Taking counsel: Vilnius Stock Exchange envisages new opportunities for investors

  • 2007-04-18
  • by Gintare Stalenyte [Jurevicius Balciunas & Bartkus]
New laws on Lithuania's securities and financial instrument markets were recently adopted implementing inter alia the directive of the European Parliament and the European Council on markets in financial instruments (MiFID).

One of the most significant novelties of MiFID is the elimination of the so-called "concentration rule" that required securities orders to be executed only in regulated markets. MiFID establishes the principle of competition among different execution venues and provides the regulatory requirements for regulated markets, multilateral trading facilities (MTFs) and systematic internalizers 's i.e., investment firms that execute client orders on their own account outside the regulated market or MTF on an organized, frequent and systematic basis.

The international investment community has already taken advantage of the new possibilities provided by MiFID. The exchanges of Amsterdam, Brussels, Paris, Portugal and the London-based derivatives market LIFFE were merged into the Euronext exchanges group. This was followed by the recent creation of the world's first global stock exchange via the merger of Euronext and the New York Stock Exchange.
Developments in the Baltic states are taking a similar direction as the Vilnius, Tallinn and Riga stock exchanges, which belong to the OMX Group, announced plans to establish a new alternative market 's First North 's in the Baltic states.
First North will be an MTF under the auspices of OMX, which currently operates the Copenhagen, Stockholm, Helsinki and Iceland exchanges. First North will likely be established in the middle of 2007.

According to the new laws, an MTF is understood as a multilateral system operated by a market operator that brings together multiple third-party buying and selling interests in financial instruments based on non-discretionary rules in a way that it results in a contract. In other words, an MTF provides opportunities to organize trading by executing orders with less complicated rules without the obligation to comply with legal requirements for admission to trading on a stock exchange.
As a distinction, the regulated markets will maintain their exclusive function of including the financial instruments into trading lists.

It is expected that the benefits of the establishment of an MTF will be felt by both companies and investors. First North intends to offer smaller and growing companies easy innovative access to trade at the exchange, to ensure the visibility of the company by investors, as well as to attract new capital. At the same time investors will be offered additional financial instruments and new investment opportunities. Moreover, the emergence of different execution venues should promote competition among them and, accordingly, reduce costs of transactions.

It is important that execution of orders at an MTF not be supervised by competent authorities. True, such a trading system might be seen as more risky compared with an ordinary exchange, but the Lithuanian legal acts provide safeguards in this respect and establish a number of requirements for operating an MTF 's e.g., adopting transparent and non-discretionary rules and procedures for fair and orderly trading, applying objective criteria for efficient execution of orders, etc. Also, the requirements for each company trading at an MTF are established.

In recent years a wider variety of financial services and instruments have been offered to investors. This reflects the need to recognize the emergence of a new generation of organized trading systems alongside regulated markets and to create a fair and competitive environment for all market participants. For this reason, a number of European Union legal acts were adopted in a sphere of financial services with the aim to create an integrated financial market to ensure the effective protection of the investors' interests and to safeguard the overall securities market. MiFID represents one of the most significant recent developments in this field.

Gintare Stalenyte is an associate advocate at Jurevicius Balciunas & Bartkus, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Teder Glikman & Partnerid in Estonia and Kronbergs Cukste in Latvia, dedicated to providing a quality "one-stop shop" approach to clients' needs in the Baltics.