Capital Market Laws in Moldova: a Brief Review

What is the relevant legislative framework regulating the capital market?

The capital market legislative framework of Moldova is in a dynamic process of reform. The new Law on Capital Market, to enter into force in September 2013, will replace the Securities Market Law of 1998 – a law from the times of mass privatization and inspired from the legislation of other CIS countries.

The new Law seeks to follow the acquis communautaire and thereby transposes 11 EU Directives related to capital markets, including MiFID, the Directive on Takeover Bids, the Investor Compensation Scheme Directive, the Market Abuse Directive, the Capital Adequacy Directive and the UCITS Directive.

What are the principles of the new capital market regulation?

In line with the EU approach, the new Law is principle-based − with secondary regulation expected to further develop the provisions of the Law.

As opposed to the existing legislation, which regulates “everything and everybody” on the market, the new law targets the stock exchanges, public offers, and investment services and activities. Private offers, privately owned companies, investments by professional clients or qualified investors are now outside of the regulatory purview of the relevant law.

The law also enhances the range of investment alternatives. An investor will be able to build a portfolio of any and all types of financial instruments, not limited to securities as it is nowadays.

How will the new capital market regulation affect the market participants?

The new law significantly liberalizes the activity of the investors and of the companies. The Law abolishes the requirement of mandatory listing. The listing on a regulated market is to be authorized by the National Commission of Financial Market (NCFM) provided that the companies comply with specific requirements: the publishing of a public offer prospectus, a capitalization of 1 million EUR, an equivalent of 200,000 Euro of issued securities, all securities being transferable, a free float of at least 10% etc. The listing terms for MTFs will be more lenient.

Also, the best execution rule, allowing intermediaries to trade client securities at an organized platform or an OTC market, substitutes the former concentration rule, requiring that investors trade solely at the stock exchange.

What is the regulatory regime on the activity of market operators?

To be authorized as an investment firm, the applicant must be a joint stock company with its initial capital meeting the capital adequacy requirements. The applicant must have an operation plan and duly certified managers. The minimum initial capital is 8,000 EUR, allowing market operators to provide basic types of investment services and activities, e.g. orders reception, transmission and execution on behalf of the clients. An initial capital of 100,000 EUR allows providing all types of investment services and activities. These thresholds must increase respectively to 50,000 and 300,000 in 10 years.

In addition, investment firms are required to join the (to be established) Investor Compensation Fund, the NCFM must pre-clear any transfer of 20%, 30% and 50% of the shares and investment firms shall develop and maintain policies on conformity, risk management, internal control, sound administration and compliance, to name a few.

Last, the new Law opens the Moldovan market to EU operators. Investment firms authorised by an EU regulator may open branches and provide services without the Moldovan regulator’s authorisation. The EU investment firm may provide yet only investment services and activities specified by the relevant EU regulator’s authorisation.

How do the collective investment schemes work?

Collective investment schemes remain a terra incognita for the Moldovan capital market. Since mass privatization, no investment funds are operating on the market. The law allows establishing both investment funds and investment companies, subject to prior authorisation by the NCFM. An investment company/fund shall redeem its shares or fund units at the express request of any holder; the payment shall be made no later than 10 working days from the redemption application’s submission date. Also, each investment fund/company must create an investment guarantee fund with assets of increased liquidity.

 How does the law fight with market abuse?

The NCFM supervises the market and carries out investigations related to market abuses. Depending of the results of an investigation, the NCFM may prohibit market participants to trade financial instruments or provide investment services and activities, suspend or withdraws the authorisation, seize related assets or fine in amount of up to 59,000 EUR. The law enforcement bodies investigate criminal cases on manipulation and insider trading.

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