital on an on-going basis? If "yes", please briefly describe.

Pursuant to Section 9(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, an Investment Firm shall on an on-going basis maintain a capital in a minimum amount that shall equal to sum of the individual capital requirement to cover the risk; Sections 37 et seq. of the Decree No. 123/2007 Coll. on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives and Investment Firms as amended.

22

11. Does the regulatory framework provide for different minimum capital requirement for intermediaries depending on the risks undertaken?

Sections 6(3), 6(4) and 9(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended;

22

20 For the purpose of this assessment, custodians are those professionals who do not deal, but are permitted to have custody of client assets (i.e., to hold securities on behalf of clients).

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# Issue Yes ( )

No ( )



IOSCO Relevance

Sections 37 et seq. of the Decree No. 123/2007 Coll. on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives and Investment Firms as amended

12. Whether intermediaries are required to provide audited financial statements or other audited reports to the regulator?

Section 16 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 55, 65 and 210 of the Decree No. 123/2007 Coll. on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives and Investment Firms as amended

23

13. Whether the regulatory framework require intermediary to have specific liquidity and solvency requirements (e.g., enough capital to run the business for three months)?

Sections 9 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

22

14. Whether an intermediary is required to give notice to the regulator if its capital falls below the minimum requirements?

Sections 16 (2) and (3) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

22

15. Whether there are regulatory measures that the regulator can take in the event that a market intermediary's capital falls below a required minimum? If "yes", please list them.

Act No. 256/2004 Coll., on Undertaking The Czech National Bank may pursuant to Sections 157 and 158 levy a fine for a breach of obligation imposed by law. Furthermore, the Czech National Bank may impose a corrective measure in relation to the ascertained insufficiency, which measure shall correspond to the nature and gravity of the default, on a person that is subject to state supervision and that has violated this Act or a decision issued pursuant to this Act. In addition, the Czech National Bank may pursuant to Section 136:

22

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# Issue Yes ( )

No ( )



IOSCO Relevance

(i) order an extraordinary audit to be carried out, (ii) order a change of auditor, (iii) suspend an activity that is subject to state supervision for not longer than one year, (iv) prohibit an activity that is subject to state supervision, (v) suspend trading in securities, (vi) introduce forced administration, (vii) change the scope of a license or (viii) withdraw a license.

16. Whether capital adequacy requirements take into consideration trading book20F

21 positions?

Sections 9 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 37 et seq. of the Decree No. 123/2007 Coll. on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives and Investment Firms as amended

22

21 The trading book of an institution shall consist of all positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book (Art.111 of EC Directive 2006/49).

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# Issue Yes ( )

No ( )



IOSCO Relevance

MANAGEMENT AND SUPERVISION

Whether market intermediaries are required to establish and maintain: 17.

(1) appropriate standards of conduct to ensure that the firm complies with all applicable laws and regulations? Please describe

Investment firms: An application for license of an investment firm must evidence that the applicant meets all the requirements set out by the law – see Sections 7 and 6(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended. Investment intermediaries: Prior to registration, investment intermediaries are pursuant to Section 32(1) letter b) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, obliged to provide draft of standards of conducts to the regulator which has to be in compliance with laws.

23

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# Issue Yes ( )

No ( )



IOSCO Relevance

(2) appropriate systems of risk management and internal controls? Please describe

Investment firms: An investment must introduce an internal control system – see Sections 12 (1) and 12a of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended. Sections 1, 2 and 5 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients. Investment intermediaries: Section 32(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8 of the Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal audit mechanisms required for the due performance of activities of an investment broker Risk management – obligatory parts of system are: rules of approach, risk recognizing, evaluation and limitation measures procedures. Internal control – obligatory introduction of an internal control system corresponding to size of the firm, scope and nature of provided services and the system shall ensure the creation of an organizational structure allowing for effective implementation of the internal control system.

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# Issue Yes ( )

No ( )



IOSCO Relevance

CUSTOMER PROTECTION

18. Whether a market intermediary is required to “know its customer” before providing specific advice to a customer?

Investment firm: Section 15 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 15 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients; Investment intermediary: Section 32(2) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 3 of the Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal audit mechanisms required for the due performance of activities of an investment broker; Sections 1 et seq. of the Decree No. 261/2004 Coll., on the requisites and the manner of keeping a transactions and orders book of an investment firm, and on principles of keeping records of received and transmitted orders of an investment , intermediary, as amended

23

19. Whether market intermediaries are subject to a general duty to put the interests of a client ahead of its own interests?

Section 15 (1) letter f) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 14 (1) and 16 (1) of the Decree No. 258/2004 Coll., stipulating the details of

23

- 70 -

# Issue Yes ( )

No ( )



IOSCO Relevance

compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients. Section 1 of the Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal audit mechanisms required for the due performance of activities of an investment broker

20. Whether market intermediaries are required to disclose to the clients where there is a potential for conflicts of interest?

Section 15 (1) letter f) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 19 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients. Section 1 (g) of the Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal audit mechanisms required for the due performance of activities of an investment broker

23

21. Whether market intermediaries are required to treat all clients equally in case where conflicts of interest arise between several of the firm's clients?

Section 15 (1) f) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 19 of the Decree No. 258/2004 Coll., stipulating the details of compliance

23

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# Issue Yes ( )

No ( )



IOSCO Relevance

with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients. Section 1 (h) of the Decree No. 429/2004 Coll., stipulating the rules of dealing with customers of an investment broker, administrative processes and the principles of internal audit mechanisms required for the due performance of activities of an investment broker

22. Whether market intermediaries are required to enter into written contracts with all clients? 23

Whether market intermediaries are required to provide clients with: 23.

(1) transaction reports and/or confirmations? [Please specify the frequency]

Section 15 (1) letter e) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 18 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients. At least quarterly

23

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# Issue Yes ( )

No ( )



IOSCO Relevance

(2) account statements? [Please specify the frequency]

Section 15 (1) letter e) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 18 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients. At least quarterly

PROCEDURES FOR DEALING WITH INTERMEDIARY IN FINANCIAL DIFFICULTY

24.

Whether the regulator has a contingency plan or other measures to deal with the financial difficulty (i.e., a situation which could potentially lead to insolvency) of a market intermediary, including a combination of activities to restrain conduct, to ensure assets are properly managed and to provide information to the market as necessary?

Sections 135 (5) and 138 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 8 and 9 of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

24

25. Whether there is an investor compensation fund/scheme21F

22 in place? Section 128 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

24

26.

Does the regulatory framework provide for early warning systems or other mechanisms (e.g., a specified threshold below which a market intermediary is considered in financial difficulty and the regulator's action is required) to give the regulator notice of financial difficulty by a market intermediary and time to address the problem and to take corrective actions?


24

22 The investor compensation fund (or scheme) is a fund set up usually with contributions of market intermediaries (or the state) aiming to compensate investors in case of an intermediary insolvency. It is not a banking deposit insurance scheme.

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# Issue Yes ( )

No ( )



IOSCO Relevance

In the event of financial difficulty of a market intermediary, whether the regulator has the power to:

(1) restrict activities by the intermediary?

Sections 136 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 3 and 9 of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended; Section 34 of the Act No. 21/1992 Coll., on Banks, as amended

(2) require the intermediary to take specific actions (e.g., moving clients accounts to another intermediary)?

Sections 136 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended;

(3) freeze or seize assets held by the intermediary or by a third party on behalf of the intermediary?

Costs associated with the performance of forced administration, the remuneration for the forced administrator and cash expenditure of the forced administrator shall be paid from the assets of the company on which forced administration was imposed (i.e., not from the clients’ assets held by the investment firm) – see Section 139 (9) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended.

(4) appoint a monitor, receiver, or other administrator? Section 138 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

27.

(5) require that the relevant information is disclosed to the market?

Sections 15 (1) b) and 139 (4) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8 (1) of the Act no. 15/1998 Coll. on Surveillance in the Capital Market and Amendments to other Acts, as amended

24

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Section F – Secondary Market

# Issue Yes ( )

No ( )



IOSCO Relevance

LICENSING OF EXCHANGES AND TRADING SYSTEMS

Whether prior authorisation or licensing [please specify] is required in respect of: 1.

(1) a securities exchange? [please specify is this authorisation/licensing is different from the one of market intermediary]

A special License for the Business of an Exchange is required. This license is issued by the Czech National Bank Sections 56 and 57 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 3 and 13 of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended Sections 44 (2) letter a) of the Act No. 6/1993, on Czech National Bank, as amended

25

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# Issue Yes ( )

No ( )



IOSCO Relevance

(2) a trading system22F

23? [please specify is this authorisation/licensing is different from the one of market intermediary]

A special License for the Operation of an Off-Exchange Market is required. This license is issued by the Czech National Bank Sections 73 and 74 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 3 and 13 of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended Sections 44 (2) letter a) of the Act No. 6/1993, on Czech National Bank, as amended

In connection with an application by an exchange or trading system for authorisation or licensing, whether the regulatory framework requires: 2.

(1) evidence of the operational or other competency or fitness of the system operator as a secondary market ?

Sections 57 and 74 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as

25

23 A trading system means essentially any organization, association, person, group of persons, or system that constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange. The main difference between a trading system and the stock exchange is that the former does not set rules governing the conduct of subscribers other than the conduct of such subscribers' trading on such organization, association, person, group of persons, or system; or discipline subscribers other than by exclusion from trading (for a different definition under EU law, see Art. 4, item 14 and 15 of Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments – so-called MiFID).

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# Issue Yes ( )

No ( )



IOSCO Relevance

(2) the operator of the system assuming risks23F

24 to comply with prudential and other requirements designed to reduce the risk of non-completion of transactions (e.g., mandatory margin assessment and collection, capital or financial resources, member contributions, compensation scheme, credit or position limits)?

(3) the regulator to be informed of the types of securities to be traded? Sections 54 and 74 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

(4) the regulator to give approval of the rules [and any amendments thereof] governing the admission of securities to be traded?

There is an essential difference between a securities exchange and an off-exchange trading system. The rules of a stock exchange and their amendments are not subject to approval by the Czech National Bank (the Czech National Bank only has to be notified about them), whereas the rules of a trading system and their amendments are subject to such approval. Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended (for the rules of a securities exchange and their amendments see its Sections 57(1) letter h) and 58(5); for the rules of a trading system and their amendments see its Sections 74(1) letter i) and 75(3))

24 I.e., principal risk, settlement risk, guarantee risk and performance risk.

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# Issue Yes ( )

No ( )



IOSCO Relevance

(5) all persons with direct access to the system to be authorised or licensed? [please specify if the same rules apply to the trading system and stock exchange]

Again, here is a distinction between a securities exchange and an off-exchange trading system. In case of a stock exchange all persons must be licensed Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, Section 70. For a direct access to an off-exchange trading system the legislation does not prescribe any special authorisation or license.

(6) the same financial capacity, integrity, or performance criteria as those for market intermediary must be met by persons with direct access to the system or exchange?

(7) clearly disclosed standards or procedures governing trade execution (e.g., requirements with respect to precedence of client orders, prohibitions on front-running

24F

25 or trading ahead of customers, etc)? If "yes", please describe.

ONGOING SUPERVISION

3. Whether the regulatory framework requires the regulator to have arrangements in place for continuous monitoring, surveillance and supervision of the trading system and the conduct of its participants?

The powers of the Czech National Bank to supervise the stock exchange and the off-exchange trading systems are set out expressly by the law; no special arrangements are required. Sections 135 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 of the Act No. 15/1998 Coll., on

26

25 The illegal practice of taking a position based on information not publicly available regarding an imminent transaction, possibly ahead of a customer order. (e.g., a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares).

- 78 -

# Issue Yes ( )

No ( )



IOSCO Relevance

Surveillance in the Capital Market and on Amendment to other Acts, as amended Section 44 of the Act No. 6/1993, on Czech National Bank, as amended

4. Whether the regulatory framework provides the system operator, the regulator or others have the power to suspend or halt trading, set margins, set position limits or otherwise intervene in case unusual or potentially improper trading occurs? If "yes", please briefly describe.

Under the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, both the system operator and the Czech National Bank are empowered under certain circumstances to suspend / halt trading and/or otherwise intervene. Further provisions enabling the operator to intervene may be also set out by the operator in its rules governing the admission of securities to be traded (in case of an off-exchange trading system, these rules are subject to prior consent of the Czech National Bank – see answer to question 2.4 in this Section) For further information, see: Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, (especially Sections 37, 48, 49, 137)

25

5. Whether the regulatory framework requires the regulator to have a procedure in place to assess the continuing compliance of the trading system or exchange with the initial authorisation requirements?

The powers of the Czech National Bank to supervise the stock exchange and the off-exchange trading systems are set out expressly by the law; no special arrangements are required. Sections 135 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 of the Act No. 15/1998 Coll., on

26

- 79 -

# Issue Yes ( )

No ( )



IOSCO Relevance

Surveillance in the Capital Market and on Amendment to other Acts, as amended Section 3 of the Act No. 6/1993, on Czech National Bank, as amended

If the regulator determines that the exchange or trading system is unable to comply with the conditions of its initial authorisation, does the regulatory framework provide the regulator with the power to:

(i) re-examine the exchange or trading system conditions of authorisations/licensing and impose a range of actions, such as restrictions or conditions on the market operator?

Yes, the Czech National Bank may impose a wide range of actions, including restrictions and fines Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, (especially Sections 135 to 149) Sections 3 and 7 et seq. of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended Section 44 of the Act No. 6/1993, on Czech National Bank, as amended 6.

(ii) withdraw the exchange or trading system’s authorization?

Yes, the Czech National Bank is entitled to withdraw the exchange or trading system’s license Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, (especially Sections 144 and 145) Sections 3 and 3 et seq. of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended Section 44 of the Act No. 6/1993, on Czech National Bank, as amended

26

- 80 -

# Issue Yes ( )

No ( )



IOSCO Relevance

TRANSPARENCY OF TRADING

Whether the regulatory framework includes

(i) requirements or arrangements for providing (a) pre-trade (i.e., posting bids and offers) and (b) post-trade (i.e., last sale price and volume of transactions) information to market users? If "yes", please indicate the frequency and timing of reports and what is reported.

(a) Providing of pre-trade information to market users is up to the subjects of such trades - bidders, offerors, issuers, etc. (b) Current prices of traded investment instruments – continuously on-line via the operator’s automated trade system (without undue delay after each price change) or via remote access (e.g. the Internet) (within max. 15 minutes after each price change) Closing prices of traded investment instruments – each business day following the end of the trade day in a price list at all operator’s branches and via remote access (e.g. the Internet) (latest at the beginning of the next business day) Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, (especially Sections 37 and 42) Sections 2 and 3 of the Decree No. 355/2004 Coll., stipulating the form, timing and method of publication of the price of an investment instrument admitted to trading on a regulated market

7.

(ii) Requirements or arrangements that information on completed transactions be provided on an equitable basis to all participants?

27

- 81 -

# Issue Yes ( )

No ( )



IOSCO Relevance

8. Does the regulatory framework allow the exchange or trading system’s operator to permit derogation from the objective of real-time transparency

25F

26? If yes, are conditions clearly defined?

DETECTION OF UNFAIR PRACTICES

Whether there is legislation prohibiting the following conduct in respect of securities admitted to trading on authorised exchanges and regulated trading systems: 9.

(1) market or price manipulation?

Notification duty of the operator and other selected legal entities to the Czech National Bank in case of suspicion, Czech National Bank may impose a fine up to CZK 20,000,000 (approximately EUR 720,000) to the violator. Sections 126 and 127 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8(1) letter b) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended Sections 1 et seq. of the Decree No. 536/2004 Coll., on Implementing Certain Provisions of the Act on Undertaking on the Capital Market in the Area of Protection Against Market Abuse Decree No. 355/2004 Coll., on Publication of the Price of an Investment Instrument (especially Section 4)

28

26 The degree of transparency of a market can be measured as a deviation from a real-time standard. However, there is no single standard of “timeliness.” Most exchanges and regulatory systems provide for a certain degree of deviation from a real-time standard, such as, permitting some degree of opaqueness of quote information for block transactions, adopting different definitions of “real-time,” adopting a “promptness” standard that varies from several minutes to a longer time, allowing exceptions to real-time based on the size of the trade, type of trade (dealer mediated rather than auction market) or type of dealer. Indeed, each type of market microstructure delivers market fairness, efficiency and transparency in slightly different ways.

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# Issue Yes ( )

No ( )



IOSCO Relevance

(2) misleading information?

Notification duty of the operator and other selected legal entities to the Czech National Bank in case of suspicion, Czech National Bank may impose a fine up to CZK 20,000,000 (approximately EUR 720,000) to the violator. Sections 126 and 127 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8(1) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Sections 1 et seq. of the Decree No. 536/2004 Coll., on Implementing Certain Provisions of the Act on Undertaking on the Capital Market in the Area of Protection Against Market Abuse. Decree No. 355/2004 Coll., on Publication of the Price of an Investment Instrument (especially Section 4)

(3) insider trading?

Notification duty of the operator and other selected legal entities to the Czech National Bank in case of suspicion, Czech National Bank may impose a fine up to CZK 10,000,000 (approximately EUR 360,000) to the violator. Sections 124, 126 and 127 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8(1) letter b) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Sections 1 et seq. of the Decree No. 536/2004 Coll., on Implementing Certain Provisions of the Act on Undertaking on the Capital Market in the Area of Protection Against Market Abuse. Decree No. 355/2004 Coll., on Publication of the Price of an Investment Instrument (especially Section 4)

- 83 -

# Issue Yes ( )

No ( )



IOSCO Relevance

(4) front-running26F

27?

Notification duty of the operator and other selected legal entities to the Czech National Bank in case of suspicion, Czech National Bank may impose a fine up to CZK 10,000,000 (approximately EUR 360,000) to the violator. Sections 124, 126 and 127 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8(1) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Sections 1 et seq. of the Decree No. 536/2004 Coll., on Implementing Certain Provisions of the Act on Undertaking on the Capital Market in the Area of Protection Against Market Abuse. Decree No. 355/2004 Coll., on Publication of the Price of an Investment Instrument (especially Section 4)

(5) excessive leverage in the system (e.g., trading on margin27F

28)?

Statutory requirements for trading on margin include requirements for capital adequacy and minimum capital of investment firms; the purpose of such requirements is to eliminate systemic risks. Sections 4 (3), 6 (3) and 9 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 37 et seq. of the Decree No. 123/2007 Coll., on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives and Investment Firms

27 See footnote 25. 28 This practice is about trading with borrowed money, which can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.

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# Issue Yes ( )

No ( )



IOSCO Relevance

(6) other fraudulent or deceptive conduct and market abuses?

The provision of Section 126 subs. (b) has very extensive wording – it considers as a “manipulation” also “any conduct which may distort the price of an investment instrument using any other way”. Therefore, any fraudulent or deceptive conduct in the area of capital market may be under Czech law by the Czech National Bank considered as “manipulation” and punished (fine up to CZK 20,000,000 (i.e., approximately EUR 720,000)). Sections 126 and 127 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 8(1) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Sections 1 et seq. of the Decree No. 536/2004 Coll., on Implementing Certain Provisions of the Act on Undertaking on the Capital Market in the Area of Protection Against Market Abuse Decree No. 355/2004 Coll., on Publication of the Price of an Investment Instrument (especially Section 4)

10. Does the regulatory framework provide the regulator with the power to supervise and inspect (i) securities position limits, (ii) quotation display rules, (iii) order handling rules, (iv) settlement price rules or market halts?

The regulatory framework provides the regulator with the powers to supervise and inspect in respect of all of the items listed in the question. Sections 9 et seq., 12 et seq., 82 et seq. and 135 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 7 et seq. Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

28

- 85 -

# Issue Yes ( )

No ( )



IOSCO Relevance

In case of detection of trading violations, whether the following actions can be taken by the relevant authority:

(1) liquidation of positions? (2) suspension of trading? (3) fines? (4) revocation or suspension of membership or access authorisation?

(5) other sanctions [please explain]?

Sections 135 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 7 et seq. of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended The Czech National Bank may pursuant to Section 136 impose a corrective measure in relation to the ascertained insufficiency, which measure shall correspond to the nature and gravity of the default, on a person that is subject to state supervision and that has violated this Act or a decision issued pursuant to this Act. In addition, the Czech National Bank may (i) order an extraordinary audit to be carried out, (ii) order a change of auditor, (iii) suspend an activity that is subject to state supervision for not longer than one year, (iv) prohibit an activity that is subject to state supervision, (v) suspend trading in securities, (vii) introduce forced administration, (viii) change the scope of a license or (ix) withdraw a license; Also, the Czech National Bank may pursuant to Sections 157 et seq. levy a fine in the amount up to CZK 20,000,000 (i.e., approximately EUR 720,000)

11.

(6) required arbitration or mediation?

28

- 86 -

# Issue Yes ( )

No ( )



IOSCO Relevance

MONITORING OF LARGE EXPOSURES

12.

Whether the relevant regulatory framework requires the clearing firm, the market, and/or the regulator to monitor trading in order to identify large exposures

28F

29? If "yes", please briefly describe (i) how the law defines “large exposure” and (ii) the monitoring functions conducted (e.g., reporting requirement, inspections etc.)

Investment firms shall maintain capital adequacy in order to eliminate risks; in this respect, an investment firm must notify the Czech National Bank of its system of an internally specified capital. Large exposure requirements are set out in the provisions on capital adequacy of an investment firm and a clearing firm. Sections 6 (3) and (4), Sections 9 and 82 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 37 et seq. of the Decree No. 123/2007 Coll., on Rules of Prudent Conduct of Business of Banks, Savings Cooperatives, and Investment Firms

29

13. Whether the regulator or the market has the power to compel customers or market members carrying or controlling large positions to reduce their exposures or to post increased margin?

29

In case a market member does not make relevant required information needed to evaluate an exposure available to the market authority, whether the following action can be taken by the relevant market authority:

(1) impose limitations on future trading?

14.

(2) require liquidation of positions?

29

29 The terms “large exposure” refers to open positions or credit exposures that are sufficiently large to expose a risk to the market or to a clearing firm.

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# Issue Yes ( )

No ( )



IOSCO Relevance

(3) increase margin requirements?

(4) revoke trading privileges?

(5) suspend from trading?

(6) require to increase capital of the market member?

DEFAULT PROCEDURES

15. Whether the market is required to have contingency plans or emergency procedures in dealing with a market disruption or system failure? 29

16. Whether the regulatory framework requires markets and/or the clearing and settlement system(s) promptly to isolate the problem of a firm in financial difficulty by addressing its open positions or otherwise protect customer funds and assets from an intermediary’s default under national law?

29

17. Whether the regulatory framework requires intermediaries to separate and segregate customers’ assets from other funds and assets? Section 12c of the Act No. 256/2004 Coll.,

on Undertaking on the Capital Market 29

18. If yes, in the event of intermediary’s insolvency, does the framework enable customer’s positions to be moved by a receiver to a solvent intermediary? Section 132 of the Act No. 256/2004 Coll.,

on Undertaking on the Capital Market 29

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Section G – Clearing and Settlement

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

AUTHORISATION AND LICENSING OF SECURITIES SETTLEMENT SYSTEMS

1. Whether the clearing and settlement systems are subject to direct supervision either by the regulator or the relevant market authority?

Act No. 256/2004 Coll., On Undertaking on the Capital Market, as amended Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

18

If the regulator has oversight responsibility regarding the clearing and settlement system, whether the regulator has the power to:

(1) license clearing and settlement systems?

Section 83 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 in connection with Section 5(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

2.

(2) issue rules mandating specific standards for clearing and settlement systems?

Section 83(3) letter f) in connection with Section 83(5) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 in connection with Section 5(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

30

- 89 -

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

(3) approve changes to a clearing and settlement system’s rules and procedures?

Section 83(7) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Section 3 in connection with Section 5(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

(4) conduct surveillance of the operations of clearing and settlement systems?

Section 135(1) letter j) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 3 in connection with Section 5(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

(5) inspect, audit or require a third party inspection or audit of clearing and settlement systems?

Section 136 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 3 in connection with Section 5(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

(6) require the clearing organization to file reports? Section 87 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

(7) bring regulatory actions against a clearing and settlement systems for violations of the securities laws and regulations or for failure to enforce its own rules?

Sections 136 et seq. and Section 162 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 3 in connection with Section 5(2) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended

- 90 -

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

TRADE CONFIRMATION AND DELIVERY VERSUS PAYMENT

3. Whether the regulatory framework requires that confirmation of trades between direct market participants occur no later than trade date (T+0)?

Section 42 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Sections 14 and 20 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients

2

4. Whether the regulatory framework requires that trades be settled within three days from the trade date (T+3)?

Section 42 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 14 and 20 of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients

3

5. Does the technical, legal and contractual framework ensure that delivery of securities takes place if, and only if, payment is received? (i.e., DVP - delivery versus payment)?

3

TRANSPARENCY

6. Do entities that provide the clearing, settlement and custodial infrastructure of securities markets make clear disclosures to market participants about their rules, regulations, relevant laws, governance procedures, risks, steps taken to mitigate risks, and the rights and obligations of participants?

Sections 15 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 14 et seq. of the Decree No. 258/2004 Coll., stipulating the details of compliance with the rules for prudent

17

- 91 -

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

provision of investment services and more detailed conduct of business rules in relation to investment firm’s clients

CENTRAL DEPOSITORY29F

30

7. Are securities issued on a dematerialised basis (i.e., electronic issue opposed to the issuance as a physical certificate)?


6

8. Does the transfer of securities require any form of physical delivery?

Act No. 591/1992 Coll., the Securities Act, as amended Section 17 and 18. This generally applies if securities are issued as physical certificates; transfer o of securities on a dematerialised basis is registered with the Securities Centre.

6

9. Does a central securities depository (CSD) exist? If NO, please briefly describe the settlement system.

Section 100 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended The provisions of the above Act on the Central Depository shall enter into force after a licence has been granted; until then, securities on a dematerialised basis are registered with the Securities Centre (Středisko cenných papírů) – see Section 202 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, and Sections 55 et seq. of the Act

6

30 There are several different ways for owners to hold securities. In some jurisdictions, physical securities circulate and beneficial owners may keep securities in their possession, although owners typically employ a custodian to hold them to reduce risks and safekeeping costs. The costs and risks associated with owning and trading securities may be reduced considerably through immobilisation of physical securities, which involves concentrating the location of physical securities in a depository. The immobilisation or dematerialisation of securities and their transfer by book entry within a CSD significantly reduces the total costs associated with securities settlements and custody.

- 92 -

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

No. 591/1992 Coll., the Securities Act, as amended.

10. If the answer to the above question is “yes”, does an entry in the CSD result automatically in the transfer of the legal title to the securities in the official register of the issuer? If NO, please specify which rights are given by the entry

Section 96 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

6

11. Are securities immobilised or dematerialised and transferred by book entry in a CSD?

Section 96 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

6

OVERSIGHT

Is the clearing and settlement systems required to:

a) file periodic reports to the regulator? Section 87 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended 12.

b) submit to periodic and/or special audits and inspections? Section 87 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

30

DERIVATIVES

13. Whether derivative securities clear and settle on a different system through a specialised trading and/or clearing system? 30

14. If the answer to the above question is "yes", whether the legislative framework addresses the treatment of derivatives risks? 30

PROTECTION OF CUSTOMERS’ SECURITIES

15. Does the legal or regulatory framework provide any arrangements to protect customers’ securities from theft, loss or misuse and to ensure that they will not become subject to claims of the custodian’s creditors (e.g., segregation of assets insurance, compensation schemes)?


12

- 93 -

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

16. Are the entities holding securities in custody subject to mandatory internal or external audit, or both, to determine if there are sufficient securities to satisfy customer claims?

Holding securities in custody is an investment service that may be provided by an investment firm only; annual report and statements of an investment firm are pursuant to Section 16(1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended, subject to audit.

12

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Section H – Accounting and Auditing of Financial Reports

# Issue Yes ( )

No ( )



IOSCO Relevance

DISCLOSURE OF FINANCIAL RESULTS

1. Whether issuers are required to publish financial and other information at regular intervals (i.e. annual and periodic financial reports, please specify)?

Sections 39 and 40 of the Act No. 513/1991 Coll., the Commercial Code, as amended; Section 21a of the Act No.563/1991 Coll., On Accounting, as amended; Sections 118 and 123 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 85 and 86 of the Act No. 189/2004 Coll., on Collective Investment; Sections 24 and 26a (3) of the Act No. 363/1999 Coll., the Insurance Act, as amended; Section 23 of the Act No. 21/1992 Coll., on Banks, as amended; Section 8 of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Section 41(2) letter b) of the Act No. 6/1993 Coll., on Czech National Bank, as amended; Section 36 of the Act No. 42/1994 Coll., on State –Contributory Supplementary Pension Insurance, as amended; Issuers publish an annual report and a half-yearly report.

14

- 95 -

# Issue Yes ( )

No ( )



IOSCO Relevance

If the answer to the above question is "yes",

(1) Whether the issuer or other persons (depending on the circumstances, they might be the underwriter, sponsor, advisor, etc.) is legally responsible for the contents of these reports?

Responsibility of the issuer: Sections 39 and 40 of the Act No. 513/1991 Coll., the Commercial Code, as amended Section 21 of the Act No.563/1991 Coll., on Accounting, as amended An auditor or an auditing company may be held liable for damages caused in connection with provision of auditing services (see Section 17 of the Act No. 254/2000 Coll., on Auditors, as amended).

2.

(2) Whether companies are required to file these reports with the regulator for review/approval?

The reports are not approved by the Czech National Bank, but only reviewed as regards their compliance with statutory requirements. Sections 118, 123, 171 and 199 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended. Sections 85, 87, 89 and 139 of the Act No. 189/2004 Coll., on Collective Investment, as amended. Section 26a of the Act No. 363/1999 Coll., the Insurance Act, as amended. Section 23 of the Act No. 21/1992 Coll., on Banks, as amended. Section 8 letter a) of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended; Section 36 of the Act No. 42/1994 Coll., On State Contributory Supplementary Pension Insurance, as amended

14

- 96 -

# Issue Yes ( )

No ( )



IOSCO Relevance

(3) Whether the regulator has the power to take action for incomplete or misleading information in these reports?

Section 171 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Sections 119 and 120 of the Act No. 189/2004 Coll., on Collective Investment, as amended Section 26a of the Act No. 363/1999 Coll., the Insurance Act, as amended Section 25 of the Act No. 21/1992 Coll., on Banks, as amended Sections 8 and 9 of the Act No. 15/1998 Coll., on Surveillance in the Capital Market and on Amendment to other Acts, as amended Sections 43 et seq. of the Act No. 42/1994 Coll., on State-Contributory Supplementary Pension Insurance, as amended

EXTERNAL AUDITOR

3. Whether the relevant law or regulation requires that annual financial statements published by issuers should be audited by external auditors?

Section 39(1) of the Act No. 513/1991 Coll., the Commercial Code, as amended. Section 21 of the Act No.563/1991 Coll., on Accounting, as amended. Section 118 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended. Section 85 of the Act No. 189/2004 Coll., on Collective Investment, as amended. Section 25c of the Act No. 363/1999 Coll., the Insurance Act, as amended. Section 22(1) of the Act No. 21/1992 Coll., on Banks, as amended

16

- 97 -

# Issue Yes ( )

No ( )



IOSCO Relevance

4. Does the regulatory framework require that an issuer’s governance body independent in both fact and appearance of the management of the company (e.g., shareholders or a statutory or corporate audit oversight body) oversee the process of selection and appointment of the external auditor?

16

5. Whether the regulatory framework requires issuer to change the external auditor after a certain number of years (i.e., rotation)? If yes, please specify the rotation period

There is not such a statutory requirement. As one of the sanctions, the Czech National Bank may order a change in auditor. Section 136 (1) letter b) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended

16

6. Whether issuers are required to provide audited financial statements in public offering prospectuses?

The law does not require that a prospectus contains the complete audited statements; however, it must contain substantial information regarding the financial statements and it refers to the financial statements (published on the Internet and available in the issuer’s offices). Act No. 563/1991 Coll., on Accounting, as amended; Section 36 (1) of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 164(4) of the Act No. 513/1991 Coll., the Commercial Code, as amended

16

- 98 -

# Issue Yes ( )

No ( )



IOSCO Relevance

Whether the required audited financial statements include the elements listed below:

(1) a balance sheet or statement of financial position?

Section 21 of the Act No.563/1991 Coll., on Accounting, as amended; Section 118 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 164(4) of the Act No. 513/1991 Coll., the Commercial Code, as amended

(2) a statement of the results of operations?

Section 21 of the Act No. 563/1991 Coll., on Accounting, as amended; Sections 118 and 119 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 164(4) of the Act No. 513/1991 Coll., the Commercial Code, as amended

(3) a statement of cash flow?

7.

(4) a statement of changes in ownership equity or comparable information included elsewhere in the audited financial statement or footnotes?

Section 21 of the Act No.563/1991 Coll., on Accounting, as amended; Section 118 of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended; Section 164(4) of the Act No. 513/1991 Coll., the Commercial Code, as amended

16

ACCOUNTING STANDARDS

8. Are financial statements required in public offering and publicly available annual reports required to be prepared and presented in accordance with a comprehensive body of accounting standards?

Sections 23a and 36 of the Act No. 563/1991 Coll., on Accounting, as amended; Sections 1 et seq. of the Regulation (EC) No 1606/2002 of the European Parliament and

16

- 99 -

# Issue Yes ( )

No ( )



IOSCO Relevance

of the Council of 19 July 2002 on the application of international accounting standards;

9. If the answer to question above is “yes”, are these accounting standards of a high and internationally acceptable quality?

Sections 23a and 36 of the Act No.563/1991 Coll., on Accounting, as amended; Sections 1 et seq. of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards;

16

10. Whether an organisation responsible for the establishment and timely interpretation of accounting standards is set out by the relevant law or regulation? If "yes", please state the name of the body and its composition

Section 36 of the Act No. 563/1991 Coll., on Accounting, as amended 16

11. If the answer to the above question is "yes", whether the standard setting body is subject to regulatory oversight? If "yes", please indicate who the supervisory authority is.

The standards are set out by the Ministry of Finance. Act No. 563/1991 Coll., on Accounting, as amended

16

Whether the accounting standards used in preparing financial statements and financial reporting address the general topics listed below:

(1) presentation of financial information?

Section 36 of the Act No. 563/1991 Coll., on Accounting, as amended Czech Accounting Standards issued by the Ministry of Finance

12.

(2) consolidation of financial information?


16

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# Issue Yes ( )

No ( )



IOSCO Relevance

(3) business combinations?


(4) tangible and intangible assets (including impairment of assets)?


(5) leases?

(6) income taxes?


(7) employee benefits (e.g., pension, stock compensation, etc.)

(8) provisions and contingencies?


(9) financial instruments (including derivative financial instruments)?


(10) securitisation?

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# Issue Yes ( )

No ( )



IOSCO Relevance

Whether the accounting standards used in preparing financial statements and financial reporting address the following areas of particular interest to investors:

(1) earnings per share?

(2) interim financial reporting?

(3) information about business segments?


(4) related party transactions?


13.

(5) leases?

16

AUDITING STANDARDS

14. Are audited financial statements included in public offering and publicly available annual reports, required to be audited in accordance with a comprehensive body of auditing standards?

Section 38 of the Act No. 254/2000 Coll., on Auditors, as amended 16

15. Are these auditing standards of a high and internationally acceptable quality?

Section 38 of the Act No.254/2000 Coll., on Auditors, as amended; Internal Regulations of the Chamber of Auditors of the Czech Republic

16

16. Does the regulatory framework provide for an organization responsible for the establishment and timely interpretation of auditing standards? Section 38 of the Act No.254/2000 Coll., on

Auditors, as amended 16

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# Issue Yes ( )

No ( )



IOSCO Relevance

Do auditing standards expressly require the auditor to:

(1) use due professional care in the performance of the audit? Sections 14 and 38 of the Act No.254/2000 Coll., on Auditors, as amended; Ethical Code of the Chamber of Auditors

(2) adequately plan and supervise the audit? Sections 14 and 38 of the Act No.254/2000 Coll., on Auditors, as amended

(3) obtain an understanding of the internal control system of the entity? Sections 14 and 38 of the Act No.254/2000 Coll., on Auditors, as amended

17.

(4) obtain sufficient evidence to determine whether the financial statements are free of material misstatements? Section 15 of the Act No.254/2000 Coll., on

Auditors, as amended

16

Whether an auditor report is required to disclose:

(1) any exceptions to the application of accounting principles used? Sections 14 and 38 of the Act No.254/2000 Coll., on Auditors, as amended

(2) any material uncertainties in the financial statements? Sections 14 and 38 of the Act No.254/2000 Coll., on Auditors, as amended

18.

(3) any going-concern issues? Sections 14 and 38 of the Act No.254/2000 Coll., on Auditors, as amended

16

19. Whether the regulatory framework requires auditors to be independent from the issuer? If "yes", please define “independence”

Section 2 (5) of the Act No.254/2000 Coll., on Auditors, as amended; Internal Regulations of the Chamber of Auditors of the Czech Republic The auditor shall be independent while providing the audit services, being only obliged to comply with applicable legal regulations. In addition, the auditor shall observe the standards of audit and the professional regulations issued by the Chamber.

16

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# Issue Yes ( )

No ( )



IOSCO Relevance

20. Whether auditors are required to be licensed or approved and to satisfy specific education criteria and other qualifications in order to practice? Sections 13 et seq. of the Act No.254/2000

Coll., on Auditors, as amended 16

21. Whether auditors are subject to continuing professional education requirements after they are licensed or approved to practice?

Section 29 (b) of the Act No.254/2000 Coll., on Auditors, as amended Internal Rules on Continuous Professional Training of Auditors issued by the Chamber of Auditors

16

22. Does the regulatory framework provide for a mechanism for enforcing compliance with accounting standards such as requiring restatements of financial statements that deviate from accepted standards?

Act No. 563/1991 Coll., on Accounting, as amended, sets out a general obligation to prepare accounts in compliance with accounting standards; in case of breach of this obligation, a financial authority may levy a fine.

16

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Section I – Money Laundering

# Issue Yes ( )

No ( )



FATF Relevance

SCOPE OF THE CRIMINAL OFFENCE OF MONEY LAUNDERING

1.

Whether there is legislation in place to address the issues of money laundering (ML)? If "yes", please identify the name of such legislation and when it was adopted [if a special law exists, please include details of the law in Section I, above]

Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended

1

Whether the following conventions have been signed and ratified (please specify in your comments):

(i) 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention)?

1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances published as the Note of the Ministry of Foreign Affairs No. 462/1991 Coll.

(ii) 2000 UN Convention against Transnational Organized Crime (the Palermo Convention)?

This convention was signed by the Czech Republic on 12 December 2000; it has not been ratified yet.

2.

(iii) 2003 UN Convention against Corruption? This convention was signed by the Czech Republic on 22 April 2005; it has not been ratified yet.

1 and 35

3.

Does the law provide for the confiscation of property (including funds and securities) that has been laundered or which constitutes (i) proceeds from; (ii) instrumentalities used in; and (iii) instrumentalities intended for use in the commission of any ML, financing of terrorism (FT) or other predicate offences, and property of corresponding value.

1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances published as the Note of the Ministry of Foreign Affairs No. 462/1991 Coll.; Article 8 of the International Convention for the Suppression of the Financing of Terrorism (published under No. 18/2006 of the Collection of International Treaties); Sections 171e and 252a of the Act No.

3

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# Issue Yes ( )

No ( )



FATF Relevance

140/1961 Coll., the Criminal Code, as amended

CUSTOMER DUE DILIGENCE AND RECORD-KEEPING

4. Does the regulatory framework require that financial institutions obtain senior management approval before establishing business relationships with politically exposed persons?

6

5. Does the regulatory framework require financial institutions to maintain all necessary records on transactions, both domestic and international, for at least five years following completion of the transaction regardless of whether the account or business relationship is ongoing or has been terminated?

Section 21(2) of the Act No. 21/1992 Coll., on Banks, as amended 10

6. Are financial institutions required to undertake customer due diligence measures including identifying and verifying the identity of their customers?

Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended

5

7. Does the regulatory framework prohibit from opening/maintaining (i) anonymous accounts, (ii) accounts in fictitious names, (iii) numbered accounts and (iv) non registered (i.e., bearer) securities?

Sections 2 et seq. of the Act No. 61/1996 Coll., On Certain Measures Directed Against Legalization of the Proceeds from Criminal Activities and Amendments to Certain Related Acts, as amended Non-registered (bearer) securities are not prohibited.

5

REPORTING OF SUSPICIOUS TRANSACTIONS AND COMPLIANCE

8. Does the regulatory framework require financial institutions to report to the relevant authority suspicious transactions (i.e., when it suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity or terrorism financing), regardless of the amount of the transaction?

Section 4 of the Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended Sections 1 et seq. of the Decree of the Ministry of Finance No. 344/2004 Coll., on the Fulfilment of Information Duties under

13

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# Issue Yes ( )

No ( )



FATF Relevance

the Act 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended

9. Does the regulatory framework require market intermediaries to have in place policies and procedures designed to minimise the risk of using an intermediary's business as a vehicle for money laundering?

Sections 1a (7) and 2 et seq. of the Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended

8

INTERNATIONAL COOPERATION

10. Does the regulatory framework allow the relevant authority to cooperate with foreign authorities for AML purposes (e.g., search and seizure of information, taking of evidence or statements from persons, providing originals or copies of relevant documents and records)?

Act No. 61/1996 Coll., on Selected Measures against the Legalisation of the Proceeds of Crime and on the Amendments to Related Acts, as amended, Section 10 (8)

36-38

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Section J –Financial Instruments

# Issue Yes ( )

No ( )



IOSCO Relevance

VARIETY OF FINANCIAL INSTRUMENTS TRADED

1. Does the regulatory framework provide for a definition of financial instruments/securities or similar? [Please provide the definition in your answer]

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Act No. 190/2004 Coll., on Bonds, as amended Act No. 513/1991 Coll., Commercial Code, as amended Financial instruments are investment instruments (i.e. investment securities, securities issued by a collective investment fund, securities that are usually dealt in on the money market (money market instruments) and derivatives) and receivables and rights connected to investment instruments.

Does the regulatory framework provide comprehensive regulation for listing and trading of:

(i) commercial bonds

Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Act No. 190/2004 Coll., on Bonds, as amended

2.

(ii) government bonds

See Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Act No. 190/2004 Coll., on Bonds, as amended

25

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# Issue Yes ( )

No ( )



IOSCO Relevance

(iii) municipal bonds

See Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended a Act No. 190/2004 Coll., on Bonds, as amended

(iv) derivatives Act No. 256/2004 Coll., On Undertaking on the Capital Market, as amended

3. Whether there is a specific regulation applicable to the issuance of financial instruments to the benefit of employees as an employee share purchase plan? 14, 25

DERIVATIVES

4. Does the regulatory framework clearly provide that derivative contracts are enforceable without exceptions?

30F

31 14, 25

5. If a market for derivatives exists, does the regulatory framework require disclosure of the terms of the contracts traded, the mechanisms of trading and the risks?

Act No. 256/2004 Coll., On Undertaking on the Capital Market, as amended 14

CROSS-BORDER ISSUANCE

6. Does the regulatory framework provide for any limits/restrictions to the issuance and the selling of financial instruments by a foreign issuer in your market? Please describe

Sections 24 et seq. and 28 et seq. of the Act No. 256/2004 Coll., on Undertaking on the Capital Market, as amended Financial instruments issued by a foreign issuer may be offered on the basis of a single European passport. Otherwise, a foreign entity shall have a license granted by the Czech National Bank.

14-16

7. Does the regulatory framework provide for any limits/restrictions to the Section 21 of the Act No. 256/2004 Coll., 14-16

31 In some jurisdictions, the enforceability of derivatives is limited due to a concurring provision addressing unenforceability of gaming bets. In some other countries enforceability of derivatives is limited only to licensed financial institutions.

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# Issue Yes ( )

No ( )



IOSCO Relevance

issuance and the selling of financial instruments by a national issuer in a foreign market? Please describe

On Undertaking on the Capital Market, as amended, Section 5 of the Act No. 219/1995 Coll., Foreign Exchange Act Czech issuer may offer its securities in another member countries of the European Union on the basis of the single European passport. The Foreign Exchange Act sets out notification obligations.

SPONSOR/UNDERWRITER

8. In the case of Initial Public Offering, whether the issuer is required to have a sponsor or an underwriter? 14

CONCENTRATION RULE

9. Does your regulatory framework require that all relevant transactions be conducted on a stock exchange? 14

PRIVATE PLACEMENT

10. Whether there is a specific regulation for private placement of financial instruments? Please define private placement. 14

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This Assessment does not constitute legal advice. Readers are advised to seek appropriate legal advice before entering into any transaction, making any determination or taking any action related to matters discussed herein. The contents of this Assessment are copyrighted. For further information or eventual comments please contact Gian Piero Cigna at [email protected]

To see the complete list of published assessments, please visit: www.ebrd.com/law

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SECURITIES MARKETS LEGISLATION SSESSMENT ROJECT · capital market in the Czech Republic. The Prague...

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