In March 2024, the Parliament of the Republic of North Macedonia adopted the Financial Instruments Act (“Financial Instrument Act“) and the Act on Prospectus and Transparency Obligations for Issuers of Securities (“Prospectus and Transparency Act“) with the aim of harmonizing the domestic legal framework with the EU directives and regulations governing capital markets, most importantly Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (“MIFID II”), Directive 2004/109/EC of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The new legislation will enter into force in September 2025 and will replace the existing Securities Act (2005, as amended) (“Securities Act“), which regulated the same subject matter, but was not aligned with the EU legal framework.
These legislative reforms represent a significant step towards the modernization and EU-alignment of North Macedonia’s capital market legal framework, enhancing investor protection, market transparency, and regulatory oversight.
Below, we present the key novelties introduced by the new laws.
New Financial Instruments
The Financial Instrument Act aligns the list of regulated financial instruments with those available to investors in the European Union, including derivative financial instruments such as options, futures, swaps, forward rate agreements/forwards and other derivative contracts relating to securities, currencies, interest rates, emission allowances, commodities, climatic variables, freight rates or inflation rates or other official economic statistics.
New Trading Platforms (MTF and OTF)
In addition to the Stock Exchange, as the basic institution for trading in financial instruments, the Financial Instrument Act regulates new trading venues, the Multilateral Trading Facility (MTF) and the Organized Trading Facility (OTF). These additional facilities may be operated by an investment firm or a market operator authorised by the Capital Market Supervision Authority (“CAMSA“). The MTF may be registered as a growth market for small and medium-sized enterprises if the operator meets prescribed conditions.
Data Reporting Service Providers
The Financial Instruments Act introduces a new category of service providers – Data Reporting Services Providers (DRSPs) – who are responsible for collecting various data from regulated markets and investment firms.
The notion of DRSPs covers the following entities: (i) Approved Reporting Mechanisms (ARMs): entities authorized to report details of transactions to the CASMA (ii) Approved Publication Arrangements (APAs): entities authorized to publish trade reports on behalf of investment firms, thereby ensuring timely and public dissemination of trading information (iii) Consolidated Tape Providers (CTPs): entities responsible for collecting trade reports from trading venues and APAs, and consolidating this information into a continuous, electronic, real-time data stream that provides price and volume data for each financial instrument. These new service providers are expected to play a critical role in promoting market integrity and investor protection by ensuring the availability of reliable and comprehensive trading data.
Standardized and simplified prospectus
A key novelty introduced by the new Prospectus and Transparency Act is the notion of prospectus as a set of separate documents. Under the new law, issuers are no longer limited to preparing a prospectus as a single, comprehensive document. Instead, they now have the flexibility to compile a set of separate documents into a prospectus: a registration document, a securities note, and a summary. This modular approach is designed to streamline the issuance process, making it more efficient and less administratively burdensome. Notably, if an issuer has already obtained approval for the registration document from the Capital Market Supervision Authority (CAMSA), in case of future securities offerings it will be required to submit for approval only a securities note and a summary. This innovation significantly accelerates subsequent capital raising activities and reduces repetitive disclosure requirements, benefiting frequent issuers and facilitating easier access to the capital markets.
The Prospectus and Transparency Act introduces standardized and simplified prospectuses with reduced disclosure requirements for growth companies.
Stricter sanctions for non-compliance
The new laws introduce significantly stricter sanctions for violations of capital market regulations and increase the applicable fines. Furthermore, the Prospectus and Transparency Act now provides that, in the event of certain breaches – such as failure to publish annual or semi-annual financial reports, or failure to report the acquisition of significant shareholdings – a fine of up to 5% of the offending entity’s annual turnover, or twice the amount of its realized profits or avoided losses, may be imposed. This represents a substantial increase in potential penalties compared to the previous regime, under which fines were generally stated in fixed amounts.
Market integrity and transparency
The Financial Instruments Act provides for a detailed rules aimed at ensuring transparency and integrity of the market. These rules include obligations on the investment firms to act in the best interest of the clients, to disclose appropriate information to their clients about the services and financial instruments offered and to avoid conflict of interest. All market participants including market operators, MTF and OTF, must implement measures preventing abuse of the trading facility based on insider information and market manipulation.
The Prospectus and Transparency Act imposes enhanced transparency obligations on issuers of financial instruments requiring them to report more detailed information, both on an ongoing basis and in certain periods, depending on the type of information. This Act changes the deadlines for publishing annual and semi-annual reports.
Capital Market Supervisory Authority (CAMSA)
The Financial Instruments Act establishes CAMSA as successor of the Securities Commission established under the Securities Act. CAMSA is responsible for ensuring the legal and efficient functioning of the capital market as well as the protection of investor rights for the purpose of market stability.
Generally, under the new legislation, CAMSA retains the same powers as its predecessor; however, its competencies are now regulated in a more detailed and precise manner. Additionally, CAMSA no longer has the power to conduct misdemeanor proceedings or impose misdemeanor sanctions. Instead CAMSA is competent to initiate misdemeanor proceedings before the court and conduct summary proceedings when the offender admits the committed misdemeanor.
Conclusion
The adoption of the Financial Instruments Act and the Prospectus and Transparency Act marks a substantial modernization of North Macedonia’s capital market legislation, aligning it with key EU directives and regulations. The new framework introduces a wider range of financial instruments, new trading platforms, and enhanced data reporting mechanisms, all aimed at increasing market efficiency and transparency. Overall, these reforms are expected to improve market integrity, facilitate access to capital, and foster greater confidence among market participants, positioning North Macedonia’s capital market in line with European standards.
Photo by Shubham Dhage on Unsplash
