Montenegro, being a small country, is characterized by rapid modifications and changes in its business and financial environments. The new Montenegrin Law on the Capital Market (the “Law”), which came into force at the very beginning of 2018, is designed to create and develop a consolidated financial background, and represents the first attempt to introduce a systematic regulation in this domain to support investors and efficiently protect their interests.
New Law Prevailing Over Previous Difficulties!
In our practice we constantly meet various problems and obstacles – and the under-regulation of the capital market was one of the most constraining. We have witnessed many financial transactions in the last decade in which clients were forced to use different solutions. One cannot think of those conditions as anything but discouraging. We believe that the new Law on Capital Market is undeniably a step towards ensuring better provisions for the integration of the financial market and the vitality of our Capital Market.
The harmonization with European Law, primarily with Directive 2014/65/EU and Directive 2004/109/EC, among others, will provide a wider concept of financial instruments and make the regulatory authority more visible. It is worth noting that Montenegro’s Security and Exchange Commission, which now is recognized as the Capital Market Commission – with full independence and genuineness guaranteed by the incorporated IOSCO Principles – will provide a more secure way to for investors to carry out their transactions. Already visible, the consequences of the Law on Capital Market will undoubtedly go far beyond the mere harmonization requirements.
New Venues and Platforms For New Opportunities!
The Law provides full-scale regulation of financial instruments which were previously not recognized in Montenegro. Introducing new trading venues such as the Multilateral Trading Platform, and comprehending forwards, futures, options, swaps, and so on, the Law creates a desirable environment for trading and transactions, making the Montenegrin capital market more competitive and surely more attractive for foreign investors.
It is of the utmost importance that the new Law is directly aimed to protect investors by creating a fair, steady, and regulated capital market; the provisions on the mandatory requirements for the disclosure of information and financial intermediaries in the working of the capital market are intended to protect investors from various forms of fraud and to leave misleading and manipulative practices in the past of the Montenegrin capital market.
In the second half of 2017 the Montenegrin capital market witnessed the problems which the Security and Exchange Commission faced due to the lack of a mandate. These problems were finally resolved in late December 2017, however, and the Security and Exchange Commission should be able to prepare a better and more secure environment for the implementation of the new Law.It remains to be seen whether the concept of the new Law will be completely absorbed through the creation of the necessary bylaws and its implementation in order to fully address the requirements of the capital market.
The End of a Monopoly?
Transforming the Central Depository Agency to the Central Clearing and Depository Company, in accordance with Directive 97/9/EC, is not a mere statutory change; it defines in detail the formation and operation of the Investor Compensation Fund in order to protect investor claims when an investor is unable to pay or when bankruptcy proceedings have been commenced, as well as in other circumstances of investor financial instrument exposure. Nevertheless, we could also witness the end of the depository agency monopoly in Montenegro, since the new Law diffidently opens the door for the Capital Market Commission to approve other companies for clearing and depository management.
Overall, as far as we can see, since the depth and the size of a national economy vastly depends on its capital market, Montenegro will now be able to interconnect its capital market in the globalized economy.
By Lana Vukmirovic Misic, Managing Partner, and Andrej Bracanovic, Associate, Vukmirovic Misic Law Firm
This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.