Market Profiles

RBC IS operates a segregated account structure in this market.

Whilst no documents are required in this market, it is prudent to hold on record client documents to show the legal existence of the client in case the agent or the country regulator requests it.

For further information or support around accessing this market, please contact your RBC IS representative.

Budapest Stock Exchange (BSE)
The Budapest Stock Exchange (BSE), which was reopened after the fall of communism in June 1990, is the only stock exchange in Hungary. According to the Act CXX of 2001 on Capital Markets, the BSE was granted the right to transfer into a joint stock company, which took place on April 30, 2002 when the General Meeting of the Exchange approved the transformation, passed its articles and elected its new executives. 

According to the law an exchange may be established only in the form of a shareholding company operating with dematerialised shares or as a branch unit of a foreign Exchange. An exchange for the trading of commodities, foreign currencies and futures interest rate transactions must have at least one hundred and fifty million forints in registered paid-up capital (subscribed capital), or at least five hundred million forints when trading in other exchange-traded instruments.

Activities of the Budapest Commodities Exchange (BCE) were integrated to the BSE as of November 2, 2005.

On 20 November 2015 the Central Bank of Hungary (CBH) concluded a sales contract with the Austrian CEESEG AG and Österreichische Kontrollbank AG, the entities that to date held 68.8 per cent ownership in the Budapest Stock Exchange. With this transaction the CBH obtained controlling ownership in the BSE.

The Stock Exchange is the centre of the Hungarian capital market, operating on the basis of a highly developed technical and regulatory background. The Stock Exchange is a self-regulating and self-governing organisation.

The General Meeting of the BSE decides on the passage and amendment of the Charter, while the Board of the Stock Exchange is empowered to approve and modify the rest of the rules of the Stock Exchange. The approval of the Central Bank of Hungary (CBH) as financial supervisory authority is required for the coming into force of each set of rules in accordance with the provisions of the law. The CBH also controls whether the operation of the BSE is in compliance with legal regulations, its bylaws and the security of investors. In the interest of fulfilling this responsibility, an Exchange Commissioner appointed by the CBH observes and controls trading on the Stock Exchange. This person is entitled to attend the General Meeting of the BSE and the meetings of the Board and the Professional Committees, and has access to the registers of the Stock Exchange.

On November 20, 1998, the cash market trading system, MMTS I, was successfully launched on the Budapest Stock Exchange (BSE). With the start of the new trading system, brokers of the equities and debt securities markets no longer trade in the stock exchange hall of the BSE, and transactions can be concluded exclusively through the remote trading workstations. Since it came into operation in October 2000, the MMTS II module serves trading on the derivatives market of the Exchange. 
With an adequate technical background, one can connect to the MMTS electronic remote trading system from any point in the world.

With respect to customization support (such as algorithms for matching the orders, trading hours), the trading system complies with international practice and rules of the stock markets. MMTS also supports order-driven and market maker trading.

MMTS computes and publishes real-time indices (BUX and BUMIX) from the trade data of equities traded in the system.

The auction module of MMTS is suitable for initial issues, secondary offering and repurchase of securities.

The system provides full service for Exchange market surveillance and market monitoring activities. One of the most important characteristics of the system is fault tolerance, because for each of the software and hardware components, there are at least two in operation. In the case of failure of any components, the system switches automatically to those operating correctly.

The Annual General Meeting of the BSE on 29 April 2011 established a five element strategy which included the decision on the replacement of the BSE's trading system. In respect to spot market trading the switch from the previously used Multi Market Trading System (MMTS) to Xetra happened based on the decision made by the BSE's AGM on 6 December 2013. The Xetra system includes several innovative features. It enables the use of new trading models which are more flexible in adapting to the special characteristics of the individual security types. The new market making model will help creating additional liquidity and will enhance the quality of the market. Equity trading could then be supported by official market makers ensuring continuous bid and offer quotes.

Derivative, Commodities and BÉTa Market trading remained on MMTS.

As part of the development of the trading system, the State Debt Management Agency (AKK) has also been using MMTS to administer its primary auctions in government securities, the quotations and part of its repurchase auctions, the results of which are also communicated to distributors through the trading workstations. In 2011 the State Debt Management Agency and MTS signed a Memorandum of Understanding (MoU) to launch an electronic interdealer Hungarian Government Bond market from the beginning of 2012. According to the final decision of the AKK at the end of 2011, effective 2 January 2012 Hungarian government securities are dually listed on the BSE and MTS Hungary. The primary trading platform for government debt secondary market is MTS Hungary starting from 2 January 2012, and primary dealers are obliged to quote official prices through MTS, while primary auctions are still executed in MMTS. For Primary dealers joining MTS is a mandatory requirement, and this includes the remote stock exchange members who act as primary dealers for Hungarian Government Bonds. The KELER Central Counterparty Ltd (KELER CCP) provides multilateral net clearing for MTS bond trading as well as CCP guarantee.
The settlement cycle of the transactions is T+2, similar to the previous Budapest Stock Exchange trades.
Features of MMTS:

• the order-ranking and automated computerised trading system complies with the international practices and regulations in respect of the priorities and the transaction algorithm,
• real time, online remote trading system,
• workstations can be located any distance from the central mainframe of the stock exchange
• the system can serve both the cash market and the derivatives market,
• the system can support both the order-driven market and price making activities,
• the stock exchange supervisory functions - market management and monitoring - are supported in an automated way,
• the system is free from declared capacity limits from the point of view of the software, it is expandable with the addition of hardware elements
• the trading system operates on a Hewlett Packard central hardware platform, the endpoints are PC-based.

On the Exchange, the right to trade is ensured exclusively for persons to whom the Exchange has given the respective license, the so-called trading rights.
Exchange trading takes place at the following markets:

• Cash Market: Equities (Categories: Prime, Standard and T that stands for “technical listing”), Decategorised equities, Equities under classification, Mutual Funds, ETFTurbo Certificate and Warrant, Investment funds, Compensation notes, Government bonds, Treasury bills, Corporate bonds, Mortgage bonds.
• Derivatives Market: Index futures, Single stock futures, Currency futures, Interest rate futures, Index options, Single stock options, Currency options.
• Commodities Market: Grain futures, Grain options, Grain spot.
• BÉTa Market: Foreign equities.

BETa Market: The Budapest Stock Exchange launched a new MTF for foreign equities under the name Budapest Stock Exchange Alternative Market (‘BETa') on 15 November 2011. The number of listed shares is 20 at the moment, but it is expected to be increased further. Equities bought on the BETa Market are fully identical to the ones traded on foreign markets. Trading and settlement is conducted in HUF, therefore to the equities of several European companies issued in foreign currency can be traded without the need of a currency conversion. All members of the equities section who concluded the relevant agreement with the BSE shall be entitled to trade on the BETa Market.Admission is free of charge. Investors are entitled to trade on the BÉTa Market with the same conditions provided in BSE's (Cash) Equities Section, the same trading hours and periods, the same order types and expiries as well as the same transaction costs are applied. Subscribers to real-time trading data on the BSE's equities section receive real-time data on the BÉTa Market too by default, free of charge.

The Hungarian CSD, KELER is responsible for the settlement of the transactions executed on the BÉTa Market, while KELER CCP Ltd. is responsible for the clearing and guarantees the transactions. There is no need for a separate clearing membership. The settlement cycle of BÉTa Market transactions is T+2.

Monday to Friday

Cash market

* The Continuous Auction phase starts at 17.00 might be longer with the duration of the maximum length of the Call phase.

Derivatives market

Commodities market

 * the end of the order-collection sub-period and the beginning of the sub-period of transactions occur simultaneously at random time within the quoted interval.

ISIN: yes, used.

Other: N/A

Ministry for National Economy 
Legislative power: the Ministry for National Economy (MNE) may be authorised to issue a decree based on an act or a government decree.

The MNE, with the involvement of other ministries, drafts and elaborates proposals for the government's financial policy and for the harmonisation of financial and monetary policies and government measures. The Ministry for National Economy sets the financial policy framework that supports the government's economic strategy. The Ministry for National Economy – in cooperation with the CBH - is responsible for amending certain regulations, e.g. the Act on Capital Market and the MIFID Act.

The Government Debt Management Agency (ÁKK) is operating as a private company limited by shares and its single shareholder is the Hungarian State. The shareholder’s rights are exercised by the minister responsible for public finances (currently the Minister  for National Economy. Its main task is to organise the offering of government securities and borrowings, handles the repayment of government debt, and manages government securities transactions in the secondary market, sells and buys government securities.

The Central Bank of Hungary
The Central Bank of Hungary, the country's central bank, was established as a joint stock company by Parliament in 1924. The bank's shares are owned by the Hungarian state. The legal status and duties of the bank are regulated by the Act on the Central Bank of Hungary (Act CXXXIX of 2013). Its primary objective is to attain and maintain price stability. In fulfilling its tasks, the central bank may not seek or take instructions from the government or any other body (with the exception of the European Central Bank). The bank formulates and conducts exchange rate and monetary policies with the aim of protecting the value of the national currency, issues forint banknotes and coins, accumulates and manages the country's foreign exchange and gold reserves, performs foreign exchange transactions by managing foreign exchange reserves and implementing exchange rate policy, develops and regulates domestic payment and settlement systems, collects and publishes statistical information in order to fulfill its tasks, and promotes the stability of the financial system and the development and smooth conduct of policies related to the prudential supervision of the financial system.

The Hungarian Financial Supervisory Authority (HFSA) ceased to exist as of 1 October 2013 and all financial supervisory functions of the HFSA were integrated into the CBH according to the modified Act on Central Bank of Hungary.

CBH took over all the supervisory, consumer protection and market surveillance roles of the HFSA. Based on the new regulation the CBH is responsible for the prudential supervision as well as the consumer protection of the financial system. As a result of the integration the Financial Stability Board (FSB) has been established within the CBH, which has a minimum of three and a maximum of ten members and is headed by the CBH governor. The members of the FSB include: the CBH governor, the deputy governor for monetary policy, financial stability and lending incentives, the deputy governor for the supervision of financial institutions and consumer affairs, the deputy governor for statistics and financial infrastructures, and the managing director for financial stability and lending incentives. The FSB acts as a separate body responsible for the macro-prudential regulation and prudential supervision of the financial system.

In addition, the newly established Financial Arbitration Board and Financial Consumer Protection Centre assist the CBH in its new supervisory role.

The macro- and micro-prudential supervision as well as the consumer protection functions within one institution ensures the stability of the financial system and the efficient use of financial resources. The new legislation aims at the oversight of the entire financial system as well as a possibility to control individual institutions on the market

The CBH supervises the undisturbed operation of the money and capital markets, it promotes regulated and fair competition and ensures the transparency of the market conditions. The operations of the CBH cover the following:

• money market
• capital market
• insurance services
• pension funds
• other institutions

The most important supervisory activities of the CBH include the universal supervision of banking groups and financial holding organisations, the monitoring of their prudent operations and their compliance with the regulations of the Act on financial institutions in the area of risk assumption.

Supervision of market participants
The capital market and its participants are monitored not only by the CBH and the stock exchange, but also by government bodies like the National Tax and Customs Administration or the Consumer Protection Authority. 

Supervision of the stock exchange - the BSE is supervised by the CBH.
Supervision of clearing and central securities depository - KELER as being the central securities depository and KELER CCP as a clearing house is operating on the basis of the Act CXX of 2001 on the Capital Market and is regulated by the CBH. The CBH grants a licence for depository and clearing house activities. A representative of the CBH is entitled to participate as a consultant in KELER's and KELER CCP's annual general meetings and on the meetings of the board of directors. KELER's and KELER CCP's Rules of Business and other regulations must be approved by the CBH. The CBH oversees the payment and settlement systems in Hungary, including securities clearing and settlement systems of KELER. On the other hand the CBH is the majority shareholder of KELER Ltd.

Supervision of broker/dealers and custodian banks - broker/dealers and custodian banks are supervised by the CBH. Member brokers and dealers are also regulated by the Budapest Stock Exchange.

Any security issued in an OECD country that has been accepted by an official capital market can be traded on the XETRA. Trades involving these securities will not be considered BSE deals and will not be guaranteed by either the BSE or KELER CCP Ltd., in relation to issuance, trading, clearance or settlement.

Since April, 1999 all government securities have been issued in dematerialised form in Hungary. As the Civil Code and the Act CXX of 2001 on Capital Market supports the dematerialisation of securities, any new public issues shall be performed only in dematerialised form, while all existing public issues should have been converted to dematerialised form by December 31, 2004. Private companies still may have physical shares and even if the company has already converted its shares into dematerialised form the new Civil Coda (Act V of 2013) allows the conversion of dematerialised shares back to physical ones. All dematerialised securities are compulsorily held at KELER.

There are no general restrictions on the size of a trade, however there can be order-types, where the Exchange determines minimum limits. For example, in case of “all or none trades” where it is possible for the investor to achieve a given quantity in a single transaction, the minimum threshold is HUF 25 million.

The minimum price variation unit is HUF 0.01.

HUF

In addition to HUF, multiple other currencies are allowed by KELER even for intra-CSD settlements: EUR, USD, GBP, CHF, PLN & CZK.

Most government debt is traded over-the-counter, however, the vast majority of trading of BSE-listed equities is conducted on the BSE. The OTC market segment is not regulated.Non-listed securities, and BSE/MTS listed securities traded between non-BSE/MTS members, are traded on the OTC secondary market. Government securities, in particular treasury bills, play the dominant role in OTC settlement.

Over-the-counter deals are settled on a bilateral basis. Due to the current cash clearing mechanism, funds to cover purchase transactions must be available latest on settlement dates, which usually range from T+1 to T+5. VIBER, the RTGS same day cash transfer system can be used in parallel to IG2 systems, which is also a same day system however operates 10 batch transfers throughout the day.

OTC trades may be settled directly between the local subcustodians (in the case of non-KELER eligible physical securities) or through KELER (this is mandatory for all dematerialised instruments). KELER offers a matching service where the CSD compares the details of the two instructions received from the two counterparts. If the details are matching the appropriate accounts will be credited and debited on a DVP basis. The settlement of OTC transactions is not guaranteed whereas stock exchange/MTS transactions are always settled due to the default procedures in place.

There are two possible settlement methods to settle OTC deals. 

a) True DVP Settlement – BIS Model I (RTGS method)
Securities and cash settle on a true DVP basis. The system is operated by KELER and the Central Bank of Hungary together. The settlement is possible, if the securities are deposited with KELER. Matching of trade details at KELER is obligatory for successful settlement. Matching and settlement of deals takes place on the basis of the tolerance amount (currently HUF 5,000), settlement is final and irrevocable. The deadline for achieving matched status at the CSD (KELER) for versus payment transactions is actually the close of VIBER system (Real Time Gross Settlement cash system) on the given settlement date, which is currently 5:30 p.m. CET. Counterparts need to achieve matching until this time to be able to settle the trades in RTGS system. Free transactions can be processed until 6:00 p.m. CET, and until 6:30 p.m. CET in case the security moves in the books of the local custodian. No cancellation is possible after the Central Bank of Hungary accomplished the payment and KELER accomplished the securities movement. 

b) Non-RTGS method
In this system, the securities and the cash move separately from each other. Securities are transferred via KELER (free of payment) while cash moves in one of the local HUF clearing systems, IG2 or VIBER. 

IG2 is a batch based, small value, HUF intraday clearing system that runs 10 batches a day and works with same day value. This system is designed for electronically submitted low value domestic payments.

It is then the role of the local custodian to coordinate the cash and securities movements in the two systems and to mitigate the counterparty's risk.

The two systems work parallel. The use of one or the other system is optional, however use of RTGS method (BIS Model I) is common for settling securities transactions on the market due to the risk of no real DVP settlement in the other case.

STP in the over-the-counter (OTC) market
The Hungarian Market Practice template for straight through processing (STP) settlement, as set forth by the Hungarian National Market Practice Group (NMPG), took effect from April 1, 2010. The Hungarian NMPG was established on September 16, 2009 by seven custodian banks and KELER. The group aims to create SWIFT messaging rules in order to increase STP rates in the over-the-counter (OTC) market. 

The below requirements must be adhered to:

• The delivering or receiving agent (DEAG/REAG) is identified by its four digit local CSD account number. The data source scheme to use is /KELR/ and the four number code, which for RBC Investor & Treasury Services' subcustodian is 0318. For example where RBC Investor & Treasury Services' subcustodian is the delivering/receiving agent it is :95R::DEAG/KELR/0318 or :95R::REAG/KELR/0318.
• The client of the delivering or receiving agent (SELL/BUYR) is identified by their BIC code (e.g.::95P:SELL//ABCDEFGH).
• Place of settlement is the BIC Code of KELER, i.e. KELRHUHB.
• Settlement date can be a maximum of seven days. Failed instructions are kept by KELER for twenty business days after contractual settlement date. Following the cancellation in KELER, the instruction may be still valid at the local subcustodian and can be reinstructed if necessary.
• In case of free of payment (FoP) instructions the use of BIC code for SELL/BUYR is mandatory and is also highly recommended for versus payment (VP) instructions.
• Cancellations should include the same details as the original instruction.
• Confirmations that are sent by the custodian should contain the same elements as the original instruction, however differences may happen in settlement date and settlement amount according to actual settlement details.

KELER manages securities accounts for broker firms and commercial banks. BSE (and OTC) transactions are settled through these accounts. Beside securities accounts KELER also manages exchange cash accounts (restricted current accounts) for stock exchange/MTS member broker firms. The financial settlement of transactions concluded by broker firms is done on the exchange cash accounts, those by commercial banks on the banks' current accounts managed by the Central Bank of Hungary.

Settlement is based on the delivery versus payment (DVP) principle. This principle makes payment and delivery of securities interdependent, meaning that the failure of one will result in the failure of the other. Trades in the equities and debt securities sections of BSE (except for negotiated deals and auction transactions) and the transactions executed through MTS Hungary are cleared and settled on a rolling basis with multilateral netting in a cycle of T+2 days in the BSE's Equities Section and in the BSE's Debt Securities Section and in MTS Hungary. The direct participants of the settlement procedure are banks and broker firms with trading licence. KELER CCP is the sole provider of the trade netting service for all transactions concluded on the BSE and MTS. All Stock Exchange/MTS transactions are matched by the BSE/MTS itself. KELER CCP receives one sided book-entry transfer instructions from the participants and a list of matched transactions from the BSE/MTS via electronic communication on T day following the closure of trading. Only the stock exchange/MTS has the right to make any modifications to the trade data. At the end of each trading day, the KELER CCP performs financial and securities netting for each section member on the basis of that day's list of transactions. KELER CCP calculates which members are net sellers and which are net buyers on the given day, by netting every purchase and sale transaction of each member(netting also includes BETa transactions). Securities netting for each member can only be performed for transactions involving the same securities. KELER is processing transactions only in a fully real-time settlement.

KELER CCP reports the net (buying and selling) positions to each section member by the following morning (T+1) in the form of a report and securities account statement. (KELERCCP sends its partners their statements and reports in electronic form, via the so-called KID (KELER Internetwork Device).

Clearing members who emerge as net sellers in the procedure must provide securities coverage sufficient for the settlement on their securities settlement account on the settlement date by 14:00 CET. As part of the verification of securities cover procedure, KELER debits the stock exchange securities settlement accounts of net sellers with the securities affected by T-day trades. If the clearing member with a net selling position possesses the necessary cover, the securities are debited from his account and are credited to a so-called central stock exchange settlement account. Matched instructions are binding to all participants. Any failure by account holders to meet obligations would immediately involve compulsory measures (penalty, forced buy-in procedure, forced liquidation) against the failing participant.

In the meantime on the morning of settlement date KELER initiates cash collection orders to debit the HUF accounts of net securities buyers. The funds are once again credited to the central (stock exchange settlement) account. The financial settlement of stock exchange/MTS transactions in case of broker firms is carried out on their exchange cash accounts and collateral sub-accounts managed by KELER, whereas in case of section clearing member banks on their current account managed by the Central Bank (CBH). KELER has access to the current accounts managed by CBH through the real-time gross settlement system VIBER. At 07:00 a.m. CET, at the opening of VIBER, KELER electronically transfers the data on the bank current accounts to be debited and credited to CBH. Financial settlement is completed when KELER credits the so-called central account on the basis of the confirmation of successful debits from the CBH.

Once the securities of net sellers and the funds of net buyers are fully credited to the central account, KELER immediately initiates securities and cash transfers from the central account to the beneficiaries and credits buyers' equities accounts and sellers' HUF accounts. The securities and financial settlements are final and irrevocable.

Continuous Linked Settlement (CLS) settlement in Hungarian Forint started on November 16, 2015.

Effective November 1, 2012 short selling is regulated by EU Regulation No 236/2012 on short selling (SSR) in all member states, including Hungary. The Regulation means that in relation to the short selling of shares and of sovereign debt instruments and the taking of sovereign credit default swaps positions the following requirements apply:

• All those entering into short sales of shares must be covered by either having borrowed the instruments concerned, have arranged to borrow them; or have an arrangement with a third party who has confirmed that the share has been located i.e. naked short selling in shares is now banned;
• All those entering into short sales of sovereign debt instruments must have borrowed the instruments concerned, have an agreement to borrow them, or have an arrangement with a third party who has confirmed that the share has been located or expects that the trade can be settled when due i.e. naked short selling in sovereign debt is now banned;
• All those entering into credit default swaps positions related to a sovereign issuer must have an underlying exposure to the risk of default of that sovereign issuer or of a decline in the value of the sovereign debt of that issuer i.e. naked sovereign CDS are now banned.
• Central counterparties providing clearing services must ensure that there are adequate arrangements in place for buy-in of shares as well as fines where there is a settlement failure. KELER CCP complies with this requirement.
• Mandatory transparency of net short positions:
  • significant net short positions in shares must be reported to the relevant competent authority (CBH) when they at least equal to 0.2% of company issued share capital and every 0.1% above that;
  • disclosed to the public when they at least equal to 0.5% of company issued share capital and every 0.1% above that;
• significant net short positions in sovereign debt should be reported to the relevant competent authority (CBH) when reaching or crossing one of the thresholds published by ESMA for sovereign issuers– notification thresholds.
• Notifications by private or institutional investors on short selling positions are sent to the CBH through a dedicated SSR-application. The established deadline for such reporting to the authority is 3:30 p.m. CET the next working day, following the day when the short position has been taken.
• In addition to the reporting to the CBH, investors make public announcements viakozzetetelek.huwhich is an internet portal operated by the CBH.
• Reporting in relation to sovereign debt is completed based on the duration adjusted figure of the outstanding amount of sovereign debt of Hungary. Such figures are published by ESMA each quarter for all EU member states, including Hungary.
• The SSR provides exemptions for market making activities and authorised primary dealers. Provisions of the regulation prescribe the notification of intent to make use of the exemption to be made to the home authority of the notifying entity (in Hungary the CBH), while the exempted activities might also take place in other jurisdictions outside the supervisory remit of the home authority.
• The new reporting process in line with EU standards is effective as of 1 November 2012.

Turnaround trades are common practice in Hungary, though the Hungarian turnaround trades are not "typical”, as in Hungary it is not possible to actually link two trades together at the Depository (KELER).
KELER settles the trades in order of receipt (first instruction received first settled if cover is available), and there is no possibility to link a delivery to a certain receipt (e.g. there are no fields to indicate towards the Depository, that the trades are linked together). It is the role of the local custodian to manage the sequence of settlement and submit the instructions to KELER accordingly.

Central Depository Ltd. (KELER) was established in 1993 and among others provides the following services in terms of clearing:

• settlement of trades concluded on the Budapest Stock Exchange (BSE)
• settlement of trades concluded on the MTS Hungary
• settlement of securities transactions concluded on the OTC market
• "Exchange cash account" management for stock exchange/MTS Hungary direct members for stock exchange and MTS settlement (for non-bank members).

KELER CCP Ltd.
As of January 1, 2009, KELER Zrt.'s activities were separated by the so-called “CCP model”, where KELER Zrt.'s functions as a guarantor of stock exchange/MTS Hungarytransactions were placed into a limited liability company under the name of KELER KSZF Kft. (KELER CCP Ltd.). It had HUF 50 million equity capital and HUF 30 million reserved equity. In 2013 the capital of KELER CCP has been increased twice: in January and June.As of January 2013 KELER's stake has increased to 97.72%, while the Central Bank of Hungary has a 1.21% share and BSE has a 1.07% in KELER CCP. This time KELER provided a joint and several liability towards KELER CCP, the amount of which was HUF 8bn. 

In line with the resolution passed at the Annual General Meeting held on 15 May 2013, KELER, as the majority shareholder of KELER CCP, increased the capital of the company by HUF 4bn in cash as of 28 June 2013. The increase has been approved by the Court of Registration as of 24 July 2013. As a result the share capital of KELER CCP now exceeds HUF 5bn and it fully complies with the capital requirement provisions of the European Market Infrastructure Regulation (EMIR). Due to the capital increase, KELER has a 99.72% stake, while the Central Bank of Hungary (CBH) has a 0.15% and Budapest Stock Exchange (BSE) has a 0.13% share in KELER CCP.

At the same time the amount of joint and several liability undertaken by KELER in favour of KELER CCP in relation to its clearing functions was reduced to HUF 4bn from HUF 8bn.KELER and KELER CCP will hold its AGM on 28 May 2014 and will decide about the the future of KELER's guarantee provided for KELER CCP company.

Effective 1 January 2013 KELER CCP became a full clearing house as all clearing related activities, previously handled by KELER for KELER CCP, were shifted to KELER CCP.
In the framework of acting as a central counterparty, KELER CCP is responsible for the following:

• managing of clearing memberships
• managing limits
• owning and managing the guarantee schemes available in the market (Exchange Settlement Fund supporting the cash market, and Collective Guarantee Fund supporting the derivatives market)
• managing the cash/securities non-performance in the market
• perform buy-ins, if necessary.

KELER CCP as central counterparty guarantees settlement to both cash and derivative market transactions concluded on the Exchange as well as on MTS Hungary. CCP activity is supported by complex risk management mechanisms featuring individual margining and collective guarantee funds. The guarantee is applicable exclusively to on-exchange/MTS transactions. Government securities are primarily traded on EuroMTS's MTS Hungary market since 2 January 2012, but remained listed on the BSE too. Auction transactions are still executed on BSE's MMTS system and free market transactions as well as negotiated deals are also possible, all of these settle without KELER CCP guarantees.

KELER acts as the national depository of Hungary and provides the following depository and supplementary functions:

• securities account management (safekeeping of securities)
• book entry operations
• issuing securities codes (ISIN),
• maintaining central securities database function for dematerialised securitiesincluding issuance, registration and cancellation of dematerialised securities
• corporate actionmanagement and registry services for issuers (on a profit basis)
• KELER also provides cross-border settlement services and keeps the registry book for several issues (on a profit basis)
• Issuance of an instrument on securities issued in Hungary for the purpose of distribution abroad
• Issuance of an instrument on securities issued abroad for the purpose of distribution in Hungary

BIS is an international organisation which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

OTC transactions are BIS model 1 – a system in which there is a simultaneous transfer of securities and associated funds from the buyer to the seller. All transfers occur on a trade-by-trade (gross) basis with all transfers made via book entry. All transfers are final.

Stock Exchange trades are settled on a multilateral net basis - BIS model 3 - a system that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.

Government securities: In Hungary all government securities are dematerialised and thus securities are kept with the Central Depository, KELER. There is no specific registration; government securities are automatically registered immediately by being credited on accounts opened in the investors' name. This means that on the record date of interest payments and maturities (generally Event Date minus two working days) end of day settled positions are automatically reported by KELER to the Paying Agent, who pays the proceeds on contractual payment date (E) to the HUF account determined by the Custodian.

Equities:In Hungary registration takes place when a corporate action occurs, as of end of Record Date (generally Event date – five working days), or when registration is requested by the CBH or the issuer company. Additionally, continuous registration of shareholders is governed in the market by a Government Decree (67/2014) that incorporated the regulations applicable to such registration.
Under the Government Decree it is the shareholder's obligation to submit a request for registration within two business days after the acquisition of the securities, unless the securities are held at a custodian (in the case of dematerialized securities, acting as the holder of the securities account). In such case it is the custodian's obligation to initiate the registration within two business days as follows:

1. In case of physical securities and dematerialized securities of private companies the custodian needs to request the registration within two business days after receipt of the securities.
2. In case of dematerialized securities of public companies the custodian needs to request the registration within two business days after receipt of the securities, unless the shareholder explicitly prohibits the registration or the safekeeping account holder is not authorised to register the shares by the shareholder.

Registration of shareholders is a pre-condition for dividend payment. Private limited companies usually set special procedures for registration and dividend collection.

There is no central registrar in Hungary. Issuer companies have the right to choose a registrar or they can set up their own registrar within the company. KELER acts as registrar of most equities (equities listed on the BSE) based on an agreement with the issuer.

Registration is made on the basis of the Record Date closing settled position on Record Date + 1 between 08:00 and 15:00 (Record Date is usually E-5, i.e. 5 days before the Event Date). Subcustodians provide details of shareholders to KELER and KELER then either

1. forwards the information to the issuer (if it holds itself the book of shareholders) or
2. updates the book of shareholders itself if it acts as an agent of the issuer.

The book of shareholders must be closed by 18:00 on E-2, i.e. two days before the event would take place.

Shareholdings in this market may be required to be disclosed by the shareholder, particularly when such shareholdings reach or exceed any prescribed disclosure limits. Investors must ensure that they comply in full by reporting such holdings to the appropriate organisations for this market, within the timeframe required. If you have any questions regarding this issue we encourage you to consult your legal counsel.

Failure to comply with the reporting requirements in this market may lead to penalties and / or other sanctions.

Upon acquisition of influence in a public company limited by shares, shareholders or holders of voting rights must be disclosed to the CBH, as the supervisory authority and the issuing company, both in case of direct and indirect holdings when reaching 5% (companies may set additional thresholds in their articles of incorporation) and at every additional 5% change, within two calendar days of the acquisition*. This disclosure requirement extends up to 50% and above that is set to 75%, 80%, 85% and 90%. Above 90%, the disclosure is compulsory after every 1% increase. Therefore it is obligatory, that acquisition of influence by the investor shall be announced

• to thefinancial supervision (CBH)
• and to the Board of the given Issuer Company.

*When making the disclosure the owner should aggregate and disclose (report) all the financial instruments that belong to the same issuer and for the calculation of the voting rights only long positions should be considered and these cannot be netted.
In addition the disclosure of voting rights is obligatory for that person as well who directly or indirectly owns a financial instrument that at its expiry makes possible for the owner – on the basis of a contract – unconditionally and depending on the owner's decision the acquisition of the issuer's shares carrying voting rights and the voting rights themselves. When performing the disclosure obligation a distinction must be made between the financial instruments that can be settled by physical delivery and by cash. For the purpose of disclosure the below items should be considered as financial instruments:

• transferable securities
• options
• futures
• swaps
• OTC interest rate swaps
• financial agreements regarding spread
• any agreement resulting in similar economic impact as the financial instruments specified above.

Voting rights related to the financial instruments that have already been disclosed as described above, should be disclosed again if the natural person or a company has acquired the underlying shares and as a result of the acquisition the voting rights attached to the shares issued by the same issuer reach or exceed the above mentioned percentages.

**The investor is obliged to make the necessary disclosures not only when they become aware of a transaction that would imply the reporting requirements, but also in the case of the investor becoming aware of the possibility to exercise or not the voting rights attached to any given securities. For example: if there is a change in the given deed of foundation in relation to the practice of the voting rights, or if there is a capital increase in the given
company, etc., the investor can have reporting obligations. In all cases the investor is obliged to make the disclosure within two calendar days after they become aware of any of the above facts that have an impact on voting rights.

The obligation of notification stipulated above also applies if an investor's holding in the company is reduced by the same percentages. The notification has to be made using the disclosure form defined by the Hungarian Ministry of National Economy.

According to a provision of the Capital Market Act put into force on December 1, 2007, it is the issuer who is obliged to make the necessary announcements in the market. Persons violating the regulations on the acquisition of a participating interest in public limited companies shall be subject to a fine and other sanctions imposed by the CBH for any infringement, circumvention, evasion, non-compliance or late fulfillment penalties.

Depending on the nature of the violation the CBH acting as Supervisory Authority may

• suspend the shareholder rights in the given company;
• name the person or entity responsible for the disclosure of obligatory information and indicate the nature of the infringement in an announcement published on its website;
• prohibit the person or entity responsible for the disclosure of obligatory information to continue or to repeat the injurious behaviour;
• impose fines
  • in the case of a legal person maximum HUF 2,984,800,000 (appr. EUR 9.6 million) or maximum 5% of the annual revenue as stated in the last annual report;
  • in the case of a natural person maximum HUF 596,960,000 (appr. EUR 1.9 million) or the profit arising from the infringement of rights or double of the amount of loss that has been avoided by the infringement of rights.

From the amounts defined above, in all cases the higher amount should be applied.

The CBH may also mention the name of the natural person committing the infringement of rights in its legally binding resolution. The CBH makes its resolutions about certain measurements or exceptional measurements or fines available on its website at least for 5 years and maximum for 10 years.

1. Obligatory purchase offer: According to the take-over rules being in force, those shareholders whose stake in the given company reaches the 33% limit, are obliged to make a public purchase offer (take-over bid). In the situation that for a given company there is no other owner having more than 10% stake, the public purchase offer has to be made when passing over the 25% limit.

(This does not mean that the limit is doubled, as if the obligation is linked to the 25% stake, passing over the 33% limit, will not mean that another public purchase offer should be made.)

Acquisition in excess of the percentages specified above shall be reported to the competent court of registry within 15 days after the holding is in fact acquired. In case of non-compliance, the court of registry has the power to impose legal (supervisory) sanctions (a warning and a fine).

2. Voluntary purchase offer: The term means that, when someone is aiming to acquire a given stake in a company, it is not necessary to pass the certain thresholds (25% or 33% limit) when an obligatory purchase offer bid has to be made, but any shareholder has the right to make a voluntary public offer at any time.

The procedure of the voluntary offer is very similar to the procedure of the compulsory purchase offer, with the difference being that the Board does not need to comment the offer, no independent financial valuation of the offer is needed, a contra-offer cannot be made, and the offer does not need to cover for all voting shares, only for the required share-quantity.

Breakthrough: From May 20, 2006, the Capital Market Act introduced rules on breakthrough. Among others, the articles of association of the target company may stipulate, for example, that in case as result of a bid the offerer holds 75% or more of the capital carrying voting rights, no restrictions on the transfer of securities or on voting rights, or any extraordinary rights of shareholders concerning the appointment or removal of board members provided for in the articles of association of the target (offeree) company shall apply, and the offerer shall have the right to convene a general meeting of shareholders, initiate the amendment of the articles of association and the appointment or removal of board members or supervisory board members.

In this case, the offerer must purchase the remaining shares from the minority shareholders if so requested within 90 days from the publication of the 75% or more shareholding. The offer price shall equal the price applied during the public purchase offer, or shall be more, in case the offerer purchased shares at a higher price during the period until the above general meeting.

Squeeze-out (buy-out)
The Capital Market Act includes disposals regarding the so called squeeze-out procedure, which means that if the bidder has acquired at least a 90% stake of the voting rights within three months, as at the closing of the takeover bid, the majority owner has the right to squeeze out the remaining minority according to special rules set forth in the Capital Market Act. 

If during a public purchase offer the bidder's holding in the target company reaches 90% of the voting rights upon closing out the purchase offer, the bidder must purchase the remaining shares if so requested within 90 days following the notification of the purchase offer by the owners of the minority shareholders.The offer price shall be determined using the same method as the price to be applied during the squeeze-out.

Legal consequences of the violation of the law
According to the Capital Market Act, if a participating interest is acquired by other ways than defined in the Act, any shareholder rights in the given company may not be exercised and the party acquiring such interest shall sell the shares acquired in conflict with the law or by way of circumvention of the regulations governing the acquisition, within sixty (60) days from purchase date or the receipt of the decision of the Supervision. Shareholder's rights in the target company may not be exercised until the fulfillment of the above obligation. Besides these restrictions, the CBH is also authorized to additionally impose a fine as described above.

Disclosure of significant / majority and controlling interest in a company Based on the Act V of 2013 on the Civil Code acquisition of a qualifying holding (75% or more of the voting rights) in private companies shall be reported to the competent court of registry within fifteen days after the holding is in fact acquired

In the event of any failure to comply with the obligation of notification in due time the court of registry have powers to impose the judicial supervisory sanctions (warning and fine) specified in the Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings upon the owner of a qualifying holding or its executive officer.

Whenever the securities side of a transaction is in default, KELER CCP will first attempt to use what are known as power mechanisms. Should they work, i.e. the required securities are credited to the technical accounts of each member, DVP settlement is performed by multiple netting of the participants. If debiting the customer clearing account of a member fails (customer default), and the required securities are available on the proprietary account maintained for exchange settlement by the given member, KELER CCP will automatically transfer the securities to credit the customer subsidiary account as the first step of the power mechanism. That is to say, if a customer is in default the (freely available) securities of the respective clearing member will be used.

If the securities balance on the house account of a member is insufficient, KELER CCP will attempt to access the required volume of securities through automatic securities lending, for which KELER CCP has a system. If KELER CCP finds that the shortfall of a defaulting member on a particular day can be covered by automatic securities lending, the required volume of securities will be credited to the technical settlement account of the particular member.

In the event KELER detects a shortage of securities even after the described power mechanisms are applied as part of multiple netting, the net security shortage will be removed from the settlement cycle and the multiple netting process will run after selecting the non-defaulting member.

When members fail to receive the securities of defaulting net sellers during settlement by multiple netting by 2.00 p.m. on SD day, KELER CCP will select the non-defaulting members from clearing members with a net buying position (innocent buyer) according to a set of predefined rules. This ensures the settlement of shortfalls in securities. Selection of buyers will depend on the size of the net buying position in respect to the undelivered securities. During selection, KELER CCP starts with the largest house account position and progresses towards the smallest customer account position. The respective clearing members are notified about the result of the selection. Whenever there is default, KELER Central Counterparty Ltd. (KELER CCP) will act as a central counterparty, i.e. both the non-defaulting buyer and the defaulting seller will reconcile the subsequent steps of the transaction and will also clear accounts with KELER CCP when the deal is completed.

Buy-in procedures will be initiated if the securities fail is not covered by 11.00 am on SD+2. Buy-in settle the same day. If the buy-in is not or not fully successful on the regulated market, KELER CCP calls three but maximum five clearing members having the highest free balance of the securities concerned to submit a written bid on the missing quantity. KELER CCP will accept the best bid (quoting the lowest price). If the buy-in process is unsuccessful on the OTC market as well until SD+2 at 4.45 pm and the defaulting member does not fulfil its delivery obligation subsequently, the non-defaulting member will be compensated by paying the additional charge of default at the end of the month.

Whenever the payment side is in default, KELER CCP takes the collateral of the clearing member together with free balance of the stock exchange securities settlement account, the balance of the consolidated securities account up to the amount of the default. In case the financial default still exists on SD+2 KELER CCP is entitled for the ordering of a forced sale of the member's securities deposited as collateral and currently owned by the member.
In case of financial default the clearing right of the defaulting member will be automatically suspended.

Penalties:
In accordance with KELER's and KELER CCP's fee schedules the defaulting clearing members are subject to the following charges for the non - or late performance of their BSE/MTS transactions.

If a position (securities/cash) is not covered on the BSE member's account by 02:00 p.m. on settlement date (SD), KELER and KELER CCP will impose a late-performance penalty fee of HUF 200,000 for the spot BSE and MTS markets. Furthermore, KELER shall impose the daily default basic fee if the securities position is not obtained by 02:00 p.m.on SD. The relating penalty fee items are: HUF 600,000/day for an uncovered transaction value below HUF 500 million, HUF 1,000,000/day if the uncovered transaction volume falls between HUF 500,000,001 and HUF 2 billion, whereas HUF 2,000,000 /day for an uncovered transaction value above HUF 2 billion.

In case of financial default occurring at 02:00 p.m. CET on settlement day the default basic fee is not charged, since if steps taken for fulfillment (withdrawal of collateral, securities sales, etc.) are unsuccessful, as a sanction KELER will suspend the clearing right of the defaulting clearing member and will charge a default interest for the term of default (in addition to the late fee).

For the calculation of the default basic fee KELER applies the fee of the corresponding range and considers the number of days during the period of default (after 02:00 p.m. CET on SD= 1 day, SD+1 started day=2 days, etc.).

If the securities are still not covered by 04:00 p.m.on SD, in addition to the above, the non-performing clearing member is due to pay a default surcharge to the non-culpable party calculated as follows:
Compensation fee = (Value of the trade not covered) x (Central Bank of Hungary's base rate) x 2 x (number of days not covered) / 365, but minimum HUF 50,000 per event.

In association with the derivatives market, the late fee of HUF 200,000 is due in the instance the BSE member is unable to provide necessary cover for the variation margins (the difference between the settlement price of the relevant day and that of the previous day) on trade date (T) +1 business day. Additionally, a derivative default basic fee of HUF 600,000 is charged if a position is not covered fully on the BSE member's account by 02:00 p.m. on SD. 

For uncovered cash position by SD 02:00 p.m, instead of the non-performance penalty fee and the compensation fee KELER imposes the suspension of the failing BSE member's clearing rights and charges a debit penalty interest in addition to the late-performance penalty fee. (These sanctions are only applied if the cash obligation cannot be fulfilled from other sources such as seizure of collateral or sale of the BSE member's own securities.)

Additionally there is  a penalty fee element called Default Basic Fee, amounts up to HUF 600,000.00/event and is charged by KELER in case of default in collateral (basic financial collateral, additional financial collateral, collective guarantee fund, initial margin and variation margin) occurring at 8:50 a.m. CET and in case of financial default existing at 2:00 p.m. CET on SD. This fee element is collected in favour of the Stock Exchange Settlement Fund (TEA) within 3 settlement days of default.

The penalty in connection with settlement failure is only applicable for clearing members, these actions do not affect the investor (foreign broker or custodian) behind the clearing member. (It may be possible though that based on a separate agreement between the local broker and the international client the local broker shifts the penalty fee to its client.)

In case of OTC settlement, where foreign brokers and custodians are involved directly, are no guarantees for settlement, but therefore there are no penalties (buy-ins or other default procedures) in place, either.

The Capital Market Act regulates the securities lending and borrowing. There is a relatively active informal bilateral lending market among local brokers.

Securities lending can take place via KELER, where three types of institutionalised lending products are available. However, none of these services of KELER is used frequently on the market.

The three types of institutionalised lending products of KELER are the following:

1. The automatic securities lending procedure applied by KELER to settle BSE transactions. This automatic “pool-based” lending is used in case of a BSE cash market non-performance by a clearing member. This pool-based lending is anonymous and may last up to five days.
2. In the event of tri-party lending, KELER just provides matching and settlement for the lender and the borrower. A potential lender may publish his detailed conditions (securities available, potential borrowers, collateral requirements, fees, recall possibilities etc.) in the KID system. The borrower contacts the lender, and a transaction is concluded based on the agreed lending terms. KELER provides transaction settlement and collateral management.
3. Pursuant to a separate agreement the Client can make a securities lending contract with KELER.KELER can conclude securities lending agreements both as a lender and as a borrower. KELER itself acts as principal and borrows the securities that it lends to a participant. KELER enters two separate lending transactions and provides statement guarantee towards the original lender.

The non-automatic lending products operated by KELER are unfortunately not operational in practice due to the lack of securities in their pool.

Under the agreement concluded by KELER and Government Debt Management Agency (GDMA) in December 2011, KELER offered intraday government securities lending services to facilitate the seamless settlement of trades made on the MTS Hungary market. The aim of KELER and GDMA was to assist market participants (i.e. trading members of MTS Hungary) who could not provide necessary securities cover in time for multinet settlement on settlement date with an intraday government bond lending facility.

After one and a half years GDMA decided to terminate the intraday lending services due to the low level of market demand. In line with the decision made by GDMA, KELER doesnot provide this type of securities lending services for its clients trading on MTS Hungary. KELER Treasury and the GDMA continue however weekly and overnight repo services to foster the smooth settlement of MTS securities trades.

The Capital Market Act stipulates the following main characteristics in relation to securities lending activities carried out in Hungary by Hungarian entities:

• Securities lending is not an investment services activitybut shall be reported to the Authority.
• Investment service providers, investment fund managers, CSDs, CCPs, financial institutions, insurance companies, and pension funds may all perform securities lending inthe market.
• Securities lending agreements must be concluded for a specific termand cannot be incorporated into any other contract made between the owner of securities and the borrower of the securities
• Furthermore the securities lending agreement must include a clause stipulating that the lender shall not be entitled toexercise the right carrying to the securities in question under the life of the contract; and in connection with shares, an agreement of the parties for the exercise of voting rights must be added.

By Hungarian law, the borrower will become owner of the securities, so it will be eligible to exercise the shareholders rights during the term of the lending transaction. Any special requirements shall be included in the lending contract by the parties.

The ESF (Exchange Settlement Fund) is a collective fund created to support the cash market. Its purpose is to reduce the risk arising from the delays or failures in performance of exchange transactions of clearing members amongst each other as a surety for a guarantee of the joint and several guarantors. ESF contribution is at the same time a surety to the extent of the claims of KELER CCP against the clearing-members.

The CGF (Collective Guarantee Fund) is a collective fund created to increase the security of the derivative market. Its purpose is to reduce the deficits arising from the delays or failures in payment undertakings associated with settlement of futures and option transactions as a surety for a guarantee of the joint and several guarantors. The CGF contribution and the reversionary amount is at the same time a surety to the extent of the claims of KELER CCP against the clearing-members.

Clearing members are obliged to make monthly contributions to the Funds as calculated by KELER CCP.

According to Act. CXXXVI of 2007 on Anti Money Laundering and Anti Terrorism Financing (par.12) Hungarian service providers shall identify their customers through a simplified customer due diligence process - among others - in case the given customers is Investment service or Ancillary service provider in the EU.

This is an FII market. Please contact your RBC Investor & Treasury Services' Client Manager before making portfolio investments.

Non-resident investors can generally buy the same shares as resident investors, and there are no restrictions in place. Individual Issuers may set different restrictions within their Memorandum and Articles of Association. Non-resident investors may be however excluded from investing in certain issues, depending on the decision of the Issuer of the security. This mainly applies to certain government securities. The Hungarian State Debt Management Agency has the right to stipulate restrictions on individual government issues. To the best of our knowledge currently the following government securities are not available for foreign investors are generally involving Premium Hungarian Government Security, Bonus Hungarian Government Security, Premium Euro Hungarian Government Security, 1-year Government Security, Half-year Government Security and 2-year Government Security that are not available for non-resident legal entities, furthermore Treasury Savings Bills, Treasury Savings Bills Plus that are available only for resident individuals.

Residency Government Bonds can be subscribed by such companies that invest exclusively into Residency Government Bonds and have signed an agreement with the Government Debt Management Agency.

There are certain ownership limits though where approval of the Central Bank of Hungary is necessary, or the investor is obliged to make certain disclosures. These are applicable for all investors, regardless of the domicile:

Stake in a Financial Institution - The prior permission of the CBH must be obtained (i) for the acquisition of a qualifying holding in a financial institution, or (ii) for the acquisition of additional qualifying holding in a financial institution by which to reach the 20, 30 or 50 per cent limit. This applies both to increasing and decreasing ownership attaining the above percentage levels.

According to the Act on the Integration of Cooperative Credit Institutions and on the Amendment of Certain Rules in Respect to Economic Subjects (Act CXXXV of 2013), no person may control directly or indirectly an ownership share in excess of 15% of the subscribed capital of a cooperative credit institution, with the exception of the Hungarian State, the Hungarian Development Bank, the Integration Association and the National Deposit Insurance Fund.

Ownership in stock exchange - Any acquisition of shares or modification of shareholding in an exchange whereby the direct or indirect holding of a single shareholder or its voting right in the exchange reaches 33%, 50%, 66%, 75% or 100% will be subject to the Central Bank of Hungary prior authorisation. The exchange may define the maximum ownership level that can be acquired by one shareholder in its Articles of Association.

Any shareholder holding the above specified shares in an exchange are required to notify the Central Bank of Hungary and the exchange within two days if they have disposed of their qualifying holding in its entirety, or if they have disposed of their share to an extent whereby their share or voting right has dropped below the 33%, 50%, 66%, 75% or 100% threshold.

Insurance companies – 

The prior permission of the Supervision (Central Bank of Hungary) must be obtained for the acquisition of an interest in an insurance or reinsurance company limited by shares that will provide a qualifying interest or alter an existing qualifying interest whereby the ownership interest or voting right will reach or exceed the 20, 33 or 50 per cent limit. "Qualifying interest" means a direct or indirect relationship between a person and a company by virtue of which the holder of the qualifying interest:

1. controls 10 per cent or more of the company’s capital or exercises 10 per cent or more of the voting rights,
2. has powers to appoint or remove 20 per cent or more of the members of the company’s decision making, management, supervisory and other bodies, or
3. has powers to exercise significant influence over the management of the company as laid down in the charter document or in contract.

Acquisition of an interest or shares in financial institutions The Supervision’s (Central Bank) permission is necessary:

• for the acquisition of a qualifying holding in a financial institution, or
• for the acquisition of additional qualifying holding in a financial institution by which to reach the 20, 33 or 50 per cent limit.

Also the Supervision’s permission is required for the acquisition of majority interest in an enterprise that has a qualifying holding in a financial institution.

Qualifying holding” shall have the same meaning as defined in Regulation (EU) No. 575/2013 of the European Parliament and of the Council.

Special Sector Rule -Act XL of 2008 on Natural Gas sets the following rules:

Where a participating interest is acquired, directly or indirectly, in a natural gas company reaching or exceeding the threshold specified by the Capital Market Act relating to shares to which voting rights are attached, to other shares or voting rights held directly or indirectly, it shall be notified by the acquiring party to the Energy Office without delay. The Office shall confirm acknowledgement within forty days following the time of notification, or of the receipt of the information requested by the Energy Office, as the case may be. As regards voting rights, indirect control, the acquisition of participating interest and its extent, persons acting in concert, and the contents of the aforesaid notification the provisions of the Capital Market Act shall apply.

The prior approval of the Office shall be required for the acquisition of control of more than 25, 50 or 75 per cent of the voting rights in a natural gas company, and for the exercise of the rights associated therewith.

The prior approval of the Office is not required after the limits are reached, insofar as the acquisition of any additional voting rights takes the party acquiring such voting rights to the next level for which the prior approval of the Energy Office is required. The party acquiring such voting rights shall not be exempted from the obligation of notification.

In the event of noncompliance with the requirement of notification of acquisition of a participating interest, or in the absence of confirmation of acknowledgement, or lacking the notification or approval, the acquiring party shall not be able to exercise voting rights stemming from the un-notified shares vis-à-vis the company except for dividend rights , and may not be entered into the shareholders’ register or the members’ register. A request for being entered into the shareholders’ register or the members’ register, and an application for registration in the register of companies shall be submitted, together with the document in proof of the Energy Office’s confirmation or approval.

Income, capital gains and sale proceeds can be repatriated freely.

N/A

The daily cash clearing in Hungary generally takes place in one of two systems: VIBER and InterGIRO2 (widely referred to as IG2).. Previously there was a third system called InterGIRO1 (widely referred to as GIRO), however this platform ceased to offer funds transfer functionality as of 1 January 2016 and its functions were taken over by IG2.

In addition, there are two other ways to effect payment through the Central Bank of Hungary and KELER if the funds are linked to a securities transaction.

IG2 (launched July 1, 2012) is the automated clearing platform performing typically the processing of low value and high volume payments in Hungary. The platform is operated by GIRO Ltd., which is fully owned by the Central Bank of Hungary. The system works in batches, clearing takes place in ten intra-day clearing cycles in IG2.

Usually the type and amount of the funds transfer determine the selection of the clearing platform, in the ordinary way, small amount mass payments are directed to the IG2.

Direct clearing members are Hungarian commercial banks, the Central Bank of Hungary, KELER (CSD), Hungarian State Treasury and the OFSZ (a specialized payment service provider). Hungary adopted the EU's Payment Services Directive in 2009.

The operation principle of the IG2 intraday clearing is the “4-hour execution rule” which is supposed to ensure that transfer orders are executed and funds are made available for the beneficiary within four hours of receipt of the order by the remitting bank. For instructions covered by the "4-hour execution rule" ten clearing phases are completed each day starting from 07:30 until 17:00 CET.

VIBER - The Central Bank of Hungary implemented its Real-Time Gross Settlement (RTGS) System in September 1999 and the system has been used to transfer customer funds since second half of 2000. The system works real-time and is typically used for high value commercial payments and bank-to-bank payments.

The timeframe for VIBER's daily operation is between 07:00 and 18:00 CET effective from 03 August 2015. Within this operation period, , customer payments can be initiated until 17:00 CET, settlement of securities transactions against payment until 17:30 CET, and payments of direct participants (managing their own positions) until 18:00 CET.

Payments cleared through the VIBER and IG2 are practically irrevocable after releasing them to the clearing system for execution by the account keeping bank. Once a payment has been released or advised to a third party cancellation request can be honoured only on a best effort basis. Any reversal is only possible by a contra-initiation of cash movement.

OTHERS: KELER / CBH
A) Between broker and broker:
The settlement cycle is T+2 for equities and all debt related securities. The multilateral trade netting system is operated within KELER for stock exchange/MTS transactions. The participants of the trading are local brokers (KELER keeps 'exchange cash accounts' for them), banks (banks' treasuries trade government securities mostly with each other) or remote members. For banks the checking of the cash coverage and the cash settlement is effected in the VIBER system, while for brokers and remote members this is done through the exchange cash accounts kept with KELER. The financial settlement in both KELER and VIBER is effected on T+2.

B) Between Broker and Custodian / Custodian and Custodian (RTGS method)
The real time DVP settlement is an additional service provided by KELER in the case of trades concluded by the clients of custodian banks with the clients of other custodians or with local brokers. The settlement cycle is fully negotiable by the counterparts. The settlement instructions are sent to KELER, which pre-matches the settlement instructions. In case of matching instructions KELER checks the securities coverage and initiates the financial settlement in VIBER. In case of insufficient coverage in the cash or securities accounts, the payment order stands in a 'queue' until the end of the financial day, otherwise the payment will be cancelled and the securities trade will not settle. The timeframe of RTGS settlements is between 07:00 and 17:30 on value date effective from August 3, 2015.

Yes

Announcement: dates and any special procedures are set at the Annual General Meeting (AGM) of the issuer. As per the new Civil Code effective March 15, 2014, those shareholders will be entitled for dividend that are registered in the shareholders' register for the general meeting that defines the dividend payment. However, deviation from this section of the Civil Code is not prohibited for the Issuers  i.e. if there are no provisions different from the above rules incorporated in the relevant Issuer's Articles of Associations then only those investors will be entitled for dividends that are registered for the general meeting defining the dividend payment. However, issuers may define other rules for entitlement, for example issuers may comply with the Business Rules of KELER Ltd. In that latter case the process is the same as previously.

According to the current KELER Rules "in case of a corporate event involving payment (payment of dividend, payment of interim dividend and share dividend) the issuers of all public shares are obliged to require shareholder registration from KELER.

In case of a corporate event at least 10 business days must pass between the date of the general meeting and the initial date of payment of dividend.

In case of all corporate events involving registration of shareholders the Client can submit the data of shareholders wishing to enforce their rights against the issuer at the latest until 15:00 hrs. on E-4 day in the KID system…."

Ex-date is on Event -6 working days and record date on Event -5 working days in case of equities.

Hungarian regulations do not force the issuers to pay on payment date.

Annual, usually one month after the general meeting which are usually held around April - May each year.

Semi-annual or annual.

Last day of trading with coupon (Cum date) is on event day -4 working days, and record date is on event day -2 working days. In case of government bonds and treasury bills the Government Debt Management Agency (GDMA) pays interest and redemptions to investors through KELER Ltd. as principal paying agent. GDMA transfers the total amount in one lump sum to KELER Ltd. and KELER executes the payments to the custodians or to the securities account keepers on the basis of the data collected by KELER as of the record date. Custodians and securities account keepers distribute the interest and redemption amount and credit the accounts of the government securities' holders.

Varies, Actual/actual basis, or Actual/360 or Actual/365

According to the Civil Code public limited companies must publish their announcements on their website and on the website of the BSE as well.

In case of BSE issuers, the BSE website is the official site of all exchange-related announcements and disclosures.

As per the new Civil Code (that came into effect on 15 March 2014) public limited companies had to be listed on the Budapest Stock Exchange by 15 March 2016 or they had to change their status to private limited company. So by now all public limited companies must be listed on the BSE.

In case of private limited companies, the invitation should be sent directly to the shareholders 15 days prior to the event date.

Entitlements are based on settled position on record date.

Foreign investors generally have unrestricted voting rights. However, the Articles of Association of individual issuers may limit entitlement to proxy voting.

Split votingis allowed for nominees only. Should a shareholder keep shares of a public company on more than one securities account, the shareholder may appoint more representatives, but these representatives should not vote differently. Should different votes be cast by the representatives of the same shareholder, all votes are considered null and void.

No for public companies, but may happen on a case by case basis for private limited companies.

As default, provided in Hungarian, however the articles of associations of the issuer companies may define other languages besides Hungarian for the publication of meeting notices and agendas. In case of companies listed in the Premium Equity Category of BSE the announcements have to be made in English, as well. In case of private companies the invitation should be directly sent to the investor 15 days prior to the meeting. The primary source for the announcement of a public company's general meeting will be the company's website and the website of BSE. The announcements are usually made only once, 30 days prior to the meeting.

Effective as of July 1, 2013 companies being in the Premium Equity Category of BSE shall publish their corporate actions calendar (including general meetings) at the beginning of each business year.

Public listed companies must publish the names of the members of the board of directors and the supervisory board, and also their remuneration annually, together with the announcement of the annual general meeting. 

Private limited companies are not obliged to make public announcement, instead they have to directly inform their shareholders in writing.

In case of public companies, a group of shareholders controlling at least 1% of the voting rights may request the board of directors to place an issue of their choosing on the agenda, and can also propose resolutions in relation to agenda points. Such a request must be submitted by the shareholders within eight days following the announcement date of the meeting.

By default supplied in Hungarian, however the articles of associations of the issuer companies may define other languages besides Hungarian for the publication of meeting outcome. In case of companies listed in the Premium Equity Category of BSE the announcements have to be made in English, as well.

Reports of the board of directors and the supervisory board, annual reports, total number of voting shares, proposals in relation to agenda points and recommendations for resolutions must be published by the company at least 21 days prior to the date of the general meeting.

A Power of Attorney, specially prepared for the given General Meeting, directly by the shareholders, must be sent to the custodian in order to act on behalf of the investor. The Power of Attorney must be received before the meeting's date.

According to the new Civil Code representation can be exercised by a fully legalized Proxy Power of Attorney (PoA), the former requirement that the Proxy PoA can only be valid for 12 months have been revoked from the Civil Code. In line with the provisions of the new Civil Code, a power of attorney (a general one) shall be valid until revocation, but maximum for 5 years. However, it is the sole discretion of the Issuers to define what type of Proxy PoA they accept for proxy representation at the general meetings.Generally Issuers still accept Proxy PoAs only with validity of maximum 12 months.

The Power of Attorney must be submitted to the Issuer Company in the form of a public document (duly signed and legalised, that is notarised and depending on the country of issuance apostilled or consularised as well) or in a form of a fully conclusive private document if the document is issued in Hungary (signed also by two witnesses). 

The PoA must include the registered shareholder's name, registered address and the identification of the given general meeting.

• Special requirements are set in the case of MOL (Magyar Olaj es Gazipari Nyrt.) (ISIN: HU0000068952), NUTEX (HU0000106448), ENEFI EnergiahatÉkonysÁgi Nyrt. (ISIN: HU0000089198) and OTP Bank Plc. (HU0000061726) prior to the meeting

MOL (Magyar Olaj és Gázipari Nyrt., ISIN: HU0000068952)

According to the Articles of Association of MOL with regard to the registration and exercise of voting rights, prior to the registration the shareholder is required to complete and sign the standard “2% ownership declaration “ form.

In the declaration the investor must declare, that when applying for registration

• he owns
• OR he does not own

number of shares amounting or exceeding 2% of MOL’s shares (including the shares owned by shareholders belonging to the same shareholder group as itself).

In the event the number of shares in the investor’s ownership reaches or exceeds 2% of MOL’s shares, the investor is also required to declare the ownership composition of the investor’s shareholder group to this representation.

In case of MOL, the Hungarian Oil and Gas Company no shareholder can cast votes with more than 10% of the total shares, even if the shareholder has more shares in its ownership.

NUTEX (ISIN HU0000106448)

Whenever shareholders want to exercise voting rights, they have to declare in writing latest until the 10th business day before the day of the general meeting whether their holding exceeds 2% shareholdings or not. If the shareholder declares that its holding exceeds the 2% shareholdings, it also has to provide an additional declaration disclosing its shareholders structure. In absence of the appropriate declaration until the above defined deadline, the investor's voting rights will be suspended.

ENEFI (ISIN HU0000089198)

Each shareholder has to report within two calendar days to the board of directors the acquisition of shares exceeding 1% of all voting shares.

OTP Bank Plc. (OTP, ISIN: HU0000061726)

According to the articles of association of OTP Bank the extent of voting rights exercised directly or indirectly by any individual shareholder or group of shareholders may not exceed 25% (or in case the voting rights of another shareholder or group of shareholders exceed 10% it may not exceed 33%) of the total voting rights represented by the shares entailing voting rights at the general meeting of the company.

If the shareholder by oneself or together with other shareholders belonging to the same group of shareholders is holding directly or indirectly more than 2% of the voting rights represented by the shares entailing voting rights at the General Meeting of OTP, the shareholder is obliged to notify the Board of Directors without delay. Simultaneously, the shareholder has the obligation to assign those shareholders, through which indirect voting right exists and the members of the group of shareholders. In case the notification of the shareholder is missing or it is presumed for an acute reason that the notification of the shareholder is deceptive regarding the composition of the shareholder group, the voting right of the shareholder shall be suspended and shall not be exercised until the above obligations are met. Obligation of above notification shall also be applied to individuals eligible for obtaining or exercising voting rights in OTP in accordance with the Capital Market Act.

In case voting rights exercisable by the group of shareholders exceed the threshold, voting rights shall be reduced so that voting rights entailing to shares last obtained by the group of shareholders shall not be exercisable.

• The articles of association of companies may allow for the shareholders to cast votes by correspondence (e.g. post), prior to the general meeting. Voting by correspondence may be made subject only to such requirements and constraints that are necessary to ensure the identification of shareholders.
• In connection with public limited companies, the managing director, an executive employee of the company, a board member or a supervisory board member may not serve as a shareholder's proxy.
• One representative may represent several shareholders, however, one shareholder may have only one representative. The representative must act in accordance with the instructions of the shareholder, otherwise the vote is considered null and void.

The articles of association / deed of foundation of private companies may stipulate that shareholders / quota holders can make decisions without convening a general meeting / members' meeting. Such decision making shall happen in writing or – in case the articles of association / deed of foundation makes it possible – by using other means.

Non-resident institutional investors are fully exempted from withholding taxes on dividend payments

Private individual investors are subject to 15% withholding tax applicable to dividends without any exceptions. (Additional 14 % healthcare contribution for resident private individuals is applicable in case the dividend derives from instruments that are not listed in any regulated market within the European Economic Area)

In case the respective Double Tax Treaty (DTT) refers to a more favourable tax rate on dividends, and the application criteria are met, the more favourable tax rate provided by the DTT shall be applied.

Effective January 1, 2017  - the income on the investment unit of alternative investment fund qualifies as dividend (while income on the investment unit of other types of investment funds qualifies as interest). The rate of the applicable withholding tax is 15% and only private investors are subject to it. The rate of the additional healthcare contribution tax is 14% (maximum HUF 450,000 – ca. EUR 1,450).

Non-resident institutional investors are fully exempt from withholding tax on interest income

Private individual investors are subject to 15% withholding tax applicable to interest income, without any exceptions. Additional 6% healthcare contribution with certain limitations for resident private individuals is applicable as of August 1, 2013.

In accordance with the EU Savings Directive formerly , no withholding tax was deducted from interest income of private investors with tax residency in EU. Only data was provided on interest income to the Hungarian Tax Authority (as per Article 8 of Directive)

However, effective September 2016 there was a change in the Directive , so from this data on withholding tax is deducted from interest income of private investors with tax residency in EU as well.

In case the respective DTT refers to a more favourable tax rate on interest, and the application criteria are met, the more favourable tax rate provided by the DTT shall be applied.

Non-resident institutional investors are fully exempt from capital gains tax

According to the Act CXVII of 1995 on Personal Income Tax, the place of gainful activity in respect of capital gains is the state in which the private individual is a resident, thus no capital gains tax is deducted from non-resident private individuals in Hungary. (Resident private individuals are generally subject to 15% capital gains tax.)

None.

Management and safekeeping services with respect to materialised securities are subject to Value Added Tax in Hungary according to Act CXXVII of 2007 on Value Added Tax (VAT Act) currently set at a rate of 27%. 

Based on the VAT Act, the place of performance of financial services including management and safekeeping of securities is considered to be where the recipient of the service is settled for business purposes, provided it is in a different state than where the service provider is settled. Therefore, if a Hungarian service provider provides management and safekeeping services with respect to materialised securities to a foreign client, the place of performance of these services is considered to be abroad. As a consequence, these services fall outside the scope of the VAT Act. In this case therefore, Hungarian VAT will not be charged by the Hungarian service provider on the invoice.

Financial Transaction Levy

Scope: Entities provide payment services, credit and money lending, currency exchange and currency exchange intermediation activities in Hungary as cross-border services.

Rate of the levy: 0.3% of financial transaction duty of the value of securities credited to securities accounts, but not more than HUF 10.000 per financial transaction (effective August 1, 2022).

(The act introducing and governing the Financial Transaction Tax (FTT) January 1, 2013. The bill on FTT applies to all institutions resident in Hungary or having branch offices in Hungary that are engaged in payment services or money exchange, included but not limited to financial institutions. The transactions of an international financial service provider by its nature are tax exempt. 

On July 18, 2022, the Hungarian Government published Decree 257/2022 amending Decree 197/2022, expanding the scope of the FTT to include companies that provide investment services in the form of cross-border services.)

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