And the President Has Proclaimed the Following Law

The Saeima1 has adopted

and the President has proclaimed the following Law:

Financial Instrument Market Law

Part A

General Provisions

Section 1. Terms Used in this Law

The following terms are used in this Law:

1) financial instruments — an agreement, which concurrently creates financial assets for one person, but financial liabilities or capital securities for another;

2) category – financial instruments of the same type strengthening rights of the same type with uniform rules for the exercise of such rights;

3) investment brokerage company – a capital company that provides investment services on a regular and professional basis;

4) professional investors:

a) an investment brokerage company, credit institution, company registered in the Republic of Latvia or a Member State which is entitled under the law to administer the collective investment undertakings, the pension fund, insurer and reinsurer,

b) an international financial institution,

c) any other person who is considered to be a professional investor in accordance with the laws of the state of registration thereof, or

d) any other legal person which has submitted to an investment brokerage company or credit institution providing investment services a submission with a request to consider such legal person to be a professional investor;

5) Member State – a European Union Member State or a state of the European Economic Area;

6) state of origin – a Member State in the territory of which an investment brokerage company has been registered and has received a licence for the provision of investment services;

7) supervisory institution of a Member State – an institution to which a Member State has delegated functions for supervising the provision of investment services, irrespective of whether this institution has been established by law or the performance of such function has been delegated thereto by a State administrative institution, if the relevant Member State has notified the European Commission of such institution and the rights and duties thereof;

8) regulated market – set of organisational, legal and technical measures which make possible entering into open and regular transactions in financial instruments;

9) regulated market maker – a capital company that organises a regulated market;

10) official list – such regulated market for which the market maker has determined the highest requirements compared to other regulated markets organised thereby and the activities of which are performed in accordance with the minimum requirements specified in this Law;

11) public circulation – entering into transactions with financial instruments included in a regulated market;

12) issuer – a person issuing securities or other financial instruments on its own behalf;

13) initial allocation – a public offer made by an issuer or a person authorised thereby to acquire securities or other financial instruments and the first acquisition thereof;

14) issuing prospectus – a document which includes detailed information about the issuer and transferable securities issued thereby the initial allocation of which the issuer wishes to perform;

15) prospectus – a document that includes detailed information regarding the issuer and any transferable securities issued thereby which the issuer wishes to include in the regulated market;

16) target company – a stock company the stocks of which are in public circulation and for the stock redemption of which a mandatory or voluntary stock redemption offer has been made;

17) initiator of an offer – one or several persons making one and the same offer to redeem the stocks;

18) Latvian Central Depository – a capital company which registers and accounts for financial instruments which have been issued for public circulation in the Republic of Latvia, as well as ensures accounting of financial instruments and money settlements in financial instrument transactions in the regulated market and settlements for financial instruments between financial instrument holders;

19) financial instrument market participants – credit institutions providing investment services or non-core investment services, investment brokerage companies, issuers, investors, companies entitled under the law to administer collective investment undertakings, market-makers, the Latvian Central Depository and other persons performing activities regulated by this Law;

20) qualifying holding – a holding acquired directly or indirectly which comprises 10 and more percent of the equity capital or the number of voting stocks (shares) of a commercial company or which makes it possible to exercise a significant influence over the management of the financial and operational policy of the commercial company;

21) control – a person has control over a commercial company, if:

a) this person has decisive influence in the commercial company on the basis of participation,

b) this person has decisive influence in the commercial company on the basis of a group of companies agreement, or

c) any other relations between this person and the commercial company exist which are analogous to the requirements referred to in Sub-clauses a) or b) of this Clause;

22) parent company – a commercial company controlling another commercial company;

23) subsidiary company – a commercial company which is controlled by another commercial company;

24) financial institution – a capital company established to provide one or several financial services, except the attraction of deposits and other repayable funds, as well as to perform insurance operations or to acquire holding in the equity capital of other capital companies;

25) financial holding company – a financial institution the subsidiary companies of which are exclusively or mainly brokerage companies or other financial institutions, and furthermore, at least one of them is an investment brokerage company;

26) mixed-activity holding company – a parent company, other than a financial holding company, investment brokerage company, credit institution or insurance company, the subsidiary companies of which include at least one investment brokerage company;

27) close links – a mutual link of two or more persons :

a) by participation – a person owns directly or by way of control 20% or more of the voting rights in a commercial company or a person directly or by way of control has acquired a holding which comprises 20 per cent or more of the equity capital of the commercial company,

b) by control, and

c) if they are linked with one and the same person by a relationship of control;

28) initial capital – capital which is constituted by:

a) paid up stock or share capital (equity capital) which is reduced by the value of the cumulative preference shares,

b) a stock (shares) issue premium,

c) reserves (except a revaluation reserve),and

d) profit or loss brought forward from previous years, and

e) profit of the current year of operation, if there is a report of a sworn auditor or a commercial company of sworn auditors (hereinafter – sworn auditor) regarding the existence of profit and it has been calculated by taking into consideration all savings required for the decrease of the value of assets, expected tax payments and dividends, and if the Finance and Capital Market Commission has agreed to the inclusion of the profit of the current year of operation into the initial capital.

Section 2. Purpose of this Law

The purpose of this Law is to ensure the functioning of the financial instrument market by facilitating:

1) protection of the interests of investors;

2) the stability and reliability of the financial instrument market; and

3) accessibility of information and equal opportunities for all participants of the financial instrument market.

Section 3. Application of this Law

(1) This Law regulates the procedures for making a public offer of financial instruments, public circulation of financial instruments, provision of investment services and non-core investment services and licensing and supervision of financial instrument market participants, determines the rights and duties of financial instrument market participants, as well as the liability for failure to comply with the requirements laid down in this Law.

(2) This Law applies to the following financial instruments:

1) transferable securities – securities the alienation rights of which are not restricted:

a) stocks and transferable securities equivalent thereto which ensure participation in the capital of a commercial company (hereinafter – stocks),

b) bonds and other debt securities,

c) other marketable transferable securities giving the right to acquire the securities referred to in Sub-clause a) or b) of this Paragraph by subscription or exchange, and

d) stock certificates – transferable securities issued in order to substitute stocks of an issuer established in a foreign country, and give the right to the acquirers thereof to exercise the rights attached to the substituted stocks. Stock certificates and stocks substituted by stock certificates may not be marketed concurrently. The substituted stocks shall be blocked in the custodian bank, which has issued the stock certificates;

2) investment certificates of investment funds and other securities, which certify participation in investment funds or in equivalent collective investment undertakings;

3) money market instruments – short-term debt instruments (promissory notes, certificates of deposit, short-term debt instruments issued by commercial companies) and other instruments which are traded in money markets;

4) derivative financial instruments — financial instruments (contracts) the value of which changes depending on the fixed interest rate, price of transferable securities, price of goods, foreign exchange rate, price and rate index, credit rating or changes of similar variable value and the value of which is affected by one or several financial risks characteristic to the primary financial asset or other asset which is at the basis of the derivative financial instrument and are transferred between the persons involved in the transaction. In order to acquire a derivative financial instrument no initial investment is required or a negligible initial investment is required (in contradistinction to other forms of contracts which also depend on changes in market conditions) and the settlements connected with the performance of the agreement take place in the future; and

5) commodity derivatives – derivative financial instruments the primary asset underlying which are commodities.

(3) This Law also applies to the financial instruments, which are not referred to in Paragraph two of this Section, provided that they conform to the definition of the term given in Section 1, Paragraph one of this Law.

(4) For the purposes of this Law investment services are:

1) the acceptance and transfer for execution of orders by investors for transactions in financial instruments;

2) execution of orders by investors for transactions in financial instruments at the expense of investors or third parties;

3) individual management of financial instruments of investors in accordance with an authorisation given by investors;

4) initial allocation of financial instruments where the provider of investment services does not purchase the financial instruments or does not guarantee the purchase thereof;

5) purchase of financial instruments for initial allocation or guaranteeing the purchase of financial instruments not distributed during the initial allocation;

6) performance of transactions with financial instruments on behalf of a credit institution or investment brokerage company; and

7) the provision of consultations regarding investments in financial instruments.

(5) For the purposes of this Law non-core investment services are:

1) the holding of financial instruments;

2) the granting of credits or loans to an investor for carrying out transactions in financial instruments where the commercial company granting the credit or loan is involved in the transaction in financial instruments as the other party to the transaction;

3) the provision of advice regarding capital structure, industrial strategy and related matters, as well as the provision of advice and services regarding mergers of commercial companies and the acquisition of undertakings;

4) provision of such services which are related to the provision of investment services specified in Paragraph four, Clause 5 of this Section; and

5) foreign exchange services provided that they are related to the provision of investment services.

(6) This Law shall not restrict the rights of consumers specified in other laws.

Section 4. Issue and Disputation of Administrative Acts

(1) In the cases set out in this Law the Finance and Capital Market Commission (hereinafter – Commission) shall issue administrative acts. The regulatory enactments regulating the issue of administrative acts shall specify the procedures by which the Commission shall issue administrative acts.

(2) The rule of law of an administrative act issued by the Commission or an actual action of the Commission may be disputed in accordance with general legal norms regulating the administrative process, unless otherwise provided for by law.

(3) If documents are re-examined in the Commission, the Commission shall not indicate deficiencies or inaccuracies in information which it has already been examined and where no deficiencies or inaccuracies have been noted in a previous examination of the documents, except in cases where new information is provided in relation to such information.

(4) An appeal to a court of the administrative acts issued by the Commission shall not suspend the execution of such administrative acts if the administrative act issued by the Commission is a decision to:

1) restrict the right of an investment brokerage company or a credit institution to provide investment services or to hold financial instruments;

2) cancel licences issued to an investment brokerage company for the provision of investment services and non-core investment services;

3) cancel a licence for organising a regulated market;

4) suspend trade in financial instruments;

5) request that any influence is immediately terminated of persons having acquired a qualifying holding in a regulated market maker, the Latvian Central Depository or an investment brokerage company;

6) request the recall of a member of a board of directors or council of the regulated market maker, the Latvian Central Depository or investment brokerage company; and

8) prohibit the exercise of voting rights.

Section 5. Legal Guarantees

The Commission, employees and authorised persons thereof shall not be liable for losses caused to financial instrument market participants or to third parties, and they may not be held liable for the acts they have performed legally, precisely, justifiably and in good faith, properly performing the functions of supervision in accordance with the procedures specified in this Law and other regulatory enactments.

Section 6. Liability

Financial instrument market participants shall be subject to criminal liability for violations of this Law and Commission regulations in accordance with the procedures specified by law.