IOSCO Core Principles
Principles relating to the Regulator
Principle1: The responsibilities of the regulator should be clear and objectively
stated.
What is your assessment of the current status of your
jurisdiction regarding implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
1.1 If implemented:
Please describe how this principle has been implemented.
It has to be made clear from the very beginning that the Hungarian Financial
Supervisory Authority (HFSA) is not the regulator. The HFSA has the right to
comment on statutory instruments under preparation concerning the financial
sector and submits proposals for the adoption of such statutory instruments
but it doesn’t have the right to issue decrees and regulations within its sphere
of activity. The Ministry of Finance is vested with this right.
Answers to Principles 1-5 are to be understood with the interpretation, that in
Hungary the Supervisory Authority is only a supervisor.
The Supervision’s responsibilities are set out by the following acts:
a. Act CXXIV of 1999 on the Hungarian Financial Supervisory Authority
b. Act CXI of 1996 on the Offering of Securities, Investment Services and on
the Stock Exchange,
c. Act XXXIX of 1994 on the Commodities Exchange and on the
Transactions of the Commodities Exchange
d. Act LXIII of 1991 on Investment Funds,
e. Act CXII of 1996 on Credit Institutions and Financial Enterprises
Modifications to the Supervision’s responsibilities can only be implemented by
modifying the respective act.
The Supervision has no discretion to interpret its authority under its mandate.
Procedures for appointment, terms of office and criteria for removal of the
President and Deputy President of the Supervision are specified by act CXXIV
of 1999 on the Hungarian Financial Supervisory Authority. (According to the
act, the Supervision has no governing body.)
The Hungarian Financial Supervisory Authority is the only authority
responsible for the smooth and fair functioning of the securities market,
therefore no cooperation or communication is necessary with other authorities
is in this regard.
Principles relating to the Regulator
Principle 2: The regulator should be operationally
accountable in the exercise of its functions and powers
independent
and
2. What is your assessment of the current status of your
jurisdiction regarding implementation of this Principle?
? Implemented
? Partially
implemented
? Not Implemented
_____________________________________________________________
2.2 If partially implemented:
1. Please describe how this principle has been implemented:
Act CXXIV of 1999 on the Hungarian Financial Supervisory Authority states that
the Supervision
a. is an organisation of public administration with national jurisdiction
reporting to the government and supervised by the Minister of Finance,
b. is a legal entity functioning as an independent organisation. It is part of
the budget, financed by its own revenues,
c. its internal organisational and operational rules shall be approved by the
Minister of Finance. However, the minister has no right to intervene into
decisions of the Supervision concerning the supervised institutions or
markets.
Independence of the Supervision is assured by the appointment and removal
procedure of the President and Deputy President of the Supervision. The
President of the Supervision is appointed by the Parliament upon the
recommendation of the Prime Minister for 6 years and can be dismissed by the
same procedure. The Deputy President is appointed for 6 years by the Prime
Minister upon the recommendation of the Minister of Finance and can be
dismissed by the same procedure. Dismissal may be effected only in cases
defined by the law and shall be justified publicly.
Act CXXIV of 1999 on the Hungarian Financial Supervisory Authority
prescribes that only the court may review the resolutions of the Supervision.
The court may decide against the resolution of the Supervision only in the case
if the resolution was unlawful.
Employees of the Supervision acting in their official capacity may be sued by a
supervised institution only in the case if they infringe secrecy.
Act CXXIV of 1999 on the Hungarian Financial Supervisory Authority states that
all resolutions of the Supervision - with the exception of those which may
affect banking secrecy or trade secret – may be published. The practice of the
Supervision is to publish all resolutions with do not infringe secrecy. This
provides public control on the activities of the Supervision.
Consultation with other governmental bodies is necessary only in case of
closure of an investment house. In this case approval of the Minister of
Finance and the President of the National Bank of Hungary is needed.
The Supervision has to report to the Government annually about its activities
in the previous year and to publish an annual report to the public.
Act CXXIV of 1999 on the Hungarian Financial Supervisory Authority states that
all information containing business secrecy has to be preserved unless law
obliges the Supervision to give out the secret. Eventual breaching of this
obligation has consequences according to the criminal code (Act IV of 1978).
Principles relating to the Regulator
Principle 3: The regulator should have adequate powers, proper resources and
the capacity to perform its functions and exercise its powers.
3. What is your assessment of the current status of your
jurisdiction regarding implementation of this Principle?
 Implemented
? Partially
implemented
? Not
Implemented
______________________________________________________________
3.1. If implemented:
1. Please describe how this principle has been implemented.
The Hungarian Financial Supervisory Authority is not a rule making authority.
According to the Act CXI of 1996 on the Offering of Securities, Investment
Services and on the Stock Exchange it has all powers necessary to perform its
functions. Regarding investigation, the supervisor has power to carry out offsite and on-site supervisions. If criminal investigation is needed, it can be
carried out by the police.
Intersectoral domestic information sharing is not necessary, for there is only
one supervisor. International information sharing is possible.
The Supervision is funded by the fees of the supervised institutions. These are
basic fees and transaction fees. The Supervision has no flexibility in collecting
fees. The resources are sufficient to the functioning of the Supervision,
however the Supervision in certain cases is bound strictly to administrative
rules in using its resources deriving from its status in public administration.
Resources are allocated by the Supervision. The State Audit Office oversees
the use of the resources.
Appropriate personnel is obtained through personal applications or
competition. Technical resources are obtained according to the public
procurement procedure laid down in the Act XL of 1995 on Public Procurement.
Though the employees of the Supervision are public servants, the salaries are
not significantly lower than those in the supervised institutions due to the
exemptions granted by the Act CXXIV of 1999 on the Hungarian Financial
Supervisory Authority.
Principles relating to the Regulator
Principle 4: The regulator should adopt clear and consistent regulatory
processes.
4. What is your assessment of the current status of your
jurisdiction regarding implementation of this Principle?
? Implemented
? Partially
implemented
? Not Implemented
______________________________________________________________
4.1 If implemented:
1. Please describe how this principle has been implemented:
Regulations are laid down in acts, government
decrees and in decrees of the Minister of Finance.
Procedural rules are laid down in orders of the
President of the Supervision. The Supervision has the
right to initiate legislation and has to be consulted in
the process of drafting the acts and decrees.
Acts, government decrees and decrees of the Minister
of Finance are available to the public, they are
published in the Gazette. Orders of the President of
the Supervision are not available to the public
because they consist of information relevant to the
employees of the Supervision.
The Supervision has to give reasons for regulatory
decisions or actions that affect the rights or interests
of other persons. The reasons may be omitted only if
the decision is the approval of an application.
Act CXXIV of 1999 on the Hungarian Financial
Supervisory Authority prescribes that only the court
may review the decisions and actions of the
Supervision. The court may decide against the
decision or action of the Supervision only in the case
if it was unlawful.
The general criteria for granting or revoking a license
are disclosed by the respective acts. Those affected
by the licensing process are not entitled to a hearing
but the Supervision is not averse from consultations.
In case of modification of existing legislation or
introducing new legislation the respective section of
the public has to be consulted (e.g. Association of
Investment Service Providers.)
Regulatory actions which don’t infringe secrecy are
published in the official journal of the Supervision
(Hungarian Capital Market). If the reasons don’t
infringe secrecy they are published as well. The
Supervision may set standards and issue its opinion.
They are not legally binding.
The Supervision plays a role in educating investors
and other market participant. It is financed by part of
the fines it levies from supervised institutions. The
Supervision calls for a competition every year for the
improvement of general professional knowledge of
investors and clients. Both the call for competition
and the results are published. Research programs,
publications. conferences etc. are sponsored. A major
sponsored program for 1999 was an information
leaflet for the general public on Y2K preparations.
The Supervision doesn’t regularly publish information
about actions taken in the furtherance of its policy
objectives (including, for example, information about
investigations, inquiries and regulatory programs).
Principles relating to the Regulator
Principle 5: The staff of the regulator should observe the highest professional
standards including appropriate standards of confidentiality.
5. What is your assessment of the current status of your
jurisdiction regarding implementation of this Principle?
? Implemented
? Partially
implemented
? Not Implemented
_________________________________________________________________
5.1 If implemented:
1. Please describe how this principle has been implemented:
Remuneration of the staff of the Supervision is not significantly lower than that
of the supervised institutions. Therefore, the Supervision is able to recruit and
keep the staff with high professional standards. The Supervision promotes inservice training and study-tours of the staff.
According to the Act on the Hungarian Financial Supervisory Authority,
employees must not possess securities or other investment instruments
except of government securities, investment units and non-publicly offered
securities. If they had obtained them prior to their appointment or came to
possession through inheritance, they have to declare it and have to dispose of
the securities within three month. If next of kins obtains securities not falling
under exemption, it has to be declared as well. Employees must not take part in
the decision-making process pertaining to those securities which they or next
of kins possess.
Employees are bound by the obligation of secrecy in connection with any
information they obtain in connection with their supervisory activities. They
must not use any such information for their own advantage.
2. Are further improvements or changes proposed? If so, please describe.
A Code of Conduct has been elaborated in the Supervision by a special taskgroup and is to be adopted soon.
Principles for Self-Regulation
Principle 6: The regulatory regime should make appropriate use of
Self-Regulatory Organizations (SROs) that exercise some direct
oversight responsibility for their respective areas of competence, and
to the extent appropriate to the size and complexity of the markets.
6. Please briefly describe the role of SROs in your jurisdiction and
explain, with respect to each SRO:
a. what functions it is required to perform;
b. the source of its powers to perform those functions; and
c. what general limitations, if any, exist on the scope of the powers
of SROs.
The Budapest Stock Exchange (hereinafter the BSE) is a selfgoverning, self-regulating, non-profit oriented exchange owned by its
members, providing a large number of financial instruments to the
investors. BSE is regulated by the Act CXI. of 1996 on the Offering of
Securities, Investment Services and on the Stock Exchange (the
Securities Act).
The exchange determines its activity, elects its own organs,
committees and officials, regulates its operation and determines the
fees payable for its services. The Exchange is a legal entity."
For the time being, BSE is a non-profit organization but decision was
made on transformation into a company limited by shares. Property of
the BSE is to be divided according to the contributions to the own
capital of the stock exchange.
Members must fulfil criteria defined by the BSE, they must also have a
licence granted by the HFSA. Firms in the field of securities
investment services are authorized on an exclusive basis, they are not
allowed to engage in other activities than those explicitly mentioned in
the law. As a result of the amendments to the laws on securities and
credit institutions (approved in 1997) banks are allowed to provide full
range of investment services to their clients beginning January 1,
1999.
The stock exchange becomes a legal entity upon approval by the
government and it starts operation on the basis of the Charter and
procedural rules approved by the HFSA.
The BSE is responsible for examining the liquidity and business
management of its members, the processes of the securities market, it
enforces full compliance with membership regulations and checks
and examines general enforcement of the rules of the exchange by
members in specific cases.
After having applied sanctions, the stock exchange council shall expel
an exchange member if he fails to comply with his obligations
stipulated in the charter and in the fundamental rules of the exchange.
A decision on the expulsion shall be subject to an application for
revision submitted to the general meeting. In the event the general
meeting approves the decision on the expulsion of the member, the
expelled member may resort to law against the decision of the general
meeting within 30 days of the announcement thereof; any failure to
observe this deadline shall involve forfeiture of rights. Initiation of an
action shall have no delaying force in respect of an expulsion. Any
action brought against the resolution of the general meeting, giving
approval of the expulsion, shall fall within the exclusive jurisdiction of
City Court of Budapest.
The legal supervision of the BSE means that all the regulations of the
BSE need the approval of the HFSA, which has the power to impose
penalties such as fines or to suspend the trading in certain securities
or the whole exchange. The HFSA provides for the BSE to make its
own regulations relating to such matters as trading procedure, types
of trades, the listing of securities, the clearing and settlement system,
information system and rules of operation. Under the Securities Act
almost all trading activities, except the basic organizational issues are
to be regulated by the BSE, but the right of approval and overseeing
belongs to the HFSA.
Pursuant to Act XXXIX. of 1994 on the Commodity Exchange and Its
Transactions, the Budapest Commodity Exchange (hereinafter BCE) is
also a self-governing and self-regulating organization owned by its
members which concentrates demand and supply in respect of the
goods licensed and traded on the exchange, in the manner, place and
trading hours pre-defined and published. Centralised trading on the
exchange is conducted through standardised contracts, in the case of
futures transactions, under a guarantee of performance extended by
the Clearing House, providing identical conditions for the conclusion
of transactions. The exchange is a legal entity and may be founded by
an incorporated economic association, co-operative or state-owned
company. Members must fulfil criteria determined by BCE. The
applicants should also have the licence of the supervisory authority.
The constitution and regulations of the commodity exchange, and the
business regulations of the members of the exchange shall become
valid on approval by the HFSA. The Supervision, on a regular basis,
checks whether the activity of trading and the operation of the
exchange are in compliance with the legal rules, the licences, and the
Charter and regulations of the exchange.
The HFSA is entitled to have access to any documents and registers
of the exchange, the members of the exchange and the brokers
related to trading on the exchange. Those mentioned above shall
deliver their documents or data concerning their activity to the
Supervision, on request.
There is one clearing and settlement institution in Hungary , the
Central Clearing House and Depository Ltd. (hereinafter KELER).
KELER was established in 1993. It is a company limited by shares,
shareholders are the National Bank of Hungary (50%), the Budapest
Stock Exchange (25%) and the Budapest Commodity Exchange (25%).
KELER settles all the spot transactions and derivatives traded at the
two exchanges and businesses on government securities dealt on the
OTC market. It was declared as national depository by the
predecessor HFSA in 1995, Moreover, the US SEC accepted it as a
foreign depository according to the point 17F-5 of the US Securities
Act.
The functions and duties of KELER are defined in the Act CXI. of 1996
on the Offering of Securities, Investment Services and the Stock
Exchange.
Principles for Self-Regulation
Principle 7: SROs should be subject to the oversight of the regulator
and should observe standards of fairness and confidentiality when
exercising powers and delegated responsibilities.
7. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
____________________________________________________________
__
7.1 If implemented:
1. Please describe how this principle has been implemented:
Generally the SROs are responsible for the compliance of their
members with the provisions of the relevant laws, rules of the
exchange and those of the central clearing house and depository, as
well.
The BSE is responsible for examining the liquidity and business
management of its members, the processes of the securities market, it
enforces full compliance with membership regulations and checks
and examines general enforcement of the rules of the exchange by
members in specific cases.
The legal supervision of the BSE means that all the regulations of the
BSE need the approval of the HFSA, which has the power to impose
penalties such as fines or to suspend the trading in certain securities.
The HFSA provides for the BSE to make its own regulations relating to
such matters as trading procedure, types of trades, the listing of
securities, the clearing and settlement system, information system
and rules of operation. Under the Securities Act almost all trading
activities, except the basic organizational issues are to be regulated
by the BSE, but the right of approval and overseeing belongs to the
HFSA.
Principles for the Enforcement of Securities Regulation
Principle 8: The regulator should have comprehensive inspection,
investigation and surveillance powers.
8. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
 Implemented
? Partially
implemented
? Not
Implemented
8.1 If implemented:
1. Please describe how this principle has been implemented:
In accordance with the law, the Supervision is authorised to
inspect and investigate organisations under its supervision,
however the Supervision is not empowered to carry out criminal
investigation.
The Supervision is entitled by the Securities Act to retain an
auditor or another external expert included in the list compiled
by the Supervision to perform the on-site examination. The
auditor or external expert carrying the letter of assignment
issued by the Supervision is regarded as an official person
during the procedure and is subject to the same disclosure and
confidentiality requirements than those applicable to the
regulator.
The Supervision is empowered to inspect books, documents and
data carriers of the supervised entities or to request the
supervised entities to submit extraordinary reports, statement,
audit reports and to give information on all of their business
issues.
Such inspection or requests are not subject to other judicial
actions. The supervised entities are obliged by law to enable and
assist the Supervision to perform the on-site examination
ensuring the revision of business books, reports, records and
providing access to the data and information required.
If the persons under the inspection of the Supervision don’t
have the required licences the Supervision has right to prohibit
the pursuance of unauthorised investment service activities.
Due to the fact that activities are penalised by the Penal Code
the Supervision is required to report the case to the police.
2. Are further improvements or changes proposed? If so, please
describe.
The most significant issue is to improve the effectiveness of the
inspection and investigation while supervising the daily operation of
investment services provider organisations.
Principles for the Enforcement of Securities Regulation
Principle 9: The regulator should have comprehensive enforcement
powers.
9. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
 Implemented
? Partially
implemented
? Not
Implemented
9.1 If implemented:
1. Please describe how this principle has been implemented:
Pursuant to the laws, the Supervision is entitled to enforce and has
the power to obtain data, information, documents and records and to
conduct inspection and investigation and as a result of them to act
against market players that do not comply with the relevant legislation
and rules. The Supervision within its sphere of competence,
administrative powers provided by the law can mete out fines, revoke
the licence temporarily or finally or appoint a supervisory
commissioner to the investment service provider company, can
initiate and conduct full-scale administrative proceedings/inquiries. If,
as a result of the inquiry/investigation carried out by the Supervision
the suspicion of any wrongdoing is well-founded then the Supervision
lays information against the offender(s) with the police and/or the
public prosecutor.
2. Are further improvements or changes proposed? If so, please
describe.
The current requirements towards the market players is deemed weak.
More detailed and stricter reporting, risk management and capital
requirements adjusted to market risk should be introduced. The
amendments of the relevant laws are under way and expected to come
into force in 2001.
Principles for the Enforcement of Securities Regulation
Principle 10: The regulatory system should ensure an effective and
credible use of inspection, investigation, surveillance and
enforcement powers and implementation of an effective compliance
program.
10. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
 Implemented
? Partially
implemented
? Not
Implemented
____________________________________________________________
__
10.1 If implemented:
1. Please describe how this principle has been implemented:
The Supervision regularly checks compliance of offering of securities,
investment service activities and the Stock Exchange and the Clearing
House with the relevant laws and regulations, supervisory decisions
and the requirements of the safety of investors. The Supervision is
entitled to perform on-site examination of compliance with the law and
its own decisions on the authorization and operation of investment
firms, the Stock Exchange and the Clearing House.
Supervising investment firms and investment fund management
companies the Supervision conducts on-site inspections in a periodic
manner. However, if it is necessary the Supervision carries out
inspections for cause. In case of routine inspections the supervised
institutions are provided with advance notice of examination, but
inspections for cause are usually conducted unannounced.
Concerning the methodology of on-site examinations substantial
changes have been made recently. The Supervision implemented a
new rating method that facilitates the establishment of inspection
priorities, based largely upon the risks involved in the operation of
supervised entities. However, in case of inspections for cause the
priorities may be (and often are) established by the number and
relevance of complaints concerning the investment firms.
Whenever the results of an inspection can prove the non-compliance
of the inspected entity the Supervision is entitled to take actions
prescribed in the Securities Act. Depending on the type and
seriousness of non-compliance the Supervision may

order the inspected entity to comply with the law or regulations
by setting a deadline,

prohibit the pursuance of unauthorised investment service
activities,

impose a fine,

initiate dismissal of executives or the auditor of the investment
firm,

suspend the subscription and trading of the security, the issue
of the investment instrument, the trading in a section of the
stock exchange or the entire trading on the stock exchange,

prohibit activities of the stock exchange or the clearing house,
suspend the application of the charter or procedures or a
specific provision of these entities or obligate them to prepare
new procedures/make a new decision,

revoke the licence or suspend the provision of the investment
service activities,

initiate proceedings by another competent authority,

delegate a supervisory commissioner.
The Government Decree No. 207 of 1996 establishes the obligation of
investment firms to report their financial and trading data to the
Supervision. Depending on the type of information investment firms
must prepare their reports on a daily or monthly basis. Moreover,
investment firms and issuers of securities are obliged by the
Securities Act to provide the Supervision with their annual reports and
in case of the latter entities their preliminary annual reports.
Principles for Cooperation in Regulation
Principle 11: The regulator should have authority to share both public
and non-public information with domestic and foreign counterparts.
11. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
?? Partially
implemented
? Not
Implemented
11.1 If implemented:
1. Please describe how this principle has been
implemented:
The key factor in cooperation between securities regulators is the
ability and the need to share information, the HFSA is able to request
and provide both public and non-public information from and to
domestic and foreign counterparts.
The Supervision maintains non-public, detailed records on data of
issuers and investment service providers and the subsequent
changes in their data as well.
For the purpose of implementing its tasks laid down in the Securities
Act the Supervision may handle data, including personal data defined
in the Securities Act.
It should also be noted that for the purpose of implementing its tasks
the Supervision may take over data from other authorities - with the
purpose specified - within the range of data defined in the Securities
Act. The receipt of the data shall be documented both at the
organization providing it and at the Supervision.
The President of the Supervision shall ensure the prevention of
illegitimate access, disclosure, alteration or deletion within the
framework of the handling of information, including application of
technical and logical protection ensuring such prevention.
In the course of international cooperation the Supervision may use
data and information received from foreign supervisory authorities,
and may supply information to foreign supervisory authorities, for the
following purposes:
o
assessment of applications for authorization of the
establishment or operation of financial and capital market
organizations, and the examination of the contents of the
authorization,
o
consideration underlying the supervisory decisions, in
particular measures or sanctions
2. Are further improvements or changes proposed? If so, please
describe.
As the domestic markets develop and the national markets are more
intensively integrated into the "global village" the need for closer cooperation is becoming more and more important and inevitable.
Principles for Cooperation in Regulation
Principle 12: Regulators should establish information sharing
mechanisms that set out when and how they will share both public
and non-public information with their domestic and foreign
counterparts.
12. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
12.1 If implemented:
1. Please describe how this principle has been implemented:
Besides the HFSA, the National Bank of Hungary also collects
information on financial sector participants and instruments for
monetary policy purposes. In order to enhance efficiency of both
supervision and monetary policy, there is a Memorandum of
Understanding between the Supervision and the NBH.
The Supervision has MOUs with the following domestic organizations
as well: Institutional Protection Fund of Credit Cooperatives,
Institutional
Protection
Fund
of
Saving
Cooperatives,
Superintendance of Consumer Protection, Fair Competition Office,
Ministry of Economy and National Deposit Insurance Fund.
In the area of international relations the Supervision is empowered to
conclude cooperation agreements with foreign supervisory
authorities.
In the course of international cooperation the Supervision may use
data and information received from foreign supervisory authorities,
and may supply information to foreign supervisory authorities, for the
following purposes:
a) assessment of applications for authorization
of the establishment or operation of financial
and capital market organizations, and the
examination
of
the
contents
of
the
authorization,
b) consideration underlying the supervisory decisions, in
particular measures or sanctions.
The MOUs signed with the regulatory and supervisory
authorities of Quebec(Canada), Luxemburg, Germany,
France, Italy, Austria, Poland, Portugal and Czech Republic
provide a framework for mutual assistance and the
exchange of information to the extent permitted by the
laws and practises of each jurisdiction and place on a
more formal basis the former ad hoc cooperation and
information-sharing.
Principles for Cooperation in Regulation
Principle 13: The regulatory system should allow for assistance to be
provided to foreign regulators who need to make inquiries in the
discharge of their functions and exercise of their powers.
13. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
13.1 If implemented:
1. Please describe how this principle has been implemented:
The Supervision -- under international agreement -- upon receiving a
reasonable and eligible request may immediately and directly transmit
all information that is not qualified as business secret and/or security
secret. Pursuant to Para. 3, Section 116. of the Securities Act the
obligation for the keeping of security secrets does not exist if the
HFSA, on the basis of an international agreement and upon request of
a foreign securities supervisory authority, requests in writing,
information from an investment firm, the stock exchange and clearing
house.
The statutory rules concerning the capital market and the Supervision
differentiate within the information available at HFSA such as security
secret, business secret and banking secret.
On the basis of obligation of confidentiality any fact, information,
solution or data belonging to the scope of business or security
secrets shall not be disclosed to third persons as defined in the
Securities Act and shall not be used for purposes other than
performing tasks without the express authorization by the customer.
Anyone obtaining business or security secrets shall not use such to
get an advantage for themselves or for any other person, directly or
indirectly, or to cause disadvantage to the investment firm, the stock
exchange or the clearing house or to customers thereof.
There are strict business and security secret rules in force for the
Supervision with the exception of the waiver (Section 121. of the
Securities Act) concerning secrecy requirements provided by the law,
HFSA may only transfer information about an investment firm, issuer
or other person or the activities thereof, to other persons or
authorities in consolidated forms which are not suitable for the
identification of the entities concerned. This also means that
information of such nature cannot be disclosed even to other
administrative and investigating authorities in Hungary.
The law clearly defines the range of all those authorities that are
entitled to ask for information embodying security secrets and the
investment firm, the stock exchange and the clearing house shall not
refuse the disclosure of the information to these authorities on the
ground of confidentiality.
Pursuant to Para. f, Section 120. of the Securities Act it shall not
constitute a breach of security secret if the data transfer is performed
in a way suitable for the supervisory authority with competency over
the headquarters of the foreign investment firm to carry out its
supervisory activities and in line with the MOU entered into between
the foreign supervisory authority and the Supervision.
It should be noted that the requesting authority may not communicate
the information received from the requested authority to other
authorities of its country without the prior consent of the requested
authority. The requesting authority may use the information solely for
the purpose stated in the request sent to the requested authority.
The Supervision, within its sphere of competence, administrative
powers provided by the law can initiate and conduct full-scale
administrative proceedings/inquiries.
It stands to reason that the Supervision through its experts is involved
and their expertise is used in judicial and other criminal investigation
proceedings related to securities wrongdoings. If, as a result of the
inquiry/investigation carried out by the Supervision the suspicion of
any wrongdoing is well founded then the Supervision lays information
against the offender(s) with the police or the public prosecutor.
Principles for Issuers
Principle 14: There should be full, accurate and timely disclosure of
financial results and other information which is material to investors’
decisions.
14. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
14.1 If implemented:
1. Please describe how this principle has been implemented:
Act CXI of 1996 on the Offering of Securities,
Investment Services and on the Stock
Exchange governs the conduct of issuers
based on the principle of full and fair disclosure
to investors. The issuers are required by the
Act to disclose financial and other information
at a regular basis or in case the information
may have an effect on the value or the yield of
the security.
The Supervision has to approve the prospectus
within 60 days after submission. Upon the
request of the Supervision, the issuer and the
broker is obliged to verify the facts presented in
the prospectus.
The Supervision is entitled to inspect the
documents in the possession of the broker and
the issuer that form the basis of the prospectus,
to ask for copies thereof as well as to have
them examined by professional experts.
The Supervision may request specification of
details of any fact presented in the prospectus
submitted for approval and/or the provision of
additional data or deletion of certain data or
statements.
The Supervision refuses the approval if the
prospectus is not in compliance with the
provisions of any law, the intention of the
prospectus is the abuse of the law and the
broker and the issuer fail to comply with the
requests of the Supervision.
If the Supervision becomes aware of any fact or
circumstance during the period between the
approval of the prospectus and the closing of
subscription period or sale, that requires an
amendment to the prospectus, following a
hearing of the broker and the issuer the
Supervision orders the amendment of the
prospectus. Amendment to the prospectus
requires the approval of the Supervision. The
Supervision may suspend the offering until the
publication of the amendment. It may suspend
the offering also in the case of non-compliance
with the criteria defined in a law, decisions, in
the charter and/or procedural rules of the stock
exchange, in the business procedures and/or
other procedural rules of the clearing house, as
well as in the case of conduct jeopardizing the
interests of the investors and the equilibrium of
the capital market as well as the position of the
other participants in the capital market.
If the Supervision becomes aware of any fact or
circumstance during the period of offering,
which would have required the refusal of the
approval or which seriously violates the
interests of investors, the Supervision revokes
its approval for the publication of the
prospectus and obliges the issuer and the
broker to terminate the offering.
The issuer and the broker have to publish
jointly the public offer in a notice indicating the
reference number and date of the approval of
the prospectus, the place, time and availability
of the prospectus or its publication.
The public offer contains the name of the
issuer, the volume (number) of the securities,
the nominal value, the sale price (issue price)
as well as the period of time available for
subscription.
The notice has to be published not later than
seven days prior to the first day of the
subscription (sale) period in one daily paper of
nation-wide circulation and in the journal of the
Stock Exchange.
Prior to the commencement of the subscription
period the whole text of the prospectus has to
be made available to the public free of charge at
all places of subscription or has to be
published in the same daily paper where the
public offer was published. In the latter case a
notice must be placed at all subscription places
specifying the daily paper and the date of
publication.
The above requirements refer all kinds of
issues and to all issuers except of the
Government.
There aren’t any restrictions on, or disclosure
requirements with respect to the content of
information that an issuer discloses outside the
prospectus during an offering, such as in
advertisements, "roadshow" materials or on the
issuer’s Internet web site.
The issuer, the broker and auditor are required
to take legal liability for the content of the whole
prospectus.
As explained above, the Supervision has the
power to review the prospectus to determine
whether it meets the prospectus requirements
and it does the work in practice. If the issue of a
security entails risks different from the average
risks undertaken by investors, the Supervision
may require the broker and the issuer to include
a salient indication of this fact at the beginning
of the prospectus and in its notices.
There aren’t any circumstances in which an
issuer is permitted to withhold such information
from the public which are required to be
disclosed. The Supervision has no competence
to approve the withholding of any information.
The issuers are required to prepare listing
particulars by Stock Exchange when they seek
to list their securities on a stock exchange. It is
available to the public.
The most important differences between
prospectus for public offering and prospectus
for listing are the followings:

Consolidated figures are required in the listing prospectus,
whereas in the prospectus for public offer issuers are not
obliged to provide consolidated data.

Financial data in the listing prospectus can be drawn from
figures generated according to international accounting rules
(IAS, GAAP, etc.). The prospectus for public offering contains
data along with the line of Hungarian Accounting Rules.

The prospectus for public offering contains planned dividend
payment, and other plan data. The prospectus used for listing
securities should comprise only fact figures, must not contain
plan figures.
The Listing Rules of the Budapest Stock
Exchange (BSE) say: "Issuers shall draw up a
prospectus in order to make the public
disclosures required for listing. The prospectus
shall contain all material information required
for evaluating the economic position of the
issuer."
In accordance with the BSE Regulations the
prospectus prepared for stock exchange listing
must contain the following information.

Particulars of the company: company name, official seat, share
capital, newspaper in which official statements are published,
etc.

Securities structure, the figures of previous securities issues.

An overview of the company’s activities (scope of activities,
organizational and staff structure, senior members of the
management and data on their shareholdings, brief introduction
of the companies included in consolidation).

It must be mentioned whether any bankruptcy or liquidation
procedure was initiated against the company (or its legal
predecessor) during the three calendar years preceding the
listing, or whether it failed to perform its payment obligations for
a longer period of time. Furthermore, any legal disputes, which
may have significant financial consequences, must be
presented.

Consolidated and audited financial statements according to IAS
or HAL principles (balance sheet, profit and loss account, and
cash flow statement). Analysis of the company’s financial and
economic position supported by financial indices, together with
an overview of the given sector and an explanation of changes
in profitability. The prospectus must also include figures not
older than six months (which do not have to be audited). In the A
and B listing categories, the analysis must cover three years
preceding the listing.

Highlighting of risk factors involved in the given business
activity.

The prospectus may also contain other – compulsory –
information which in theory may be submitted later: such as
ownership structure, the identification number of the public
offering license, nominal value of free float, etc.
The Chief Executive Officer of the BSE decides
on the Issuer’s application based on the
Prospectus or the Information Memorandum
and the annexes drawn up for listing the
securities. The Chief Executive Officer of the
BSE will evaluate the listing within (30) thirty
days.
The BSE examines the documents attached to
the application for listing and will upon a failure
to submit a necessary annex, notify the
applicant, indicating the missing elements
within 8 business days. The deadline for
evaluation will be postponed in line with the
time allotted to supplying such elements.
Based on a submission by the Chief Executive
Officer of the Exchange, the Exchange Council
has the authority to reject applications for
listing. The Council may refuse listing in the
following cases:
a.) the Issuer fails to meet one of the
requirements specified for listing in these
Regulations;
b.) the Council has reason to deem that listing
the security jeopardizes fair and safe trading or
is contrary to the interest of investors.
1. Are further improvements or changes proposed? If so, please
describe.
The Securities Act is being upgraded. We plan
to shorten the time limit for extraordinary
disclosure of information from the existing two
days. According to our plans, the new act will
be tabled before Parliament this year and will be
effective from the beginning of next year.
Principles for Issuers
Principle 15: Holders of securities in a company should be treated in a
fair and equitable manner.
15. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
15.1 If implemented:
1. Please describe how this principle has been implemented:
Act CXI. of 1996 on the Offering of Securities,
Investment Services and on the Stock
Exchange and Act CXLIV of 1997 on Companies
regulate the fair treatment of all shareholders of
a company.
Issuers are required to disclose publicly the
identity and ownership position of a
shareholder if its direct and indirect share
exceeds thirty-three per cent at the time this
limit
is
surpassed.
Further
disclosure
requirements at general meeting are not
necessary. There are stricter rules for banks
and investments service providers.
Statutes of companies may require more
stringent regulations than it is stipulated by the
law.
For the general meeting of the issuer the issuer
has to present its audited financial statements.
A public offer shall be made in connection with the acquisition by the transfer
of shares - either directly or indirectly - of more than thirty-three per cent of the
voting shares of a public limited company. Business policy plans regarding the
future operation of the company have to be disclosed, and if the bidder is a
company, it shall also compile information regarding its prior business
activities.
The subject of the public offer shall be the company’s
shares in excess of thirty-three per cent of voting shares,
and the public offer shall also apply to convertible bonds.
The public offer has to be directed to all shareholders and
convertible bond holders of the company and must cover
at least a further fifty per cent of the voting shares and
convertible bonds. Each shareholder and convertible bond
holder shall be given equal opportunity during the public
offer to decide whether to accept or reject the offer. The
time frame available for the acceptance of the offer must
be at least thirty days.
The price offered in the case of shares traded on the stock
exchange must not be less than the weighted average
stock exchange price of the ninety days preceding the
offer and in the case of shares not traded on the stock
exchange, the weighted average price of the 180 days
preceding the bid, as published by the stock exchange.
Directors or other members of senior
management of an issuer are not required to
disclose any compensation or personal benefits
they may receive in connection with a proposed
transaction involving the issuer.
Resolutions of the general meeting which
discriminate against the rights attached to a
certain series of shares may be passed only if a
majority of at least three-quarters of the
shareholders of the series of shares in question
consent. The provisions on the possible
restriction or exclusion of voting rights
attached to such shares may not be applied.
A resolution of the general meeting aiming at the change of
the form of a public company may be passed only if a
majority of at least three-quarters of the shareholders
representing at most one percent each of the votes
consent.
Members (shareholders) representing one-tenth
or more of the votes may at any point in time
request that the company's supreme body be
convened, indicating the reason and the
purpose thereof. Statute of the company may
also grant this right to shareholders
representing a smaller proportion of the votes.
If the management does not comply with this
request within a period of thirty days, upon the
request of the shareholders making the
proposal, the court of registration shall
convene the meeting of the company's supreme
body within a period of thirty days after the
submission of a request to this effect. There
shall be no appeal against a judgment of the
court of registration admitting such a request.
If shares belonging to different series are
issued, the resolution of the general meeting
related to the increase of the share capital may
be passed only if a majority of at least threequarters of the shareholders of the series of
shares concerned in the share capital increase
consent. In the course thereof, the provisions
on the possible restriction or exclusion of
voting rights attached to such shares may not
be applied.
At the time of the public offering the issuers are required to
disclose publicly the identity and ownership position of
each shareholder registered in the share register, whose
shareholding is in excess of five percent of the share
capital, specification of shareholding, by each class of
share and the names of the holders (registered in the share
register) of shares of a minimum of ten percent of earlier
issued securities of the issuer. Shareholders don’t have to
disclose their identity and ownership position at annual
meetings.
Principles for Issuers
Principle 16: Accounting and auditing standards should be of a high
and internationally acceptable quality.
16. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
16.1 If implemented:
1. Please describe how this principle has been implemented:
Hungarian accounting and auditing standards
are largely compliant with the relevant
international standards. The Ministry of Finance
continues to work towards harmonizing
Hungarian standards with international ones.
The publicly owned companies required to
publish on an annual basis financial statements
audited by an external auditor. The issuers are
required to provide audited financial statements
in offering prospectuses for all types of
offerings.
The Supervision has the power to review
financial statements filed by public companies.
The Supervision has power to oblige the issuer
to give details of financial statements contained
in prospectuses and to review listing
documents, annual financial statements and
other periodic or extraordinary reports.
Principles for Collective Investment Schemes
Principle 17: The regulatory system should set standards for the
eligibility and the regulation of those who wish to market or operate a
collective investment scheme.
17. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
??Partially
implemented
Not Implemented
17.2 If partially implemented:
1. Please describe what has been done with
regard to implementation and what remains to
be done.
Act LXIII of 1991 on Investment Funds regulates investment fund
management companies and custodians and sets standards.
Investment fund management activity may be performed only with the
licence of the Supervision. Licence may be granted to those
companies which perform only investment fund management activity
and/or pension fund management activity. The companies carrying
out investment fund management activity have to be companies
limited by shares with a minimum capital of HUF 20 million. (As of
May, 2000 1EURO equals to circa 260,- Hungarian Forints)
Shareholders of the fund manager holding a share or vote in excess of
twenty-five per cent, the senior officers and senior employees of the
fund manager may only be persons with high business and
professional reputations.
The investment fund manager has to employ a custodian independent
from its organisation. Custodian may be only a bank approved by the
Supervision. Investment fund manager and custodian must not have a
direct and indirect share of each others’ ownership greater than 10 per
cent.
The Supervision may carry out on-site inspection at the fund manager
and the custodian before granting the licence and any time during
their activity.
The sale and redemption of investment units, as well as the payment
of proceeds are the responsibilities of the custodian, and/or the
securities trader designated by the investment fund manager.
Principles for Collective Investment Schemes
Principle 18: The regulatory system should provide for rules
governing the legal form and structure of collective investment
schemes and the segregation and protection of client assets.
18. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
??Partially
implemented
? Not
Implemented
18.1 If implemented:
1. Please describe what has been done with
implementation and what remains to be done.
regard
to
The Act LXIII of 1991 on Investment Funds regulates the form and
structure of investment funds.
In a company name, advertisement or in any
other form, the designation "investment fund
manager" may be used only by an investment
fund management company established and
operated according to the stipulations of this
Act.
The designation "investment fund" may be
used to indicate only investment purpose funds
established and operated according to the
stipulations of this Act.
The Supervision - while banning further illegal
use of the name - may impose a fine on those
who contravene these prohibitions. The fine
may be imposed repeatedly.
Investment fund management activity may be performed only with the
licence of the Supervision. Licence may be granted to those
companies which perform only investment fund management activity
and/or pension fund management activity. They may establish and
manage several funds but the assets have to be managed and
registered separately.
Fees and commissions have to be disclosed.
The investment fund manager has to employ a
custodian independent from its organisation.
Custodian may be only a bank approved by the
Supervision. Investment fund manager and
custodian must not have a direct and indirect
share of each others’ ownership greater than 10
per cent. The custodian has to control the
activity of the fund manager. Deficiencies have
to be reported immediately to the fund manager
and to the Supervision.
The custodian has to calculate the net asset
value of the fund.
The fund manager has to employ an
independent auditor to audit the annual report
of the fund. The auditor has to report all
deficiencies to the Supervision.
Principles for Collective Investment Schemes
Principle 19: Regulation should require disclosure, as set forth under
the principles for issuers, which is necessary to evaluate the
suitability of a collective investment scheme for a particular investor
and the value of the investor’s interest in the scheme.
19. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
19.1 If implemented:
1. Please describe how this principle has been
implemented:
Section 24 – 28 of the Act LXIII of 1991 on Investment Funds regulates
the disclosure requirements of investment funds.
The basic condition of the public offering of
investment units is that the fund manager
publishes a prospectus. The prospectus has to
contain all information that enable the
assessment of the operation, investment
principles and management of the investment
fund, as well as of the risks of investing in the
said investment fund. The prospectus must not
contain future promises, or comparison with
any other investment funds managed by other
fund managers.
The fund manager shall, after closing the first
half of the year, and after the closing of the year
disclose information on the investment fund
managed by it to the investors, in accordance
with Schedule No. 2. and 3. of the act. (See
attached.) The biannual prospectus shall be
published within sixty days of the subject half
year and the annual prospectus within 120
days.
It is forbidden to disclose any data differing
from the contents of the prospectus and the
rules of management, and to make any
promises in respect of the proceeds, or
increase in the capital of the investment fund.
The proceeds of individual investment funds
managed by the same fund manager may only
be compared on the basis of clearly described
calculation methods.
The fund manager has to make available the
prospectuses to the investor on his or her
request free of charge.
The fund manager shall publish in two national
daily newspapers, as well as in the official
journal of the Stock Exchange, when and where
investors may obtain copies of the annual and
the bi – annual information material.
Attachment to Principle 19
Schedule No. 2 to Act LXIII of 1991
Compulsory Substantial Elements of the Biannual Prospectus
a) Names and seats of managing and custodian companies.
b) Name of investment fund.
c) Number of investment units offered for trading in respect of the investment fund, and in
circulation at the time of the completion of the biannual prospectus.
d) Net asset value per investment unit as at 30 June of the subject year.
e) Composition of stock of securities or real estate by kinds, types, and itemized by securities
and real estates.
f) Detailed information on any changes in the composition of the stock of securities or real
estate.
g) Quantity of investment units newly issued and redeemed during the period covered by the
prospectus, in a monthly breakdown.
h) Ratios of securities listed or traded on the Stock Exchange and those not traded on the
Stock Exchange in the securities portfolio.
i) Itemized list of liquid assets.
Schedule No. 3 to Act LXIII of 1991
Compulsory Substantial Elements of the Annual Prospectus
a) Names and seats of managing and custodian companies.
b) Name of investment fund.
c) Property account of investment fund certified by an auditor, in which any increase in capital
and decrease in capital shall be indicated by legal titles.
d) An itemized description of the securities or real estate portfolio as at 31 December.
e) Development of liquid assets in a monthly breakdown.
f) Number and net asset value of investment units offered for trading in respect of the
investment fund, and in circulation at the date of the completion of the annual prospectus.
g) Proceeds paid for investment units, and annual amount of capital increment following
payment of proceeds.
Principles for Collective Investment Schemes
Principle 20: Regulation should ensure that there is a proper and
disclosed basis for asset valuation and the pricing and the redemption
of units in a collective investment scheme.
20. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
20.1 If implemented:
1. Please describe how this principle has been
implemented:
The net asset value of the securities fund has to
be calculated by taking into account the price of
securities held by the securities fund on the
previous day and the value of its liquid assets.
If the securities are listed or traded on the stock
exchange, they have to be taken into account at
their stock exchange average price of the
previous day rated by turnover, while securities
not traded on the stock exchange but offered to
the public shall be taken into account at the
daily (closing) price, when calculating the net
asset value.
The net asset value of the real estates of a real estate fund has to be
calculated at least quarterly by an independent organisation
specialised in real estate evaluation. The assignment of the
organisation has to be approved by the Supervision.
The net asset value of an open-end fund and
the asset value of each investment unit has to
be calculated daily, and is to be published on
the first business day following calculation in
two national daily newspapers, as well as in the
official journal of the stock exchange. The net
asset value shall be calculated by the
custodian, and the fund manager shall be
responsible for the publication.
The net asset value of a closed-end fund has to
be calculated at least bi-weekly, and has to be
published in two national daily newspapers, as
well as in the official journal of the stock
exchange on the first business day following
calculation. The net asset value shall be
established by the custodian, and the fund
manager shall be responsible for the
publication.
Detailed rules of calculating the net asset value
(methods of evaluation in respect of each class
and type of securities, the procedure of
calculation in case the security was not traded
on the day in question or if it is traded in a
different time-zone etc.) has to be included in
the Rules of Management of the investment
fund.
Investment units of a securities fund have to be
sold or repurchased every working day based
on the net asset value. Sale and repurchase
may be suspended in the interest of the
investors if the net asset value cannot be
determined, or if its stock exchange circulation
is suspended. The Supervision may suspend
sale and repurchase of the investment units in
the interest of the investors for a maximum of
ten working days. Investment units of a real
estate fund can be repurchased after a notice of
maximum ninety days.
Principles for Market Intermediaries
Principle 21: Regulation should provide for minimum entry standards
for market intermediaries.
21.
What is your assessment of the current status of your
jurisdiction regarding implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
21.1 If implemented:
1. Please describe how this principle has been
implemented:
Act No. CXI. of 1996. on the Offering of Securities, Investment
Services and on the Stock Exchange defines the types of investment
service activities and investment service providers. Investment
service activities may be carried out only with the licence of the
Supervision.
There are common basic entry standards for all investment service
providers. They have to meet the material-technical requirements, the
requirements for personnel defined in the Act and in government
decrees connected to the Act. They have to prepare internal rules and
regulations such as general contractual conditions, internal
procedural rules for preventing money laundering, procedural rules of
handling of cash and other valuables. An independent auditor has to
prove the suitability of the information system of the investment
service provider for the establishment of its actual financial position
at any point of time.
Investment firms (commission brokerage companies, securities
trading companies and securities investment houses) have to meet
special entry requirements:
An investment firm may be incorporated only in the form of a
company limited by registered shares or as a branch unit of a foreign
investment firm. The registered initial capital of an investment firm - in
the case of branch units capital endowment shall be interpreted as
registered capital - may be no less than:
a) for commission brokerage companies, twenty million Forints,
b) for securities trading companies, one hundred million Forints,
c) for investment houses, one billion Forints,
which may only be provided in the form of cash contribution,
including increases of the registered capital and may only be
contributed through a credit institution which does not participate in
the foundation, and/or in which the founder has no proprietary interest
and which has no proprietary interest in the founder. (As of May, 2000
1EURO equals to 260,- Hungarian Forints)
The investment firms applying for licence from the Supervision have
to prove the application for the joining of the Investor Protection Fund
and provide the name of any other entities in which the applicant has
a shareholding, the internal regulations of their accounting policy and
the internal accounting procedures; prove the suitability of their
business record keeping system and of their controlling system.
Custody operations and safekeeping services of securities may be
carried out if the applicant has a property insurance policy providing a
coverage of a minimum of fifty million Forints per claim; and its
security, custody operation and depository operation procedures
have to be approved by the Supervision.
Supervision has right to reject or revoke the license if the investment
firm doesn’t comply with the prescription of the Act, presents
misleading or false information in the course of the licensing
procedure, has not proven its intent of joining the Investor Protection
Fund or has been excluded from the membership of the Fund, fails to
start the authorized activity within six months of the issue of the
license or fails to perform such activities for over six months, or
discontinues the activity.
Contracts of acquisition of ownership in investment firms for an
aggregate share of a minimum of ten percent have to be licensed by
the Supervision. The acquisition is licensed by the Supervision if the
applicant proves the legitimate origin of the financial resources
required for the acquisition, has no tax and social security liabilities,
is not subject to the restrictions on ownership defined in the Act
(which prohibits cross ownership between investment firms), its other
business interests and business activities do not jeopardize the safe
operation of the investment firm. Individual shareholders must have
clean criminal records, companies must not be subject to bankruptcy
or liquidation proceedings.
In case if an entity intends to increase its influential shareholding in
an investment firm in the way that its ownership or voting power
reaches fifteen, thirty three, fifty or seventy five percent, it has to go
through similar procedures as described above.
Principles for Market Intermediaries
Principle 22: There should be initial and ongoing capital and other
prudential requirements for market intermediaries that reflect the risks
that the intermediaries undertake.
22. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
22.2 If partially implemented:
1. Please describe what has been done with
regard to implementation and what remains to
be
done.
2.
Are
needed
improvements/amendments related primarily to:
There are initial capital requirements as mentioned in point
21.1.1.which are in connection with the general risks of the conducted
investment service activities. Parallely, investment firms have to
maintain proper ongoing capital to comply with different conditions.
The own equity of the investment firm must not be smaller than the
minimal amount of the initial capital.
Capital requirements do not reflect the risks properly.
Adjusted capital consists of own equity and other capitals which may
be taken into account and utilised in case of insolvency. The adjusted
capital must not be smaller than the minimal amount of the initial
capital as well. Besides the adjusted capital of the investment firm has
to be equal to at least eight percent of the total value of its exposures.
The total amount of the exposures of an investment firm arises from
its open positions, deferred payments, the loans it has extended, the
possible consolidated depreciation of the investment instruments
held and the outstanding underwritten amount not covered by subunderwriting by a credit institution or another investment firm.
An investment house must generate general reserves from its profit
(ten percent of the profit) after tax, prior to the payment of dividends.
It becomes the part of own equity.
The Act No. CXI. of 1996. on the Offering of Securities, Investment
Services and on the Stock Exchange restricts undertaking of large
risks. It is regarded as a large risk if the total value of the exposures
undertaken in relation with one customer exceeds ten percent of the
adjusted capital of the investment firm The total value of the risks
undertaken by the investment firm in relation with one customer - not
including institutional investors - must not extend twenty five percent
of the adjusted capital of the investment firm and the total aggregate
value of the large risks undertaken by the investment firm shall not be
in excess of eight times the adjusted capital of the investment firm.
In order to avoid unproper investments the extension of activities of
investment firms are restricted. Investment firms are prohibited to
acquire interest entailing unlimited liability and real properties unless
it is required to perform its own activities. Only investment houses are
permitted to keep shares for a period of more than one year. Other
kinds of investment firms may acquire shares for the purpose of
investment only in (ancillary) enterprises directly serving their
investment service activities.
The investment firm shall maintain its solvency on a permanent basis:
it has to keep five percent of its registered capital in liquid assets
(cash and government securities) at all times.
?.
Initial and ongoing
capital requirements
?
Prudential requirements for
market intermediaries
? Sanctions for failure
to meet prudential
requirements
? Others
(Please
describe)
3. Please describe the major impediments that
exist with regard to implementation. Are there
areas in which you would welcome assistance
in order to achieve full implementation?
4. Please describe your current plans for implementation and the
timetable for giving effect to those plans.
The Government Decree on the Trading Book and the market risk
capital requirement which is the transposition of the European
Union’s Capital Adequacy Directive is under elaboration. It is planned
to come into effect in 2001.
Principles for Market Intermediaries
Principle 23: Market intermediaries should be required to comply with
standards for internal organization and operational conduct that aim
to protect the interests of clients, ensure proper management of risk,
and under which management of the intermediary accepts primary
responsibility for these matters.
23. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
23.2 If partially implemented:
1. Please describe what has been done with
regard to implementation and what remains to
be done:
Act No. CXI. of 1996. on the Offering of Securities, Investment
Services and on the Stock Exchange defines the internal rules and
regulations necessary for issuing the license of an investment firm.
These are the following: the activity plan, general contractual
conditions, the internal procedural rules to be applied to prevent
money laundering, the procedural rules of handling of cash and other
valuables, rules in connection with conflicts of interest, internal rules
relating to the physical safety of the investment firm, the procedural
rules relating to the handling of securities in deposit, accounting
policy and the internal accounting procedures, internal regulations of
its business record keeping system, internal regulations of its
controlling system.
Before issuing the licence, the Supervision has to approve the general
contractual conditions the procedural rules to be applied to prevent
money laundering, the internal rules relating to the physical safety of
the investment firm, the procedural rules relating to the handling of
securities in deposit. Amendments have also to be approved.
Obligatory elements regarding the contents of most internal
regulations are strictly prescribed.
Duties of the management of any business entity are defined in Act
CXLIV of 1997 on Companies. The management has to fulfil its duties
with due diligence and has to obey the laws and other regulations. It
can be called to account on the basis of the civil code and the criminal
code.
The Supervision elaborated a draft to amend the Government Decree
on the Personal and Technical Requirements and the draft of a Decree
of the Minister of Finance on the Internal Control Systems and
Procedures. They have been submitted to the Ministry of Finance and
they are under scrutiny. We expect them to be issued in 2000.
Principles for Market Intermediaries
Principle 24: There should be a procedure for dealing with the failure
of a market intermediary in order to minimize damage and loss to
investors and to contain systemic risk.
24. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
x Implemented
? Partially
implemented
? Not
Implemented
24.1 If implemented:
1. Please describe how this principle has been implemented:
The Supervision may appoint one or more supervisory commissioners
in an investment firm if the investment firm has got into a position
where it may not be able to meet its obligations; its board of director
(or any executive) is not capable of performing its responsibilities and
it threatens the interests of the investors; or the deficiencies in its
accounting or internal controlling system are of such gravity that the
assessment of the financial position of the enterprise becomes
impossible.
During the period of assignment of the supervisory commissioner the
executives may exercise their right to sign only with the countersignature of the supervisory commissioner. If there is no executive or
person authorised to sign, the tasks of the executives and the right to
sign have to be performed by the supervisory commissioner.
If a receivable is deemed as frozen (i.e. the investment firm is not able
to provide the receivable to the investor within five days of the due
date), the Investor Protection Fund pays the frozen receivables to the
persons entitled to indemnification up to a maximum limit of one
million Forints to each person and investment firm.
The Fund has its assets from the entry fees and annual fees of its
members. Each investment firm has to be member of the Fund. If the
assets of the fund are not sufficient, the members may pay
extraordinary contribution up to three times the annual fee. If it is not
sufficient, the persons entitled to indemnification may queue.
In case of liquidation of an investment firm the provisions of Act IL of
1991 on Bankruptcy and Liquidation Procedures apply.
In order to contain systemic risk on the spot markets, the Central
Clearing House and Depository has two guarantee funds, one for
government securities and one for other securities. In case of failure
of a Stock Exchange member the guarantee funds warrant. The funds
have their assets form payments of the Stock Exchange members
which are proportional to the turnover. The Central Clearing House
and Depository has unlimited right to increase the payments of the
members, therefore, there is an unlimited guarantee.
In order to contain systemic risks on the futures market, the Central
Clearing House and Depository liquidates the position if the exchange
member fails to pay in the margin on time. In addition, there are two
guarantee funds for futures transactions, one for the Stock Exchange
transactions and one for the Commodity Exchange transactions. The
funds have their assets form payments of the Exchange members
which are proportional to the turnover.
2. Are further improvements or changes
proposed? If so, please describe.
The Supervision has its own non-profit liquidator firm which is
exclusively dealing with liquidation procedures of credit institutions.
We intend to increase the scope of this firm to deal with liquidation
procedures of investment firms as well. This change will be effected at
the course of the upgrading of the securities law. The new securities
law will come to force most probably at the beginning of 2001.
Principles for the Secondary Market
Principle 25: The establishment of trading systems including
securities exchanges should be subject to regulatory authorization
and oversight.
25. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
25.1 If implemented:
1. Please describe how this principle has been
implemented:
Act. No. CXI. of 1996 on the Offering of
Securities, Investment Services and on the
Stock Exchange regulates the establishment,
organisation, operation and dissolution of the
stock exchange, the foundation and operation
of the clearing house, furthermore contains the
main and basic rules, minimum standards of
the capital market securities transactions.
The stock exchange is a " sui generis" legal
person.
The rules of the trading system on the stock
exchange are regulated by the stock exchange
itself. It is to be noted that the stock exchange
is a self- regulating, self-governing body under
the rules of The Act. This legal principles
means that the stock exchange defines its own
charter and procedural rules, that is to say it
creates the rules of trading on the stock
exchange in the Trading Procedural Rules. The
charter and the procedural rules of stock
exchange comes into effect with approval of the
Supervision.
Principles for the Secondary Market
Principle 26: There should be ongoing regulatory supervision of
exchanges and trading systems which should aim to ensure that the
integrity of trading is maintained through fair and equitable rules that
strike an appropriate balance between the demands of different
market participants.
26. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
26.1 If implemented:
1. Please describe how this principle has been implemented:
The rules which can ensure the undertaking of
this principle are following:
All internal regulations of the Stock Exchange
have to be approved by the Supervision prior to
coming to force. This includes introduction of
new trading systems as well.
A representative of the Supervision may be present during the trading
sessions of the Stock Exchange. Since the trade is usually conducted
electronically, the Supervision has a workstation in its premises
where a representative of the Supervision can follow all transactions.
Internal regulations of the Stock Exchange are
adopted by the Stock Exchange council in
which the brokers, issuers and investors have
representatives.
Principles for the Secondary Market
Principle 27: Regulation should promote transparency of trading.
27. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
27.1 If implemented:
1. Please describe how this principle has been
implemented:
In case of a security introduced to the stock exchange (except of
government securities) or in case of other stock exchange products
the broker may perform contracts exclusively through trading on the
stock exchange. In the case of a commission contract the broker may
perform the contract as a transaction on its own account or
consolidate it with other transactions or break it up only with express
consent of the customer. The broker shall be obliged to perform
contracts with identical content in time sequence and in the case of
transactions of identical contents, to grant priority to the transactions
for the customers, over the transactions on its own account.
All transactions are published by the stock exchange in time
sequence
in the daily bulletin of the Stock Exchange.
In case of publicly offered securities not introduced to the stock
exchange the brokers may publish their own bid and offer prices. In
this case the broker has either to specify the smallest and largest
volume for which the bid and offer price is valid with duration of the
offer, or the specified price is valid until the withdrawal or
modification of the price. In this case the broker has to publish the
withdrawal or modification of the price quote in a way identical with
the publication of the earlier bid and offer price.
During the period of validity of the price quote the broker may deviate
in various sale and purchase contracts from the published price only
in the case of the occurrence of an extraordinary event, together with
the simultaneous notification of the Supervision.
The brokers have to notify the stock exchange about all transactions
with publicly offered securities not introduced to the stock exchange.
The stock exchange publishes all transactions monthly.
2. Are further improvements or changes
proposed? If so, please describe.
The notification requirements of brokers in case of transactions with
publicly offered securities not introduced to the stock exchange are
planned to change. In the future, the brokers will have to notify the
Supervision and the transactions will be published by the
Supervision.
Principles for the Secondary Market
Principle 28: Regulation should be designed to detect and deter
manipulation and other unfair trading practices.
28. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
28.1 If implemented:
1. Please describe how this principle has been
implemented:
Manipulation of trade and other unfair trading practices are dealt with
in the Act No. CXI. of 1996. on the Offering of Securities, Investment
Services and on the Stock Exchange and the Penal Code. According
to the Securities Act fine may be imposed on those who enter into
unfair price manipulation or insider trading. According to the Penal
Code confinement up to three years may be imposed on a person who
enters into insider trading.
According to present practice the Stock Exchange monitors unusual
price movements and in case of suspicion of price manipulation or
insider trading they will be reported to the Supervision which
conducts the investigations, if necessary imposes fine or transfers the
case to the police.
2. Are further improvements or changes
proposed? If so, please describe.
There is a contradiction of the definition of insider information
between the Securities Act and the Penal Code. According to the
Penal Code information relating to the issuer is insider information,
and information relating to the security itself (i.e. the sale order for a
larger amount) is not defined as such, while the Securities Act defines
both information as insider information. The Supervision has
proposed the modification of the Penal Code.
The Supervision has the technical equipment to monitor unusual price
movements. We plan not to resort to the signals obtained form the
Stock Exchange only but to monitor unusual price movements as well.
Principles for the Secondary Market
Principle 29: Regulation should aim to ensure the proper management
of large exposures, default risk and market disruption.
29. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
??Not
Implemented
29.1 If implemented:
1. Please describe how this principle has been
implemented:
2. Are further improvements or changes
proposed? If so, please describe.
29.2 If partially implemented:
1. Please describe what has been done with
implementation and what remains to be done.
regard
to
The Act No. CXI. of 1996. on the Offering of Securities, Investment
Services and on the Stock Exchange restricts undertaking of large
risks. It is regarded as a large risk if the total value of the exposures
undertaken in relation with one customer exceeds ten percent of the
adjusted capital of the investment firm The total value of the risks
undertaken by the investment firm in relation with one customer - not
including institutional investors - must not extend twenty five percent
of the adjusted capital of the investment firm and the total aggregate
value of the large risks undertaken by the investment firm shall not be
in excess of eight times the adjusted capital of the investment firm.
2. Are needed improvements/amendments related primarily to:
 Definition of
large
exposures
 Monitoring
of large
exposures
??Procedures
relating
to defaults and
market disruption
 Co-operation
between market
authorities
? Others
(Please
describe)
1. Please describe the major impediments that exist with regard to
implementation. Are there areas in which you would welcome
assistance in order to achieve full implementation?
2. Please describe your current plans for implementation and the
timetable for giving effect to those plans.
The new legislation is expected to come into force from the
beginning of the next year.
Principles for the Secondary Market
Principle 30: Systems for clearing and settlement of securities
transactions should be subject to regulatory oversight, and designed
to ensure that they are fair, effective and efficient and that they reduce
systemic risk.
30. What is your assessment of the current
status
of
your
jurisdiction
regarding
implementation of this Principle?
? Implemented
? Partially
implemented
? Not
Implemented
30.1 If implemented:
1. Please describe how this principle has been implemented:
Act No. CXI. of 1996. on the Offering of Securities, Investment
Services and on the Stock Exchange regulates the activities of the
Central Clearing House and Depository and its regulatory oversight.
All transactions effected on the Stock Exchange are settled through
the Central Clearing House and Depository.
The business procedures and other procedural rules of the clearing
house require approval by the Supervision prior to coming into force.
A representative of the Supervision is entitled to participate, with a
consulting right, in the general meeting and the meeting of the board
of directors of the clearing house.The clearing house has to prepare
reports on its activities to the Supervision.
In order to protect the interest of the investors and of those using the
services of the clearing house the Supervision may restrict the right of
disposal over certain accounts kept by the clearing house for a period
of maximum thirty days.
The Supervision may withdraw the license of the clearing house with
the approval of the Minister of Finance and the President of the
National Bank of Hungary.
In order to maintain its solvency the clearing house creates reserves.
Funds to ensure reduction of systemic risks are dealt with in the
answer relating to principle 24.
The fairness, effectiveness and efficiency is reflected by the fact that it
is an acknowledged national depository and has co-operation
agreements with several internationally reputed clearing houses.