Capital Markets: Legal Framework The capital market's functioning and issuing and trading in securities are strictly supervised by authorized agencies. The regulatory framework differs from country to country, but similarities always exist, particularly with regard to the generally accepted principles of capital market operations. The following text presents a brief overview of the relevant regulatory framework in BiH. Capital markets in BiH are regulated at Entity level (FBiH and RS). Thus, regulations pertain to the capital market in FBiH, which has a regulatory framework and institutions of its own, or the RS capital market, to which the same applies. However, there is considerable harmonization of regulations between the two entities. The legal framework for capital markets is to be found in the FBiH and RS Securities Market Acts (ZOTVP). These Acts regulate core issues related to definitions of terms, participants, institutions, and their authorities, rights, and obligations with regard to the capital markets in BiH. Recent legal changes in the RS did away with the banks' ability to take a direct role in operations on the financial intermediation market there, bringing RS legislation into line with the FBiH, at least as regards financial markets. These legal frameworks also define the ownership rights over a security, acquired by registering it with the Register in the name of the security holder. Ownership is established and transferred by legal transaction. The right of purchase is accordingly defined as a unilateral authorization obtained on the basis of a contract of security sale, i.e. the transfer of ownership of a security, between the bank as seller and the buyer, at a specified price on a specified date. The Commissions of both Entities keep a register of security issuers (henceforth: the issuer register), which includes, alongside data required under another law, information on the issue, the issuer, and certain basic data on the securities and the equity. Securities are issued by public offer, private placement, or special issue. A public offer is conducted on the basis of a public invitation to underwrite and pay for securities. This is done through a stock exchange, as and when prescribed by the Commissions. The issuer must prepare a prospectus with sufficient information for investors to assess the issuer's assets, obligations, loss and profit, financial position and prospects, as well as what rights will be contained in the securities being issued. The securities can be underwritten for no longer than 90 days from the day of publication of the offer, except for payments in cash by installments, when it can last up to six months. Underwriting and paying for securities under private placement should be completed within 45 days, or a maximum of 90 days. The ZOTVP defines the following securities-related tasks: Brokering tasks include buying and selling securities in one's own name for a client, for a fee. Dealing includes buying and selling securities on one's own behalf to benefit from a price differential. Market-making tasks include simultaneously stressing the continuous supply and sale of securities on one's own behalf, in order to establish a continuous supply and demand for specific securities. Securities portfolio management involves tasks where a professional intermediary undertakes to invest a client's money in securities with maximum benefit, in his own name, but on the client's behalf, i.e. to hold and manage the client's securities, for which the client pays a fee. The issuing agent's tasks include organizing, preparing and conducting a securities issue for the issuer, without obligation to buy unsold securities, thus introducing the securities to an organized public market. The issue sponsor's tasks include organizing, preparing and conducting the securities issue for the issuer and underwriting and paying for all the securities, or those that remain unsold, to sell them on to potential investors and so ensure the success of the issue. The investment advisor's tasks include offering advice to clients on handling securities. The Custodian's tasks include: Opening and managing an account with the Register on behalf and in the name of a shareholding client (named custodial account); Opening and keeping an account with the Register in his own name, on behalf of a shareholding client, or in the name of clients who are not the owners of these securities, on behalf of the actual owner (joint custodial account); Executing orders to transfer ownership, inscribe third parties' rights on the security, or transfer the rights under the security; Collecting claims against the issuer based on mature securities, e.g. interest and dividends, for the security holder and ensuring the exercise of the clients' other rights; Providing services by lending securities; Informing shareholders of annual general meetings and representing them at the meetings; Informing them of their rights under the securities and carrying out their orders pertaining their exercise; Informing their clients of changes in the law that directly or indirectly affect the condition of securities held by the custodian; Ensuring that the securities holder's tax obligations are met; Other services related to securities, rights, and obligations arising under securities negotiated between the client and the custodian bank, which are not against the law. The depositary's tasks include securities issuance and monetary transactions related to trade in securities on the stock exchange or other organized public market. The regulatory framework of capital markets in BiH also includes the Act on the Securities Commission and the Act on the Securities Register. These acts define the place and role, as well as the basic authorities of the Securities Commission and Securities Register, as institutions that allow the normal functioning of the capital market. The Commission's authorities derive from the Securities Act, the Securities Commission Act, the Securities Register Act, the Fund Management Companies Act, and the Investment Funds and Companies Act. As an independent institution responsible for the supervision and regulation of financial markets under these laws, the Commission has the following authorities: Regulating how securities are issued and traded; Supervising standards for reporting to investors and the public on securities traders' operations, the management of joint-stock companies, the protection of investors' interests, the implementation of legal and other regulations pertaining to issuing and trading in securities, stock-market operations, the Securities Register, professional intermediaries, depository banks, and fund management companies; Taking measures within its authorities, pursuant to legal and other regulations; Other jobs and tasks pursuant to legal and other regulations. The Securities Commission has broad regulatory authorities. These authorities and responsibilities include: Regulating how securities are issued and traded; Approving issues of shares and other securities by enterprises and banks; Approving securities issues by fund management companies, investment funds, mutual funds, and other legal entities involved in issuing securities; Regulating the requirements for and ways to issue cantonal and municipal bonds; Prescribing rules and supervising trading in securities on the securities exchange, using the electronic quotation system; Protecting investors' interests; Prescribing and supervising the application of reporting standards vis-à-vis investors and the public on securities traders' operations; Prescribing and supervising management standards for joint-stock companies; Prescribing requirements and granting approval for the operations of and supervising professional intermediaries (e.g. brokers and dealers) and other participants in the securities trade. The Securities Register performs the following tasks: Registering and safekeeping securities, as well as safekeeping data on securities and all transactions related to transfer of ownership or change in their status; Recording and deleting third party rights related to securities and recording and deleting restrictions on rights on the basis of contracts, court decisions, or decisions by the relevant authorities; Opening and keeping securities accounts and a shareholder list and issuing reports, statements, and receipts on the status of and changes to these accounts; Calculating, settling, and transferring securities based on securities-related transactions on the stock market or other regulated public market; Recording, transferring, calculating, and ensuring obligations resulting from transactions in financial derivatives on the stock exchange or other regulated public market are met; and Other tasks under the relevant laws and the Commission's general documents.
