Financial Services (Markets In Financial Instruments) Act 2006 (Gibraltar)

Financial Services (Markets In Financial Instruments) Act 2006

Published: 2007-11-01

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Financial Services (Markets in Financial Instruments)

2006-32

FINANCIAL SERVICES (MARKETS IN FINANCIAL

INSTRUMENTS) ACT 2006

Principal Act

Act. No. 2006-32 Commencement 1.11.2007

Assent 14.12.2006

Amending

enactments

Relevant current

provisions

Commencement

date

LN. 2010/007 ss. 2(1) & (3), 10(5) to (9), 10A & 10B

15.1.2010

2012/173 ss. 2, 6(9), 8(1) & (2), 15(1), 23(5)(b),

25(1), (3) & (3A), 27(4) & (4A),

31(3A), 36(8) & (8)(e), 41(3) & (4),

42(7A), 47, 48(1)(b) & (7), 59(3) &

(4), 54(1A), (4) & (5), 56(a) & (b)

22.11.2012

English sources:

None cited

Transposing:

Directive 85/611/EEC

Directive 92/49/EEC

Directive 93/6/EEC

Directive 93/22/EEC

Directives 98/26/EC

Directive 2000/12/EC

Directive 2002/83/EC

Directive 2002/87/EC

Directive 2003/6/EC

Directive 2003/41/EC

Directive 2003/71/EC

Directive 2004/39/EC

Directive 2004/109/EC

Directive 2005/60/EC

Directive 2005/68/EC

Directive 2006/48/EC

Directive 2006/49/EC

Directive 2007/44/EC

Directive 2009/65/EC

Directive 2010/78/EU

EU Legislation/International Agreements involved:

Financial Services (Markets in Financial Instruments)

2006-32

ARRANGEMENT OF SECTIONS

Section

PART I

PRELIMINARY AND INTERPRETATION

1. Title and commencement.

2. Interpretation.

3. Scope.

4. Exemptions.

PART II

AUTHORISATION AND OPERATING CONDITIONS FOR

INVESTMENT FIRMS

Conditions and procedures for authorisation

5. Establishment of register.

6. Authorisations.

7. Procedures for granting and refusing requests for authorisation.

8. Withdrawal of authorisations.

9. Persons who effectively direct the business.

10. Shareholders and members with qualifying holdings.

10A. Assessment period.

10B. Assessment.

11. Membership of an authorised Investor Compensation Scheme.

12. Initial capital endowment.

13. Organisational requirements.

14. Trading process and finalisation of transactions in an MTF.

15. Relations with third countries.

Operating conditions for investment firms

General provisions

16. Regular review of conditions for initial authorisation.

17. General obligation in respect of on-going supervision.

18. Conflicts of interest.

Provisions to ensure investor protection

19. Conduct of business obligations when providing investment services

to clients.

20. Provision of services through the medium of another investment firm.

21. Obligation to execute orders on terms most favourable to the client.

22. Client order handling rules.

23. Obligations of investment firms when appointing tied agents.

Financial Services (Markets in Financial Instruments)

2006-32

24. Transactions executed with eligible counterparties.

Market transparency and integrity

25. Obligation to uphold integrity of markets, report transactions and

maintain records.

26. Monitoring of compliance with the rules of the MTF and with other

legal obligations.

27. Obligation for investment firms to make public firm quotes.

28. Post-trade disclosure by investment firms.

29. Pre-trade transparency requirements for MTFs.

30. Post-trade transparency requirements for MTFs.

Rights of investment firms

31. Freedom to provide investment services and activities.

32. Establishment of a branch.

33. Access to regulated markets.

34. Access to central counterparty, clearing and settlement facilities and

right to designate settlement system.

35. Provisions regarding central counterparty, clearing and settlement

arrangements in respect of MTFs.

PART III

REGULATED MARKETS

36. Authorisations and applicable law.

37. Requirements for the management of the regulated market.

38. Requirements relating to persons exercising significant influence over

the management of the regulated market.

39. Organisational requirements.

40. Admission of financial instruments to trading.

41. Suspension and removal of instruments from trading.

42. Access to the regulated market.

43. Monitoring of compliance with the rules of the regulated market and

with other legal obligations.

44. Pre-trade transparency requirements for regulated markets.

45. Post-trade transparency requirements for regulated markets.

46. Provisions regarding central counterparty and clearing and settlement

arrangements.

47. List of regulated markets.

PART IV

COMPETENT AUTHORITY

Designation, Powers and Redress Procedures

48. Designation of competent authority.

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49. Powers of competent authority.

50. Administrative sanctions.

51. Right of appeal.

52. Professional secrecy.

53. Relations with auditors.

Cooperation with other competent authorities

54. Obligation to cooperate.

55. Cooperation in supervisory activities, on-the-spot verifications or in

investigations.

56. Exchange of information.

57. Refusal to cooperate.

58. Inter-authority consultation prior to authorisation.

59. Powers of competent authority in its capacity of host.

60. Precautionary measures.

60A. Cooperation and exchange of information with ESMA.

60B. Exchange of information with third countries.

Alternative dispute resolution

60C. Alternative dispute resolution.

60D. Binding mediation.

PART V

FINAL PROVISIONS

61. Transitional provisions.

62. Regulations.

63. Codes of practice.

64. Repeals.

SCHEDULE 1

LIST OF SERVICES AND ACTIVITIES AND FINANCIAL

INSTRUMENTS

SCHEDULE 2

PROFESSIONAL CLIENTS FOR THE PURPOSE OF THIS ACT

Financial Services (Markets in Financial Instruments)

2006-32

AN ACT TO TRANSPOSE INTO THE LAW OF GIBRALTAR

DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF

THE COUNCIL OF 21 APRIL 2004 ON MARKETS IN FINANCIAL

INSTRUMENTS AMENDING COUNCIL DIRECTIVES 85/611/EEC

AND 93/6/EEC AND DIRECTIVE 2000/12/EC OF THE EUROPEAN

PARLIAMENT AND OF THE COUNCIL AND REPEALING COUNCIL

DIRECTIVE 93/22/EEC, AND MATTERS CONNECTED THERETO.

PART I

PRELIMINARY AND INTERPRETATION

Title and commencement.

1.(1) This Act may be cited as the Financial Services (Markets in Financial

Instruments) Act 2006.

(2) This Act comes into force on the 1 st November 2007.

(3) Without prejudice to the generality of subsection (2), notices made

under that subsection may make provision for the Act to come into force as

it affects tied agents at a date different to that affecting other purposes.

(4) Without prejudice to the generality of subsection (2), notices made

under that subsection may, in accordance with section 61, make such

provision in respect of transitional provisions as the Minister may deem

appropriate.

Interpretation.

2.(1) In this Act, and unless the context otherwise requires

“ancillary service” means any of the services listed in Section B of

Schedule 1;

“branch” means a place of business other than the head office which is a

part of an investment firm, which has no legal personality and which

provides investment services or activities and which may also

perform ancillary services for which the investment firm has been

authorised; all the places of business set up by an investment firm

with headquarters in another Member State shall be regarded as a

single branch;

“client” means any natural or legal person to whom an investment firm

provides investment or ancillary services;

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“competent authority” means, in relation to Gibraltar, such person as the

Minister designates by notice in the Gazette pursuant to the

provisions of section 48;

“control” shall be construed in accordance with the provisions of the

Companies (Consolidated Accounts) Act 1999;

“close links” means a situation in which two or more natural or legal

persons are linked by

(a) participation, which means the ownership, direct or by way of

control, of 20% or more of the voting rights or capital of an

undertaking;

(b) control, which means the relationship between a parent

undertaking and a subsidiary or a similar relationship between

any natural or legal person and an undertaking, any subsidiary

undertaking of a subsidiary undertaking also being considered a

subsidiary of the parent undertaking which is at the head of

those undertakings,

however, a situation in which two or more natural or legal persons

are permanently linked to one and the same person by a control

relationship shall also be regarded as constituting a close link

between such persons;

“credit institutions” shall be construed in accordance with the provisions

of the Financial Services (Banking) Act;

“dealing on own account” means trading against proprietary capital

resulting in the conclusion of transactions in one or more financial

instruments;

“directive” means Directive 2004/39/EC of the European Parliament and

of the Council of 21 April 2004 on markets in financial instruments

amending Council Directives 85/611/EEC and 93/6/EEC and

Directive 2000/12/EC of the European Parliament and of the

Council and repealing Council Directive 93/22/EEC, as the same

may be amended from time to time;

“ESMA” means the European Securities and Markets Authority

established by the ESMA Regulation;

“ESMA Regulation” means Regulation (EU) No 1095/2010 of the

European Parliament and of the Council of 24 November 2010

establishing a European Supervisory Authority (European Securities

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2006-32

and Markets Authority), amending Decision No 716/2009/EC and

repealing Commission Decision 2009/77/EC;

“execution of orders on behalf of clients” means acting to conclude

agreements to buy or sell one or more financial instruments on

behalf of clients;

“financial instrument” means those instruments specified in Section C of

Schedule 1;

“home Member State” means

(a) in the case of investment firms:

(i) if the investment firm is a natural person, the Member

State in which its head office is situated;

(ii) if the investment firm is a legal person, the Member State

in which its registered office is situated;

(iii) if the investment firm has, under its national law, no

registered office, the Member State in which its head

office is situated;

(b) in the case of a regulated market, the Member State in which

the regulated market is registered or, if under the law of that

Member State it has no registered office, the Member State in

which the head office of the regulated market is situated;

“host Member State” means the Member State, other than the home

Member State, in which an investment firm has a branch or

performs services or activities or the Member State in which a

regulated market provides appropriate arrangements so as to

facilitate access to trading on its system by remote members or

participants established in that same Member State;

“investment firm” means any legal person whose regular occupation or

business is the provision of one or more investment services to third

parties or the performance of one or more investment activities on a

professional basis. The Minister may, by regulations, provide that

“investment firm” includes the following

(a) undertakings which are not legal persons, provided that

(i) their legal status ensures a level of protection for third

parties’ interests equivalent to that afforded by legal

persons; and

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(ii) they are subject to equivalent prudential supervision

appropriate to their legal form;

(b) any individual whose professional services involve the holding

of third parties’ funds or transferable securities where the

competent authority is satisfied that he complies with the

following conditions

(i) the ownership rights of third parties in instruments and

funds are safeguarded, especially in the event of the

insolvency of the individual, seizure, set-off or any other

action by creditors of the individual;

(ii) the individual is subject to rules designed to monitor his

solvency and that of its proprietors;

(iii) the individual´s annual accounts are audited by one or

more persons empowered, under Gibraltar law, to audit

accounts;

(iv) where the individual is a sole practitioner and has made

provision for the protection of investors in the event of

the firm’s cessation of business following his death, his

incapacity or any other such event;

“investment services and activities” means any of the services and

activities listed in Section A of Schedule 1 relating to any of the

instruments listed in Section C of Schedule 1;

“investment advice” means the provision of personal recommendations to

a client, either upon its request or at the initiative of the investment

firm, in respect of one or more transactions relating to financial

instruments;

“limit order” means an order to buy or sell a financial instrument at its

specified price limit or better and for a specified size;

“market maker” means a person who holds himself out on the financial

markets on a continuous basis as being willing to deal on own

account by buying and selling financial instruments against his

proprietary capital at prices defined by him;

“market operator” means a person or persons who manages or operates

the business of a regulated market: the market operator may be the

regulated market itself;

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2006-32

“Minister” means the Minister with responsibility for financial services;

“money-market instruments” means those classes of instruments which

are normally dealt in on the money market, such as treasury bills,

certificates of deposit and commercial papers and excluding

instruments of payment;

“multilateral trading facility (“MTF”)” means a multilateral system,

operated by an investment firm or a market operator, which brings

together multiple third-party buying and selling interests in financial

instruments - in the system and in accordance with non-

discretionary rules - in a way that results in a contract in accordance

with the provisions of Part II;

“parent undertaking” shall be construed in accordance with the provisions

of the Companies (Consolidated Accounts) Act 1999;

“portfolio management” means managing portfolios in accordance with

mandates given by clients on a discretionary client-by-client basis

where such portfolios include one or more financial instruments;

“professional client” means a client meeting the criteria laid down in

Schedule 2;

“qualifying holding” means any direct or indirect holding in an investment

firm which represents 10 % or more of the capital or of the voting

rights, as set out in Articles 9 and 10 of Directive 2004/109/EC 1 ,

taking into account the conditions regarding aggregation thereof

laid down in Article 12(4) and (5) of that Directive, or which makes

it possible to exercise a significant influence over the management

of the investment firm in which that holding subsists;

“regulated market” means a multilateral system operated or managed by a

market operator, which brings together or facilitates the bringing

together of multiple third-party buying and selling interests in

financial instruments - in the system and in accordance with its non-

discretionary rules - in a way that results in a contract, in respect of

the financial instruments admitted to trading under its rules and/or

systems, and which is authorised and functions regularly and in

accordance with the provisions of Part III;

“retail client” means a client who is not a professional client;

1 Directive 2004/19/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of

transparency requirements in relation to information about issuers whose securities are admitted to trading on a

regulated market (OJ L 390, 31.12.2004, p. 38).

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2006-32

“subsidiary”, including any subsidiary of a subsidiary undertaking of an

ultimate parent undertaking shall be construed in accordance with

the provisions of the Companies (Consolidated Accounts) Act

1999;

“systematic internaliser” means an investment firm which, on an

organised, frequent and systematic basis, deals on own account by

executing client orders outside a regulated market or an MTF;

“tied agent” means a natural or legal person who, under the full and

unconditional responsibility of only one investment firm on whose

behalf he acts, promotes investment or ancillary services to clients

or prospective clients, receives and transmits instructions or orders

from the client in respect of investment services or financial

instruments, places financial instruments or provides advice to

clients or prospective clients in respect of those financial

instruments or services;

“transferable securities” means those classes of securities which are

negotiable on the capital market, with the exception of instruments

of payment, such as

(a) shares in companies and other securities equivalent to shares in

companies, partnerships or other entities, and depositary

receipts in respect of shares;

(b) bonds or other forms of securitised debt, including depositary

receipts in respect of such securities;

transferable securities or giving rise to a cash settlement

determined by reference to transferable securities, currencies,

interest rates or yields, commodities or other indices or

measures;

“UCITS management company” means any company, the regular business

of which is the management of UCITS in the form of unit

trusts/common funds and/or of investment companies (collective

portfolio management of UCITS); this includes the following

functions–

(a) investment management.

(b) administration as follows

(i) legal and fund management accounting services;

(ii) customer inquiries;

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(iii) valuation and pricing (including tax returns);

(iv) regulatory compliance monitoring;

(v) maintenance of unit-holder register;

(vi) distribution of income;

(vii) unit issues and redemptions;

(viii) contract settlements (including certificate dispatch);

(ix) record keeping;

“UCITS” shall be construed in accordance with the provisions of the

Financial Services (Collective Investment Schemes) Act 2004.

(2) Any term used in this Act but not defined shall be construed in

accordance with the provisions of the Directive.

(3) This Act applies to EEA States as it applies to Member States.

Scope.

3.(1) This Act shall apply to investment firms and regulated markets.

(2) The following provisions shall also apply to credit institutions when

providing one or more investment services or performing investment

activities

(a) sections 4(2), 11, 13 and 14;

(b) sections 16 to 30, save for section 32(2);

(8)(a), (8)(d) and (9);

(d) sections 48 to 51, 55, 59 and 61; and

(e) section 61(1).

(3) Sections 19, 21 and 22 are not applicable to transactions concluded

under the rules governing an MTF between its members or participants or

between the MTF and its members or participants in relation to the use of the

MTF. Notwithstanding the foregoing, the members of or participants in the

Financial Services (Markets in Financial Instruments)

2006-32

MTF shall comply with the obligations provided for in sections 19, 21 and 22

with respect to their clients when, acting on behalf of their clients, they

execute their orders through the systems of an MTF.

Exemptions.

4.(1) This Act shall not apply to

(a) insurance undertakings, assurance undertakings or undertakings

carrying on the reinsurance and retrocession activities;

(b) persons which provide investment services exclusively for their

parent undertakings, for their subsidiaries or for other

subsidiaries of their parent undertakings;

provided in an incidental manner in the course of a professional

activity and that activity is regulated by legal or regulatory

provisions or a code of ethics governing the profession which

do not exclude the provision of that service;

(d) persons who do not provide any investment services or

activities other than dealing on own account unless they are

market makers or deal on own account outside a regulated

market or an MTF on an organised, frequent and systematic

basis by providing a system accessible to third parties in order

to engage in dealings with them;

(e) persons which provide investment services consisting

exclusively in the administration of employee-participation

schemes;

(f) persons which provide investment services which only involve

both administration of employee-participation schemes and the

provision of investment services exclusively for their parent

undertakings, for their subsidiaries or for other subsidiaries of

their parent undertakings;

(g) collective investment undertakings and pension funds whether

coordinated at Community level or not and the depositaries and

managers of such undertakings;

(h) persons dealing on own account in financial instruments, or

providing investment services in commodity derivatives or

derivative contracts included in Schedule 1, Section C 10 to the

clients of their main business, provided this is an ancillary

activity to their main business, when considered on a group

Financial Services (Markets in Financial Instruments)

2006-32

basis, and that main business is not the provision of investment

services within the meaning of this Act or banking services

under the Financial Services (Banking) Act;

(i) persons providing investment advice in the course of providing

another professional activity not covered by this Act provided

that the provision of such advice is not specifically remunerated;

(j) persons whose main business consists of dealing on own

account in commodities or commodity derivatives. This

exception shall not apply where the persons that deal on own

account in commodities or commodity derivatives are part of a

group the main business of which is the provision of other

investment services within the meaning of this Act or banking

services under the Financial Services (Banking) Act;

(k) firms which provide investment services or perform investment

activities consisting exclusively in dealing on own account on

markets in financial futures or options or other derivatives and

on cash markets for the sole purpose of hedging positions on

derivatives markets or which deal for the accounts of other

members of those markets or make prices for them and which

are guaranteed by clearing members of the same markets, where

responsibility for ensuring the performance of contracts entered

into by such firms is assumed by clearing members of the same

markets.

(2) The rights conferred by this Act shall not extend to the provision of

services as counterparty in transactions carried out by public bodies dealing

with public debt, by the Gibraltar Savings Bank or by members of the

European System of Central Banks performing their tasks as provided for by

the Treaty and the Statute of the European System of Central Banks and of

the European Central Bank or performing equivalent functions under

national provisions.

(3) This Act shall not apply to any person for which Gibraltar is the home

Member State which

(a) is not allowed to hold clients' funds or securities and which for

that reason is not allowed at any time to place themselves in

debit with their clients; and

(b) is not allowed to provide any investment service except the

reception and transmission of orders in transferable securities

and units in collective investment undertakings and the

provision of investment advice in relation to such financial

instruments; and

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2006-32

orders only to

(i) investment firms authorised according to law;

(ii) credit institutions authorised according to law;

(iii) branches of investment firms or of credit institutions

which are authorised in a third country and which are

subject to and comply with prudential rules considered by

the competent authority to be at least as stringent as

those in force in Gibraltar;

(iv) collective investment undertakings authorised under the

law of a Member State to market units to the public and

to the managers of such undertakings;

(v) investment companies with fixed capital, the securities of

which are listed or dealt in on a regulated market in a

Member State;

provided that the activities of those persons are otherwise regulated pursuant

to Gibraltar law.

(4) Persons excluded from the scope of this Act according to subsection

(3) cannot benefit from the freedom to provide services or activities or to

establish branches as provided for in sections 31 and 32 respectively.

(5) In this section, insurance undertakings, assurance undertakings and

undertakings carrying on the reinsurance and retrocession activities shall be

construed in accordance with the provisions of the Insurance Companies

Act.

PART II

AUTHORISATION AND OPERATING CONDITIONS FOR

INVESTMENT FIRMS

Conditions and procedures for authorisation

Establishment of register.

5.(1) There shall be a register of all investment firms.

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2006-32

(2) The register established under subsection (1) shall be publicly

accessible and shall contain information on the services or activities for

which the investment firm is authorised.

(3) The register established under subsection (1) shall be maintained by the

competent authority in such form as the competent authority may require and

shall be updated on a regular basis.

Authorisations.

6.(1) The performance of investment services or activities as a regular

occupation or business on a professional basis shall be subject to prior

authorisation by the competent authority in accordance with the provisions

of this Act.

(2) Notwithstanding subsection (1), a market operator may operate an

MTF without authorisation, provided the competent authority verifies

compliance with the provisions of this Act, excluding sections 11 and 15.

(3) The competent authority shall only authorise investment firms

complying with the following provisions

(a) the investment firm which is a legal person have its head office

in the same Member State as its registered office; or

(b) where the investment firm is not a legal person or the

investment firm is a legal person but under its national law has

no registered office, it has its head office in the Member State in

which it actually carries on its business.

(4) The Minister may, by regulations, authorise the competent authority to

delegate administrative, preparatory or ancillary tasks related to the granting

of an authorisation in cases where investment firms are excluded from the

provisions of this Act in accordance with section 4(3) and (4) and with the

conditions laid down in section 48(2) to (6).

(5) Authorisations–

(a) may cover one or more of the ancillary services set out in

Section B of Schedule1; and

(b) shall in no case be granted solely for the provision of ancillary

services.

(6) The competent authority shall ensure that the notification of

authorisation specifies the investment services or activities which the

investment firm is authorised to provide.

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2006-32

(7) Where an investment firm seeks authority to extend its business to

additional investment services or activities or ancillary services not foreseen

at the time of initial authorisation, it shall submit to the competent authority a

request for an extension of its authorisation.

(8) Pursuant to the provisions of the directive, the authorisation shall be

valid for the entire Community and shall allow an investment firm to provide

the services or perform the activities, for which it has been authorised,

throughout the European Union, either through the establishment of a branch

or the free provision of services.

(9) The Minister shall ensure that an authorisation issued under this Act

is notified to ESMA.

Procedures for granting and refusing requests for authorisation.

7.(1) The competent authority shall not grant authorisation unless and until

such time as it is fully satisfied that the applicant complies with all the

requirements of this Act.

(2) Applications for an authorisation shall be in such form as the competent

authority may require.

(3) Notwithstanding the generality of subsection (2), applications shall

contain all information required by the competent authority including a

business plan setting out, inter alia, the types of business envisaged and the

organisational structure necessary to enable the competent authority to

satisfy itself that the investment firm has established, at the time of initial

authorisation, all the necessary arrangements to meet its obligations under

the provisions of this Act.

(4) An applicant shall be informed, within six months of the submission of

a complete application, whether or not an authorisation has been granted.

Withdrawal of authorisations.

8.(1) The competent authority may withdraw an authorisation issued to an

investment firm where the investment firm

(a) does not make use of the authorisation within 12 months,

expressly renounces the authorisation or has provided no

investment services or performed no investment activity for the

preceding six months;

(b) has obtained the authorisation by making false statements or by

any other irregular means;

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granted;

(d) has seriously and systematically infringed the provisions

adopted pursuant to this Act governing the operating conditions

for investment firms; or

(e) falls within any of the cases where national law, in respect of

matters outside the scope of this Act, provides for withdrawal.

(2) The Minister shall ensure that ESMA is notified of every

authorisation withdrawn pursuant to this section.

Persons who effectively direct the business.

9.(1) An authorisation under this Act shall be granted, or, if granted, shall

remain valid only where the competent authority is satisfied that the persons

who effectively direct the business of an investment firm are of sufficiently

good repute and sufficiently experienced as to ensure the sound and prudent

management of the investment firm.

(2) Where the market operator that seeks an authorisation to operate an

MTF and the persons that effectively direct the business of the MTF are the

same as those that effectively direct the business of the regulated market,

those persons shall be deemed to comply with the requirements laid down in

subsection (1).

(3) Investment firms shall notify the competent authority of any changes to

their management, along with all information needed to assess whether the

new staff appointed to manage the firms are of sufficiently good repute and

sufficiently experienced. The competent authority shall refuse an

authorisation where there are objective and demonstrable grounds for

believing that proposed changes to the management of a firm pose a threat to

its sound and prudent management.

(4) An authorisation under this Act shall only be granted where the

management of an investment firm is undertaken by at least two persons

meeting the requirements laid down in this section.

(5) Notwithstanding subsection (4), the Minister may, by regulations,

empower the competent authority to grant an authorisation to investment

firms consisting of a natural person or to investment firms that are legal

persons managed by a single natural person where it is satisfied that

alternative arrangements are in place which ensure sound and prudent

management.

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Shareholders and members with qualifying holdings.

10.(1) The competent authority shall not authorise the performance of

investment services or activities by an investment firm until it has been

informed of the identities of the shareholders or members, whether direct or

indirect, natural or legal, that have qualifying holdings and the amounts of

those holdings.

(2) The competent authority shall refuse an authorisation where, taking

into account the need to ensure the sound and prudent management of an

investment firm, he is not satisfied of the suitability of the shareholders or

members that have qualifying holdings.

(3) Where close links exist between an investment firm and other natural or

legal persons, the competent authority shall grant an authorisation only

where, in the opinion of the competent authority, those links do not prevent

the effective exercise of the supervisory functions of the competent

authority.

(4) The competent authority shall refuse an authorisation where the laws,

regulations or administrative provisions of a third country governing one or

more natural or legal persons with which the applicant undertaking has close

links, or difficulties involved in their enforcement, prevent the effective

exercise of its supervisory functions.

(5) Any natural or legal person or such persons acting in concert

(hereinafter referred to as the proposed acquirer), who have taken a decision

either to acquire, directly or indirectly, a qualifying holding in an investment

firm or to further increase, directly or indirectly, such a qualifying holding in

an investment firm as a result of which the proportion of the voting rights or

of the capital held would reach or exceed 20%, 30% or 50% or so that the

investment firm would become its subsidiary (hereinafter referred to as the

proposed acquisition), shall first notify in writing the competent authority of

their intention and the investment firm in which they are seeking to acquire

or increase a qualifying holding, indicating the size of the intended holding

and other relevant information, as referred to in section 10B(4).

(6) Any natural or legal person who has taken a decision to dispose,

directly or indirectly, of a qualifying holding in an investment firm shall first

notify in writing the competent authority, indicating the size of the intended

holding. Such a person shall likewise notify the competent authority if he has

taken a decision to reduce his qualifying holding so that the proportion of the

voting rights or of the capital held would fall below 20%, 30% or 50% or so

that the investment firm would cease to be his subsidiary.

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(7) The competent authority need not apply the 30% threshold where, in

accordance with Article 9(3)(a) of Directive 2004/109/EC, it applies a

threshold of one-third.

(8) In determining whether the criteria for a qualifying holding referred

to in this section are fulfilled, the competent authority shall not take into

account voting rights or shares which investment firms or credit institutions

may hold as a result of providing the underwriting of financial instruments

and/or placing of financial instruments on a firm commitment basis included

under point 6 of Section A of Schedule 1, provided that those rights are, on

the one hand, not exercised or otherwise used to intervene in the

management of the issuer and, on the other, disposed of within one year of

acquisition.

(9) The competent authority shall work in full consultation with any

appropriate home State regulator when carrying out the assessment provided

for in section 10B(1) (hereinafter referred to as the assessment) if the

proposed acquirer is one of the following

(a) a credit institution, assurance undertaking, insurance

undertaking, reinsurance undertaking, investment firm or

UCITS management company authorised in a Member State or

in a sector other than that in which the acquisition is proposed;

(b) the parent undertaking of a credit institution, assurance

undertaking, insurance undertaking, reinsurance undertaking,

investment firm or UCITS management company authorised in

a Member State or in a sector other than that in which the

acquisition is proposed; or

assurance undertaking, insurance undertaking, reinsurance

undertaking, investment firm or UCITS management company

authorised in a Member State or in a sector other than that in

which the acquisition is proposed.

(9A) The competent authority shall, without undue delay, provide any

appropriate home State regulator with any information which is essential or

relevant for the assessment. In this regard, the competent authority shall

communicate with any appropriate home State regulator upon request all

relevant information and shall communicate on its own initiative all essential

information. A decision by the competent authority assessing the notification

shall indicate any views or reservations expressed by the home State

regulator of the proposed acquirer.

(10) At least once a year at a time to be appointed by the competent

authority by notice in the Gazette, investment firms shall inform the

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competent authority of the names of shareholders and members possessing

qualifying holdings and the sizes of such holdings.

(11) Where, in the opinion of the competent authority, the influence

exercised by any person to which subsection (2) applies is likely to be

prejudicial to the sound and prudent management of an investment firm, the

competent authority shall take such measures as he may deem appropriate to

prevent such circumstances from continuing such as

(a) applications for judicial orders;

(b) the imposition of sanctions against directors and those

responsible for management; or

the shares held by the shareholders or members in question.

(12) The provisions of subsection (11) shall apply equally in respect of

persons who fail to comply with the obligation to provide prior information

in relation to the acquisition or increase of a qualifying holding. Where a

holding is acquired despite the opposition of the competent authority, the

competent authority shall, regardless of any other sanctions to be adopted,

provide either for exercise of the corresponding voting rights to be

suspended, for the nullity of the votes cast or for the possibility of their

annulment.

(13) The Minister may, by regulations, make such provision as he deems

appropriate in order to facilitate the operation of subsection (11).

Assessment period.

10A.(1) The competent authority

(a) shall, promptly and in any event within two working days

following receipt of the notification required under section

10(5), as well as following the possible subsequent receipt of

the information referred to in subsection (2) below,

acknowledge receipt thereof in writing to the proposed

acquirer;

(b) shall have a maximum of sixty working days as from the date of

the written acknowledgement of receipt of the notification and

all documents required to be attached to the notification on the

basis of the list referred to in section 10B(4) (hereinafter

referred to as the assessment period), to carry out the

assessment;

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the assessment period at the time of acknowledging receipt.

(2) The following provisions apply

(a) the competent authority may, during the assessment period, if

necessary, and no later than on the 50th working day of the

assessment period, request any further information that is

necessary to complete the assessment. Such request shall be

made in writing and shall specify the additional information

needed; and

(b) for the period between the date of request for information by

the competent authority and the receipt of a response thereto by

the proposed acquirer, the assessment period shall be

interrupted. The interruption shall not exceed 20 working days.

Any further requests by the competent authority for completion

or clarification of the information shall be at its discretion but

may not result in an interruption of the assessment period.

(3) The competent authority may extend the interruption referred to in

subsection (2) (b) up to 30 working days if the proposed acquirer is

(a) situated or regulated outside the EEA; or

(b) a natural or legal person not subject to prudential supervision.

(4) Where the competent authority, upon completion of the assessment,

decides to oppose the proposed acquisition, it shall, within two working

days, and not exceeding the assessment period, serve on the proposed

acquirer a written notice of objection which shall include the reasons for that

decision. Subject to the laws of Gibraltar, an appropriate statement of the

reasons for the decision may be made accessible to the public at the request

of the proposed acquirer. This shall not prevent the Minister from allowing

the competent authority to make such disclosure in the absence of a request

by the proposed acquirer.

(5) Where the competent authority does not oppose the proposed

acquisition within the assessment period in writing, it shall be deemed to be

approved.

(6) The competent authority may fix a maximum period for concluding

the proposed acquisition and extend it where appropriate.

Assessment.

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10B.(1) In assessing the notification provided for in section 10(5), and the

information referred to in section 10A(2), the competent authority shall, in

order to ensure the sound and prudent management of the investment firm in

which an acquisition is proposed, and having regard to the likely influence of

the proposed acquirer on the investment firm, appraise the suitability of the

proposed acquirer and the financial soundness of the proposed acquisition

against all of the following criteria

(a) the reputation of the proposed acquirer;

(b) the reputation and experience of any person who will direct the

business of the investment firm as a result of the proposed

acquisition;

relation to the type of business pursued and envisaged in the

investment firm in which the acquisition is proposed;

(d) whether the investment firm will be able to comply and continue

to comply with the prudential requirements based on this Act

and, where applicable, other financial services legislation, in

particular, whether the group of which it will become a part has

a structure that makes it possible to exercise effective

supervision, effectively exchange information among the

competent authorities and determine the allocation of

responsibilities among the competent authorities;

(e) whether there are reasonable grounds to suspect that, in

connection with the proposed acquisition, money laundering or

terrorist financing is being or has been committed or attempted,

or that the proposed acquisition could increase the risk thereof.

(2) The competent authority may oppose the proposed acquisition only if

there are reasonable grounds for doing so on the basis of the criteria set out

in subsection (1) or if the information provided by the proposed acquirer is

incomplete.

(3) The competent authority shall neither impose any prior conditions in

respect of the level of holding that must be acquired nor examine the

proposed acquisition in terms of the economic needs of the market.

(4) The competent authority shall make publicly available a list specifying

the information that is necessary to carry out the assessment and that must be

provided to it at the time of notification referred to in section 10(5). The

information required shall be proportionate and adapted to the nature of the

proposed acquirer and the proposed acquisition. The competent authority

shall not require information that is not relevant for a prudential assessment.

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(5) Where two or more proposals to acquire or increase qualifying

holdings in the same investment firm have been notified to the competent

authority, the latter shall treat the proposed acquirers in a non-discriminatory

manner.

Membership of an authorised Investor Compensation Scheme.

11. The competent authority shall take all necessary steps, including those

set out in section 10(11), to ensure that an entity seeking an authorisation as

an investment firm meets its obligations under the Financial Services

(Investor Compensation Scheme) Act 2002.

Initial capital endowment.

12. The competent authority shall not grant an authorisation unless the

applicant investment firm has sufficient initial capital according to law,

having regard to the nature of the investment service or activity in question.

Organisational requirements.

13.(1) The competent authority shall take all necessary steps, including

those set out in section 10(11), to ensure that investment firms comply with

the organisational requirements set out in subsections (2) to (8).

(2) Investment firms shall establish adequate policies and procedures

sufficient to ensure compliance of the firm including its managers, employees

and tied agents with its obligations under the provisions of this Act as well as

appropriate rules governing personal transactions by such persons.

(3) Investment firms shall maintain and operate effective organisational and

administrative arrangements with a view to taking all reasonable steps

designed to prevent conflicts of interest as defined in section 18 from

adversely affecting the interests of its clients.

(4) Investment firms shall take reasonable steps to ensure continuity and

regularity in the performance of investment services and activities. To this

end investment firms shall employ appropriate and proportionate systems,

resources and procedures.

(5) Investment firms

(a) shall ensure, when relying on a third party for the performance

of operational functions which are critical for the provision of

continuous and satisfactory service to clients and the

performance of investment activities on a continuous and

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satisfactory basis, that they take reasonable steps to avoid

undue additional operational risk;

(b) shall not outsource important operational functions in such a

way as to impair materially the quality of its internal control and

the ability of the supervisor to monitor the firm's compliance

with all obligations; and

internal control mechanisms, effective procedures for risk

assessment, and effective control and safeguard arrangements

for information processing systems.

(6) Investment firms shall arrange for records to be kept of all services and

transactions undertaken by it which shall be sufficient to enable the

competent authority to monitor compliance with the requirements under this

Act, and in particular to ascertain that the investment firm has complied with

all obligations with respect to clients or potential clients.

(7) Investment firms shall, when holding financial instruments belonging to

clients, make adequate arrangements so as to safeguard clients' ownership

rights, especially in the event of the investment firm's insolvency, and to

prevent the use of a client's instruments on own account except with the

client's express consent.

(8) Investment firms shall, when holding funds belonging to clients, make

adequate arrangements to safeguard the clients' rights and, except in the case

of credit institutions, prevent the use of client funds for its own account.

(9) In the case of branches of investment firms, the competent authority

shall, without prejudice to the possibility of the competent authority of the

home Member State of the investment firm to have direct access to those

records, enforce the obligation laid down in subsection (6) with regard to

transactions undertaken in Gibraltar by the branch.

Trading process and finalisation of transactions in an MTF.

14.(1) The competent authority shall take all necessary steps, including

those set out in section 10(11), to ensure that investment firms comply with

the provisions of this section.

(2) The competent authority shall ensure that investment firms or market

operators operating an MTF shall, in addition to meeting the requirements

laid down in section 13, establish transparent and non-discretionary rules and

procedures for fair and orderly trading and establish objective criteria for the

efficient execution of orders.

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(3) The competent authority shall ensure that investment firms or market

operators operating an MTF establish transparent rules regarding the criteria

for determining the financial instruments that can be traded under its systems,

including, where applicable, providing or giving access to sufficient

information enabling users to form an investment judgement, taking into

account both the nature of the users and the types of instruments traded.

(4) The competent authority shall ensure that investment firms or market

operators operating an MTF establish and maintain transparent rules, based

on objective criteria, governing access to its facility. These rules shall comply

with the conditions established in section 42(3).

(5) The competent authority shall ensure that investment firms or market

operators operating an MTF clearly inform its users of their respective

responsibilities for the settlement of the transactions executed in that facility.

The competent authority shall require that investment firms or market

operators operating an MTF have put in place the necessary arrangements to

facilitate the efficient settlement of the transactions concluded under the

systems of the MTF.

(6) Where a transferable security, which has been admitted to trading on a

regulated market, is also traded on an MTF without the consent of the issuer,

the competent authority shall ensure that the issuer is not subject to any

obligation relating to initial, ongoing or ad hoc financial disclosure with

regard to that MTF.

(7) The competent authority shall ensure that any investment firm or

market operator operating an MTF comply immediately with any instruction

from its home competent authority pursuant to regulations made under

section 49(1) and (2) to suspend or remove a financial instrument from

trading.

Relations with third countries.

15.(1) The Minister shall ensure the European Commission and ESMA is

informed of any general difficulties which investment firms encounter in

establishing themselves or providing investment services or performing

investment activities in any third country.

(2) The Minister shall ensure the European Commission is informed at its

request

(a) of any application for the authorisation of any firm which is the

direct or indirect subsidiary of a parent undertaking governed

by the law of the third country referred to in subsection (1);

and;

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2006-32

(b) whenever the competent authority is informed in accordance

with the provisions of this Act that such a parent undertaking

proposes to acquire a holding in an investment firm authorised

in accordance with the provisions of this Act, in consequence of

which the latter would become its subsidiary.

(3) The competent authority shall afford the Minister such assistance as the

Minister may require to enable him to comply with his obligations under this

section.

Operating conditions for investment firms

General provisions

Regular review of conditions for initial authorisation.

16.(1) The competent authority shall make it a condition for the grant of an

authorisation that an investment firm authorised in accordance with the

provisions of this Act comply at all times with the conditions for initial

authorisation established in this Part.

(2). The Minister shall require the competent authority to establish the

appropriate methods to monitor that investment firms comply with their

obligation under subsection (1), including requiring investment firms to

notify the competent authority of any material changes to the conditions for

the initial authorisation.

(3) In the case of investment firms which provide only investment advice,

the Minister may, by regulations, enable the competent authority to delegate

administrative, preparatory or ancillary tasks related to the review of the

conditions for initial authorisation, in accordance with section 48(2) to (6).

General obligation in respect of on-going supervision.

17.(1) The competent authority shall monitor the activities of investment

firms so as to assess compliance with the operating conditions provided for

in this Act.

(2) The Minister may, by regulations, make such provision as he may deem

appropriate to enable the competent authority to obtain the information

needed to assess the compliance of investment firms with those obligations.

Without prejudice to the generality of the foregoing, regulations may provide

for such offences and penalties therefor as the Minister may deem

appropriate.

(3) Where an investment firm only provides investment advice, the

Minister may make regulations enabling the competent authority to delegate

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administrative, preparatory or ancillary tasks related to the regular

monitoring of operational requirements, in accordance with section 48(2) to

(6).

Conflicts of interest.

18.(1) The competent authority shall make it a condition for the grant of an

authorisation that investment firms take all reasonable steps to identify

conflicts of interest between themselves, including their managers, employees

and tied agents, or any person directly or indirectly linked to them by control

and their clients or between one client and another that arise in the course of

providing any investment and ancillary services, or combinations thereof.

(2) Where, in the opinion of the competent authority, organisational or

administrative arrangements made by the investment firm in accordance with

the provisions of this Act to manage conflicts of interest are not sufficient to

ensure, with reasonable confidence, that risks of damage to client interests

will be prevented, the competent authority shall require the investment firm

to clearly disclose the general nature or sources of conflicts of interest to the

client before undertaking business on his behalf.

Provisions to ensure investor protection

Conduct of business obligations when providing investment services to

clients.

19.(1) The competent authority shall make it a condition for the grant of an

authorisation that, when providing investment services or, where

appropriate, ancillary services to clients, an investment firm act honestly,

fairly and professionally in accordance with the best interests of its clients

and comply, in particular, with the principles set out in subsections (2) to (8).

(2) All information, including marketing communications, addressed by the

investment firm to clients or potential clients shall be fair, clear and not

misleading. Marketing communications shall be clearly identifiable as such.

(3) Appropriate information shall be provided by the investment firm in a

comprehensible form to clients or potential clients about

(a) the investment firm and its services;

(b) financial instruments and proposed investment strategies; this

should include appropriate guidance on and warnings of the

risks associated with investments in those instruments or in

respect of particular investment strategies;

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2006-32

(d) costs and associated charges,

in order that clients are reasonably able to understand the nature and risks of

the investment service and of the specific type of financial instrument being

offered and, consequently, to take investment decisions on an informed basis.

This information may be provided by the investment firm in a standardised

format.

(4) When providing investment advice or portfolio management services,

the investment firm shall first obtain the necessary information regarding the

client's or potential client's knowledge and experience in the investment field

relevant to the specific type of product or service, his financial situation and

his investment objectives so as to enable the firm to recommend to the client

or potential client the investment services and financial instruments that may

be suitable for him.

(5)

(a) Subject to subsection (6), when providing investment services

other than those referred to in subsection (4), investment firms

shall ask the client or potential client to provide information

regarding his knowledge and experience in the investment field

relevant to the specific type of product or service offered or

demanded so as to enable the investment firm to assess whether

the investment service or product envisaged is appropriate for

the client.

(b) Where the investment firm considers, on the basis of the

information received, that the product or service is not

appropriate to the client or potential client, the investment firm

shall warn the client or potential client of the fact. This warning

may be provided in a standardised format.

requested information or where he provides insufficient

information regarding his knowledge and experience, the

investment firm shall warn the client or potential client that such

a decision will not allow the firm to determine whether the

service or product envisaged is appropriate for him. This

warning may be provided in a standardised format.

(6) When providing investment services that only consist of execution or

the reception and transmission of client orders with or without ancillary

services, investment firms may provide those services to their clients without

the need to first obtain the information or make the determination provided

for in subsection (5) where all the following conditions are met

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(a) the investment services relate to shares admitted to trading on a

regulated market or in an equivalent third country market,

money market instruments, bonds or other forms of securitised

debt (excluding those bonds or securitised debt that embed a

derivative), UCITS and other non-complex financial

instruments.

For these purposes, a third country market shall be considered

as equivalent to a regulated market where the competent

authority is of the opinion that it complies with equivalent

requirements to those established under Part III;

(b) the service is provided at the initiative of the client or potential

client;

investment firm that in the provision of this service the

investment firm is not required to assess the suitability of the

instrument or service provided or offered and that therefore he

does not benefit from the corresponding protection of the

relevant conduct of business rules; this warning may be

provided in a standardised format; and

(d) the investment firm complies with its obligations under section

18.

(7) The investment firm shall establish a record that includes the document

or documents agreed between the firm and the client that set out the rights

and obligations of the parties, and the other terms on which the firm will

provide services to the client. The rights and duties of the parties to the

agreement may be incorporated by reference to other documents or legal

texts.

(8) The investment firm shall supply to clients adequate reports on the

service provided. These reports shall include, where applicable, the costs

associated with the transactions and services undertaken on behalf of the

client.

(9) Where an investment service is offered as part of a financial product

which is already subject to other statutory provisions relating to credit

institutions and consumer credit with respect to risk assessment of clients or

information requirements, this service shall not be additionally subject to the

obligations set out in this section.

Provision of services through the medium of another investment firm.

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20.(1) Where an investment firm receives instructions to perform investment

or ancillary services on behalf of a client through the medium of another

investment firm, the firm’s obligations under this Act will be fulfilled where it

relies on client information transmitted by the latter firm. The investment firm

which mediates the instructions will remain responsible for the completeness

and accuracy of the information transmitted.

(2) The investment firm which receives an instruction to undertake services

on behalf of a client in the manner set out in subsection (1) shall in turn be

entitled to rely on any recommendations in respect of the service or

transaction that have been provided to the client by another investment firm

in order to fulfil its obligations under this Act. In this context, the investment

firm mediating the instructions will remain responsible for the

appropriateness for the client of the recommendations or advice provided.

(3) An investment firm receiving client instructions or orders through the

medium of another investment firm shall remain responsible for concluding

the service or transaction, based on any such information or

recommendations, in accordance with the relevant provisions of this Part.

Obligation to execute orders on terms most favourable to the client.

21.(1) The competent authority shall make it a condition for the grant of an

authorisation that investment firms take all reasonable steps to obtain, when

executing orders, the best possible result for their clients taking into account

price, costs, speed, likelihood of execution and settlement, size, nature or

any other consideration relevant to the execution of the order.

Notwithstanding the foregoing, whenever there is a specific instruction from

the client the investment firm shall execute the order following the specific

instruction.

(2) The competent authority shall require investment firms to establish and

implement effective arrangements for complying with subsection (1). In

particular the competent authority shall require investment firms to establish

and implement an order execution policy to allow them to obtain, for their

client orders, the best possible result in accordance with subsection (1).

(3) The order execution policy referred to in subsection (2) shall include, in

respect of each class of instruments, information on the different venues

where the investment firm executes its client orders and the factors affecting

the choice of execution venue. It shall at least include those venues that

enable the investment firm to obtain on a consistent basis the best possible

result for the execution of client orders.

(4) The competent authority shall make it a condition for the grant of an

authorisation that investment firms provide appropriate information to their

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clients on their order execution policy and that investment firms first obtain

the prior consent of their clients to the execution policy.

(5) Where an order execution policy provides for the possibility that client

orders may be executed outside a regulated market or an MTF, the

competent authority shall make it a condition for the grant of an

authorisation

(a) that the investment firm, in particular, inform its clients about

this possibility; and

(b) that the investment firm first obtain the prior express consent of

their clients before proceeding to execute such orders.

Investment firms may obtain this consent either in the form of a general

agreement or in respect of individual transactions.

(6) The competent authority shall make it a condition for the grant of an

authorisation that investment firms -

(a) monitor the effectiveness of their order execution arrangements

and execution policy in order to identify and, where

appropriate, correct any deficiencies. In particular, investment

firms shall assess, on a regular basis, whether the execution

venues included in the order execution policy provide for the

best possible result for the client or whether they need to make

changes to their execution arrangements;

(b) notify clients of any material changes to their order execution

arrangements or execution policy; and

executed their orders in accordance with the firm's execution

policy.

Client order handling rules.

22.(1) The competent authority shall make it a condition for the grant of an

authorisation that investment firms authorised to execute orders on behalf of

clients implement procedures and arrangements

(a) allowing for the execution of otherwise comparable client

orders in accordance with the time of their reception by the

investment firm; and

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(b) providing for the prompt, fair and expeditious execution of

client orders, relative to other client orders or the trading

interests of the investment firm.

(2) The competent authority shall make it a condition for the grant of an

authorisation that in the case of a client limit order in respect of shares

admitted to trading on a regulated market which are not immediately

executed under prevailing market conditions, investment firms are, unless the

client expressly instructs otherwise, to take measures to facilitate the earliest

possible execution of that order by making public immediately that client

limit order in a manner which is easily accessible to other market

participants.

(3) Investment firms

(a) may comply with the obligation set out in subsection (2) by

transmitting the client limit order to a regulated market and/or

MTF; and

(b) the competent authority may, in its discretion, waive the

obligation set out in subsection (2) to make public a limit order

where the order is large in scale compared with normal market

size as determined under section 44.

Obligations of investment firms when appointing tied agents.

23.(1) The competent authority may, in its discretion, decide to authorise

investment firms to appoint tied agents for the purposes of promoting the

services of the investment firm, soliciting business or receiving orders from

clients or potential clients and transmitting them, placing financial

instruments and providing advice in respect of such financial instruments and

services offered by that investment firm.

(2) Where an investment firm appoints a tied agent pursuant to subsection

(1), the firm remains fully and unconditionally responsible

(a) for any action or omission on the part of a tied agent when

acting on behalf of the firm; and

(b) to ensure that the tied agent discloses the capacity in which he

is acting and the firm which he is representing when contacting

or before dealing with any client or potential client.

(3) The competent authority may authorise, in accordance with the

provisions of this Act, tied agents registered in Gibraltar to handle clients'

money or financial instruments on behalf and under the full responsibility of

the investment firm for which they are acting within Gibraltar or, in the case

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of a cross-border operation, in the territory of a Member State which allows

a tied agent to handle clients' money.

(4) The investment firm on behalf of which a tied agent is acting shall

remain responsible for monitoring the activities of their tied agents so as to

ensure that they continue to comply with this Act when acting through tied

agents.

(5) Where the competent authority authorises investment firms to appoint

tied agents in accordance with this section

(a) it shall establish a public register, in such form as it may deem

appropriate, wherein will be registered the details of all tied

agents established in Gibraltar; and

(b) investment firms shall appoint only tied agents entered in the

public register in the Member State where they are established.

(6) Where the competent authority has decided, in accordance with

subsection (1), not to allow investment firms to appoint tied agents, those

tied agents shall, where relevant, be registered with the competent authority

of the home Member State of the investment firm on whose behalf it acts.

(7) Where the competent authority has decided, in accordance with

subsection (1), to allow investment firms to appoint tied agents, a tied agent

shall only be admitted to the public register where the competent authority is

satisfied that it is of sufficiently good repute and that he possesses

appropriate general, commercial and professional knowledge so as to be able

to communicate accurately all relevant information regarding the proposed

service to the client or potential client.

(8) The register established under subsection (5) shall be updated by the

competent authority on a regular basis and shall be publicly available for

consultation.

(9) The competent authority shall make it a condition for the grant of an

authorisation that investment firms appointing tied agents take adequate

measures in order to avoid any negative impact that the activities of the tied

agent not covered by the scope of this Act could have on the activities

carried out by the tied agent on behalf of the investment firm.

(10) The competent authority may collaborate with investment firms and

credit institutions, their associations and other entities in registering tied

agents and in monitoring compliance of tied agents with the requirements of

this section. Without prejudice to the generality of the foregoing, an

investment firm, credit institution or their associations and other entities

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under the supervision of the competent authority may apply to the competent

authority for the registration of tied agents.

Transactions executed with eligible counterparties.

24.(1) Investment firms authorised to execute orders on behalf of clients or

to deal on own account or to receive and transmit orders, may bring about or

enter into transactions with eligible counterparties without being obliged to

comply with the obligations under sections 19, 21 and 22 in respect of those

transactions or in respect of any ancillary service directly related to those

transactions.

(2) Eligible counterparties for the purposes of subsection (1) are

investment firms, credit institutions, insurance companies, UCITS and their

management companies, pension funds and their management companies,

other financial institutions authorised or regulated under Community

legislation or the national law of a Member State, undertakings exempted

from the application of this Act under section 4(1)(k) and (l), national

governments and their corresponding offices including public bodies that deal

with public debt, the Gibraltar Savings Bank, central banks and supranational

organisations.

(3) Classification as an eligible counterparty under subsection (2) shall be

without prejudice to the right of such entities to request, either on a general

form or on a trade-by-trade basis, treatment as clients whose business with

the investment firm is subject to sections 19, 21 and 22.

(4) The competent authority may also recognise as eligible counterparties

for the purposes of subsection (1) other undertakings meeting such pre-

determined proportionate requirements, including quantitative thresholds as

the Minister may prescribe.

(5) In the event of a transaction where the prospective counterparties are

located in different jurisdictions, the investment firm shall defer to the status

of the other undertaking as determined by the law or measures of the

Member State in which that undertaking is established.

(6) An investment firm entering into transactions in accordance with

subsection (1) with such undertakings shall obtain the express confirmation

from the prospective counterparty that it agrees to be treated as an eligible

counterparty, and the competent authority shall allow the investment firm to

obtain this confirmation either in the form of a general agreement or in

respect of each individual transaction.

(7) The competent authority may recognise as eligible counterparties

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(a) third country entities equivalent to those categories of entities

mentioned in subsection (2); and

(b) third country undertakings such as those mentioned in

subsection (2) on the same conditions and subject to the same

requirements as those laid down at subsections (4) and (5).

Market transparency and integrity

Obligation to uphold integrity of markets, report transactions and

maintain records.

25.(1) Without prejudice to the allocation of responsibilities for enforcing

the provisions of the Market Abuse Act 2005, the Minister after having

coordinated with ESMA in accordance with Article 31 of the ESMA

Regulation shall make regulations to ensure that appropriate measures are in

place to enable the competent authority to monitor the activities of

investment firms to ensure that they act honestly, fairly and professionally

and in a manner which promotes the integrity of the market.

(2) Regulations made under subsection (1) may make provision for such

offences and penalties therefore as the Minister may deem appropriate.

(3) It shall be a condition subject to which an authorisation under this Act

is granted that investment firms keep at the disposal of the competent

authority, for at least five years, the relevant data relating to all transactions

in financial instruments carried out, whether on own account or on behalf of

a client. In the case of transactions carried out on behalf of clients, the

records shall contain all the information and details of the identity of the

client, and other information required under the Crime (Money Laundering

and Proceeds) Act 2007 to prevent the use of the financial system for the

purpose of money laundering.

(3A) The competent authority shall allow ESMA access to the information

referred to in subsection (3) where ESMA makes a request in accordance

with the procedure and under the conditions set out in Article 35 of the

ESMA Regulation.

(4) It shall be a condition subject to which an authorisation under this Act

is granted that investment firms which execute transactions in any financial

instruments admitted to trading on a regulated market report details of such

transactions to the competent authority as quickly as possible, and no later

than the close of the following working day. This obligation shall apply

whether or not such transactions were carried out on a regulated market.

(5) The competent authority shall, in accordance with the provisions of this

Act, establish the necessary arrangements in order to ensure that the

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competent authority of the most relevant market in terms of liquidity for

those financial instruments also receives the information reported under

subsection (4).

(6) Reports under subsection (4) shall, in particular, include details of the

names and numbers of the instruments bought or sold, the quantity, the dates

and times of execution and the transaction prices and means of identifying

the investment firms concerned.

(7) Reports under subsection (4) are to be made to the competent authority

either by the investment firm itself, a third party acting on its behalf or by a

trade-matching or reporting system approved by the competent authority or

by the regulated market or MTF through whose systems the transaction was

completed. In cases where transactions are reported directly to the

competent authority by a regulated market, an MTF, or a trade-matching or

reporting system approved by the competent authority, the obligation on the

investment firm laid down in subsection (4) may be waived by the competent

authority either generally or individually as he sees fit.

(8) When, in accordance with the provisions of this Act, reports provided

for under this section are transmitted to the competent authority in its

capacity as host Member State, it shall transmit this information to the

competent authority of the home Member State of the investment firm,

unless the latter decide that it does not want to receive this information.

Monitoring of compliance with the rules of the MTF and with other

legal obligations.

26. It shall be a condition subject to which an authorisation under this Act is

granted that investment firms and market operators operating an MTF–

(a)

(i) establish and maintain effective arrangements and

procedures, relevant to the MTF, for the regular

monitoring of the compliance by its users with its rules;

and

(ii) monitor the transactions undertaken by their users under

their systems in order to identify breaches of those rules,

disorderly trading conditions or conduct that may involve

market abuse;

(b) report significant breaches of its rules or disorderly trading

conditions or conduct that may involve market abuse to the

competent authority; and

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responsible for the investigation and prosecution of market

abuse and to provide full assistance to the latter in investigating

and prosecuting market abuse occurring on or through its

systems.

Obligation for investment firms to make public firm quotes.

27.(1) It shall be a condition subject to which an authorisation under this

Act is granted that systematic internalisers in shares publish a firm quote in

those shares admitted to trading on a regulated market for which they are

systematic internalisers and for which there is a liquid market, in default of

which systematic internalisers shall disclose quotes to clients on request.

(2) The provisions of this subsection (1) shall be applicable to systematic

internalisers when dealing for sizes up to standard market size. Systematic

internalisers that only deal in sizes above standard market size shall not be

subject to the provisions of this section.

(3) For the purposes of subsection (1)

(a) systematic internalisers may decide the size or sizes at which

they will quote, including a firm bid or offer price or prices for a

size or sizes which could be up to standard market size for the

class of shares to which the share belongs and reflecting the

prevailing market conditions for that share;

(b) shares shall be grouped in classes on the basis of the arithmetic

average value of the orders executed in the market for that

share. The standard market size for each class of shares shall be

a size representative of the arithmetic average value of the

orders executed in the market for the shares included in each

class of shares;

executed in the European Union in respect of that share

excluding those large in scale compared to normal market size

for that share;

(d) systematic internalisers shall make public their quotes on a

regular and continuous basis during normal trading hours. They

shall be entitled to update their quotes at any time. They shall

also be allowed, under exceptional market conditions, to

withdraw their quotes. The quote shall be made public in a

manner which is easily accessible to other market participants

on a reasonable commercial basis;

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(e) systematic internalisers shall, while complying with the

provisions set down in section 21, execute the orders they

receive from their retail clients in relation to the shares for

which they are systematic internalisers at the quoted prices at

the time of reception of the order;

(f) systematic internalisers shall execute the orders they receive

from their professional clients in relation to the shares for which

they are systematic internalisers at the quoted price at the time

of reception of the order. However, they may execute those

orders at a better price in justified cases provided that this price

falls within a public range close to market conditions and

provided that the orders are of a size bigger than the size

customarily undertaken by a retail investor;

(g) systematic internalisers may execute orders they receive from

their professional clients at prices different than their quoted

ones without having to comply with the conditions established

in this subsection, in respect of transactions where execution in

several securities is part of one transaction or in respect of

orders that are subject to conditions other than the current

market price; and

(h) where a systematic internaliser who quotes only one quote or

whose highest quote is lower than the standard market size

receives an order from a client of a size bigger than its

quotation size, but lower than the standard market size, it may

decide to execute that part of the order which exceeds its

quotation size, provided that it is executed at the quoted price,

except where otherwise permitted under the conditions of

paragraphs (f) and (g). Where the systematic internaliser is

quoting in different sizes and receives an order between those

sizes, which it chooses to execute, it shall execute the order at

one of the quoted prices in compliance with the provisions of

this Act, except where otherwise permitted under the conditions

of paragraphs (f) and (g).

(4) Where the most relevant market in terms of liquidity for each share (as

defined in section 25) is in Gibraltar, the competent authority shall determine

at least annually, on the basis of the arithmetic average value of the orders

executed in the market in respect of that share, the class of shares to which it

belongs.

(4A) The competent authority shall ensure that the information referred to

in subsection (4) is made publicly available to all market participants and is

transmitted to ESMA.

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(5) It shall be a condition subject to which an authorisation is granted that

(a) investment firms regularly update bid or offer prices published

in accordance with this section and maintain prices which reflect

the prevailing market conditions; and

(b) investment firms comply with the conditions for price

improvement laid down in subsection (3)(f).

(6) For all purposes relating to the operation of this section

(a) the competent authority shall authorise systematic internalisers

to decide, on the basis of their commercial policy and in an

objective and non-discriminatory way, the investors to whom

they give access to their quotes;

(b) to that end the competent authority shall require the systematic

internaliser to set clear standards for governing access to their

quotes;

may refuse to enter into or discontinue business relationships

with investors on the basis of commercial considerations such

as the investor credit status, the counterparty risk and the final

settlement of the transaction.

(7) In order to limit the risk of being exposed to multiple transactions from

the same client, the competent authority shall allow systematic internalisers

(a) to limit in a non-discriminatory way the number of transactions

from the same client which they undertake to enter at the

published conditions; and

(b) to limit, in a non-discriminatory way and without prejudice to

subsection 22, the total number of transactions from different

clients at the same time provided that this is allowable only

where the number or volume of orders sought by clients

considerably exceeds the norm.

Post-trade disclosure by investment firms.

28. It shall be a condition subject to which an authorisation under this Act is

granted that–

(a) where investment firms, either on their own account or on

behalf of clients, conclude transactions in shares admitted to

trading on a regulated market outside a regulated market or

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2006-32

MTF, it shall make public the volume and price of those

transactions and the time at which they were concluded as close

to real-time as possible, on a reasonable commercial basis, and

in a manner which is easily accessible to other market

participants; and

(b) the information made public in accordance with paragraph (a)

and the time-limits within which it is published comply with the

prescribed requirements. Where the prescribed requirements

provide for deferred reporting for certain categories of

transaction in shares, this possibility shall apply mutatis

mutandis to those transactions when undertaken outside

regulated markets or MTFs.

Pre-trade transparency requirements for MTFs.

29.(1) It shall be a condition subject to which an authorisation under this

Act is granted that investment firms and market operators operating an MTF

make public current bid and offer prices and the depth of trading interests at

these prices which are advertised through their systems in respect of shares

admitted to trading on a regulated market and available to the public, on

reasonable commercial terms and on a continuous basis during normal

trading hours.

(2) The competent authority, may, in its discretion, waive the obligation

for investment firms or market operators operating an MTF to make public

the information referred to in subsection (1)

(a) based on the market model or the type and size of orders in the

cases defined in accordance with regulations made by the

Minister; or

(b) in respect of transactions that are large in scale compared with

normal market size for the share or type of share in question.

Post-trade transparency requirements for MTFs.

30.(1) It shall be a condition subject to which an authorisation under this

Act is granted that

(a) investment firms and market operators operating an MTF make

public the price, volume and time of the transactions executed

under its systems in respect of shares which are admitted to

trading on a regulated market on a reasonable commercial basis,

as close to real-time as possible; and

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2006-32

(b) MTFs obtain the competent authority's prior approval to

proposed arrangements for deferred trade-publication in

accordance with subsection (3)(b), and shall require that these

arrangements be clearly disclosed to market participants and the

investing public.

(2) Subsection (1) shall not apply to details of trades executed on an MTF

that are made public under the systems of a regulated market.

(3) The competent authority may, in its discretion

(a) authorise investment firms or market operators operating an

MTF to provide for deferred publication of the details of

transactions based on their type or size:

(b) authorise the deferred publication in respect of transactions that

are large in scale compared with the normal market size for that

share or that class of shares.

Rights of investment firms

Freedom to provide investment services and activities.

31.(1) Investment firms authorised and supervised by the competent

authority of another Member State in accordance with its obligations under

the directive, and in respect of credit institutions in accordance with

provisions substantially equivalent to the Financial Services (Banking) Act

(a) may freely perform investment services or activities as well as

ancillary services within Gibraltar, provided that such services

and activities are covered by its authorisation; and

(b) may offer ancillary services only when provided together with

an investment service or activity,

without any additional requirements on such an investment firm or credit

institution in respect of matters covered by this Act.

(2) An authorised investment firm wishing to provide services or activities

within the territory of another Member State for the first time, or which

wishes to change the range of services or activities so provided, shall

communicate the following information to the competent authority

(a) the Member State in which it intends to operate;

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2006-32

(b) a business plan stating in particular the investment services or

activities as well as ancillary services which it intends to

perform and whether it intends to use tied agents in the territory

of the Member States in which it intends to provide services,

in such form as the competent authority may require.

(3) Pursuant to subsection (2), where an investment firm intends to use tied

agents, the competent authority shall, at the request of the competent

authority of the host Member State and within a reasonable time,

communicate to the latter the identity of the tied agents that the investment

firm intends to use in that Member State which the host Member State may

make public.

(3A) The competent authority shall allow ESMA access to the information

referred to in subsection (3) where ESMA makes a request in accordance

with the procedure and under the conditions set out in Article 35 of the

ESMA Regulation.

(4) The competent authority shall, within one month of receiving any

information pursuant to this section by an investment firm, forward it to the

competent authority of the host Member State, following which the

investment firm may then start to provide the investment service or services

concerned in the host Member State.

(5) In the event of a change in any of the particulars communicated in

accordance with this section, an investment firm shall give written notice of

that change to the competent authority at least one month before

implementing the change which the competent authority shall transmit to the

competent authority of the host Member State.

(6) Investment firms and market operators to which sub-section (1) applies

and

(a) operating MTFs in Gibraltar shall, without further legal or

administrative requirement, be free to provide appropriate

arrangements so as to facilitate access to and use of their

systems by remote users or participants established in other

member States;

(b) operating MTFs in other member States shall, without further

legal or administrative requirement, be free to provide

appropriate arrangements so as to facilitate access to and use of

their systems by remote users or participants established in

Gibraltar.

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(7) The investment firm or the market operator that operates an MTF

referred to in subsection (6)(a) shall communicate to the competent authority

the fact that it intends to provide such arrangements. The competent

authority shall communicate, within one month, this information to the

competent authority of the host Member State in which the MTF intends to

provide such arrangements.

(8) The competent authority shall, at the request of the competent

authority of the host Member State of an MTF to which subsection (6)(a)

applies and within a reasonable time, communicate the identity of the

members or participants of the MTF established in Gibraltar.

Establishment of a branch.

32.(1) Investment services or activities as well as ancillary services may be

provided within Gibraltar through the establishment of a branch, provided

that–

(a) those services and activities are covered by an authorisation

granted to the investment firm or the credit institution in the

home Member State; and

(b) that ancillary services are only provided together with an

investment service or activity.

(2) Pursuant to subsection (1), no additional requirements shall be imposed

on the organisation and operation of the branch in respect of the matters

covered by this Act save those allowed under this section.

(3) An investment firm wishing to establish a branch within the territory of

another Member State shall first notify the competent authority of the fact

and provide it with the following information

(a) the Member States within the territory of which it plans to

establish a branch;

(b) a business plan setting out, inter alia, the investment services or

activities as well as the ancillary services to be offered and the

organisational structure of the branch and indicating whether

the branch intends to use tied agents; and

may be obtained;

(d) the names of those responsible for the management of the

branch.

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2006-32

(4) Where an investment firm uses a tied agent established in a Member

State outside Gibraltar, such tied agent shall be assimilated to the branch and

shall be subject to the provisions of this Act relating to branches.

(5) Where subsection (3) applies, unless the competent authority has

reason to doubt the adequacy of the administrative structure or the financial

situation of an investment firm, taking into account the activities envisaged,

it shall, within three months of receiving information under this section,

communicate that information to the competent authority of the host

Member State and inform the investment firm concerned of the fact

accordingly.

(6) Where subsection (3) applies, in addition to the information referred

to above, the competent authority shall communicate details of the

accredited compensation scheme of which the investment firm concerned is a

member to the competent authority of the host Member State. In the event of

a change in the particulars, the competent authority shall inform the

competent authority of the host Member State accordingly.

(7) Where subsection (3) applies and the competent authority, in its

discretion, refuses to communicate the information to the competent

authority of the host Member State, it shall give reasons for its refusal to the

investment firm concerned within three months of receiving all the

information.

(8) Where subsection (1) applies

(a) on receipt of a communication from the competent authority of

the home Member State, or failing such communication from

the latter at the latest after two months from the date of

transmission of the communication by the home competent

authority, the branch may be established and commence

business;

(b) the competent authority shall assume responsibility for ensuring

that the services provided by the branch within Gibraltar

complies with the obligations laid down in sections 19, 21, 22,

25, 27 and 28; and

arrangements and to request such changes as are strictly needed

to enable the competent authority to enforce the obligations

under sections 19, 21, 22, 25, 27 and 28 with respect to the

services or activities provided by the branch within Gibraltar.

(9) Where an investment firm has established a branch in another member

State, the competent authority, in the exercise of its responsibilities and after

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2006-32

informing the competent authority of the host Member State, may carry out

on-site inspections of that branch.

(10) In the event of a change in any of the information communicated in

accordance with this section, the investment firm concerned shall give

written notice of that change to the competent authority at least one month

before implementing the change, which shall be transmitted by the competent

authority to the competent authority of the host Member State.

Access to regulated markets.

33.(1) Investment firms from other Member States which are authorised to

execute client orders or to deal on own account shall have the right of

membership or have access to regulated markets established in Gibraltar by

any of the following arrangements

(a) directly, by setting up a branch;

(b) by becoming remote members of or having remote access to the

regulated market without having to be established in Gibraltar,

where the trading procedures and systems of the market in

question do not require a physical presence for conclusion of

transactions on the market.

(2) Where subsection (1) applies, no additional regulatory or administrative

requirements shall be imposed on investment firms exercising their rights

under that subsection in respect of matters covered by this Act.

Access to central counterparty, clearing and settlement facilities and

right to designate settlement system.

34.(1) The use of central counterparty, clearing and settlement systems shall

not be restricted to the clearing and settlement of transactions in financial

instruments undertaken on a regulated market or MTF in Gibraltar.

(2) Without prejudice to the generality of subsection (1), investment firms

from other Member States shall have the right of access to central

counterparty, clearing and settlement systems in Gibraltar for the purposes of

finalising or arranging the finalisation of transactions in financial instruments

subject to the same non-discriminatory, transparent and objective criteria as

apply to investment firms authorised by the competent authority.

(3) Regulated markets in Gibraltar shall offer all members or participants

the right to designate the system for the settlement of transactions in financial

instruments undertaken on that regulated market, subject to

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2006-32

(a) such links and arrangements between the designated settlement

system and any other system or facility as are necessary to

ensure the efficient and economic settlement of the transaction

in question existing; and

(b) agreement by the competent authority that technical conditions

for settlement of transactions concluded on the regulated

market through a settlement system other than that designated

by the regulated market are such as to allow the smooth and

orderly functioning of financial markets.

(4) The rights of investment firms under this section shall be without

prejudice to the right of operators of central counterparty, clearing or

securities settlement systems to refuse on legitimate commercial grounds to

make the requested services available.

Provisions regarding central counterparty, clearing and settlement

arrangements in respect of MTFs.

35.(1) Subject to subsection (2), investment firms and market operators

operating an MTF shall be allowed to enter into appropriate arrangements

with a central counterparty or clearing house and a settlement system of

another Member State with a view to providing for the clearing or settlement

of some or all trades concluded by market participants under their systems.

(2) The competent authority may not oppose the use of central

counterparty, clearing houses or settlement systems in another Member State

except where this is demonstrably necessary in order to maintain the orderly

functioning of that MTF and taking into account the conditions for

settlement systems established in section 34.

PART III

REGULATED MARKETS

Authorisations and applicable law.

36.(1) The competent authority

(a) shall only authorise as a regulated market those systems which

comply with the provisions of this Part; and

(b) shall grant an authorisation as a regulated market only where it

is satisfied that both the market operator and the systems of the

regulated market comply with the requirements laid down in

this Part.

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(2) Where a regulated market is a legal person managed or operated by a

market operator other than the regulated market itself, the Minister may, by

regulations, establish how the different obligations imposed on the market

operator under this Part are to be allocated between the regulated market

and the market operator.

(3) The competent authority shall issue an authorisation under this Part

only where it is satisfied that the operator of a regulated market has provided

all information, including a business plan setting out, inter alia, the types of

business envisaged and the organisational structure, necessary to enable the

competent authority to satisfy itself that the regulated market has established,

at the time of initial authorisation, all the necessary arrangements to meet its

obligations under the provisions of this Part.

(4) It shall be a condition subject to which an authorisation under this Part

is issued that the operator of the regulated market perform tasks relating to

the organisation and operation of the regulated market under the supervision

of the competent authority.

(5) The competent authority shall maintain under regular review the

compliance of regulated markets with the provisions of this Part and monitor

regulated markets to ensure compliance at all times with the conditions for

initial authorisation established under this Part.

(6) It shall be a condition subject to which an authorisation under this Part

is issued that the market operator remain

(a) responsible for ensuring that the regulated market that he

manages complies with all requirements under this Part; and

(b) entitled to exercise the rights that correspond to the regulated

market that he manages by virtue of this Act.

(7) The law governing the trading conducted under the systems of a

regulated market in Gibraltar shall be the law of Gibraltar.

(8) The competent authority may withdraw the authorisation issued to a

regulated market where it

(a) does not make use of the authorisation within 12 months,

expressly renounces the authorisation or has not operated for

the preceding six months;

(b) has obtained the authorisation by making false statements or by

any other irregular means;

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2006-32

granted;

(d) has seriously and systematically infringed the provisions of this

Act; or

(e) falls within any of the cases where regulations made by the

Minister under this section provides for withdrawal;

and where such an authorisation has been withdrawn the competent authority

shall notify ESMA of that fact.

Requirements for the management of the regulated market.

37.(1) Persons who effectively direct the business and the operations of a

regulated market shall be of sufficiently good repute and sufficiently

experienced as to ensure the sound and prudent management and operation

of the regulated market.

(2) The operator of a regulated market shall inform the competent

authority of the identity and any other subsequent changes of persons who

effectively direct the business and the operations of the regulated market.

(3) The competent authority shall refuse to approve proposed changes

where there are objective and demonstrable grounds for believing that they

pose a material threat to the sound and prudent management and operation

of the regulated market.

(4) In the process of authorisation of a regulated market, the person or

persons who effectively direct the business and the operations of a regulated

market authorised as such on the coming into force of this Act shall be

deemed to comply with the requirements laid down in subsection (1).

Requirements relating to persons exercising significant influence over

the management of the regulated market.

38.(1) Persons who are in a position to exercise, directly or indirectly,

significant influence over the management of a regulated market shall be fit

and proper for the purpose.

(2) It shall be a condition subject to which an authorisation under this Part

is issued that the operator of a regulated market

(a) provide the competent authority with, and make public,

information regarding the ownership of the regulated market or

the market operator, and in particular, the identity and scale of

interests of any parties in a position to exercise significant

influence over the management; and

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(b) inform the competent authority of, and make public any transfer

of ownership, which gives rise to a change in the identity of the

persons exercising significant influence over the operation of

the regulated market.

(3) The competent authority shall refuse to approve proposed changes to

the controlling interests of the regulated market or the market operator

where there are objective and demonstrable grounds for believing that they

would pose a threat to the sound and prudent management of the regulated

market.

Organisational requirements.

39. It shall be a condition subject to which an authorisation under this Part is

issued that a regulated market

(a) have arrangements to clearly identify and manage the potential

adverse consequences, for the operation of the regulated market

or for its participants, of any conflict of interest between the

interest of the regulated market, its owners or its operator and

the sound functioning of the regulated market, and in particular

where such conflicts of interest might prove prejudicial to the

accomplishment of any functions delegated to the regulated

market by the competent authority;

(b) be adequately equipped to manage the risks to which it is

exposed, to implement appropriate arrangements and systems to

identify all significant risks to its operation, and to put in place

effective measures to mitigate those risks;

operations of the system, including the establishment of

effective contingency arrangements to cope with risks of

systems disruptions;

(d) have transparent and non-discretionary rules and procedures

that provide for fair and orderly trading and establish objective

criteria for the efficient execution of orders;

(e) have effective arrangements to facilitate the efficient and timely

finalisation of the transactions executed under its systems; and

(f) have available, at the time of authorisation and on an ongoing

basis, sufficient financial resources to facilitate its orderly

functioning, having regard to the nature and extent of the

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2006-32

transactions concluded on the market and the range and degree

of the risks to which it is exposed.

Admission of financial instruments to trading.

40.(1) It shall be a condition subject to which an authorisation under this

Part is issued that regulated markets have clear and transparent rules

regarding the admission of financial instruments to trading such as ensures

that any financial instruments admitted are capable of being traded in a fair,

orderly and efficient manner and, in the case of transferable securities, are

freely negotiable.

(2) In the case of derivatives, the rules referred to in subsection (1) shall

ensure in particular that the design of the derivative contract allows for its

orderly pricing as well as for the existence of effective settlement conditions.

(3) In addition to the obligations set out in subsections (1) and (2), it shall

be a condition subject to which an authorisation under this Part is issued

that

(a) the regulated market establish and maintain effective

arrangements to verify that issuers of transferable securities that

are admitted to trading on the regulated market comply with

their statutory obligations in respect of initial, ongoing or ad

hoc disclosure obligations;

(b) the regulated market establishes arrangements which facilitate

its members or participants in obtaining access to information

which has been made public;

arrangements to review regularly compliance with the admission

requirements of the financial instruments which they admit to

trading.

(4) Without prejudice to other statutory provisions relating to the matter,

where a transferable security has been admitted to trading on a regulated

market, it can subsequently be admitted to trading on other regulated

markets, even without the consent of the issuer, who

(a) shall be informed by the regulated market of the fact that its

securities are traded on that regulated market; and

(b) shall not be subject to any obligation to provide information

required under this section directly to any regulated market

which has admitted the issuer's securities to trading without his

consent.

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Suspension and removal of instruments from trading.

41.(1) Without prejudice to the right of the competent authority to demand

suspension or removal of an instrument from trading, the operator of a

regulated market may suspend or remove from trading a financial instrument

which no longer complies with the rules of the regulated market unless such

a step would be likely to cause significant damage to the investors' interests

or the orderly functioning of the market.

(2) Without prejudice to the right of operators of regulated markets to

inform directly the operators of other regulated markets, the operator of a

regulated market that suspends or removes from trading a financial

instrument shall make public the decision and shall communicate relevant

information to the competent authority who shall inform the competent

authority of the other Member States.

(3) Where the competent authority requests the suspension or removal of

a financial instrument from trading on one or more regulated markets it shall

immediately make public its decision and inform the competent authorities of

the Member States and ESMA.

(4) Where the competent authority is informed by the competent

authority of another Member State that it has requested the suspension or

removal of a financial instrument from trading on one or more regulated

markets in its territory, the competent authority shall request the suspension

or removal of that financial instrument from trading on the regulated markets

and MTFs that operate in Gibraltar save where it is likely to cause significant

damage to the investors’ interests or the orderly functioning of the internal

market.

Access to the regulated market.

42.(1) It shall be a condition subject to which an authorisation under this

Part is issued that a regulated market establish and maintain transparent and

non-discriminatory rules, based on objective criteria, governing access to or

membership of the regulated market.

(2) The rules referred to in subsection (1) shall specify obligations for the

members or participants arising from

(a) the constitution and administration of the regulated market;

(b) transactions on the market;

firms or credit institutions that are operating on the market;

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(d) the conditions established, for members or participants other

than investment firms and credit institutions, under this section;

and

(e) procedures for the clearing and settlement of transactions

concluded on the regulated market.

(3) Regulated markets may admit as members or participants investment

firms, credit institutions authorised under the Financial Services (Banking)

Act and other persons who

(a) are fit and proper;

(b) have a sufficient level of trading ability and competence;

and

(d) have sufficient resources for the role they are to perform, taking

into account the different financial arrangements that the

regulated market may have established in order to guarantee the

adequate settlement of transactions.

(4) For the transactions concluded on a regulated market, members and

participants shall not be obliged to apply to each other the obligations laid

down in sections 19, 21 and 22 but shall instead apply the obligations

provided for in sections 19, 21 and 22 with respect to their clients when they,

acting on behalf of their clients, execute their orders on a regulated market.

(5) It shall be a condition subject to which an authorisation under this Part

is issued that rules pursuant to subsection (1) provide for the direct or

remote participation of investment firms and credit institutions.

(6) The competent authority shall, without further legal or administrative

requirements, allow regulated markets from other Member States to provide

appropriate arrangements in Gibraltar so as to facilitate access to and trading

on those markets by remote members or participants established in Gibraltar.

(7) Regulated markets wishing to provide appropriate arrangements in

other Member States so as to facilitate access to and trading on those

markets by remote members or participants established in those Member

States shall communicate to the competent authority the name of the

Member State in which they intend to provide such arrangements. The

competent authority shall communicate, within one month, this information

to the competent authority of the Member State in which the regulated

markets intend to provide such arrangements.

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(7A) The competent authority shall allow ESMA access to the information

referred to in subsection (7) where ESMA makes a request in accordance

with the procedure and under the conditions set out in Article 35 of the

ESMA Regulation.

(8) Where subsection (7) applies, the competent authority shall, on the

request of the competent authority of the host Member State and within a

reasonable time, communicate the identity of the members or participants of

the regulated market established in Gibraltar.

(9) It shall be a condition subject to which an authorisation under this Part

is issued that the operator of the regulated market communicate, on a regular

basis, the list of the members and participants of the regulated market to the

competent authority.

Monitoring of compliance with the rules of the regulated market and

with other legal obligations.

43.(1) It shall be a condition subject to which an authorisation under this

Part is issued that regulated markets

(a) establish and maintain effective arrangements and procedures

for the regular monitoring of the compliance by their members

or participants with the market´s internal rules; and

(b) monitor the transactions undertaken by their members or

participants under the market´s systems in order to identify

breaches of the market´s internal rules, disorderly trading

conditions or conduct that may involve market abuse.

(2) It shall be a condition subject to which an authorisation under this Part

is issued that operators of regulated markets

(a) report significant breaches of their internal rules or disorderly

trading conditions or conduct that may involve market abuse to

the competent authority of the regulated market; and

(b) supply the relevant information without delay to the competent

authority and provide full assistance with investigating and

prosecuting market abuse occurring on or through the systems

of the regulated market.

Pre-trade transparency requirements for regulated markets.

44.(1) It shall be a condition subject to which an authorisation under this

Part is issued that regulated markets

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(a) make public on reasonable commercial terms and on a

continuous basis during normal trading hours current bid and

offer prices and the depth of trading interests at those prices

which are advertised through their systems for shares admitted

to trading; and

(b) give access, on reasonable commercial terms and on a non-

discriminatory basis, to the arrangements they employ for

making public the information under the first paragraph to

investment firms which are obliged in law to publish their

quotes in shares.

(2) The competent authority may, in its discretion, waive the obligation for

regulated markets to make public the information referred to in subsection

(1) based on the market model or the type and size of orders in the cases

defined in accordance with regulations made by the Minister.

(3) Without prejudice to the generality of subsection (2), the competent

authority shall be able to waive the obligation in respect of transactions that

are large in scale compared with normal market size for the share or type of

share in question.

Post-trade transparency requirements for regulated markets.

45.(1) It shall be a condition subject to which an authorisation under this

Part is issued that regulated markets

(a) make public on a reasonable commercial basis and as close to

real-time as possible the price, volume and time of the

transactions executed in respect of shares admitted to trading;

and

(b) give access, on reasonable commercial terms and on a non-

discriminatory basis, to the arrangements they employ for

making public the information under paragraph (a) to

investment firms which are obliged in law to publish the details

of their transactions in shares.

(2) The competent authority may, in its discretion, authorise regulated

markets to provide for deferred publication of the details of transactions

based on their type or size. In particular, the competent authority may

authorise the deferred publication in respect of transactions that are large in

scale compared with the normal market size for that share or that class of

shares.

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(3) It shall be a condition subject to which an authorisation under this Part

is issued that regulated markets obtain the competent authority's prior

approval of proposed arrangements for deferred trade-publication, and shall

require that these arrangements be clearly disclosed to market participants

and the investing public.

Provisions regarding central counterparty and clearing and settlement

arrangements.

46.(1) The competent authority shall allow regulated markets to enter into

appropriate arrangements with a central counterparty or clearing house and a

settlement system of another Member State with a view to providing for the

clearing or settlement of some or all trades concluded by market participants

under their systems.

(2) The competent authority shall allow the use of central counterparty,

clearing houses or settlement systems in another Member State save where

not doing so is demonstrably necessary in order to maintain the orderly

functioning of that regulated market and taking into account the conditions

for settlement systems established in section 34.

List of regulated markets.

47.(1) The Minister shall draw up a list of those regulated markets which

are either registered in Gibraltar or whose head office is located in Gibraltar.

(2) The Minister shall ensure that the list referred to in subsection (1) is

provided to Member States and to ESMA and any change to that list is also

communicated to Member States and to ESMA.

PART IV

COMPETENT AUTHORITY

Designation, Powers And Redress Procedures

Designation of competent authority.

48.(1) The Minister shall

(a) designate the competent authority which is to carry out each of

the duties provided for under the different provisions of this

Act; and

(b) ensure the European Commission, ESMA and the competent

authorities of other Member States are informed of the identity

of the competent authority responsible for enforcement of each

of those duties, and of any division of those duties.

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(2) The competent authority referred to in subsection (1)(a) shall have the

power to delegate tasks to other entities where that is expressly provided for

in this Act.

(3) Any delegation of tasks under subsection (2) may not involve either the

exercise of public authority or the use of discretionary powers of judgement.

(4) The Minister shall require that, prior to a delegation under subsection

(2), the competent authority take all reasonable steps to ensure that the entity

to which tasks are to be delegated has the capacity and resources to

effectively execute all tasks and that the delegation takes place only if a

clearly defined and documented framework for the exercise of any delegated

tasks has been established stating the tasks to be undertaken and the

conditions under which they are to be carried out.

(5) The conditions referred to in subsection (4) shall include a provision

obliging the entity in question to act and be organised in such a manner as

avoids conflict of interest in order that information obtained from carrying

out the delegated tasks is not used unfairly or to prevent competition.

(6) Without prejudice to the foregoing, the final responsibility for

supervising compliance with this Act shall lie with the competent authority

designated in accordance with subsection (1)(a).

(7) The Minister shall ensure that the European Commission, ESMA and

the competent authorities of other Member States are informed of any

arrangements entered into with regard to delegation of tasks, including the

precise conditions regulating such delegation.

Powers of competent authority.

49.(1) The Minister shall make regulations conferring on the competent

authority all supervisory and investigatory powers necessary for the exercise

of its functions.

(2) Regulations made under subsection (1) shall provide for such powers

to be exercised

(a) directly;

(b) in collaboration with other authorities;

with the provisions of section 48; or

(d) by application to the competent judicial authorities.

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(3) The powers referred to in subsection (1) shall include, at least, the right

to

(a) have access to any document in any form whatsoever and to

receive a copy of it;

(b) demand information from any person and if necessary to

summon and question a person with a view to obtaining

information;

(d) require the production and copying of existing telephone and

existing data traffic records;

(e) require the cessation of any practice that is contrary to the of

this Act;

(f) request the freezing or the sequestration of assets;

(g) request temporary prohibition of professional activity;

(h) require authorised investment firms and regulated markets'

auditors to provide information;

(i) adopt any type of measure to ensure that investment firms and

regulated markets continue to comply with legal requirements;

(j) require the suspension of trading in a financial instrument;

(k) require the removal of a financial instrument from trading,

whether on a regulated market or under other trading

arrangements;

(l) refer matters for criminal prosecution; and

(m) allow auditors or experts to carry out verifications or

investigations.

(4) The competent authority shall ensure that any decision it takes pursuant

to this Act is properly reasoned.

Administrative sanctions.

50.(1) The Minister may, by regulations, provide for appropriate effective,

proportionate and dissuasive administrative measures to be taken or

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administrative or criminal sanctions to be imposed against persons

responsible where any provision of this Act has not been complied with.

(2) The competent authority may disclose to the public any measure or

sanction that will be imposed for infringement of the provisions of this Act,

unless such disclosure would seriously jeopardise the financial markets or

cause disproportionate damage to the parties involved.

(3) The Minister shall provide ESMA annually with aggregated

information about all administrative measures and sanctions imposed by

regulations made under this section.

(4) Where the competent authority has disclosed an administrative

measure or sanction to the public, it shall, contemporaneously, report that

fact to ESMA.

Right of appeal.

51.(1) Any decision taken by the competent authority pursuant to this Act,

or any failure by the competent authority to reach such a decision, shall be

subject to appeal to a judge of the Supreme Court on a point of law.

(2) The Minister shall, by regulations, designate one or more bodies

belonging to the following categories that may, in the interests of consumers,

take action before the courts to ensure that the provisions of this Act are

applied

(a) public bodies or their representatives;

(b) consumer organisations having a legitimate interest in

protecting consumers; and

to protect their members.

(3) Regulations made under subsection (2) may make such consequential

provision, including the registration of such bodies and forms of relief

available as the Minister may deem appropriate.

Professional secrecy.

52.(1) Without prejudice to cases covered by criminal law or the other

provisions of this Act

(a) the competent authority, all persons who work or who have

worked for the competent authority or entities to whom tasks

are delegated pursuant to the provisions of this Act, as well as

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2006-32

auditors and experts instructed by the competent authority, shall

be bound by the obligation of professional secrecy; and

(b) no confidential information which they may receive in the

course of their duties under this Act may be divulged to any

person or authority whatsoever, save in summary or aggregate

form such that individual investment firms, market operators,

regulated markets or any other person cannot be identified.

(2) Where an investment firm, market operator or regulated market has

been declared bankrupt or is being compulsorily wound up, confidential

information which does not concern third parties may be divulged in civil or

commercial proceedings if necessary for carrying out the proceeding by the

competent authority, all persons who work or who have worked for the

competent authority or entities to whom tasks are delegated pursuant to the

provisions of this Act, as well as auditors and experts instructed by the

competent authority.

(3) The competent authority, or any person other than the competent

authority receiving confidential information pursuant to this Act may use

such information

(a) only in the performance of their duties and for the exercise of

their functions; or

(b) for the purpose for which such information was provided to

them pursuant to the provisions of this Act; or

specifically related to the exercise of those functions.

However, where the competent authority or other authority, body or person

communicating information consents thereto, the authority receiving the

information may use it for other purposes.

(4) Any confidential information received, exchanged or transmitted

pursuant to this Act shall be subject to the conditions of professional secrecy

laid down in this section.

(5) This section shall not prevent the competent authority from exchanging

or transmitting confidential information in accordance with this Act and with

other statutory provisions applicable to investment firms, credit institutions,

pension funds, UCITS, insurance and reinsurance intermediaries, insurance

undertakings regulated markets or market operators or otherwise with the

consent of the authority or other authority or person that communicated the

information.

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(6) This section shall not prevent the competent authority from exchanging

or transmitting confidential information that has not been received from a

competent authority of another Member State.

Relations with auditors.

53.(1) A person registered as an auditor pursuant to the provisions of the

Auditors Approval and Registration Act 1998 shall have a duty

(a) to report promptly to the competent authority any fact or

decision concerning an undertaking of which he has become

aware while carrying out professional auditing or accounting

duties in relation to that undertaking and which is liable to -

(i) constitute a material breach of any conditions governing

an authorisation issued under this Act or which

specifically govern the pursuit of activities of investment

firms;

(ii) affect the continuous functioning of the investment firm;

(iii) lead to refusal to certify the accounts or to the expression

of reservations;

(b) to report any such facts and decisions of which the person

becomes aware in relation to an undertaking having close links

with the investment firm within which he is carrying out

professional auditing or accounting duties.

(2) The disclosure in good faith to the competent authority by a person

under subsection (1) shall not constitute a breach of any contractual or legal

restriction on disclosure of information and shall not involve such persons in

any liability of any kind.

Cooperation with other competent authorities

Obligation to cooperate.

54.(1) The competent authority shall cooperate with, and assist the

competent authority of other Member States whenever necessary for the

purpose of carrying out its duties under this Act. In particular, he shall

exchange information and cooperate in any investigation or supervisory

activities.

(1A) In order to facilitate and accelerate cooperation, and more

particularly exchange of information, the Minister shall designate a single

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competent authority as a contact point for the purposes of this Act, and he

shall ensure that such designation is communicated to the Commission,

ESMA and to the Member States.

(2) The competent authority and host competent authority of a regulated

market shall establish proportionate cooperation arrangements when, taking

into account the situation of the securities markets in the host Member State,

the operations of a regulated market that has established arrangements in the

host Member State have become of substantial importance for the

functioning of the securities markets and the protection of investors in that

host Member State.

(3) The competent authority may cooperate in accordance with this section

even in cases where the conduct under investigation does not constitute an

infringement of this Act.

(4) Where the competent authority has good reason to suspect that acts

contrary to the provisions of this Act carried out by entities not subject to its

supervision, are being or have been carried out on the territory of another

Member State, it shall notify this in as specific a manner as possible to the

competent authority of the other Member State and to ESMA.

(5) Where the competent authority has been notified of a suspected

infringement of this Act by the competent authority of another member

State, it shall take appropriate action and shall inform the notifying

competent authority and ESMA of the outcome of the action and, to the

extent possible, of significant interim developments, any action taken

pursuant to this subsection shall be without prejudice to the competence of

the notifying authority.

Cooperation in supervisory activities, on-the-spot verifications or in

investigations.

55.(1) The competent authority may request the cooperation of the

competent authority of another Member State in a supervisory activity or for

an on-the-spot verification or in an investigation.

(2) In the case of investment firms that are remote members of a regulated

market, the competent authority may choose to address the firms directly, in

which case it shall inform the competent authority of the home Member State

of the remote member accordingly.

(3) Where the competent authority receives a request with respect to a

supervisory activity or for an on-the-spot verification or in an investigation, it

shall, within the framework of its powers

(a) carry out the verifications or investigations itself;

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(b) allow the requesting authority to carry out the verification or

investigation; or

investigation.

Exchange of information.

56.(1) The competent authority shall supply the competent authorities of

other member States with the information required for the purposes of

carrying out their duties pursuant to the provisions of the directive.

(2) The competent authority, when exchanging information with other

competent authorities under subsection (1), may indicate at the time of

communication that such information must not be disclosed without its

express agreement, and that such information is exchanged solely for the

purposes for which it has given its agreement.

(3) The competent authority

(a) may transmit any information received under this Act to the

competent authority of other member States;

(b) shall not transmit such information to other bodies or persons

without the express agreement of the competent authority

which disclosed it; and

(c)shall use the information solely for the purposes for which those

authorities give their agreement, except in duly justified

circumstances, in which case the competent auhority shall

immediately inform the authority that sent the

information.

(4) The competent authority and persons receiving confidential information

under this Act may use it only in the course of their duties, in particular

(a) to check that the conditions governing the taking-up of the

business of investment firms are met and to facilitate the

monitoring, on a non-consolidated or consolidated basis, of the

conduct of that business, especially with regard to capital

adequacy requirements, administrative and accounting

procedures and internal-control mechanisms;

(b) to monitor the proper functioning of trading venues;

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(d) in administrative appeals against decisions by the competent

authority;

(e) in judicial proceedings; or

(f) in the extra-judicial mechanism for investors' complaints.

(5) Nothing in this Act

(a) shall prevent the competent authority from transmitting to

ESMA, the European Systemic Risk Board, central banks, the

European System of Central Banks and the European Central

Bank, in their capacity as monetary authorities, and, where

appropriate, to other public authorities responsible for

overseeing payment and settlement systems of confidential

information intended for the lawful performance of their duties;

(b) Deleted

Refusal to cooperate.

57.(1) The competent authority may refuse to act on a request for

cooperation in carrying out an investigation, on-the-spot verification or

supervisory activity or to exchange information pursuant to the provisions of

this Act only where

(a) such an investigation, on-the-spot verification, supervisory

activity or exchange of information might adversely affect the

sovereignty, security or public policy of Gibraltar;

(b) judicial proceedings have already been initiated in respect of the

same actions and the same persons in Gibraltar; or

of the same persons and the same actions.

(2) Where the competent authority refuses to act on a request for

cooperation as set out in subsection (1), it shall notify the requesting

competent authority and ESMA accordingly, providing as detailed

information as possible.

Inter-authority consultation prior to authorisation.

58.(1) The competent authority of any other relevant Member State

involved shall be consulted by the competent authority prior to granting

authorisation to an investment firm which is

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(a) a subsidiary of an investment firm or credit institution

authorised in that Member State; or

(b) a subsidiary of the parent undertaking of an investment firm or

credit institution authorised in that Member State; or

investment firm or credit institution authorised in that Member

State.

(2) The competent authority of the Member State responsible for the

supervision of credit institutions or insurance undertakings shall be consulted

by the competent authority prior to granting an authorisation to an

investment firm which is

(a) a subsidiary of a credit institution or insurance undertaking

authorised elsewhere in the European Union;

(b) a subsidiary of the parent undertaking of a credit institution or

insurance undertaking authorised elsewhere in the European

Union; or

controls a credit institution or insurance undertaking authorised

elsewhere in the European Union.

(3) The competent authority shall in particular

(a) consult the relevant competent authority referred to in

subsections (1) and (2) when assessing the suitability of

shareholders or members and the reputation and experience of

persons who effectively direct the business involved in the

management of another entity of the same group; and

(b) exchange all information regarding the suitability of

shareholders or members and the reputation and experience of

persons who effectively direct the business that is of relevance

to the other competent authority involved, for the granting of

an authorisation as well as for the ongoing assessment of

compliance with operating conditions.

Powers of competent authority in its capacity of host.

59.(1) All investment firms with branches in Gibraltar shall, for statistical

purposes, report to the competent authority periodically on the activities of

those branches.

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(2) Branches of investment firms shall provide the competent authority

with all information necessary for the monitoring of their compliance with

standards set pursuant to this Act applying to them for the cases provided for

in section 32.

Precautionary measures.

60.(1) Where the competent authority acting as host has clear and

demonstrable grounds for believing that an investment firm acting within

Gibraltar is acting contrary to the provisions of this Act or that an investment

firm that has a branch within Gibraltar is acting contrary to the provisions of

this Act which does not confer remedial powers on the competent authority

acting as host, it shall refer those findings to the competent authority of the

home Member State.

(2) Where, despite the measures taken by the competent authority of the

home Member State or because such measures prove inadequate, the

investment firm persists in acting in a manner that is clearly prejudicial to the

interests of investors in Gibraltar or the orderly functioning of markets–

(a) after informing the competent authority of the home Member

State the competent authority shall take all appropriate

measures needed in order to protect investors and the proper

functioning of the markets, which shall include the possibility of

preventing offending investment firms from initiating any

further transactions within Gibraltar, and the competent

authority shall ensure that the European Commission and

ESMA are informed of such measures without delay; and

(b) the competent authority may refer the matter to ESMA for

action pursuant to Article 19 of the ESMA Regulation

(3) Where the competent authority acting as host ascertains that an

investment firm that has a branch within Gibraltar is in breach of this Act, the

competent authority shall require the investment firm concerned to put an

end to its irregular situation.

(4) Where, pursuant to subsection (3), the investment firm concerned fails

to take the necessary steps, the competent authority, shall take such

measures as the Minister may prescribe to ensure that the investment firm

concerned puts an end to its irregular situation. The nature of those measures

shall be communicated to the competent authority of the home Member

State.

(5) Where, despite the measures taken by the competent authority, the

investment firm persists in breaching the provisions of this Act, in such

circumstances–

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(a) after informing the competent authority of the home Member

State the competent authority State shall take all appropriate

measures needed in order to protect investors and the proper

functioning of the markets and shall inform the European

Commission and ESMA of those measures without delay; and

(b) the competent authority may refer the matter to ESMA for

action pursuant to Article 19 of the ESMA Regulation.

(6) Where the competent authority acting as host to a regulated market or

an MTF has clear and demonstrable grounds for believing that such regulated

market or MTF is in breach of the provisions of this Act, it shall refer those

findings to the competent authority of the home Member State of the

regulated market or the MTF.

(7) Where, despite the measures taken by the competent authority of the

home Member State or because such measures prove inadequate, that

regulated market or the MTF persists in acting in a manner that is clearly

prejudicial to the interests of investors in Gibraltar or the orderly functioning

of markets–

(a) after informing the competent authority of the home Member

State the competent authority shall take all appropriate

measures needed in order to protect investors and the proper

functioning of the markets, which shall include the possibility of

preventing that regulated market or the MTF from making their

arrangements available to remote members or participants

established in the host Member State and shall inform the

European Commission and ESMA of those measures without

delay; and

(b) the competent authority may refer the matter to ESMA for

action pursuant to Article 19 of the ESMA Regulation.

(8) Any measures adopted pursuant to this section involving sanctions or

restrictions on the activities of an investment firm or of a regulated market

shall be properly justified and communicated to the investment firm or to the

regulated market concerned.

Cooperation and exchange of information with ESMA.

60A.(1) The competent authority shall-

(a) without delay, provide ESMA with all information necessary to

carry out its duties under the Directive and in accordance with

Article 35 of the ESMA Regulation; and

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(b) cooperate with the ESMA for the purposes of the Directive in

accordance with the ESMA Regulation.

Exchange of information with third countries.

60B.(1) The Government may conclude cooperation agreements providing

for the exchange of information with the competent authorities of third

countries only if the information disclosed is subject to guarantees of

professional secrecy at least equivalent to those required under Article 54 of

the Directive and the exchange of information is intended for the

performance of the tasks of those competent authorities.

(2) Pursuant to subsection (1), the competent authority may transfer

personal data to a third country in accordance with Chapter IV of Directive

95/46/EC.

(3) The Government may also conclude cooperation agreements

providing for the exchange of information with third country authorities,

bodies and natural or legal persons responsible for one or more of the

following–

(a) the supervision of credit institutions, other financial institutions,

insurance undertakings and the supervision of financial markets;

(b) the liquidation and bankruptcy of investment firms and other

similar procedures;

investment firms and other financial institutions, credit

institutions and insurance undertakings, in the performance of

their supervisory functions, or which administer compensation

schemes, in the performance of their functions;

(d) oversight of the bodies involved in the liquidation and

bankruptcy of investment firms and other similar procedures;

(e) oversight of persons charged with carrying out statutory audits

of the accounts of insurance undertakings, credit institutions,

investment firms and other financial institutions.

(4) The cooperation agreements referred to in subsection (3)(c) may be

concluded only where the information disclosed is subject to guarantees of

professional secrecy at least equivalent to those required under Article 54 of

the Directive and the exchange of information is intended for the

performance of the tasks of those authorities or bodies or natural or legal

persons.

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(5) Where the information to which this section relates originates in

another Member State or third country, it may not be disclosed without the

express agreement of the competent authorities which have transmitted it

and, where appropriate, solely for the purposes for which those authorities

gave their agreement.

Alternative dispute resolution

Alternative dispute resolution.

60C.(1) The Government shall encourage the setting-up of efficient and

effective complaints and redress procedures for the out-of-court settlement

of consumer disputes concerning the provision of investment and ancillary

services provided by investment firms, using existing bodies where

appropriate, which bodies shall not be prevented from cooperating

effectively in the resolution of cross-border disputes.

(2) The Government may make regulations for the implementation or

regulation of any procedures instituted pursuant to subsection (1).

(3) The competent authority shall notify ESMA of any complaint and

redress procedures referred to in subsection (1) which are available.

Binding mediation.

60D. The competent authority may refer to the European Securities and

Markets Authority situations where a request relating to one of the following

has been rejected or has not been acted upon within a reasonable time–

(a) to carry out a supervisory activity, an on-the-spot verification,

or an investigation, as provided for in section 55; or

(b) to exchange information as provided for in section 56.

PART V

FINAL PROVISIONS

Transitional provisions.

61.(1) Investment firms already authorised in their home Member State to

provide investment services before such date as the Minister may prescribe in

a notice made under section 2(2) shall be deemed to be so authorised for the

purpose of this Act.

(2) A regulated market or a market operator already authorised in its home

Member State before such date as the Minister may prescribe in a notice

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made under section 2(2) shall be deemed to be so authorised for the

purposes of this Act.

(3) Tied agents already entered in a public register before such date as the

Minister may prescribe in a notice made under section 2(3) shall be deemed

to be so registered for the purposes of this Act.

(4) Information communicated before such date as the Minister may

prescribe for the purposes of Articles 17, 18 or 30 of Directive 93/22/EEC

shall be deemed to have been communicated for the purposes of this Act.

(5) Any existing system falling under the definition of an MTF operated by

a market operator of a regulated market, shall be authorised as an MTF at

the request of the market operator of the regulated market provided it

complies with rules equivalent to those required by this Act for the

authorisation and operation of MTFs, and provided that the request

concerned is made within 18 months of such date as the Minister may

prescribe.

(6) Investment firms established before such date as the Minister may

prescribe shall be authorised to continue considering existing professional

clients as such provided that this categorisation has been granted by the

investment firm on the basis of an adequate assessment of the expertise,

experience and knowledge of the client which gives reasonable assurance, in

light of the nature of the transactions or services envisaged, that the client is

capable of making his own investment decisions and understands the risks

involved. However, such investment firms shall inform their clients about the

conditions established in this Act for the categorisation of clients.

Regulations.

62.(1) The Minister may, by regulations, prescribe anything requiring to be

prescribed and generally do anything requiring to be done pursuant to the

provisions of this Act.

(2) Without prejudice to the generality of subsection (1) the Minister may,

by regulations,

(a) provide for applications for authorisations, fees, forms and

offences as he may deem appropriate in order to make better

provision for the execution of this Act;

(b) amend the Schedules;

condition subject to which an authorisation is granted has been

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2006-32

breached, including penalties, withdrawal or suspension of the

authorisation or other sanctions.

Codes of practice.

63.(1) The competent authority shall with the prior consent of the Minister

cause to be published in the form of codes of practice, statements setting out

the criteria and any variation in the criteria from time to time by reference to

which the competent authority proposes to exercise its functions under this

Act, including, in particular, its powers to grant, cancel or suspend

authorisations or to impose conditions of general application on such

authorisations.

(2) The competent authority shall with the prior consent of the Minister

also publish in the form of codes of practice under this section criteria to

facilitate compliance in Gibraltar with the provisions of this Act.

(3) A code of practice published under this section shall be admissible in

evidence in any action commenced in exercise of the rights of appeal under

section 45 of the Financial Services Act 1989, or otherwise in connection

with the operation of this Act.

Repeals.

64. The Financial Services Act 1998 is hereby repealed.

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SCHEDULE 1

Sections 2 and 4

LIST OF SERVICES AND ACTIVITIES AND FINANCIAL

INSTRUMENTS

Section A

Investment services and activities – core services

(1) Reception and transmission of orders in relation to one or more

financial instruments.

(2) Execution of orders on behalf of clients.

(3) Dealing on own account.

(4) Portfolio management.

(5) Investment advice.

(6) Underwriting of financial instruments or placing of financial

instruments on a firm commitment basis.

(7) Placing of financial instruments without a firm commitment basis.

(8) Operation of Multilateral Trading Facilities.

Section B

Ancillary services – non-core services

(1) Safekeeping and administration of financial instruments for the

account of clients, including custodianship and related services such as

cash/collateral management;

(2) Granting credits or loans to an investor to allow him to carry out a

transaction in one or more financial instruments, where the firm granting the

credit or loan is involved in the transaction;

(3) Advice to undertakings on capital structure, industrial strategy and

related matters and advice and services relating to mergers and the purchase

of undertakings;

(4) Foreign exchange services where these are connected to the

provision of investment services;

(5) Investment research and financial analysis or other forms of general

recommendation relating to transactions in financial instruments;

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(6) Services related to underwriting;

(7) Investment services and activities as well as ancillary services of the

type included under Section A or this Section related to the underlying of the

derivatives included under Section C - 5, 6, 7 and 10 - where these are

connected to the provision of investment or ancillary services.

Section C

Financial Instruments

(1) Transferable securities;

(2) Money-market instruments;

(3) Units in collective investment undertakings;

(4) Options, futures, swaps, forward rate agreements and any other

derivative contracts relating to securities, currencies, interest rates or yields,

or other derivatives instruments, financial indices or financial measures which

may be settled physically or in cash;

(5) Options, futures, swaps, forward rate agreements and any other

derivative contracts relating to commodities that must be settled in cash or

may be settled in cash at the option of one of the parties (otherwise than by

reason of a default or other termination event);

(6) Options, futures, swaps, and any other derivative contract relating to

commodities that can be physically settled provided that they are traded on a

regulated market and/or an MTF;

(7) Options, futures, swaps, forwards and any other derivative contracts

relating to commodities, that can be physically settled not otherwise

mentioned in C.6 and not being for commercial purposes, which have the

characteristics of other derivative financial instruments, having regard to

whether, inter alia, they are cleared and settled through recognised clearing

houses or are subject to regular margin calls;

(8) Derivative instruments for the transfer of credit risk;

(9) Financial contracts for differences.;

(10) Options, futures, swaps, forward rate agreements and any other

derivative contracts relating to climatic variables, freight rates, emission

allowances or inflation rates or other official economic statistics that must be

settled in cash or may be settled in cash at the option of one of the parties

(otherwise than by reason of a default or other termination event), as well as

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any other derivative contracts relating to assets, rights, obligations, indices

and measures not otherwise mentioned in this Section, which have the

characteristics of other derivative financial instruments, having regard to

whether, inter alia, they are traded on a regulated market or an MTF, are

cleared and settled through recognised clearing houses or are subject to

regular margin calls.

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SCHEDULE 2

Section 2

PROFESSIONAL CLIENTS FOR THE PURPOSE OF THIS ACT

Professional client is a client who possesses the experience, knowledge and

expertise to make its own investment decisions and properly assess the risks

that it incurs. In order to be considered a professional client, the client must

comply with the following criteria:

I. Categories of client who are considered to be professionals.

The following should all be regarded as professionals in all investment

services and activities and financial instruments for the purposes of the Act.

(1) Entities which are required to be authorised or regulated to operate

in the financial markets. The list below should be understood as including all

authorised entities carrying out the characteristic activities of the entities

mentioned: entities authorised by a Member State under a Directive, entities

authorised or regulated by a Member State without reference to a Directive,

and entities authorised or regulated by a non-Member State

(a) Credit institutions;

(b) Investment firms;

(d) Insurance companies;

(e) Collective investment schemes and management companies of such

schemes;

(f) Pension funds and management companies of such funds;

(g) Commodity and commodity derivatives dealers;

(h) Locals; or

(i) Other institutional investors.

(2) Large undertakings meeting 2 of the following size requirements on a

company basis–

- balance sheet total EUR 20,000,000

- net turnover EUR 40,000,000

- own funds EUR 2,000,000

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(3) National and regional governments, public bodies that manage public

debt, the Gibraltar Savings Bank, Central Banks, international and

supranational institutions such as the World Bank, the IMF, the ECB, the

EIB and other similar international organisations.

(4) Other institutional investors whose main activity is to invest in

financial instruments, including entities dedicated to the securitisation of

assets or other financing transactions.

The entities mentioned above are considered to be professionals. They must

however be allowed to request non-professional treatment and investment

firms may agree to provide a higher level of protection. Where the client of

an investment firm is an undertaking referred to above, the investment firm

must inform it prior to any provision of services that, on the basis of the

information available to the firm, the client is deemed to be a professional

client, and will be treated as such unless the firm and the client agree

otherwise. The firm must also inform the customer that he can request a

variation of the terms of the agreement in order to secure a higher degree of

protection.

It is the responsibility of the client, considered to be a professional client, to

ask for a higher level of protection when it deems it is unable to properly

assess or manage the risks involved.

This higher level of protection will be provided when a client who is

considered to be a professional enters into a written agreement with the

investment firm to the effect that it shall not be treated as a professional for

the purposes of the applicable conduct of business regime. Such agreement

should specify whether this applies to one or more particular services or

transactions, or to one or more types of product or transaction.

II. Clients who may be treated as professionals on request.

II.1. Identification criteria.

Clients other than those mentioned in section I, including public sector

bodies and private individual investors, may also be allowed to waive some

of the protections afforded by the conduct of business rules.

Investment firms should therefore be allowed to treat any of the above clients

as professionals provided the relevant criteria and procedure mentioned

below are fulfilled. These clients should not, however, be presumed to

possess market knowledge and experience comparable to that of the

categories listed in section I.

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Any such waiver of the protection afforded by the standard conduct of

business regime shall be considered valid only if an adequate assessment of

the expertise, experience and knowledge of the client, undertaken by the

investment firm, gives reasonable assurance, in light of the nature of the

transactions or services envisaged, that the client is capable of making his

own investment decisions and understanding the risks involved.

The fitness test applied to managers and directors of entities licensed under

Directives in the financial field could be regarded as an example of the

assessment of expertise and knowledge. In the case of small entities, the

person subject to the above assessment should be the person authorised to

carry out transactions on behalf of the entity.

In the course of the above assessment, as a minimum, two of the following

criteria should be satisfied -

- the client has carried out transactions, in significant size, on the relevant

market at an average frequency of 10 per quarter over the previous four

quarters;

- the size of the client's financial instrument portfolio, defined as including

cash deposits and financial instruments exceeds EUR 500000;

- the client works or has worked in the financial sector for at least one year

in a professional position, which requires knowledge of the transactions or

services envisaged.

II.2. Procedure.

The clients defined above may waive the benefit of the detailed rules of

conduct only where the following procedure is followed -

- they must state in writing to the investment firm that they wish to be

treated as a professional client, either generally or in respect of a particular

investment service or transaction, or type of transaction or product;

- the investment firm must give them a clear written warning of the

protections and investor compensation rights they may lose;

- they must state in writing, in a separate document from the contract, that

they are aware of the consequences of losing such protections.

Before deciding to accept any request for waiver, investment firms must be

required to take all reasonable steps to ensure that the client requesting to be

treated as a professional client meets the relevant requirements stated in

Section II.1 above.

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However, if clients have already been categorised as professionals under

parameters and procedures similar to those above, it is not intended that their

relationships with investment firms should be affected by any new rules

adopted pursuant to this Schedule.

Firms must implement appropriate written internal policies and procedures to

categorise clients. Professional clients are responsible for keeping the firm

informed about any change, which could affect their current categorisation.

Should the investment firm become aware however that the client no longer

fulfils the initial conditions, which made him eligible for a professional

treatment, the investment firm must take appropriate action.