Capital Markets in Croatia

1. Market Overview

The Zagreb Stock Exchange (ZSE), Croatia’s sole stock exchange, was formally established on July 5, 1991, with the Varazdin Securities Market later merging with ZSE in 2007. In 2015, ZSE acquired a stake in the Ljubljana Stock Exchange, expanding its reach even further. During 2022, the ZSE acquired shares in the Macedonian Stock Exchange on several occasions and ultimately became the largest shareholder in that regionally important stock exchange with a 29.98% stake. All three stock exchanges have been cooperating very successfully in various fields for many years, exchanging knowledge, experience, and best practices with the aim of increasing the visibility of the regional market on the global investment map.

In 2016, ZSE founded Funderbeam South-East Europe (Funderbeam SEE) based in Zagreb, with the aim of raising capital for startups and enabling trading of its stakes via an innovative blockchain-based system. Following that, Progress Market, a multilateral trading platform (MTP), was established in 2018. In 2019, the Progress Market became registered as an SME Growth Market, making it one of the first such markets in Europe. In 2020, ZSE experienced the introduction of its first ETF listing.

The year 2022 brought two listings of shares on the regulated market and six listings on the basis of recapitalization, as well as the listing of five bonds. A special novelty on the market was the listing of the first “green” bond. In Q1 2023 the Republic of Croatia raised more than EUR 2.3 billion in its first government bond issue aimed primarily at retail investors.

The 2022 year started with great trade statistics and positive market vibrancy, however, February and the beginning of the war conflict in Ukraine brought intense trading, with corrections of indices and market capitalization. Nevertheless, the continuation of the year brought mostly positive sentiment, so the year ended with only a -1.5% correction in the turnover of shares within the offer book, while the total turnover was as much as 16.5% higher than the year before. At the same time, ETFs had a significant increase in turnover, which were traded 68.4% more than in 2021. The market value measured by market capitalization was corrected, in the case of stocks -2.6%. Overall, the Croatian stock market can be considered content as domestic indexes experienced comparatively lower drops than major global stock market indexes, which saw some of the most substantial losses since 2008.

The introduction of the euro as Croatia’s official currency on January 1, 2023, as well as its entry into the Schengen Area, have been the most significant changes overall. Entry into Eurozone represented a significant step in Croatia’s integration into the European Union and its economy, as the euro is the official currency of many of the EU member states. Moreover, joining the eurozone requires meeting certain economic and financial criteria, which can help ensure greater stability and predictability in the economy and can increase foreign investment in the country. Elimination of currency risk will play an important role in potentially increasing interest in the Croatian capital market, strengthening investor confidence, and giving the market an opportunity to improve its investor base, with potentially lower financing costs. Joining the eurozone facilitates integration into global economic flows, and the “safety net” of the eurozone gives investors a certain certainty that there are additional solutions in case of Croatia’s financial needs, providing another protective layer for the economy and financial market.

Joining the Schengen Area will further enhance the country’s integration into the EU, as it will allow for the free movement of people across borders without the need for passport controls. This can have significant benefits for the country’s economy, as it can increase tourism and facilitate trade and business transactions between Croatia and other Schengen countries.

2. Overview of the local stock exchange and listing segments (markets)

The ZSE carries out the exchange of securities using a digital trading system called Xetra T7 since 2017, allowing all users to participate in real-time trading. The trading system is both order and a quote-driven system. An instrument may be traded continuously or in auction trading. Orders are executed by order of priority based on price and time of input.

Trading takes place during regular business hours, from 9:00 AM to 4:30 PM CET, and there is a pre-trading period from 8:00 AM to 9:00 AM CET.

2.1. Regulated market

According to Croatian legislation, a regulated market is a multilateral system led and/or managed by a market operator that meets the following conditions:

• merges or facilitates the merging of the interests of third parties for the purchase and sale of financial instruments, in accordance with predetermined unequivocal rules and in a manner that leads to the conclusion of contracts in connection with financial instruments that are listed for trading according to its rules and/or in the system;
• has approval as a regulated market; and
• operates regularly in accordance with the provisions of the Croatian Capital Markets Act (Official Gazette no. 65/18, 17/20, 83/21, 151/22; CMA).

The operation as a market operator of a regulated market in Croatia can only be managed by a stock exchange based in Croatia, based on the approval of the Croatian Financial Services Supervisory Agency (Hanfa). The market operator can be the regulated market itself. The stock exchange is obliged to choose a trading system for trading on a regulated market, which is governed by the principles of (i) efficiency, (ii) economy, (iii) functionality of the trading system, and (iv) investor protection.

In the Republic of Croatia, there is one regulated market and it is managed by Zagrebacka burza d.d. (ZSE) as a market operator.

According to the CMA, the stock exchange operates a regulated market consisting of a (i) regular market and an (ii) official market. The stock exchange is authorized to impose more stringent regulations on certain segments of the regulated market beyond what has already been prescribed by the CMA, and the ZSE has exercised this authority with its Prime Market.

Consequently, ZSE entails the following listing segments:

• Prime Market;
• Official Market; and
• Regular Market.

The financial instruments which may be traded on the regulated market are those for which the ZSE has obtained Hanfa’s approval or in respect of which the approval stems from the provisions of the CMA. According to the ZSE web page, these are specifically:

• shares or other securities equivalent to shares that represent an interest in the capital or in the shareholders’ rights in a company, as well as depositary receipts;
• bonds and other types of securitized debt, also including depositary receipts related to such securities;
• any other securities which entitle their holders to acquire or sell such negotiable securities or which constitute the grounds for a cash payment of the amount determined on the basis of negotiable securities, currencies, interest rate or yields, commodities, indices, or other measures of size;
• money market instruments: treasury bills, central bank bills and commercial paper, certificates of deposit, and other instruments which are customarily traded on the money market; and
• units in collective investment undertakings, in accordance with the provisions of the CMA.

Not all financial instruments may be listed on all market segments, e.g., shares may be listed on any of the three segments, debt securities may be listed on the Official or the Regular Market, while structured products and units in open-end investment funds may only be listed on the Regular Market.

2.2. Non-regulated market

Pursuant to the CMA, a multilateral trading platform (MTP) is a multilateral system that brings together the supply and demand for financial instruments of several interested third parties. MTP can be managed by an investment company or a market operator that receives approval from Hanfa. The basic feature of the MTP is the lower transparency requirements compared to the regulated market and, related to this, the higher risk of investing in financial instruments traded on the MTP.

ZSE operates a multilateral trading platform called the Progress Market, which is a trading facility for small and medium-sized enterprises in Croatia and Slovenia. The collaboration between the Zagreb and Ljubljana Stock Exchanges allows these companies to raise capital in both countries. Investors should be aware that the Progress Market has lower transparency requirements for issuers, which increases the risk associated with investing in securities traded on this market. However, the ZSE ensures that regulatory information, including financial statements and information about securities traded on the Progress Market, is publicly available to ensure fair and orderly trading and pricing. Issuers are obligated to publicly disclose any information required by ZSE Rules, and the market is subject to regulations designed to prevent and detect market abuse.

3. Key Listing Requirements

Listing requirements differ for different financial instruments, as well as for different market segments.

Pursuant to the provisions of the CMA, ZSE as a stock exchange is obliged to prescribe and apply the acts regulating the general terms of business of the stock exchange and the regulated market that it manages. One of the obligatory contents of such acts is provisions on financial instruments that can be traded on a regulated market, including listing requirements.

Consequently, the Rules of the Zagreb Stock Exchange (ZSE Rules) prescribe the following general listing requirements for financial instruments:

• fulfillment of conditions prescribed by CMA, applicable EU legislation, ZSE Rules, and other ZSE internal acts;
• can be traded fairly, orderly, and effectively;
• the issuer’s legal status must comply with either the laws of the Republic of Croatia or the regulations of the country of the issuer’s registered seat;
• the issuer must fulfill the obligation to publish the prospectus and/or other information if such obligation is prescribed by the provisions of the CMA or other regulations;
• financial instruments must be issued in accordance with the regulations that apply to them and freely transferable;
• effective settlement of transactions must be ensured, whereby it is assumed that this condition is met if the financial instruments are issued in dematerialized form and registered in the central depository, i.e., the central register and included in the settlement and/or settlement system;
• issuers of financial instruments that are listed on the regulated market are required to use LEI;
• no pre-bankruptcy or bankruptcy proceedings, extraordinary administration proceedings, or liquidation proceedings have been opened against the issuer.

3.1. ECM

In addition to the requirements listed above, for shares to be listed on the Regular Market, ZSE Rules prescribe the condition of at least 15% free float. Exceptionally, shares may be listed even if they do not meet the free float condition if, considering the large number of shares of the same type and the percentage of distribution to the public, the market can function properly.

For shares to be listed on the Official Market, they should fulfill the following additional requirements.

• Free float of at least 25%, while the stated percentage of shares must be distributed to at least 30 shareholders;
• Exceptionally, shares may be listed even if they do not meet the free float condition if, given a large number of shares of the same type and the percentage of distribution to the public, the market can function properly. It is considered that the market can function properly if at least 10% of the shares are distributed to at least 50 shareholders;
• The issuer must have an established investor relations function with at least one person who has the necessary knowledge and skills in the field of investor relations, which knowledge has to be continuously maintained at an appropriate level.

The Prime Market segment states the following requirements for the listing of shares:

• Free float of at least 35% and a minimum of 1,000 shareholders;
• The expected market capitalization must amount to at least EUR 65 million;
• The issuer is required to establish a market-making agreement with a minimum of one market maker;
• The issuer’s supervisory board must have at least one independent member who is not in business, family, or other ties with the issuer, majority shareholder, or group of majority shareholders or members of the board or supervisory board of the issuer or majority shareholder;
• At least one member of the audit committee must be independent of the issuer;
• The auditor’s opinion in the audit report should not be altered or modified;
• The amount of fees paid by the issuer to the statutory auditor or audit firm is below the limit specified in Article 4(3) of Regulation (EU) No 537/2014. Otherwise, the company is required to disclose information on the audit committee’s discussion regarding any risks to the auditor’s independence, measures taken to address those risks, and whether the audit will be subject to a quality control check by another auditor before the audit report is issued;
• If the subject of the request for listing on the Prime Market is shares already listed on the regulated market, the issuer of the shares must not have a market protection measure imposed in accordance with the ZSE Rules in the period of one year before the date of submission of the request for listing on the Prime Market.

3.2. DCM

In order to be listed on the Regular Market, fulfillment of the general requirements is sufficient.

To be listed on the Official Market, the general requirements must be met, including the CMA condition that requires the nominal amount of debt securities in the application for listing on the Official Market to be at least EUR 200,000.

Finally, the Prime Market is a specialized market on the ZSE for trading equities, and debt instruments cannot be listed on this market.

4. Prospectus Disclosure

The CMA and the Regulation (EU) 2017/1129 (Prospectus Regulation) and relevant by-laws govern the rights and obligations related to public offering and listing of securities on regulated markets in Croatia. The Prospectus Regulation fully applies from July 21, 2019.

Additionally, implemented and delegated acts of the EU based on the Prospectus Regulation, as well as guidelines, questions, answers, and other documents issued by the European Supervisory Authority for Securities and Capital Markets (ESMA) are also part of this regulatory framework.

The prospectus is compulsorily published, with the exception of exemptions and prescribed exceptions, in the following cases:

• public offers of securities in the territory of the Republic of Croatia; and
• listing of securities on the regulated market in the Republic of Croatia.

One such exemption was implemented into the CMA pursuant to the Prospectus Regulation, i.e., that public offers of securities with a total amount of securities fees collected in the European Union of less than EUR 8 million calculated over a period of 12 months are exempt from the obligation to publish a prospectus.

The prospectus may not be published without the prior approval of the competent authority of the home Member State, i.e., Hanfa. When Croatia is the home Member State, Hanfa is responsible for approving the prospectus, registration document, and universal registration document as well as their amendments, for approving the notice on the security and the summary of the prospectus, and everything related to the securities that will be offered to the public or for which requires their inclusion on the regulated market in Croatia.

The prospectus can be created as:

• unique prospectus (contains all information in one document); or
• split prospectus (all information is listed in several separate documents) containing:

i. registration document (contains information about the issuer),

ii. security notification (contains information about securities that will be offered to the public, i.e., listed on the regulated market), and

iii. a summary of the prospectus, if applicable (it briefly and using common terms presents key information that enables the investor to understand the characteristics and risks associated with the issuer, guarantor, and securities).

The prospectus must contain all information that, taking into account the nature of the issuer and the securities offered to the public, i.e., for which listing on the regulated market is required, the investor needs for an informed assessment:

• assets and liabilities, financial position, profit and loss, expectations and development possibilities of the issuer and guarantor;
• rights arising from securities;
• risks associated with the issuer and securities.

The information contained in the prospectus must be accurate and complete, and the prospectus must be consistent. The prospectus should be readable and understandable, and the information in the prospectus must be presented in such a way that it can be understood and easily analyzed.

Delegated Regulation (EU) 2019/980 on the format, content, scrutiny, and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (Regulation 2019/980) prescribes in detail the structure and content of the prospectus.

4.1. Regulatory regime (EU Prospectus Regulation or similar) – equity

Regulation 2019/980’s Annex 1 prescribes the contents of the registration document for equity securities.

Among others, such registration documents should include;

• Information on responsible persons, information on third parties, expert’s reports, competent authority approvals;
• Information on statutory auditors;
• A description of the material risks that are specific to the issuer;
• Business overview;
• Trend information, profit forecasts, or estimates;
• Organizational structure, administrative, management and supervisory bodies and senior management, remuneration and benefits, employees, major shareholdings, related party transactions;
• Operating and financial review;
• Capital resources;
• Regulatory environment;
• Financial information concerning the issuer’s assets and liabilities, financial position and profits and losses, etc.

Annex 11 further prescribes the contents of securities notes for equity securities or units issued by collective investment undertakings of the closed-end type.

4.2. Regulatory regimes (EU Prospectus Regulation or similar) – debt 

In the case of non-equity securities, in accordance with the conditions prescribed by the Prospectus Regulation, it is possible to create a basic prospectus.

The basic prospectus can also be drawn up as a single document or as separate documents and must contain the following:

• information contained in the registration document or universal registration document;
• information that would otherwise be contained in the relevant securities notice not including the final terms, if the final terms are not included in the basic prospectus;
• a summary with the final conditions that are specific to a particular issue (this summary is not the same as the prospectus summary).

Final terms and a summary of final terms may or may not be included in the base prospectus or its supplement. If the final conditions are not included in the basic prospectus or its supplement, the issuer publishes them publicly and submits them to the competent authority of the home Member State as soon as possible during the public offer and, if possible, before the start of the public offer of securities or listing for trading on a regulated market. The competent authority of the home Member State does not approve the publication of the final conditions and the summary with the final conditions.

Regulation 2019/980’s Annex 6 prescribes the contents of the registration document for retail non-equity securities.

Among others, such registration document should include;

• Persons responsible, third-party information, experts’ reports, and competent authority approval;
• Statutory auditors;
• A description of the material risks that are specific to the issuer and that may affect the issuer’s ability to fulfill its obligations under the securities;
• Information about the issuer,
• Business overview;
• Trend information, profit forecasts, or estimates;
• Organizational structure, administrative, management, and supervisory bodies, major shareholdings;
• financial information concerning the issuer’s assets and liabilities, financial position, and profits and losses.

Annex 14 further prescribes the securities note for retail non-equity securities.

4.3. Local market practice considerations

There is no local market practice consideration worth highlighting since local regulation usually points to the EU law and EU practices. Unfortunately, the Croatian capital market is rather scarce and still developing. 

4.4. Language of the prospectus for local and international offerings

The language of the prospectus is prescribed by the CMA, in relation to Regulation (EU) No. 2017/1129.

Regarding local offerings, i.e., cases when an offer of securities to the public is made or admission to trading on a regulated market is sought only in Croatia as the home state, the prospectus should be drawn up in the Croatian language.

For international offerings, where the Republic of Croatia is the home Member State, and a public offering of securities or listing on a regulated market is required in one or more Member States, including or excluding Croatia, the prospectus should be drawn up in either Croatian or English, at the choice of the issuer, offeror or person who seeks to list for trading on a regulated market.

However, if Croatia is a host Member State and the prospectus is not written in Croatian, in such cases the summary of the prospectus must be available in the Croatian language.

When Croatia is the host Member State, and the basic prospectus, the final conditions, and the summary of the individual issue are not drawn up in Croatian, the translation of the summary of the individual issue attached to the final conditions must be available in Croatian.

In cases where Croatia is the home Member State, and a public offer of securities or listing on a regulated market is required in one or more Member States, with the exception of Croatia, the basic prospectus, final terms, and summary of each issue are drawn up in Croatian or English, according to the choice of the issuer, offeror or person requesting listing for trading on the regulated market. Furthermore, in cases where Croatia is the home Member State, and a public offering of securities or listing on a regulated market is required in one or more Member States, including Croatia, the basic prospectus, final terms, and summary of each issue are to be drawn up in Croatian or in English language, according to the choice of the issuer, offeror or person requesting listing for trading on the regulated market. When the basic prospectus, final terms, and summary of a particular issue, according to the choice of the issuer, offeror, or person seeking listing for trading on the regulated market, are drawn up in English, the summary of the particular issue must be available in Croatian.

Prospectuses for admission to trading on the regulated market of non-equity securities and admission to trading on the regulated market in one or more Member States may be drawn up in Croatian or English, at the choice of the issuer, offeror, or person requesting listing for trading on the regulated market, regardless of whether the admission is carried out in Croatia as a home Member State. The same rule applies in case Croatia is a host Member State.

5. Prospectus Approval Process

5.1. Competent authority/regulator

In accordance with the provisions of the CMA, Hanfa is the authority responsible for the implementation of the Prospectus Regulation in the territory of the Republic of Croatia, which includes making a decision on the request for approval of the prospectus of a public offer of securities and/or the listing of securities on a regulated market in accordance with the provisions of the Prospectus Regulation (when the Republic of Croatia is the home Member State and when the approval of the prospectus has been transferred to Hanfa in accordance with the Prospectus Regulation) and conducting supervision over the implementation of the Prospectus Regulation and CMA in part of the offer of securities to the public and listing of securities on the regulated market.

The process of checking and approving the prospectus is done in accordance with the provisions of Regulation 2019/980.

5.2. Timeline, review, and approval process

Hanfa’s Guidelines on the verification and approval of the prospectus and on the execution of other obligations in connection with the public offer and listing of securities on the regulated market dated January 19, 2023, prescribe the approval process in detail.

The request for the approval of the prospectus, together with the appropriate attachments, is submitted by the applicant to Hanfa in electronic form, by direct access to the Hanfa reporting system using the appropriate interface on the Hanfa website, in the manner prescribed by the Technical Instructions for the preparation and delivery in electronic form of the request for the approval of the prospectus in connection with the public offer and listing of securities on the regulated market, published on Hanfa’s website.

Hanfa will confirm the receipt of the request electronically to the applicant at the email address of the contact person.

Pursuant to the Prospectus Regulation, Hanfa is obliged to notify the issuer, the offeror, or the person asking for admission to trading on a regulated market of its decision regarding the approval of the prospectus within 10 working days of the submission of the draft prospectus.

If the issuer does not have any securities admitted to trading on the regulated market, and if their securities are not listed on a regulated market, the time limit for reviewing the prospectus is extended from 10 to 20 working days. However, this extension only applies to the first submission of the draft prospectus. If any further submissions are required, the standard 10-day time limit will apply. If the competent authority doesn’t make a decision on the prospectus within the given time frame, this should not be considered as approval of the application.

If Hanfa, while reviewing the prospectus at the request of the applicant, finds that the draft prospectus is incomplete, unclear, or inconsistent with the standards for verifying information in relevant regulations, it will ask the applicant to make necessary changes or additions to the prospectus and/or supporting documents. The specific deadline for submitting amendments and/or additions to the draft prospectus and/or documentation, as set by Hanfa, will depend on the complexity and scope of the requested changes and whether the applicant needs to involve other individuals to make the changes. The applicant has the option to request an extension of the deadline set by Hanfa for submitting changes and/or additions to the draft prospectus and/or documentation before the deadline expires. Hanfa will approve the applicant’s request for an extension of the deadline if it finds the reasons for the extension to be valid and if the requested deadline extension is adequate.

Once Hanfa confirms that the application is complete and meets all the requirements set forth by the CMA, the Prospectus Regulation, and Regulation 2019/980, it will notify the applicant via email to the contact person’s email address provided by the applicant, with an invitation to submit a final draft of the prospectus for approval. The application is considered proper when all the necessary documentation is attached and the draft prospectus is complete and complies with the regulatory framework for public offerings of securities and listing on regulated markets.

Subsequently, Hanfa will make a decision regarding the approval of the prospectus.

Following the approval of the prospectus, the applicant is required to make the prospectus available to the public within a reasonable timeframe, and at the latest, at the beginning of the public offer or listing of securities on the regulated market to which the prospectus refers. In the case of an IPO of a specific class of shares that are listed on a regulated market for the first time, the applicant should make the prospectus available to the public at least six working days before the end of the offering.

If new information arises between the approval of the prospectus and the conclusion of the offer period or the beginning of trading on the regulated market, which could significantly impact the valuation of securities, a supplement to the prospectus should be issued. This supplement must state any significant new factor, material error, or inaccuracy related to the prospectus information, without undue delay. Hanfa approves the supplement to the prospectus in the same way as the prospectus, and the applicant should publish it in the same way as the prospectus, with information relevant to the securities.

Hanfa shall notify ESMA of the approval of the prospectus and any supplement thereto.

6. Listing Process

6.1. Timeline, process with the stock exchange

The decision to list financial instruments on a regulated market rests with the ZSE. To apply for listing, interested parties are to submit a written application on a form provided by ZSE, which can be found on their website. It’s important to note that the request for listing should include all shares of the same type, except in exceptional cases specified by the CMA, i.e., equally ranked debt securities.

The issuer or a person authorized by the issuer may submit a request for the inclusion of financial instruments on the regulated market. However, in exceptional cases, transferable securities may be listed without the issuer’s consent, provided that the CMA, ZSE Rules, and other relevant regulations are met. Additionally, a request for listing may be made by another party in accordance with the regulations governing the rehabilitation of credit institutions and investment companies. If shares of an open-ended investment fund are to be listed on the regulated market, it is the responsibility of the management company to submit the request for a listing.

According to the ZSE rules, the applicant is obliged to attach to the application for inclusion:

1. the prospectus and/or other information or a statement that it uses some of the rights to an exception from the obligation to publish the prospectus and/or other information;

2. a statement that it has fully acted in accordance with the provisions of the CMA and other regulations and that it has all the prescribed approvals and consents of the competent authorities;

3. copies of all approvals and consents issued by the competent authority related to the listing procedure;

4. a statement that it was informed by ZSE about the obligations arising from the listing of its financial instruments on the regulated market, upon the first listing of financial instruments for trading on the regulated market;

5. a statement confirming that it has established appropriate internal organization, systems, and procedures that ensure timely availability of information to the market, with information on the person in charge of relations with investors; and

6. proof of paid fee for listing in accordance with the price list.

Further requirements are set out by ZSE Rules depending on the type of financial instruments. The ZSE Rules prescribe additional documentation for (i) shares, (ii) debt securities, (iii) structured products, (iv) shares of open-end investment funds, (v) closed-end investment funds, and (vi) money market instruments.

Pursuant to the CMA, ZSE is to inform Hanfa about any requests received for the listing of financial instruments, and also inform them of their decision on whether to approve or reject the request. ZSE should make a decision within 30 days of receiving the application, and notify the applicant accordingly. However, in certain circumstances, the deadline may be extended to 60 days. If ZSE does not reach a decision within the stipulated timeframe, the request for listing will be considered rejected. In such cases, the applicant has the option to challenge the decision with the competent commercial court.

7. Corporate Governance

7.1. Corporate governance code/rules (independent director, board and supervisory composition, committees)

The latest edition of the Corporate Governance Code (Code) came into force on January 1, 2020. The Code was drafted by ZSE and Hanfa, with the European Bank for Reconstruction and Development providing assistance. The Code is relevant to all companies whose shares are listed on the regulated market of the ZSE, except for shares of closed-end investment funds.

Certain sections of the Code coincide with obligatory legal rules and guidelines set by the ZSE. However, in many instances, the Code’s regulations are more comprehensive or impose more rigorous criteria than the required legal provisions or other ZSE regulations.

Companies ought to fill out two questionnaires once a year: one to state whether the company has complied with each provision of the Code (the compliance questionnaire) and the other to provide more detailed information about its corporate governance practices (the governance practices questionnaire). Both questionnaires are submitted to Hanfa, and the compliance questionnaire is published.

The Code prescribes topics of (i) leadership, (ii) duties of management and supervisory board members, (iii) appointment of management and supervisory board members, (iv) supervisory board and its committees, (v) management board, (vi) receipts of management and supervisory board members, (vii) risks, internal control and auditing, (viii) disclosure and transparency, (ix) shareholders and general assembly and (x) stakeholders and corporate social responsibility.

In principle, the Code sets out the following requirements for the supervisory board, its committees, and the management board.

Supervisory board

The composition of the supervisory board should be designed to enable the effective execution of strategic and supervisory tasks, encourage diversity of ideas in discussions, and make independent and objective assessments. The supervisory board should be provided with the necessary policies, procedures, data, time, and resources to operate effectively and efficiently. To aid in fulfilling its responsibilities, the board should establish committees and ensure that they have the appropriate structure and resources. All supervisory board and committee members are to conduct their responsibilities with diligence and allocate sufficient time to their duties.

The supervisory board must include members of different genders, ages, profiles, and experiences to ensure diversity of perspectives when making decisions. The chairman or deputy chairman of the supervisory board must be independent, as should the majority of the other supervisory board members.

Supervisory board committees

The supervisory board is required to establish an appointment committee, a remuneration committee, and an audit committee, with each committee having a clearly defined mandate and activities. In cases where the supervisory board has fewer than five members, the nomination and remuneration committees may be combined. The supervisory board should ensure that committee members possess the appropriate skills, knowledge, education, and practical experience to effectively fulfill their responsibilities, with each committee consisting of at least three members, a majority of whom must be independent. Furthermore, the chairman of each committee should be an independent member of the supervisory board, while management board members cannot be members of the supervisory board. The job description for every committee must be made publicly available without any cost on the company’s website. Furthermore, the company should include a comprehensive report on the activities of each supervisory board committee in the annual report. This report should contain essential information such as the number of meetings held and information on the committee members.

Management Board

The management board is primarily responsible for business, for achieving set and strategic goals, and for maintaining the reputation of a responsible and credible company. The management board should have the necessary skills, knowledge, education, experience, and diversity to successfully perform their joint duties, while each individual member should have the appropriate expertise required for their specific duties.

7.2. Any other ESG considerations

The EU law requires large and listed companies, except micro-enterprises, to disclose information about social and environmental issues, as well as the impact of their activities on people and the environment. The Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464) (CSRD) became effective on January 5, 2023, enhancing the regulations regarding social and environmental information that companies should report. The new directive applies to a broader range of large companies, including listed SMEs, with the aim of making sustainability reporting accessible to stakeholders and investors to evaluate investment risks related to climate change and sustainability issues. Furthermore, the CSRD ensures transparency about the impact of companies on people and the environment, and it reduces reporting costs in the long term by standardizing the information provided.

The new rules demand companies report according to the European Sustainability Reporting Standards (ESRS), tailored to EU policies and based on international standardization initiatives. The standards will be developed by the European Financial Reporting Advisory Group (EFRAG), an independent body of stakeholders. The first set of standards will be adopted by the Commission by mid-2023, according to the draft standards published by EFRAG in November 2022.

The CSRD also requires companies to undergo an audit of the sustainability information they provide and allows for the digitalization of sustainability information. Companies must apply the new rules for the first time in the financial year of 2024, with reports published in 2025.

The aforementioned directive will affect changes to the Accounting Act, the CMA, and the Audit Act in Croatian national legislation. The national law will enable the expansion of the scope of the subjects, depending on the definition of entities of public interest, which is described to some extent in the existing and possible amendments to the Accounting Act.

The Code also contains provisions regarding ESG reporting. According to the Code, companies should exhibit responsible business management that prioritizes honest and ethical behavior. When making decisions about the company’s strategy and plans, the management and supervisory board should consider the impact on stakeholders, the environment, and the community, as well as the company’s reputation. Employees, clients, suppliers, public authorities, and local communities are all interested in the company’s activities, and regular communication with these stakeholders should help the company understand its views and interests and present its position positively.

To ensure that the company’s policies, culture, and values encourage ethical behavior and respect for human rights, the supervisory board and management should adopt policies related to assessing the impact of the company’s activities on the environment and community, managing associated risks, preserving human rights and workers’ rights, and preventing and sanctioning bribery and corruption. These policies should be publicly available on the company’s website, and accompanying documents should explain how recommended actions align with them.

The supervisory board and management must also identify key stakeholders and establish effective mechanisms for regular interaction and communication with them. The supervisory board should have the right to organize meetings with external stakeholders to better understand important issues, and the president of the board should be informed in advance of these communications. The board’s powers should specify the purposes for which the chairman of the board can communicate directly with stakeholders and the procedure that must be followed.

8. Ongoing Reporting Obligations (Life as a Public Company)

To make informed investment decisions, shareholders and prospective investors must have access to reliable and consistent information about listed companies. Insufficient or unclear information can discourage investment and hinder decision-making. Therefore, companies listed on the ZSE must comply with different ongoing reporting requirements, which ensures that investors have access to trustworthy sources of information when evaluating a company’s management and performance.

For issuers for which the Republic of Croatia is the parent member state, the prescribed reporting obligations are:

i) periodic (permanent) information – information that is published in precisely defined periods of time,

• financial information (annual, semi-annual, quarterly reports, and other financial information);
• report on payments to the public sector.

ii) current (ad hoc) information – information that is published within a certain period after its creation,

• changes in voting rights;
• acquisition and release of own shares and other related information;
• changes in the number of shares with voting rights and/or the number of voting rights from those shares;
• changes related to rights from issued securities;
• holding an assembly of shareholders and holders of debt securities;
• privileged information;
• executive transactions.

Further ongoing reporting obligations are prescribed by ZSE Rules and differ depending on the type of financial instrument and the market segment it is listed on.

8.1. Annual and interim financials

The CMA stipulates the mandatory compilation and publication of issuers’ annual, semi-annual, and quarterly reports, as follows:

• issuers of securities must prepare an annual report and publish it to the public no later than four months after the end of the business year;
• issuers of shares and debt securities must prepare a half-yearly report for the first six months of the business year, and publish it to the public as soon as possible, but no later than three months after the end of the first half-year;
• issuers of shares must prepare a quarterly report and publish it to the public as soon as possible, but no later than one month from the end of the respective quarter in the case of reports for the first, second, and third quarter, or no later than two months from the end of the quarter in the case of the fourth quarter report.
• The issuer’s annual report should always contain:
• audited annual financial statements (statement of the financial position (balance sheet), profit and loss account, statement of other comprehensive income, statement of cash flows, statement of changes in capital, and notes to the financial statements);
• management report for the observed period (annual report);
• statement of responsibility for compiling the annual report;
• audit report;
• the decision of the competent authority of the issuer on the establishment of annual financial statements; and
• a proposal for a decision on the use of profit or loss coverage.

The issuer’s half-yearly and quarterly reports should contain:

• financial statements (statement of financial position (balance sheet), profit and loss account, statement of other comprehensive income, statement of cash flows, statement of changes in capital, and notes to financial statements);
• management report for the observed period; and
• statement of responsibility for compiling the report for the observed period.

The semi-annual report also contains an audit report or a report on audit insight if the semi-annual financial statements have been audited or an audit review has been carried out, or a statement that the semi-annual financial statements have not been audited or an audit review has not been carried out.

For issuers of securities based in Croatia, Hanfa has prescribed the content and structure of the issuer’s annual, semi-annual, and quarterly reports, as well as the form and method of their submission to Hanfa.

8.2. Ad hoc disclosures

Below is an overview of some of the ad hoc information that issuers are required to publish.

i) Changes in voting rights

The CMA prescribes the parties responsible for drafting notices of changes in voting rights, the content, terms, and language of the relevant notices of changes in voting rights, as well as exemptions related to notices of changes in voting rights.

The issuer of shares is obliged to publicly publish the information contained in the received notification about changes in voting rights without delay, and no later than within two trading days from the day of receipt of such notification, and to deliver it to the media, Hanfa, in the official register of prescribed information (maintained by Hanfa) and the ZSE.

ii) Acquisition and release of own shares and other related information;

An issuer of shares that acquires or disposes of its own shares, either directly or through a person acting on its own behalf, and for the account of the issuer, is obliged, in accordance with the CMA, as soon as possible, and at the latest within two trading days from on the day of acquisition or release of own shares, to announce to the public the number of own shares (in absolute and relative amount) held after each acquisition or release of own shares. The percentage of own shares held by the issuer is calculated in relation to all shares of the issuer issued with voting rights.

Likewise, the issuer of shares is obliged at least once a year, and no later than within four months of the end of the business year, to publish information regarding its own shares to the public, which must contain the following information:

• the number of own shares (in absolute and relative amounts) that the issuer holds, either directly or through a person acting on its own behalf, and for the issuer’s account, on the day of the public announcement;
• reason for acquiring and holding own shares;
• information on whether own shares were acquired on the basis of authority and under the conditions determined by the issuer’s general assembly;
• information on whether the issuer has a program to buy back its own shares, with a reference to it, if applicable; and
• information on whether the issuer has an employee shareholding program.

iii) Changes in the number of shares with voting rights and/or the number of voting rights from those shares;

The issuer of shares is obliged as soon as possible, and at the latest at the end of the calendar month in which there was a change in the number of shares with voting rights into which the share capital was divided or a change in the number of voting rights from the issued shares, to announce to the public information about the changes, the new total the number of shares with voting rights and the issuer’s share capital.

iv) Changes related to rights from issued securities;

The issuer of shares is obliged to announce to the public without delay any change in relation to rights from different types of issued shares, including changes in rights from derivative securities issued by the issuer that gives the right to acquire shares of that issuer.

The issuer of securities that are not shares is obliged to announce to the public without delay any change in relation to the rights of the holder of these issued securities, including changes in the conditions of these securities that may indirectly affect the respective rights, and which arose in particular due to a change in the conditions of indebtedness or interest rates.

v) Privileged information;

The issuer is obliged to publish privileged information to the public and make it available in the places and in the manner prescribed for the prescribed information and in the places and in the manner prescribed by the Market Abuse Regulation (Regulation (EU) No. 596/2014).

vi) Executive transactions

Persons who perform managerial duties at the issuer and persons closely related to them are obliged to report to Hanfa all acquisitions or dismissals (including pledging or lending) for their own account of shares of the issuer in which the person performs managerial duties, as well as acquisitions or dismissals of derivatives or other related financial instruments with them, immediately and no later than three working days after acquisition or dismissal.