The founding of the Stock Exchange

The Budapest Stock Exchange (hereinafter: Exchange) was established in 1990 by the founding general assembly accepting the foundation agreement. The main purpose of establishing the Exchange was to facilitate the supply and demand of listed securities, and to enable public pricing. The Exchange is an independent legal entity functioning on the basis of exchange membership. This means that the founders established it voluntarily. The Exchange's independence and autonomy can only be restricted by the Hungarian Financial Supervisory Authority. From the end of June 2002, the Budapest Stock Exchange had functioned as a company limited by shares; since May 2006, it has been functioning as a private company limited by shares.

The Exchange's organisational structure and regulations

The Exchange is, on the one hand, a self-governing body establishing its own offices, committees and officers. On the other hand, it is a self-regulating body, which means that it draws up the general terms for itself regarding its operation according to statutory law. The Exchange is divided into the following bodies: the Board of Directors, functioning as the main executive body; the Supervisory Board, controlling this, and the Management, acting as a representative body. These bodies establish the BSE's rules. Within these, it is the Board of Directors' responsibility to establish the Exchange Rules, the Exchange Regulations and the directorial resolutions, while it is the CEO's responsibility to establish CEO-level resolutions. The Exchange Rules contain all binding provisions regarding membership, trading, the listing and continued trading of securities, de-listing of securities as well as sanctions, the publication method of Exchange data, incompatibility and trading floor commercial structures. The Exchange Regulations contain effective rates, the construction of the Exchange's working organisation and its operation, the trading rules of the MMTS free trade system and all binding rules for the corporate system of traders, issuers and investors. Directorial and CEO-level resolutions define rights and responsibilities for issuers, traders and brokers. These sources of law enter into effect when the Board of Directors – apart from its own resolutions – ratifies the rule, regulation or CEO-level resolution. When this happens, the CEO states the effective date in his or her resolution.  In the case of regulations, the permission of the Supervisory Authority is also needed for the regulation to enter into force.

Organisational and other requirements for the exchange

The CMA defines the exchange as a company limited by shares and includes only those rules which, due to the special character of the activity of the exchange, require regulations that are different to those in the act on business associations or which are not included therein. Such rules include the capital requirement, different from that in the general provisions for companies limited by shares, which states that the smallest amount of the exchange’s registered capital must be HUF 150 million in the case of exchange activities related to the trading of commodity-based transactions, FX and futures interest rate transactions, while in the case of the trading of any other exchange products, the requirement is HUF 500 million.

The same regulation is relevant for all exchanges regardless of the subject of the trading (i.e. stock or commodity exchange). It is still possible to establish a new exchange, and exchanges can de-merge, merge or cease to exist. The founders and owners of the exchange have a right and, at the same time, an obligation to decide what type of an exchange they wish to operate. An exchange can be established as a company limited by shares with dematerialised shares only or in the form of the branch of a foreign exchange; a licence from the Supervisory Authority is necessary for its establishment.  In the case of trading commodity-based transactions, FX and forward interest rate transactions, an exchange can be established with a share capital of HUF 150 million, while in the case of the trading of other exchange products, a paid-up share capital of HUF 500 million is required.

According to the rules currently in force, the extent of the largest ownership share in the exchange has not beendefined, however, the statutes of the private exchange may set the highest degree of the voting right that can be exercised by one owner. The permission of the Supervisory Authority is needed for exceeding the individual ownership proportions (33, 50, 66, 75 and 100%), as opposed to the former preliminary permission from the Supervisory Authority which was mandatory for the acquisition of the 5 and 10% shares and the voting right. The exchange must publish any changes to the ownership structure. The Supervisory Authority may reject the acquisition of ownership shares in the above proportions if the applicant threatens the independent, reliable and careful management of the exchange by the shareholders, or if its business activities or other shareholdings hinder the activity of the Supervisory Authority.

Rules for the activities of the exchange

In addition to the exchange activity and its supporting and complementary activities, the exchange can only be involved in clearing house, training, IT, publication production and distribution, and data supply activities. The CMA kept the self-regulating licences of the exchange, i.e. the exchange can define the elements of the activity in its internal regulations in addition to the approval of the Supervisory Authority. Thus, for example, the exchange can define the rules for listing and continued trading of securities, the order of the establishment and operation of the individual sections, rules of trading, the order of publishing exchange information, the obligations of exchange traders, etc. in regulations.

The right to trade at the exchange

In the case of exchanges operating in the form of companies limited by shares, the right to trade can be obtained by the persons holding the official licence to trade exchange products and not by the shareholders of the company if such persons comply with the other conditions set out in the regulation of the exchange (section membership). The CMA ensures legally defined licences for the exchange, which enable the control of exchange traders. During its controlling activity, the exchange cooperates with the Supervisory Authority and is entitled to impose sanctions, if necessary.

Since Hungary’s accession to the EU, any foreign business associations may receive a right to trade on the Hungarian exchange if they have a licence to trade exchange products, without needing to establish branches or subsidiaries in Hungary.