Ructure of Estonian Securities Market Protection

Regulation 10,8810,88 39 98,74 0,70 -13,46 0,7039 98,74 The Estonian securities market is built upon the 320,20 39-13,46 98,74 20,46 320,20 1993 Securities Market Act, which outlines the StructureStructure of Estonian of EstonianSecurities3 778 Securities 22Market Market-13,46 Structure of Estonian Securities20,46 Market provisions of the securities market and regulates Structure of Estonian14,55 Securities Market 320,203 778 22 ure ofStructure EstonianStructure of Securities Estonian SecuritiesMarket of Estonian0,93 Market Securities20,46 Market ructureStructure of Structureof Estonian Estonian of Estonian SecuritiesSecurities MarketSecurities Market14,55 Marke the introduction and trading of securities. The 39 96,84 0,93 StructureStructure of Estonian-1,92 ofSecurities Estonian Market3 778 22Securities Mark 14,5539 96,84 law stipulates the Securities Inspectorate, 244,91 Structure of Estonian-1,92 Securities Market 0,93244,91 operating under the Ministry of Finance, to act as 3915,65 96,84 -1,92 the regulator and supervisor of the securities market. It also establishes basic standards regarding information disclosure and investor Structure of Estonian Securities Market protection. The law has been greatly fortified by the strong Brief history internal rules and regulations of market participants such as the Tallinn Stock Exchange (TSE) Following the restoration of independence in and the Estonian Central Depository for 1991, Estonia undertook the task of creating a Securities (ECDS). The two private infrastructure securities market from the ground up. Early companies, acting as self-regulated organisations, securities trading was largely unregulated and have filled major gaps in the legislation with the conducted almost exclusively in the primary Rules and Regulations of the TSE and the Rules of market by a select group of companies offering the ECDS. stakes in highly illiquid and non-transparent securities. A new strengthened Securities Market Act, in concert with the European Union standards, is The growth of traditional securities market actors, under negotiations with active participation by along with a strengthening and consolidating the Exchange and is expected to go to Parliament banking sector, soon gave the impetus to regulate in 2000. and codify the securities market. The Securities Market Act of 1993 was the first major legislative Foreign ownership act regulating the capital markets. Foreign investment and ownership is strongly The securities market became active after the encouraged by the Estonian government. There establishment of the central depository by the are no restrictions on foreigners regarding invest- market participants in 1994. It created a regulated ment opportunities, the repatriation of profits or and efficient environment for electronically the purchase of real estate. clearing and registering shares. The Estonian Central Depository for Securities (ECDS) is in Taxation general in line with the Group of Thirty standards for a central depository. Estonia has a flat tax system with an income tax rate of 26% for individuals and corporations. The founding of the Tallinn Stock Exchange (TSE) in 1995 by a collection of commercial banks, Dividends paid to foreign investors are taxed as brokerage firms and state actors created a income at a non-treaty rate of 26% or at a tax regulated and transparent secondary market for treaty rate of 15%. Foreign investors holding more securities trading. The Exchange opened for than 25% of a firm’s share capital, however, pay trading on May 31, 1996. no income tax on dividends regardless of treaty status. Domestic investors pay no tax on Estonian Securities dividend income. Capital gains are taxed at a Market Yearbook 1999 non-treaty rate of 26% for foreign investors while [ 60 tax treaty investors pay no income tax on capital Disclosure of information gains. Domestic investors pay 26% on capital gains. The Exchange has built an effective information distribution channel, which distributes issuer Estonia has formalised tax treaties with announcements electronically via the stock Belorussia, Canada, China, Czech Republic, exchange trading system and makes simultane- Denmark, Finland, Germany, Iceland, Ireland, ously available to the public via the Internet. Latvia, Lithuania, Moldavia, Netherlands, Issuers must submit financial statements, infor- Norway, Poland, Sweden, Ukraine and the United mation on corporate events, mergers and acquisi- Kingdom. tions, major deals, the annual general meeting, extraordinary general meetings and other In January 2000, the amendment into the tax law material information to the Exchange for distrib- came into force, according to which corporate ution. income tax on reinvestments has been abolished. Information on the TSE is also available via Market surveillance Reuters, Bloomberg, Bridge Telerate, Datastream, Internet Securities, Telekurs, Talentum, Baltic State supervisor of the securities market is the News Service, Estonian Mobile Telephone, and Securities Inspectorate, operating under the local media channels. Ministry of Finance. In a bid to make the supervision more effective, the government plans to Real-time trading information of the Exchange create a consolidated financial sector watchdog, and historical trading statistics of the Exchange by merging securities market, insurance and and OTC market are available free of charge on banking sector supervisors into one body, during the Internet homepage of TSE and ECDS. the next years. Investor protection The major supervisory body for the Exchange is the Surveillance Committee of the TSE, which The Exchange member firms, their employees conducts strict supervision of market participants and members of the supervisory bodies are to ensure compliance with the TSE Rules and required to follow the principles of fair and Regulations. equitable trading, to act knowledgeably and with care, giving priority to the interests of their Insider trading clients. A member firm is required to execute a client order at the best possible price available at The strength of a market is often predicated on the time of transaction and without unreasonable the degree of transparency evident in market delay. actions. Under penalty of law and the Rules and Regulations of the TSE, no person in possession Any potential conflict of interest must be of confidential information is allowed to make immediately disclosed to the client. The firm is transactions or give recommendations based on prohibited from executing a client’s order when confidential information. the member firm or a member of the supervisory body or an employee of the member firm is a The Rules and Regulations of the TSE forbid party to the transaction and the transaction is company insiders, defined as the members of the detrimental to the interests of the client. council, the board and management, the auditors and the people connected to them, from A substantial gap in minority investor protection engaging in any transactions in the issuer’s regulations was closed with the establishment of securities between one week before the end of a take-over rules as a part of TSE Rules and relevant accounting period to one day after Regulations. Take-over rules are based on the Estonian Securities Market Yearbook disclosure on the financial reports. principles of the relevant European Union draft 1999 61 ] directive and they provide a regulatory frame- Tallinn Stock Exchange (TSE) work for take-overs of listed companies. The rules aim to ensure transparency and legal certainty for The Tallinn Stock Exchange is a self-regulated minority shareholders, offerors and offerees, thus organisation, issuing and enforcing its own rules enhancing investor confidence in securities and regulations consistent with standard market as a whole. The fundamental principle of exchange operating procedures. Licensed by the the rules is to provide equal treatment to all Ministry of Finance, under the Securities Market shareholders in regard to offer conditions and Act, and supervised by the Ministry’s Securities information availability. In January 2000 the Inspectorate, the TSE is the only registered Parliament resolved to add the take-over rules secondary securities market in Estonia. chapter also to the Securities Market Act. The TSE’s shareholders are primarily banks and Dispute resolution brokerage firms, but also include the Central Bank of Estonia and the Ministry of Finance. The If a dispute between the Exchange member firm Exchange was founded in 1995 and began trading and its client arises, the member firm is required on May 31, 1996. to use the following procedures: The Supervisory Board, elected by the general • all complaints about the activity of the meeting of shareholders, provides oversight for member firm shall be registered by the the TSE. The Supervisory Board nominates and is member firm. The member firm is required to responsible for the Management Board, which in inform the Exchange of all complaints raised; turn provides leadership on operational issues. • all complaints by clients shall be considered by The Supervisory Board also nominates the the member firm; members of the Listing Committee, which is • the member firm shall issue a written report to responsible for listing decisions, and the both the client and the Exchange on its Surveillance Committee, which conducts consideration of the complaint and any supervision over market participants to ensure corrective action taken. compliance with TSE Rules and Regulations. If the client

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