Securities Market Commission
Of the Republic of Latvia
2000
Contents
pp
Introduction 2
General about the Securities Market Commission 4
Functions and Structure of the SMC 6
Regulation of the securities market 8
Licensing for working at the securities market 10
Securities market supervision 12
International co-operation 14
Integration into the European Union 15
Information for the public 16
The financial statements of the SMC 17
Characteristics of the Securities Market 18
Appendix
Macroeconomic Indicators 23
Figures Characterizing the Securities Market 24
List of Laws and Normative Acts Govering Securities Market 26
Licensed Intermediaries 2000 27
7
Foreword
After Latvia was invited to negotiations on accession to European Union (EU) at the end of 1999, the year 2000 became a crucial year for Latvia in terms of bringing its financial sector into line with EU requirements. In the securities market sector emphasis was placed on the adoption of provisions of the remaining second level directives, such as, on investor-compensation schemes (97/9/EC), on the capital adequacy (93/6/EEC as amended by 98/31/EC and 98/33/EC), on settlement finality in payment and securities settlement systems (98/26/EC). Within the limits of SMC competence, provisions of these directives have been incorporated in normative acts part of which are still in Parliament for review and adoption.
During 2000, international evaluation of Latvia’s economic reforms continued to be positive and stable as Latvia was again assigned with investment grade ratings. Credit ratings assigned by three internationally recognised rating agencies Standard&Poor's, Moody's and FitchIBCA – BBB (Standard&Poor's and FitchIBCA) and Baa2 (Moody's) for investments in foreign currencies and A- and A2 (Standartd&Poor’s and Moody’s respectively) for investments in the national currency are much the same as those of other Central and Eastern European countries and are indicative of the stable advance of Latvia’s economic development. Moreover, the rating agency Standard&Poor’s has ranked Latvia sixth among 14 Eastern European countries below Slovenia, Check Republic, Hungary, Estonia and Poland.
On June 1, 2000, Parliament passed the Law “Financial and Capital Markets Commission Law” establishing a new model of capital and financial market supervision – consolidated supervision of banks, securities and insurance markets. The SMC played an important part in drafting of the Law, as the work group for drafting the Law was headed by Chairman of the SMC.
In accordance with the Law, starting from July 1, 2001, the Credit Institutions Supervision Department of the Bank of Latvia, the Securities Market Commission and the Insurance Supervision Inspectorate will amalgamate into one institution. The Financial and Capital Markets Commission of Latvia will be the second supervisory institution of that type in Central and Eastern Europe along with a similar institution in Hungary.
In the area of regulation of the securities market, the year 2000 was marked by adoption of a number of important normative acts. Amendments to laws “On Securities” and “On Investment Companies” were passed, introducing more exact wording of provisions on buyout of shares, a new provision providing opportunity to open the so called “nominee” account, more precise definition of unauthorised use of insider information and specifying the cases when the SMC is authorised to revoke or suspend a license issued to a bank or a brokerage company. The Liability section of the Law was also amended.
In order to complete harmonisation of the body of normative acts governing the securities market with European Union directives, a draft law “Investor Protection Law” was prepared, Regulations on the Capital Adequacy Requirements for Investment Companies adopted and amendments to normative acts drafted to implement provisions of the Directive on settlement finality in payment and securities settlement systems. A new draft of the Law “On Securities” has also been prepared which will further improve the legislative basis of the securities market.
Gross trading volume for the Latvian securities market (aggregate amount of incoming and outgoing securities flows) totalled 3.67 billion lats during 2000 which represents a 61% increase in comparison with 1999. Intermediary companies have mainly focused on transactions with foreign securities and government securities of the Republic of Latvia (49% and 42% of trading volume respectively). Volume of transaction for clients’ account is fairly evenly distributed between all segments of the securities market. The majority of transactions (36%) were those with government securities of the Republic of Latvia. Generally speaking, consequences of the Russian crisis have been successfully overcome.
Since September 15, 1998, the Latvian Securities Market Commission has been a full member of the International Organisation of Securities Commissions (IOSCO). This enabled the SMC to attend IOSCO annual general meeting, as well as meetings of work groups organised by IOSCO to deal with major issues of securities market regulation and supervision in the context of the development of the world's financial markets, as well as principles and recommendations for securities market regulators and supervisors. Membership of IOSCO has considerably helped the SMC to develop the normative basis of the SMC and find its orientation in the international financial and capital market.
During 2000, the SMC has signed agreements on cooperation and exchange of information with Swedish Financial Inspectorate and the Financial Supervision Institution of Denmark.
Agreements on cooperation and exchange of information provide for mutual assistance in the area of supervision and regulation of the securities market as well as prompt exchange of information in the event of investigations related to violations of normative acts governing the securities market.
Such agreements have also been signed with securities market supervisory institutions of Lithuania and Estonia.
At international level, cooperation continues with the Nordic Council of Ministers. As the result of this cooperation, in September 2000, Latvia took part in II Baltic Development Forum in Malmo, Sweden, where independent experts recognised Latvia’s securities market supervision as the best not only among the Baltic states but even placed it on the same level as the securities market supervisory institutions of Sweden, Denmark, Norway, Finland and Germany.
During 2000, co-operation continued among the securities market supervisory authorities of the Baltic States which began back in 1997. The key issues discussed within the framework of this cooperation were: setting up of the consolidated supervision of financial and capital markets, regulation and supervision of stock exchanges, as well as their further development, trading and regulation of foreign securities, funded pension and investor protection schemes.
In 2001, the SMC is expecting further boost of the securities market foreseeing that trade in foreign securities will constitute the largest market segment. As the result of privatisation, the joint stock company “Latvijas Kuģniecība (Latvia’s Shipping Company)”, one of the largest shipping companies of the world, is expected to come into the securities market which might be a boost to its activity. The market of mortgage backed securities will also continue to grow.
Beginning from July 1, 2001, a new institution – the Financial and Capital Markets Commission will come into existence which is expected to take over best traditions of insurance, securities market and banking supervisory institutions and will continue to strengthen the stability of financial and capital markets and its reputation at international level.
V.Gustsons
Chairman
of the Securities Market Commission
of Latvia
7
General on the Securities Market Commission
of the Republic of Latvia
Address:
Smilšu iela 1
LV-1050, Riga
Telephone No (00 371) 7210844
Fax (00 371) 7220565
e-mail:
www.vtk.gov.lv
The Securities Market Commission (SMC) began operation on November 28, 1996, when Viktors Gustsons was appointed Chairman by Parliament. The SMC is an institution of state executive power which within its competence acts in the name of the Republic of Latvia as a body regulating activities of participants in the securities market and monitoring public trading of securities in the Republic of Latvia. It functions under supervision of the Ministry of Finance based upon the Law of August 1995 “On the Securities Market Commission” and Regulations No 173 “Regulations of the Securities Market Commission” passed by the Cabinet of Ministers on May 6, 1997.
Objectives of the SMC are the following:
· to facilitate development and stability of the Securities Market;
· to protect investors’ interests;
· to ensure fair competition opportunities in the securities market.
The decision-making body of the SMC is the Supervisory Council which consists of seven members – the SMC Chairman Viktors Gustsons, Vice Chairman Tālis Laizāns, as well as five Council members – Andris Deniņš, Sarmīte Jēgere, Valdis Dvinskis, Andris Klauss, Viktors Šadinovs. The Council is appointed by Parliament for a term of seven years. The Council with full membership was first appointed by Parliament on June 18, 1997.
The executive body of the SMC is the Management Board members of which are approved by the Council upon recommendation of the Chairman of the Commission. Presently the Board is made up of five members – the Vice Chairman, heads of the three Departments and one candidate for the post of a Board member.
The SMC comprises three Departments: the Department of Regulation and Surveillance of Issuers, headed by Māris Grīnbergs, the Department of Regulation and Surveillance of Participants in Securities Market, headed by Tatjana Kuļešova and the Department of Enforcement of Legal Documents, headed by Roberts Jefimovs.
Viktors Gustsons in the capacity of Chairman of the SMC is on the Council of the Insurance Supervision Inspectorate and on the Consultative Council of the Service for Combating Legalisation of Unlawfully Obtained Monies.
Tālis Laizāns in the capacity of Vice Chairman of the SMC is the Chairman of the Latvian Financial Accounting Technical Standardisation Committee.
The SMC regularly collaborates with the Bank of Latvia, with the Insurance Supervision Inspectorate for the purposes of information exchange, as well as cooperates with the Brokers’ Association and the Council of Issuers.
7
Council of SMC
Viktors Gustsons – Chairman of the SMC, the Magister of economic sciences at the University of Latvia. Before the approval as the Chairman of the SMC worked as a president of the insurance compny “Balta”. As the Chairman of SMC nominated by Saeima on 28th of November, 1996.
Tālis Laizāns – Deputy Chairman of the SMC. Received a diploma in international economics and law from the Institute of International Relations of the University of Latvia, was the Director of the Treasury Department with the JSC “Latvijas Investīciju banka”, the member of the Riga Stock Exchange.
Andris Deniņš – Council member. Graduated from the Engineering Economy Department of Riga Polytechnic Institute, received the “Candidate of Technical Sciences” degree from the Engineering Economy Department of the Leningrad Institute of Textil and Light Industry. He is the Director of the Auditing Company “BDO Invest Riga”, the member of presidium in Camera for Commerce and Industry of Latvia, a professor in Economics and Management Department at the University of Latvia.
Sarmīte Jēgere – Council member. Graduated from the Latvian University, Department of Economic Cybernetics in 1973. Has undertaken post-graduate work at the University of Latvia and received her Doctor’s Degree in Economics at the B.Plehanow Economics Institute in Moscow. Served as the State Minister of Investment and Credit Policy, was the president of “Lateko” Bank. Currently, she is a Chief of Department of Enterpreneurship at the Riga Municipality and Associate Professor in Economics and Management Department at the University of Latvia.
Valdis Dvinskis – Council member. Graduated from the History and Philosophy Department and the Law Department of the University of Latvia. He worked as a the 2nd Secretary in Consular and Economic Affairs at the Embassy of Latvia in the Czech Republic and Slovakia, as a specialist for the Consular Department of the Latvian Ministry of Foreign Affairs, as a branch manager of the NG “Hanza” Ridzene branch of “Latvijas Unibanka”. Currently, the Council member of the Special Economic Zone in Rezekne.
Andris Klauss – Council member. Dr.oec., graduated from the Department of Economics and Law of the University of Latvia, has completed additional post-graduate work at the University of Latvia and has also studied at the University of Leipzig and the German Academy of Management in Lower Saxony.Currently, he is an associated professor at Ventspils University and an expert consultant for the Latvian Privatisation Agency.
Viktors Šadinovs – Council member. Graduated from the Law Department of the University of Latvia , completed courswork at the Swedish National Academy. He has worked as an administrator with the University of Latvia, participated in drafting committees for numerous laws and legal acts. Currently is a Deputy Chairmen of the Board of the Latvian Privatisation Agency, as well as a lecturer at the University of Latvia.
7
Main Functions of the SMC
· Enforcing securities market regulations;
· Regulating the issue of securities and their subsequent tradeing;
· Setting qualifikation standarts for licensed market professionals;
· Licensing and supervising securities market participants (brokerage companies, investment companies);
· Securities market research, analysis and publication of selected information;
· Regulating and supervising stock exchanges;
· Regulating and supervising the Latvian Central Depository;
· Co-operating with international institutions of regulation and supervision of securities market
The Structure of the SMC
Regulation of the Securities Market
In conformity with the Law “On the Securities Market Commission” and within the limits of its competence the Council of the Commission has passed five normative acts binding on the securities market participants in such areas as the securities market, issuance and public circulation of and accounting for securities, as well as amendments to seven normative acts.
In 2000, in order to complete the process of aligning the securities market legislation and its harmonisation with European Union directives, the SMC has drafted and adopted important regulations as well as prepared extensive amendments to laws and proposed several drafts which have been submitted to Parliament for review.
Financial and Capital Market Commission Law
On June 1, 2000, Parliament passed the Financial and Capital Market Commission Law which will become effective on July 1, 2001. With adoption of this law a transition has begun in order to establish single supervisory authority which embraces regulation and supervision of commercial banks, insurers and the securities market.
In connection with the coming into operation of the Commission which, in accordance with the Law “On Financial and Capital Market Commission”, will take place on July 1, 2001, the SMC has drafted and the Cabinet of Ministers adopted Regulations No 549 “On Transfer of Management Rights and Liabilities of Deposit Guarantee Fund to Financial and Capital Market Commission”.