The Law of April 6, 1995 on secondary markets and the status and supervision of investment firms, investment intermediaries and advisers (the "Law") has been published in the Belgian State Gazette of June 3, 1995. It shall enter into force on a date to be determined by Royal Decree, and no later than January 1, 1996.

The provisions of the Law with respect to the organisation of secondary markets have already been summarised in a previous release of Mondaq Ltd (see "Financial Law - Capital Markets - New Bill on Financial Markets"). The following comments focus on the status of investment firms under the Law.

Investment firms are defined (i) as undertakings incorporated under Belgian law which, on a professional basis and in their normal course of business, offer investment services to third parties, or (ii) as foreign undertakings carrying on the same activities in Belgium. The exclusions provided under the European Directive 93/22 on investment services in the securities field ("ISD") e.g., insurance companies are reproduced in the Law.

The concepts of investment services and ancillary services are set out in the Law along the same lines and criteria as in the ISD.

The Law provides for three types of investment firms, each being subject to a specific licence requirement:

1. Securities firms ("Societe de Bourse" / "Beursvennootschappen").

These are the present securities brokers. They may carry out any of the investment services contemplated by the Law.
The Law does not require that the majority of the managers of securities firms be "agents de change" / "effectenmakelaars", as is now the case for securities broker firms.
Securities firms licensed to receive, transmit and execute orders for the account of investors shall have to be a shareholder of the Securities Exchange Corporation ("Soci,t, de bourse de valeurs mobilieres" / "Effectenbeursvennootschap").

2. Portfolio management firms ("Societes de gestion de fortune" / "Vennootschappen voor Vermogenbeheer")

These are the present portfolio management companies. The Law broadens the scope of activities in which these firms may engage (e.g., receiving and transmitting orders in respect of financial instruments for the account of investors, executing such orders for the account of third parties). Portfolio management firms licensed to receive, transmit and execute such orders shall also have to be a shareholder of the Securities Exchange Corporation.

3. Financial instrument broking firms ("Societes de courtage en instruments financiers" / "Vennootschappen voor makelarij in financiele instrumenten")

They correspond to the current "money and deposit brokers". They may only engage in strict "brokerage" services as well as some ancillary services. The Law broadens the range of financial instruments in which these firms may trade with "professionals".

Restrictions apply as to the form of company under which investment firms may be organised. Investment firms must have a minimum capital of BEF 10,000,000 (BEF 50,000,000 for investment firms engaged in underwriting activities or in transactions for their own account; BEF 100,000,000 for securities firms acting as custodian for insurance companies or for undertakings for collective investment.

The Law also contains provisions and restrictions with respect to the handling of client moneys, lending and custody.

Investment firms shall have to adhere to a deposit guarantee scheme. Insolvency and regulatory ratios shall be decreed by the Banking and Finance Commission for each type of investment firm, in line with the Capital Adequacy Directive of March 15, 1993. Specific reporting and accounting obligations should also be enacted by Royal Decree.

The Government shall, under the Law, enact provisions (i) in respect of the status and supervision of branches in Belgium of investment firms of other Member States of the European Community, and (ii) in respect of the provision of services in Belgium by such foreign firms.

Similar provisions shall be enacted by Royal Decree with respect to branches of investment firms of foreign countries which are not members of the European Community. The Government may also regulate provisions of services in Belgium by such non EC foreign investment firms.

The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.

De Bandt, van Hecke & Lagae - Brussels. (32-2) 517.94.06.