MARKET PROFILE CROATIA 2020. OTP banka d.d. Global Securities Services 1 CONTENTS CROATIA .................................................................................................... 3 MARKET INFORMATION ................................................................................ 3 MARKET PARTICIPANTS ............................................................................... 4 TRADING AND SETTLEMENT ....................................................................... 6 MARKET INSTRUMENTS ............................................................................. 13 TARGET2-SECURITIES IN CROATIA .......................................................... 15 ANTI-MONEY LAUNDERING REQUIREMENTS .......................................... 15 DISCLOSURE REQUIREMENTS FOR INVESTORS .................................... 16 PROXY VOTING ........................................................................................... 19 TAXATION..................................................................................................... 21 GLOSSARY OF ABBREVIATIONS ............................................................... 23 DISCLAIMER ................................................................................................. 24 2 CROATIA MARKET INFORMATION Key figures Local currency Croatian Kuna (HRK) Market GDP (2019) USD 61.35 bn Market capitalisation (Mar 2020) USD 35,21 bn Number of listed companies (Mar 106 2020) Stock Exchange turnover (Mar 2020) USD 201,4 m EU membership Yes Euro zone No Local Time In wintertime GMT+1 In summertime GMT+2 Daylight Saving Time same time as in EU countries Credit Ratings Agency Rating Outlook Date S&P BBB- Stable Mar 22 2019 Fitch BBB- Stable Apr 01 2020 S&P BB+ Positive Sep 21 2018 3 MARKET PARTICIPANTS Market Regulator – Croatian National Bank (CNB) The Croatian National Bank (CNB) is the central bank of Croatia therefore responsible for the country's monetary policy and financial stability. The key functions of CNB are: - maintaining the stability of the Kuna - managing domestic and external liquidity - implementing foreign exchange and monetary policies - issuing banknotes - approving and issuing banking licences - supervising the banking sector - coordinate with EU all activities aimed at resolving crisis events in the non- banking sector CNB is allowed to invest its international reserves in bonds traded on the secondary market. Nevertheless, the CNB is not allowed to finance the public sector directly but can invest in securities with an investment-grade rating affirmed by at least two internationally recognised rating agencies. The CNB is a member of the European System of Central Banks. Internet website: https://www.hnb.hr/ Stock Exchange Zagrebačka Burza or the Zagreb Stock Exchange (ZSE) is the only stock exchange in Croatia following the merger between the ZSE and the Varazdin Stock Exchange (VSE) on 19 March 2007. Securities traded in the market include equities, government and corporate bonds, and certificates. Securities (stocks and bonds) are traded on the Zagreb Stock Exchange via the Xetra T7 electronic trading system. The Vienna Stock Exchange operates the trading system for the ZSE as well as supplying a service and system package. The package includes real-time trading surveillance and data dissemination for the Croatian market, index calculation, downstream systems and specific database solutions and interfaces. ZSE is a full member of the Federation of European Securities Exchanges (FESE). Internet website: http://www.zse.hr 4 Central Depositories and Safekeeping Središnje klirinško depozitarno društvo, dioničko društvo (SKDD d.d. - the Central Depository & Clearing Company Inc) previously known as Središnja Depozitarna Agencija d.d.(SDA), the Croatian Central Depository Agency Inc. The SKDD d.d. is the sole depository in Croatia after the Croatian National Bank (CNB) and the Ministry of Finance transferred their Treasury Notes and Treasury Bills services, respectively, to SKDD d.d. All T-bill transactions are conducted off- exchange on an OTC basis between primary dealers. All T-bills are held in dematerialised form. SKDD d.d. provides depository, clearing and settlement services for equities (common and preferred shares), corporate bonds, Treasury Notes and bills and discount instruments in Croatia. Equity and debt securities are dematerialised within SKDD d.d. and settled by book-entry. Internet website: http://www.skdd.hr Clearing House / CCP Currently, SKDD d.d. acts as central counterparty for securities settled under the contractual settlement modality. On 6 December 2013, the joint stock company SKDD-CCP Smart Clear Inc. was registered in the Commercial Court in Zagreb, with SKDD as the founder and sole shareholder. SKDD-CCP will act as a full central counterparty and provide financial instruments transactions clearing. This implies that the new company will take over the clearing operations which are currently run by SKDD. The clearing function will be fully separated from the depository and settlement functions of SKDD. SKDD-CCP first applied to HANFA for EMIR authorization on 31 December 2013. Since then, the CCP has submitted several revised applications at the request of HANFA who found the submissions incomplete. In March 2018, SKDD organized consultations with all potential members to discuss the current situation and present all the projections in the validation period so that everyone can get an insight into the framework in which the CCP can work. As of November 2019, the application was still deemed incomplete, so SKDD-CCP must revert to HANFA by 1 September 2020 with some additional documentation. 5 TRADING AND SETTLEMENT Trading environment Zagrebačka Burza or the Zagreb Stock Exchange (ZSE) is the only stock exchange in Croatia following the merger between the ZSE and the Varaždin Stock Exchange (VSE) on 19 March 2007. Securities traded in the market include equities, government and corporate bonds, and certificates. Securities (stocks and bonds) are traded on the Zagreb Stock Exchange via the Xetra T7 electronic trading system. The Vienna Stock Exchange operates the trading system for the ZSE as well as supplying a service and system package. The package includes real-time trading surveillance and data dissemination for the Croatian market, index calculation, downstream systems and specific database solutions and interfaces. SEE Link SEE Link is a joint stock company founded by the Zagreb, Macedonian and Bulgarian Stock Exchanges with the aim of creating a regional infrastructure that will enable the trading of companies listed on all three of the markets. SEE Link became fully operational at the end of March 2016 and has since added the Belgrade Stock Exchange (BELEX), the Ljubljana Stock Exchange (LJSE), Banja Luka Stock Exchange (BLSE), the Athens Stock Exchange (ATHEX) and the Sarajevo Stock Exchange (SASE) to its list of active members. The system supports common and preferred shares, government bonds, and subscription rights and the first two years of membership will not be charged. SEE Link has two blue chip equity indices, SEE LinX and SEE LinX EWI. The indices are composed of the 18 most actively traded regional companies listed on five of its participating exchanges: 5 from Croatia, 4 from Slovenia, 3 from Bulgaria and 2 from Macedonia, Serbia and BiH (1 from Banja Luka Stock Exchange and 1 from Sarajevo Stock Exchange). Both indices have the same constituents. SEELinX index is a market capitalisation weighted index adjusted for the free-float of each constituent, while SEELinX EWI is an equally weighted index with the same constituents. 6 ZSE Trading Hours Equities Section Continuous Trading 8:00 am - 09:00 am (Pre-Trading) 9:00 am - 09:30 am* (Opening Auction) 9:30 am** - 3:55 pm (Continuous Trading) 3:55 pm - 4:00 pm* (Closing Auction) 4:00 pm** - 4:15 pm (Post-Trading) Auction Trading 8:00 am - 11:00 am (Pre-Trading) 11:00 am - 1:00 pm* (Auction) 1:00 pm** - 4:15 pm (Post-Trading) *Earliest end (the opening auction and closing auction end with variable end which may take 15 seconds at most. Variable end is determined randomly for each instrument). **Earliest start 8.30 am - 4.00 pm (OTC trade reporting) 8.00 am - 4.00 pm (Block trades) Settlement cycle on the ZSE is T+2 for all types of securities. OTC Market OTC trades can be reported to the Exchange by the Exchange members and other resident institutional investors. On 21 January 2015, ZSE launched a real-time market surveillance system provided by Ancoa. The new service is integrated in the ZSE trading platform across all ZSE’s trading segments; the regulated market, Multi Trading Facility (MTF), and Over-the Counter (OTC) platforms. The new system will enable the identification of abusive behaviours and ensure investor protection and regulatory compliance under ESMA guidelines. 7 Payment Systems The Croatian National Bank (CNB - the Central Bank) operates the Croatian Large Value Payments System (Croatian: HSVP), an interbank payment system for depository institutions (banks and savings banks) and the central bank, established in 1999. The NCS is a payment system that enables the clearing of kuna cashless interbank payment transactions among all of its participants. The NCS participants are the CNB, credit institutions (banks and savings banks) with their head offices in the Republic of Croatia that have been granted authorisation from the CNB and the Croatian Bank for Reconstruction and Development. The NCS participants can be direct or indirect.