Securities Dealers

In the following part, the Act regulates provision of investment services, organisation and status of the Securities Dealers. The Securities Dealer may only be a joint stock company with its registered seat in the Slovak Republic which provides investment services based on an approval of the Office.

A foreign Securities Dealer (a legal or a natural person seating outside the territory of the Slovak Republic providing investment services and having authorisation from a competent authority in the state of its registered seat) may provide investment services in the Slovak Republic only through its branch office and on a basis of a relevant approval of the Office. Such approval is required also for a foreign Securities Dealer being a foreign bank and having its branch office in Slovakia.

The minimum registered capital of the Securities Dealer required by law has been changed. At present, the minimum register capital is SKK 35 million, except for the following cases:

• SKK 6 million in case of providing of core investment services under Section 6 para. 2 letter a), b) or d) of the Act, i.e. acceptance and transmission of client orders to dispose of Instruments; reception and execution of client's orders to dispose with Instruments on other account than the Securities Dealer's account; managing of portfolios of investments comprising of one or more Instruments in accordance with a mandate given by the client and based on a portfolio management contract;
• SKK 2.5 million, if the Securities Dealer provides core investment services under Section 6 para. 2 letter a), b) or d), however is not entitled to dispose with client's funds or Instruments.

To obtain an approval for provision of investment services, the following conditions must be met:

a)

paid-up minimum registered capital as required by law,

b)

transparent and reliable origin of the registered capital and other funds of the Securities Dealer,

c)

suitability of persons having a qualified interest in the Securities Dealer and transparency of relationships of such persons with other persons, in particular transparency of shares in the registered capital and in voting rights,

d)

professional qualification and credibility of persons proposed to be members of the Board of Directors, managers and persons responsible for internal audit,

e)

transparency of the group with close relationships, to which the shareholder having a qualified interest in the Securities Dealer belongs,

f)

close links within the group mentioned in letter e) above not preventing effective supervision,

g)

law and its application in the country where the group mentioned in letter e) above has close links, do not prevent the effective supervision,

h)

the registered seat and place of performance of business of the Securities Dealer must be located in the Slovak Republic; a part of its business may be performed outside the territory of Slovakia through its branch or without establishment of a branch in compliance with conditions stipulated by this Act,

i)

technical and organisation readiness to perform the approved services by the Securities Dealer.

A branch office of foreign Securities Dealer (the ``Branch'') must meet similar conditions in the Slovak Republic as well.

The new Act tightened requirements for professional qualification of members of the Securities Dealer's Board of Directors, managers in the direct managing power of the Board of Directors and persons responsible for internal audit. Under the Act, these persons have to achieve a university degree in economics, or law, or natural sciences, or technology and have practical experience of at least 3 years in the area of financial market. In addition, at least one person proposed to the position of manager under the direct managing power of the Board of Directors has to achieve practical experience of at least 5 years in the area of capital market.

In case of Branch, its director is required to achieve a university degree in one of the above mentioned areas and have at least 3 years of practical experience in the area of financial market. The 5-year practical experience in the area of capital market is not required.

Conditions required by law for the approval to provide investment services must be observed during the whole time of the approval's validity. The approval is granted for an indefinite period of time and it cannot be neither transferred to another person nor transmitted to a legal successor.

The Act stipulates additional obligations for Securities Dealers connected with their organisation, managing, rules of conduct in relation to their clients, business documentation, and information duty. For example, Securities Dealers and Branches are obliged to submit semi-annual and annual reports on their economy to the Office and to the Ministry of Finance of the Slovak Republic. Such reports must include mainly audited financial statements, reports on financial situation, on expected financial and economy situation, and description of important factors having an impact on the business of the issuer and its economic results for the respective period.

Contrary to the former legal regulation, the new Act introduces adequacy of own sources of Securities Dealers at minimum level of 8 %.

The Act also introduces obligation for the Securities Dealers to regulate their legal relationships with members of the Board of Directors (or in case of Branches with their directors) by agreement on execution of function. Such new type of agreement has been introduced by the latest Amendment No. 500/2001Coll. of the Commercial Code, in Section 66 (3). This agreement must be in a written form and must be approved by the General Assembly or, if stipulated in the Articles of Association, by the Supervisory Board. It must be noted that the agreement is accordingly governed by provisions regulating a mandate agreement (Section 566 et seq. of the Commercial Code). Exclusion or limitation of liability of members of the Board of Directors, which have been tightened by the last Amendment of the Commercial Code, are not possible (for more details about responsibility of statutory bodies, please see the Extraordinary issue of Financial Law News - Amendment to the Commercial Code).

Under Section 70, the Act mandatory states when a prior approval of the Office is required. Such approval is required e.g. in case of acquisition or excess of 10%, 20%, 33%, 50% and 66% of shares in the registered capital of the Securities Dealer, election of new members of the Board of Directors or director of a Branch, amalgamation, take-over, split, sale of enterprise, etc.

Effectiveness of several provisions of the Act is postponed to the time of access of Slovakia to EU. Under such provisions, the Securities Dealers with registered seats in an EU country will be allowed to provide investment services in Slovakia just upon an approval of competent authority it the states of their seats. Likewise, a Slovak Securities Dealer will be allowed to provide investment services in other EU countries without any additional approvals.

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