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Recent Changes in the Stock Exchange Regulation

Recent Changes in the Stock Exchange Regulation

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On December 27, 2019, several amendments made to the Hungarian capital markets act by the Hungarian Parliament to adhere to the relevant rules of the European Union be-came effective, also making it easier for Hungarian companies to issue bonds under the Bond Funding for Growth Scheme (BGS) by introducing more lenient information and publication rules for issuances.

The Hungarian National Bank launched the BGS on July 1, 2019, to provide liquidity in the Hungarian bond market. Under the BGS, the Hungarian National Bank purchases 50% of bonds with an eligible rating issued by non-financial corporations – initially – up to the aggregate amount of HUF 450 million (approximately EUR 140 million). The Hun-garian National Bank purchases the bonds at market value and may purchase a further 20% on the secondary market at market value (i.e., the aggregate stake of the Hungar-ian National Bank may reach 70%).

The amendment of the Hungarian Capital Markets Act was only the first step towards a more relaxed regulatory environment. The bonds issued under the BGS must be intro-duced to a trading platform within 180 days from the issuance, even if the issuance was not meant to be a public placement. The Hungarian Stock Exchange launched the XBond trading platform on July 1, 2019, that is open only to eligible issuers and investors, and bonds may be issued and introduced to the XBond trading platform without the need for a prospectus. After half a year, the Hungarian Stock Exchange adjusted the terms and conditions of the XBond trading platform by further simplifying the pricing and offer pro-cess, in order to make its use is even more comfortable for the market players.

In addition, the Hungarian Capital Markets Act was amended in four primary ways:

The first point circles around the BGS. Pursuant to the new rules, registering the securi-ties to a multilateral trading platform (e.g., the XBond trading platform) does not auto-matically result in a public placement. This also means that no prospectus will be re-quired for securities introduced to the XBond trading platform; a simple information memorandum is sufficient.

The definition and rules of public placement have been harmonized with the relevant EU regulation (Regulation No. 1129/2017), and although this expands that definition and those rules, the exemption from the requirement of submitting a prospectus has become wider as well. For example, under the former rules the offering of securities only to qualified investors was deemed a private placement. Under the new rule it will be con-sidered a public placement, yet it will be exempted from the prospectus requirement.

For securitizations, the amendment establishes a special regime for the transfer of the exposures from the originator (the party from whom the exposures originate) to the SPV (the party securitizing them). According to the new rules, ex-ante approval is required for the transfer of the exposures from the originator to the SPV if the exposures stem from at least 20 contracts or their value is higher than HUF 10 billion (approximately EUR 30 million). Furthermore, the originator must notify the debtors about the transfer 30 days prior to the transfer and the debtors may terminate their contracts within 15 days from such notification.

Regulation No 596/2014 on market abuse (the “Market Abuse Regulation”) induced nu-merous amendments to the Hungarian Capital Markets Act. The Market Abuse Regulation also led to the amendment of the Hungarian National Bank Act to resolve certain juris-dictional and scope conflicts.

Although the amendments are numerous, it is not expected that the market will be dis-rupted by them. The establishment of the XBond trading platform and the recent fine-tuning of its operation is welcomed by the market. The harmonization of the public placement rules was a long-standing obligation of the Hungarian legislator. Although the securitization regulation is yet to be tested, the approval requirement and the termina-tion right of the debtor may make market players skeptical.

By Gergely Szaloki, Partner, Schoenherr Budapest

This Article was originally published in Issue 7.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.


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