What is Decree No. 237 / 2008 Coll.?

Decree No. 237 / 2008 Coll., on the details of certain rules in the provision of investment services — Decree on the details of certain rules for the provision of investment services.

When it became Decree No. 237 / 2008 Coll. effectiveness?

Decree No. 237 / 2008 Coll. became effective 01.07.2008.

Is Decree No. 237 / 2008 Coll. still valid?

Yes, Decree No. 237 / 2008 Coll. is still valid and effective.

How many times was it Decree No. 237 / 2008 Coll. amended?

Decree No. 237 / 2008 Coll. has 3 time versions of the text.

Decree No. 237 / 2008 Coll.

Decree on the details of certain rules for the provision of investment services

Valid Order Effective from 01.07.2008

Text versions: 01.07.2008 30.06.2008

ČÁST PRVNÍ § 1 § 2 § 3 § 4 ČÁST DRUHÁ HLAVA I Díl 1 § 5 Díl 2 § 6 § 7 § 8 § 9 § 10 Díl 3 § 11 § 12 § 13 § 14 § 15 § 16 § 17 Díl 4 § 18 § 19 § 20 § 21 Díl 5 § 22 § 23 Díl 6 § 24 § 25 § 26 § 27 § 28 HLAVA II § 29 § 30 § 31 § 32 ČÁST TŘETÍ HLAVA I Díl 1 § 33 § 34 § 35 § 36 Díl 2 § 37 § 38 § 39 § 40 § 41 Díl 3 § 42 Díl 4 § 43 HLAVA II § 44 HLAVA III § 45 § 46 § 47 HLAVA IV § 48 § 49 ČÁST ČTVRTÁ § 50 ČÁST PÁTÁ § 51 § 52

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237

DECLARATION

of 23 June 2008

on the details of certain rules on the provision of investment services

The Czech National Bank, pursuant to § 199 (2) of Act No. 256 / 2004 Coll., on Capital Market Enterprise, as amended by Act No. 230 / 2008 Coll., ("the Act '), provides:

ČÁST PRVNÍ

GENERAL PROVISIONS

§ 1

Subject matter

(1) This decree implements the relevant provisions of the European Community1) and provides for

(a) the method of compliance with the rules of prudent provision of investment services under Section 12f of the Act;

(b) the rules on the retention of documents and records relating to the investment service provided pursuant to Article 17 (4) of the Act; and

(c) the rules governing dealing with customers in the provision of investment services pursuant to § 15 (5), § 15a (3), § 15d (4), § 15h (4), § 15i (5), § 15l (6), § 15o (2), § 15q (2), § 15r (3) of the Act.

(2) This decree further regulates the way in which the investment intermediary

(a) ensure the prudent provision of investment services, including the content and manner of storage of documents and records; and

(b) comply with the rules of the negotiations with customers.

§ 2

Definition of terms

For the purposes of this decree:

(a) the identification of the investment instrument by means of an international numbering system for securities identification (ISIN), where it has been assigned, otherwise the name of the instrument or a description of the features of the derivative contract, or at least the name of the contract and the date of its conclusion;

(b) trade in securities financing trade in securities financing under the directly applicable regulation of the European Communities implementing Directive of the European Parliament and of the Council regulating markets in financial instruments (2);

(c) compliance activities by ongoing monitoring of compliance with the legal and internal rules of the securities dealer.

§ 3

Securities dealer

The rules laid down in this Order for securities dealers shall apply to:

(a) a non-bank securities dealer; and

(b) a securities dealer who is a bank with the exception of:

1. the rules provided for in Article 5,

2. the rules of organisation and the assumptions of good governance pursuant to § 6 (1) and (2), § 7, § 8 (1) (a), (b) and (m);

3. the risk management system referred to in Sections 11 to 17,

4. internal control rules pursuant to Articles 18, 19 (1) and 2 (a) to (c) and 20.

§ 4

Investment intermediary

(1) The rules laid down in this Decree apply to investment intermediaries to the extent set out in paragraphs 2 to 4.

(2) To ensure the prudent provision of investment services to investment intermediaries

(a) apply mutatis mutandis:

1. the organisation rules referred to in Article 6, with the exception of paragraph 2 (b) (2) and (3);

2. the rules for sound administrative procedures referred to in § 8 (1) (a) to (d), (g), (i), (k) and (l);

3. procedures for the identification and management of conflicts of interest under Articles 29 to 32 as regards the interests of persons under Article 32 (4) (c) of the Act;

4. control and security measures for processing and recording of information pursuant to Article 21; and

5. internal control rules pursuant to Sections 18 and 19;

(b) apply mutatis mutandis to the rules for sound administrative procedures referred to in Article 8 (1) (e).

(3) To ensure compliance with the rules for dealing with clients with investment intermediaries

(a) apply mutatis mutandis to the rules on the admissibility of incentives under Paragraph 44;

(b) apply mutatis mutandis:

1. rules on customer information pursuant to Sections 33 and 34;

2. additional requirements for informing a non-professional customer pursuant to § 37 (1) and (4) and § 38 (1) to (5);

3. rules for the information required by the customer pursuant to § 43;

(4) An investment intermediary which is a natural person and carries out investment services exclusively in person,

(a) record in writing, instead of the requirements set out in Article 6, the principles and working procedures for ensuring ongoing monitoring of compliance with legal obligations and the performance of activities;

(b) instead of the requirements referred to in Article 8, capture in writing the principles and working procedures in the field referred to in Article 8 (1) (e), (g), (i), (k) and (l); and

(c) continuously monitor compliance with the legal obligations and performance of the activities in accordance with the principles and working procedures recorded in writing.

ČÁST DRUHÁ

RULES FOR THE PROVISION OF INVESTMENT SERVICES

HLAVA I

MANAGEMENT AND CONTROL SYSTEM

Díl 1

Scope of application

§ 5

(1) The rules for the securities dealer's management and control system apply to all activities of the securities dealer.

(2) Where a securities dealer has an obligation to establish and maintain a management and control system on a consolidated basis, the rules for a management and control system shall apply to the activities of all persons in a regulated consolidation unit and to the activities of a jointly managed undertaking accordingly.

Díl 2

Organisational and good governance assumptions

§ 6

Organisation

(1) The organisational arrangements referred to in Article 12a (1) (a) (2) of the Act shall be adapted by the securities dealer by an internal regulation linked to the requirements of the other internal rules of the securities dealer and, where appropriate, by binding rules within a regulated consolidation unit.

(2) In the framework of the organisation of the organisation of the securities dealer

(a) provide for the authorisation, duties and performance of the organisational services of the securities dealer, including decision-making procedures, in a manner which does not jeopardise the proper, fair and professional performance of the duties; and

(b) ensure the performance of the function;

1. compliance,

2. internal audit,

3. risk management, carried out in a way that guarantees the effective implementation of the risk management strategy;

4. the verification by another person of the proper performance of his or her activities, provided that the performance ensures by his or her assistance.

(3) The organisational body shall mean the person or a designated group of persons responsible for carrying out a particular activity of a securities dealer.

§ 7

Principles and procedures for management

(1) The securities dealer shall ensure that its managers are required under Section 2 (1) (a) of the Act

(a) evaluate and continuously assess the effectiveness of the relevant strategies and procedures; and

(b) take appropriate measures to remedy the deficiencies identified.

(2) Furthermore, the securities dealer shall ensure that:

(a) the statutory authority and other relevant managers of the securities dealer have been informed regularly, at least once a year, in writing of the activities and measures taken concerning risk management, compliance and internal audit, and without undue delay, of the essential facts relating to compliance, internal audit and risk management;

(b) the information referred to in (a) has been received regularly by its Supervisory Board.

§ 8

Administrative and accounting procedures

(1) In order to apply sound administrative and accounting procedures, the securities dealer shall, by internal regulation, always:

(a) the procedure for adopting, amending and implementing internal rules;

(b) internal control rules;

(c) the knowledge and experience requirements of the persons to whom it ensures the implementation of its activities and their demonstration;

(d) internal communication system;

(e) the procedure for the creation, processing and retention of documents and records of the securities dealer and their handling;

(f) arrangements for the protection of inside information, including rules on the conclusion of personal transactions;

(g) rules on the handling of complaints and complaints by customers or potential customers who are not professional customers, their registration and registration of measures taken;

(h) rules on the distribution of transactions and liabilities from the combined order;

(i) rules for identifying and managing conflicts of interest between the persons referred to in Article 29 (1);

(j) measures to prevent market manipulation;

(k) control and security measures for the processing and recording of information;

(l) rules on the control of the activities of investment intermediaries and tied agents used by a securities dealer in the provision of his services;

(m) a risk management system; and

(n) procedures for the provision of investment services and other business activities.

(2) The securities dealer shall further adapt the internal rules:

(a) accounting procedures aimed at protecting the customer's assets;

(b) the rules governing the registration of the customer's property.

§ 9

Rules on the closure of personal transactions

(1) For the protection of internal information under Section 124 of the Act and the prevention of conflicts of interest by a securities dealer

(a) ascertains persons with a special relationship with a securities dealer under § 2 (1) (c) of the Act which:

1. carry out activities which may give rise to conflicts of interest;

2. obtain or may obtain inside information; or

3. have access to other confidential information concerning customers or their transactions;

(b) take measures to prevent the person referred to in point (a) from entering into a personal transaction pursuant to Article 2 (1) (k) of the Act if, in the

1. be able to use inside or other confidential information or to make it unauthorised to disclose it; or

2. there may be a breach of any other obligation of the securities dealer provided for by law;

(c) ensure that the person referred to in point (a) does not order or invite others to trade outside the scope of his or her duties if:

1. has not itself been authorised to enter into a personal transaction under point (b);

2. the personal transaction concerned the person referred to in Paragraph 32 (1) (a);

3. information on the outstanding order of the client may have been used in this transaction,

(d) take measures to prevent any person with a special relationship with a securities dealer from providing information or views to another person in addition to the normal performance of his / her duties, if he / she knows or should normally know that such person may:

1. use the information provided to close the personal trade referred to in (b) or (c) (1) or (2);

2. to direct or invite another person to close the trade referred to in point 1;

(e) ensure that persons with a special relationship with a securities dealer are informed of restrictions in relation to their personal business;

(f) ensure that the persons referred to in (a) notify him of personal business without undue delay. In the case of a person through whom a securities dealer carries out his activities, he shall require that such person keep a record of personal transactions concluded by a person having a special relationship with a securities dealer and, upon request, provide that record to the securities dealer without undue delay,

(g) keep a record of:

1. the personal transactions notified or otherwise identified as referred to in point (f);

2. any permits or prohibitions on personal transactions.

(2) The rules referred to in paragraph 1 shall not apply to personal transactions:

(a) carried out in the course of the management of the assets of a person having a special relationship with a securities dealer in respect of whom no prior communication has taken place;

(b) securities of a standard fund or other collective investment fund which invests in a comparable principle of spread of risk and is supervised in a Member State of the European Union, unless a person having a special relationship with a securities dealer is involved in the management or management of such a fund.

§ 10

Rules governing the pooling of orders and transactions

The rules on the distribution of transactions and obligations from the combined order and trade must be fair and sufficiently precise and contain rules on:

(a) informing customers about the pooling of orders and transactions and possible adverse effects of pooling;

(b) the distribution of transactions and liabilities from the combined order and trade, including:

1. the rules for determining the impact of the volume of trade and its price on the distribution of transactions and obligations under the combined order,

2. the layout rules in case of partial execution of the order.

Díl 3

Risk management system

§ 11

Risk management

(1) The securities dealer shall adapt the risk management system by means of an internal regulation [Paragraph 8 (1) (m)], which shall, within the requirements of § 12a (1) (b) of the Act, at least:

(a) the identification of the risks arising from individual activities, working processes and systems, including the risks associated with the performance of a significant operational activity of the securities dealer by another person; taking into account where only a limited number of persons provide significant operational activities on a particular market;

(b) the main principles, strategies and procedures applied by the securities dealer in risk management and the risks related to the activities, processes and systems of the securities dealer and the level of risk that the securities dealer may accept are identified;

(c) the process of developing and approving risk management measures, procedures and methods; taking into account the level of risk acceptance;

(d) the responsibilities of each member of the statutory body and of the staff in risk management and monitoring the proper performance of those duties;

(e) the rules and frequency of evaluation of the success, adequacy and effectiveness of the strategies adopted, the procedures and the risk management methods applied, including the risks arising from the breach of the rules on the conclusion of personal transactions and the adoption of any changes thereto;

(f) the rules and frequency for assessing the adequacy and effectiveness of the measures taken to address any deficiencies in the risk management system; and

(g) other control mechanisms protecting the risk management system against failure.

(2) The statutory authority of the securities dealer shall approve and regularly evaluate the risk management strategies and principles, including in particular the monitoring and reduction of the risks to which the securities dealer is or may be exposed, including those arising from the macroeconomic environment in which the securities dealer operates, depending on the economic cycle.

(3) The securities dealer uses such information systems to enable the statutory authority and the personnel responsible for risk management to obtain timely and credible information necessary for effective risk management.

(4) The securities dealer in the group of the mixed holding company shall apply procedures allowing it to monitor appropriately the operations it has negotiated with the mixed holding company or the person controlled by the mixed holding company (hereinafter referred to as "intra-group operations'), in particular significant intra-group operations. Intra-group operations shall be considered significant if they exceed 5% of the sum of the capital requirements for credit, market and operational risk determined on an individual basis by the securities dealer in the group of the mixed holding entity. Intra-group transactions of the same nature agreed in the last six months with the same counterparty and in the same currency shall be considered as one operation.

§ 12

Organisational Risk Management Unit

(1) Risk management shall be provided by a securities dealer using an independent risk management unit [Paragraph 6 (2) (b) (3)], where appropriate and proportionate to the nature, scale and complexity of the activities of the securities dealer.

(2) The responsibility of the risk management body is to:

(a) the implementation of the guidelines, strategies and procedures referred to in Article 11 (1) (b);

(b) supporting and informing managers with competence in relation to activities, essential facts and risk management measures taken.

§ 13

Credit risk

(1) Where there is a credit or counterparty risk (3), the securities dealer shall ensure that:

(a) the granting of loans is based on reliable and unambiguous criteria;

(b) a procedure for the approval, amendment, renewal and refinancing of loans is clearly established;

(c) continuous management and monitoring of the different portfolios and exposures associated with credit risk, including the identification and management of problematic exposures and the provision of adequate valuation adjustments, in particular in the adjustment items for impaired balance sheet assets and provisions for off-balance sheet items;

(d) the diversification of credit risk portfolios takes into account the overall credit strategy, including target markets.

(2) When performing a securitisation, securities dealer

(a) evaluate and regulate the risk of securitisation through adequate policies and procedures (4), where it is the originator or sponsor, and ensure that the economic nature of the transaction is fully reflected in the risk assessment and decision-making processes;

(b) establish liquidity plans for both expected situations and early repayment cases where the originator of the securitisation of revolving exposures with the possibility of early repayment;

(c) implement measures in order to be able to demonstrate to the Czech National Bank the extent to which the capital maintained against the assets it securitised corresponds to the economic nature of the transaction, including the level of risk transfer achieved;

(d) ensure that the achievement of the expected risk transfer is not reduced by the provision of hidden securitisation support (5).

(3) Residual risk, taking into account eligible credit risk mitigation techniques, is influenced by a securities dealer

(a) through documented policies and procedures with regard to the risk that the effect of eligible credit risk mitigation techniques is lower than expected;

(b) ensuring the suitability and reliability of the principles and procedures for managing residual risk associated with the use of eligible credit risk mitigation techniques and the correctness of their application.

§ 14

Market risk

(1) The securities dealer shall establish and maintain market risk management policies and procedures (3), including the evaluation or measurement of all its significant resources and impacts. A securities dealer shall establish and maintain a market risk management system for a trading book in accordance with the requirements of a specific legal act governing the rules on prudent business of banks, savings and credit cooperatives and securities dealers (6) and the interest, currency, equity and commodity risk management system for the investment portfolio.

(2) In stress testing4) interest rate risk of the investment portfolio, securities dealer

(a) carry out stress testing of the impact of any sudden and unexpected change in interest rates on the investment portfolio by measuring the impact of interest rate shocks (4) on the value of capital;

(b) ensure the measurement and documentation of the impact of interest-rate shock on own funds at least every 3 months, separately for each currency with a minimum of 5% of the value of the assets or liabilities of the investment portfolio, the remaining currencies being able to be aggregated for the purposes of such measurement;

1. By means of a parallel yield curve shift of 200 basis points in both directions, in the event of a significant increase in volatility in interest rate changes, calibration of the yield curve shift, or

2. by establishing a lower and upper value of the 1% quantity of interest rate changes for a period of 1 year (240 days) determined on the basis of a minimum of five years of observation of interest rate changes; the individual observations shall be shifted by 1 working day;

(c) ensure that the interest-rate shocks observed after calibration, if appropriate, of the value of the yield curve shift [point (b) (1)] are consistent with the interest-rate shocks that a securities dealer would achieve for the currency or group of residual currencies using the method referred to in point (b) (2) or other advanced method of measuring interest risk;

(d) take immediate corrective action where the overall impact of interest-rate shock could cause a decrease in the value of the original (Tier 1) and Additional (Tier 2) capital by more than 20%;

(e) it also uses alternative stress scenarios for the development of the yield curve, such as the evolution of inverse or change in the shape of the yield curve, taking into account the nature and size of the interest rate risk taken.

§ 15

Operational risk

(1) The securities dealer shall establish and maintain policies and procedures for evaluating and influencing the level of operational risks3, including taking into account few significant events. The securities dealer shall determine, in the course of his activity, the operational risk for the purposes of these principles and procedures, without prejudice to the definition of operational risk provided for by a specific law governing the prudential business rules of banks, savings and credit cooperatives and securities dealers (7).

(2) The securities dealer shall establish and maintain contingency plans, including emergency and crisis situations, and for the recovery of activities:

(a) to ensure the ability to carry out activities on an ongoing basis; and

(b) to limit losses in the event of significant disruption of activities.

§ 16

Liquidity risk

(1) The securities dealer shall establish and maintain:

(a) the principles and procedures for measuring and controlling the net liquidity position, both on an ongoing basis and with a view to the future;

(b) plans in the event that a liquidity crisis needs to be abnormally addressed (4);

(2) In determining the principles and procedures for measuring and managing net liquidity positions (4), the securities dealer shall also take into account alternative scenarios, the liquidity position being the surplus or lack of resources of the securities dealer within the specified time zones.

(3) In maintaining the principles and procedures for measuring and managing the net liquid position, the securities dealer shall periodically review the assumptions underlying the decisions on the net liquid position.

(4) The securities dealer ensures effective liquidity management on a daily basis.

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Regulation Information

Citation	Decree No. 237 / 2008 Coll., on the details of certain rules in the provision of investment services
Regulation Type	Order
Author	-
Collection	Code of Laws

Date of Promulgation	30.06.2008
Effective from	01.07.2008
Effective until	-
Status	Valid

Legal Areas: Banking, Money Securities Finance Economic (State) Administrative law State (official) control Accounting

The regulation text is for informational purposes only.