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Financial Markets Act (Cap. 345) Recognised Investment Exchange (Recognition Requirements) Regulations, 2003. (L.N. 3 Of 2003 )

FINANCIAL MARKETS ACT (CAP. 345)
Recognised Investment Exchange
(Recognition Requirements) Regulations, 2003
IN exercise of the powers vested in him by article 3 of the Financial Markets Act, the Minister of Finance, acting upon the advice of the Malta Financial Services Authority as the Competent Authority has made the following regulations>-
1. (1) The title of these regulations is the Recognised Title and commencement.
Investment Exchange (Recognition Requirements) Regulations, 2003.
(2) These regulations shall come into force on the 3rd
January 2003.
2. In these regulations>

Interpretation.

“Act” means the Financial Markets Act and the words and Cap. 345.
expressions used shall have the same meaning as is given to them in the said Act, unless otherwise defined herein<
“applicant” means a person who has submitted an application to the Competent Authority to become a Recognised Investment Exchange<
“instrument” shall have the same meaning as that provided in the Investment Services Act <
“Recognised Investment Exchange” shall mean a person in respect of whom the Competent Authority has issued a recognition order<
“Schedule” means the Schedule to these regulations.
3. (1) The Schedule sets out the recognition requirements which

Cap. 370.

Recognition

must be satisfied by an applicant if it is to qualify as a Recognised requirements.
Investment Exchange and which must be satisfied by each Recognised Investment Exchange on a continuing and ongoing basis if it is to remain a Recognised Investment Exchange
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Satisfaction of recognition requirements.

(2) The burden of proving to the Competent Authority that the recognition requirements have been or are being properly satisfied rests exclusively on the applicant or the Recognised Investment Exchange, as the case may be.
4. (1) In considering whether an applicant or a Recognised Investment Exchange satisfies the recognition requirements applying to it under these regulations, the Competent Authority may take into account any other circumstances that it may deem relevant in each particular case.
(2) An applicant or a Recognised Investment Exchange may satisfy recognition requirements applying to it under these regulations by entering into an agreement to the satisfaction of the Competent Authority for any functions specified in the said agreement to be performed on its behalf by another person.
(3) An agreement of the kind mentioned in subregulation (2) above shall be made in writing, and entered into between an applicant or a Recognised Investment Exchange, as the case may be, and the person who is to perform any functions on behalf of such applicant or Recognised Investment Exchange. Such agreement shall be executed by duly authorised officials of the governing body of the respective entities.
(4) Where an applicant or a Recognised Investment Exchange enters into any agreement of the kind mentioned in subregulation (2) above, any such agreement shall not affect the responsibility imposed by the Act on such applicant or Recognised Investment Exchange to satisfy recognition requirements applying to it under these regulations.
(5) The liability of the Recognised Investment Exchange for any breaches of the recognition requirements or any other regulations or directives issued under the Act, shall not be affected or reduced as a result of the Recognised Investment Exchange entering any agreement of the kind mentioned in subregulation (2) above.
(6) Any person who, not being a Recognised Investment Exchange, is to perform any specified function in terms of any agreement of the kind mentioned in subregulation (2) above shall be confirmed, after due verification, by the applicant or the Recognised Investment Exchange as the case may be, as being a fit and proper person being able and willing to perform such functions. This confirmation shall be made by the governing body of the applicant or Recognised Investment Exchange, as the case may be, in the form of a written declaration to
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that effect which shall be submitted to the Competent Authority together with a duly authenticated true copy of the relevant agreement of the kind mentioned in subregulation (2) above .
(7) Notwithstanding anything in the foregoing, the Recognised Investment Exchange shall be responsible towards the Competent Authority for the supervision of the proper performance of any functions performed by any person throughout any such period that any agreement of the kind mentioned in subregulation (2) above shall remain in force.
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SCHEDULE
PART I - RECOGNITION REQUIREMENTS

Financial resources

1. (1) The Recognised Investment Exchange must have financial resources sufficient for the proper performance of its functions.
(2) Without prejudice to the generality of the foregoing, each Recognised Investment Exchange shall satisfy at all times those minimum financial resources requirements and minimum financial reporting requirements that may be prescribed by the Competent Authority from time to time.
(3) In considering whether the requirement in (1) above is satisfied, the Competent Authority may, without prejudice to the generality of its powers, take into account all the circumstances in relation to a Recognised Investment Exchange, including>
(a) any activity carried on or proposed to be carried on by the Recognised
Investment Exchange<
(b) the general, operational, legal and market risks to which it is exposed< (c) the amount and composition of its capital<
(d) the amount and composition of its liquid financial assets<
(e) the amount and composition of any other financial resources<
(f) the financial benefits, liabilities, risks and exposures arising from its connection with any person.

Suitability

2. (1) The Recognised Investment Exchange must be a fit and proper person to perform its functions and be of good standing.
(2) In considering whether the requirements in (1) above are satisfied, the Competent Authority may, without prejudice to the generality of its powers, take into account the following circumstances in relation to a Recognised Investment Exchange>
(a) the structure of its ownership and control<
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(b) the commitment shown by its governing body to satisfying the recognition requirements and to complying with other obligations in or under the Act<
(c) its arrangements, policies and resources for fulfilling its obligations in relation to its activities as a Recognised Investment Exchange in terms of the Act or any regulations made thereunder<
(d) its arrangements for ensuring that it employs or appoints individuals who are honest and demonstrate high standards of integrity and are competent for their role<
(e) the effectiveness of its arrangements to control conflicts of interest<
(f) the independence of its compliance function from its commercial and marketing functions.

Constitution and governance

3. (1) The constitution, governance, organisational structure and management systems of the Recognised Investment Exchange must be adequate and appropriate.
(2) In considering whether the requirements in (1) above are satisfied, the Competent Authority may, without prejudice to the generality of its powers, take into account the following circumstances in relation to a Recognised Investment Exchange>
(a) the extent to which its constitution and organisation provide for effective governance<
(b) the arrangements made to ensure that its governing body has effective control over the functions of the Recognised Investment Exchange<
(c) the structure and organisation of its governing body, including the distribution of responsibilities and functions among its officers, departments, members, and committees<
(d) the access which its compliance department has to the governing body< (e) the size and composition of its governing body including the number
and responsibilities of executive and non-executive members<
(f) the number of independent members of the governing body<
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(g) the integrity and competence of its governing body and of its officers.

Systems and controls

4. (1) The Recognised Investment Exchange must ensure that all the systems and controls used in the performance of its functions are adequate and appropriate for the scale and nature of its business.
(2) Sub-paragraph (1) applies in particular to, without limitation, systems and controls concerning>
(a) the transmission of information<
(b) the assessment and management of risks to the performance of the functions of the Recognised Investment Exchange<
(c) the effecting and monitoring of transactions on the Recognised
Investment Exchange<
(d) the operation of the arrangements mentioned in paragraph 5(2)(e)
below< and
(e) the safeguarding and administration of assets belonging to users of the facilities of the Recognised Investment Exchange, where relevant.
(3) In considering whether the requirements in (1) above are satisfied, the Competent Authority may, without prejudice to the generality of its powers, take into account the following circumstances in relation to a Recognised Investment Exchange>
(a) the distribution of duties and responsibilities among its departments< (b) the staffing resources of its departments<
(c) the supervisory arrangements for which each department is responsible<
(d) the arrangements by which the governing body is able to keep the allocation of responsibilities between, and the appointment, supervision and remuneration of company officers under review<
(e) arrangements for internal and external audit<
(f) its information technology systems, including back-up systems to such information technology systems and its plans for action in the event of a failure of any such information technology systems<
risk<
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(h) arrangements for risk management procedures<
(i) arrangements under which clearing and settlement instructions arising from a transaction are entered into its systems to the point at which any rights or liabilities arising from that transaction are discharged<
(j) arrangements and processes involved in the recording of assets belonging to users of the facilities of the Recognised Investment Exchange and held by the Recognised Investment Exchange, including the recording of the identity of the owners of, and other persons being interested in, such assets<
(k) the recording of instructions given in relation to any assets belonging to users of its facilities<
(l) the recording of any action taken in fulfilment of any instructions received by the Recognised Investment Exchange in relation to any assets belonging to users of its facilities<
(m) the systems and controls designed to ensure the confidentiality of certain classes of information and the proper use of any such information.
(4) The Recognised Investment Exchange must ensure that it is able to control the performance and quality of any contractual commitments for any services or facilities that it outsources to third parties.

Safeguards for investors

5. (1) The Recognised Investment Exchange must ensure that business conducted by means of its facilities is conducted in an orderly manner and so as to afford proper protection to investors.
(2) Without prejudice to the generality of sub-paragraph (1), the Recognised Investment Exchange must, by virtue of appropriate procedures to the satisfaction of the Competent Authority, ensure that>
(a) access to the Recognised Investment Exchange’s facilities is subject to criteria designed to protect the orderly functioning of the market and the interests of investors<
(b) dealings on the Recognised Investment Exchange are limited to instruments in which there is a proper market<
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(c) appropriate arrangements are made for price-sensitive information to
be made available (whether by the Recognised Investment Exchange or, where appropriate, by issuers of the instruments) to the public<
(d) appropriate arrangements are made for price-sensitive information to be stored, protected and published or otherwise made available (whether by the Recognised Investment Exchange or, where appropriate, by issuers of the instruments) to the public<
(e) satisfactory arrangements are made for securing the timely discharge of the rights and liabilities of the parties to transactions effected on the Recognised Investment Exchange (being rights and liabilities in relation to those transactions)<
(f) appropriate arrangements are made for the matching of transactions effected on or through the Recognised Investment Exchange<
(g) satisfactory arrangements are made for recording transactions effected on the Recognised Investment Exchange, and transactions (whether or not effected on the Recognised Investment Exchange) which are cleared or to be cleared by means of its facilities, and the procedure of reporting such transactions<
(h) adequate procedures are established to ensure compliance by the Recognised Investment Exchange with all the regulations and#or directives to which it is subject<
(i) appropriate measures are adopted to reduce the extent to which the facilities of the Recognised Investment Exchange can be used for a purpose connected with market abuse, insider dealing or any other criminal offence, and to facilitate their detection and monitor their incidence<
(j) its rules provide for the application of article 17 sub-articles (2) and (3) and article 18 of the Act in any circumstances where a suspension of listing is ordered by the Recognised Investment Exchange< and
(k) satisfactory arrangements are made for the safeguarding and administration of assets belonging to users of those facilities, where relevant.
(3) In considering whether the requirements in (1) and (2) (a) above are satisfied, the Competent Authority may, without prejudice to the generality of its powers, take into account the following circumstances in relation to a Recognised Investment Exchange>
(a) the suitability of the criteria for membership applied by the Recognised Investment Exchange and the application of such criteria in an objective and non- discriminatory manner<
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(b) the measures designed to prevent the use of its facilities for abusive or improper purposes<
(c) the safeguards designed to protect investors against fraud or misconduct, recklessness, negligence or incompetence by users of its facilities<
(d) those arrangements designed to enable users of its facilities to monitor their use thereof and raise queries about any use of those facilities which they are reported to have made<
(e) arrangements to enable users of its facilities to comply with any relevant regulatory or legal requirements<
(f) arrangements designed to reduce the risk that its facilities will be used in ways which are incompatible with relevant regulatory or legal requirements<
(g) rules and procedures adopted for the prohibition of market abuse, insider dealing and any other form of abusive trading practices by users of its facilities<
(h) arrangements and practices enabling members and clients to obtain the best price available at the time for their size and type of trade<
(i) arrangements and practices ensuring sufficient pre- and post-trade transparency, taking account of the practices in those markets and the trading systems used<
(j) procedures enabling the Recognised Investment Exchange to influence trading conditions or discontinue or suspend trading promptly when necessary to maintain an orderly market.
(4) In considering whether a “proper market” exists for the purposes of paragraph (2) (b) above, the Recognised Investment Exchange may, without prejudice to the generality of its powers, take into account the following circumstances in relation to an instrument>
(a) the existence of a sufficient number of persons already holding the instrument or interested in dealing in it to bring about adequate forces of supply and demand<
(b) the extent to which there are any limitations in relation to the persons who may hold or deal in the instrument or the amount of the instrument which may be held<
(c) whether there is adequate information in the public domain to enable market participants to make a reasonably informed judgement about the value of the instrument and the risks associated with it<
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(d) the suitability of such instrument for any investor or class of investors.

Disclosure by issuers of securities

6. (1) The Recognised Investment Exchange must ensure that any issuers whose securities are traded thereon are subject to satisfactory disclosure requirements in relation to such securities and that these requirements are properly implemented at all times for the purpose of ensuring that all relevant information is properly disclosed to investors.
(2) The rules of the Recognised Investment Exchange must enable the Recognised Investment Exchange, in the event of a failure by an issuer to comply with the obligation of disclosure, or upon the specific instructions of the Listing Authority to that effect>
(a) to discontinue the admission of the relevant securities to trading< (b) to suspend trading in the relevant securities<
(c) to publish the fact that the issuer has failed to comply with the obligation of disclosure< and
(d) to make public itself any information which the issuer has failed to publish.
This paragraph is without prejudice to the requirement in paragraph 5(2)(c) above.

Promotion and maintenance of standards

7. (1) The Recognised Investment Exchange must be able and willing to promote and maintain high standards of integrity and fair dealing in the carrying on of activities by persons in the course of using the facilities provided by the Recognised Investment Exchange.
(2) The Recognised Investment Exchange must be able and willing to cooperate, by the sharing of information or otherwise, with the Competent Authority, and with any other authority, body or person having responsibility for the supervision or regulation of any regulated activity or other financial service, or with an overseas regulator.
(3) For the purposes of the foregoing provision the Recognised Investment Exchange must have appropriate arrangements with its members enabling it to obtain confidential information from its members and to disclose such information to the Competent Authority and other appropriate bodies and in particular, to assist and collaborate with the Competent Authority without delay in response to a specific written
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request received from the Competent Authority in the performance of its functions according to law.

Rules, bye-laws and consultation

8. (1) The Recognised Investment Exchange must ensure that appropriate procedures are adopted for it to make rules or bye-laws, for keeping its rules or bye- laws under review, and for amending them.
(2) The procedures referred to in the foregoing provision must include procedures for consulting users of the Recognised Investment Exchange’s facilities in appropriate cases.
(3) Without prejudice to the generality of paragraph (1) above, the Recognised Investment Exchange must ensure that its bye-laws address, at all times, each of the following matters>
(a) Administration of the Recognised Investment Exchange<
(b) Criteria for the acquisition, retention and suspension of and disqualification from membership<
(c) Appropriate conduct of business rules<
(d) Criteria for the authorisation of persons to utilise the facilities of the
Recognised Investment Exchange<
(e) Rules and procedures requiring its members to furnish the Recognised Investment Exchange with such information and documentation as may be reasonably required by the Recognised Investment Exchange to ensure the proper and lawful use of its facilities<
(f) Rules and procedures relating to trading, settlement and depository services, where relevant<
(g) Minimum requirements and procedures for the listing and trading of instruments on the Recognised Investment Exchange, including continuing listing requirements<
(h) Rules and procedures relating to the amalgamation of listed companies< (i) Minimum requirements and procedures relating to the de-listing of
instruments from the Recognised Investment Exchange.
(4) The Recognised Investment Exchange must consult users of its facilities on any arrangements it proposes to make for dealing with penalty income in accordance
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with paragraph 9(3) below or on any changes which it proposes to make to those arrangements.

Discipline

9. (1) The Recognised Investment Exchange must have effective arrangements for monitoring and enforcing compliance with>
(a) its rules and bye-laws (including rules in relation to transactions in instruments listed on the Recognised Investment Exchange where such transactions are not effected on the Recognised Investment Exchange)< and
(b) the arrangements made by it as mentioned in paragraph 5(2)(e) above. (2) Arrangements made pursuant to paragraph (1) must include procedures
for investigating complaints made to the Recognised Investment Exchange about the
conduct of persons in the course of using the facilities of that Recognised Investment
Exchange.
(3) Where arrangements made pursuant to paragraph (1) include provision for requiring the payment of penalties, they must include arrangements for ensuring that any amount so paid is applied only in one or more of the following ways>
(a) towards meeting expenses incurred by the Recognised Investment Exchange in the course of the investigation of the breach in respect of which the penalty is paid, or in the course of any appeal against the decision of the Recognised Investment Exchange in relation to that breach<
(b) for the benefit of users of the facilities of the Recognised Investment
Exchange<
(c) towards the Investment Compensation Scheme set up in terms of the
Investment Services Act<
(d) for charitable purposes.

Complaints

10. (1) The Recognised Investment Exchange must have effective arrangements for the investigation and resolution of complaints arising in connection with the performance of, or failure to perform, any of its functions>
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Provided that the foregoing does not extend to complaints about the content of rules made by the Recognised Investment Exchange.
(2) The arrangements must include arrangements for a complaint to be fairly and impartially investigated by a person independent of the Recognised Investment Exchange, and for him to report on the result of his investigation to the Recognised Investment Exchange and to the complainant.
(3) The arrangements must confer on the person mentioned in sub- paragraph (2) the power to recommend, if he thinks it appropriate, that the Recognised Investment Exchange>
(a) makes a compensatory payment to the complainant<
(b) remedies the matter complained of, or takes both of those steps.
(4) Sub-paragraph (2) is not to be construed as preventing the Recognised Investment Exchange from making arrangements for the initial investigation of a complaint to be conducted by the Recognised Investment Exchange.

Default rules in respect of market contracts

11. (1) The Recognised Investment Exchange must have default rules which, in the event of a member of the Recognised Investment Exchange being or appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which he is a party.
(2) The rules may authorise the taking of the same or similar action in relation to a member who appears to be likely to become unable to meet his obligations in respect of one or more market contracts.
(3) The Recognised Investment Exchange must have adequate arrangements for ensuring that parties to the contract are notified as soon as reasonably practicable of the default, the identity of the other parties to the contract and of any decision taken under the rules in relation to contracts to which they are a party.

Cooperation with other authorities

12. The Recognised Investment Exchange must be able and willing to cooperate, by the sharing of information or otherwise, with any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the Recognised Investment Exchange.

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