Ordinance No. 23 of 08.02.2006 on the Conditions and Procedure for the Valuation of Client Assets

ORDINANCE No. 23 of 08.02.2006 on the Conditions and Procedure for the Valuation of Client Assets Publ. - State Gazette, No. 19 of 02.03.2006, effective from 03.04.2006; amended and supplemented, No. 82 of 12.10.2007; amended and supplemented, No. 32 of 25.03.2008; amended, No. 20 of 11.03.2025, effective from the date of introduction of the euro in the Republic of Bulgaria Adopted by Decision No. 50-N of 8.02.2006 of the Commission for Financial Supervision

Section I General Provisions

Art. 1. (Amended - State Gazette, No. 32 of 2008) (1) This Ordinance regulates the conditions and procedure for the valuation of client assets held by investment intermediaries. (2) The valuation referred to in para. 1 is carried out for the purpose of:

1. (Amended - State Gazette, No. 32 of 2008) calculating the amount of the annual contribution due from investment intermediaries to the Investor Compensation Fund;
2. (Amended - State Gazette, No. 32 of 2008) determining the amount of compensation that the Investor Compensation Fund pays to the clients of an investment intermediary in the cases under Art. 77b, para. 1 of the Law on Public Offering of Securities (LPOS).

Art. 2. (Amended - State Gazette, No. 82 of 2007; amended and supplemented, No. 32 of 2008) (1) (Amended - State Gazette, No. 32 of 2008) Financial instruments and other assets held, administered, or managed by the investment intermediary on behalf of its clients in connection with the services provided under Art. 5, para. 2 and 3 of the Law on Markets in Financial Instruments (LMFI), including interest, dividends, and similar payments, are valued in accordance with this Ordinance, excluding deposits within the meaning of § 1, item 1 of the Additional Provisions of the Law on Guaranteeing Deposits in Banks in the case of investment intermediary banks. (2) Client assets also include assets subject to encumbrances or serving as collateral. (3) (Amended - State Gazette, No. 82 of 2007) The following client assets are not subject to valuation under para. 1:

1. members of the management and supervisory bodies of the investment intermediary, as well as its attorneys-in-fact;
2. (Amended - State Gazette, No. 32 of 2008) persons who directly or indirectly own 5 or more than 5 percent of the votes in the general meeting of the investment intermediary or can control it, as well as persons belonging to the same group to which the investment intermediary belongs, for which consolidated reports are prepared;
3. the registered auditor who audited the annual financial report of the investment intermediary;
4. spouses, relatives in direct line without restriction, in collateral line up to the second degree inclusive, and by affinity up to the second degree inclusive, of the persons under items 1, 2, and 3;
5. investment intermediaries;
6. (Amended - State Gazette, No. 32 of 2008) credit institutions;
7. insurers;
8. pension and insurance funds;
9. (Amended - State Gazette, No. 32 of 2008) closed-end investment companies, collective investment schemes, and special purpose investment vehicles;
10. the State and state institutions;
11. municipalities;
12. (Amended - State Gazette, No. 32 of 2008) the Investor Compensation Fund, the Deposit Guarantee Fund in Banks, and the Guarantee Fund under Art. 287 of the Insurance Code;
13. (Amended - State Gazette, No. 82 of 2007) other professional clients within the meaning of § 1, item 9 of the Additional Provisions of the Law on Markets in Financial Instruments.

Art. 3. (Amended - State Gazette, No. 32 of 2008) (1) (Amended - State Gazette, No. 32 of 2008) Investment intermediaries are obliged to value the financial instruments and other assets of their clients at market value as of the last day of each month and to submit on paper and/or electronic media by the 10th day of each month to the Commission for Financial Supervision and the Investor Compensation Fund a report on client assets as of the last day of the preceding month. (2) When the last day of the month is a non-working day, client assets are valued as of the last working day of the respective month. (3) (Amended - State Gazette, No. 32 of 2008) The report under para. 1 shall also include information on monetary funds due to or belonging to the clients of the investment intermediary, which it holds on their behalf in connection with the provision of a service or activity under Art. 5, para. 2 and 3 of LMFI.

Section II Rules for Valuation of Client Assets

Art. 4. (Amended in full - State Gazette, No. 32 of 2008; amended, No. 20 of 2025, effective from the date of introduction of the euro in the Republic of Bulgaria) (1) The market value of shares admitted to trading on a regulated market is determined by the closing price of the regulated market as of the last day of the month for which the valuation is prepared, or respectively as of the day on which the decision under Art. 77b, para. 1 of LPOS is made. In case no transactions were concluded on that day, the market value is determined by the closing price of the regulated market for the closest day in the two-month period preceding the day referred to in the first sentence. (2) In cases where the shares under para. 1 are admitted to trading on another regulated market or trading is carried out on another trading venue, the market value of the shares is determined by the closing price or other similar indicator publicly announced by the trading venue on which the largest volume of shares was traded for the respective day. (3) The market value of bonds and other financial instruments admitted to trading on a regulated market is determined in accordance with paras. 1 and 2, if information on transactions concluded with the respective financial instrument is published under conditions and in a manner analogous to those provided for shares. (4) Regulated markets, multilateral trading facilities, and systematic internalizers operating on the territory of the Republic of Bulgaria shall daily, after the end of the trading session, appropriately announce information on the closing price of financial instruments traded through their systems and admitted to trading on a regulated market, as well as the traded volumes. (5) (Amended - State Gazette, No. 20 of 2025, effective from the date of introduction of the euro in the Republic of Bulgaria) The market value of shares or units of collective investment schemes is the last announced repurchase price. When the units of contractual funds have not reached the minimum required net asset value of 250,000 euros, the net asset value per unit is accepted as the market value. (6) The market value of government securities issued by the Republic of Bulgaria is the price determined as the arithmetic mean of the "buy" prices announced by two primary dealers as of the last day of the month for which the valuation is prepared, or respectively as of the day on which the decision under Art. 77b, para. 1 of LPOS is made.

Art. 5. (Amended in full - State Gazette, No. 32 of 2008) When shares have been the subject of a public offering in the Republic of Bulgaria and are not admitted to trading on a regulated market, they are valued at the acquisition price for the period from acquisition until the publication of the respective financial report of the issuing company containing the data under Art. 6, para. 1, item 1.

Art. 6. (Amended in full - State Gazette, No. 32 of 2008) (1) In the event of impossibility to determine the market value of financial instruments in accordance with Art. 4, including when financial instruments are not admitted to trading on a regulated market, the market value is determined as follows:

1. for shares of a public company that have been the subject of a public offering in the Republic of Bulgaria, or shares of a company admitted to trading on a regulated market, from the day of publication of the respective financial report of the company - by the net book value method; the value of one share by this method is determined by dividing the assets of the company's balance sheet, reduced by the value of current and non-current liabilities on the balance sheet, by the number of shares, excluding those repurchased by the company, if the net book value is positive;
2. for bonds - by the method of discounted future net cash flows, where the discount factor is determined by investment intermediaries for the respective year by 31 January and reflects at least the base interest rate of the Bulgarian National Bank at the end of the previous year and the inflation index for the previous year announced by the National Statistical Institute;
3. financial instruments and other client assets other than those under items 1 and 2 - by generally accepted valuation methods defined in the rules under Art. 7a. (2) The net book value method under para. 1, item 1 is also applied in the valuation of shares and units of collective investment schemes in cases of temporary suspension of their repurchase. (3) The value of assets, current and non-current liabilities of the company when applying the net book value method under para. 1, item 1 is determined on the basis of the last published accounting balance sheet.

Art. 7. (Supplemented - State Gazette, No. 32 of 2008; amended, No. 20 of 2025, effective from the date of introduction of the euro in the Republic of Bulgaria) Client assets denominated in a currency other than the euro are recalculated into their euro equivalent using the reference exchange rates of the euro to foreign currencies published by the Bulgarian National Bank on its website, valid as of the last working day of the month to which the valuation is prepared, or respectively as of the date of the decision under Art. 77b, para. 1 of LPOS.

Art. 7a. (New - State Gazette, No. 32 of 2008) (1) Investment intermediaries perform the valuation of financial instruments under Art. 6, para. 1, items 2 and 3 based on rules adopted by them, which contain at least the following:

1. a description of the chosen valuation method for each financial instrument or other asset, as well as justification for its determination;
2. the sources of information on the basis of which the valuation is performed, as well as the conditions and procedure for obtaining it;
3. the conditions and procedure for storing data and documents obtained or prepared in connection with the performance of the valuation. (2) The method determined in the rules under para. 1 for the valuation of the respective financial instrument is applied consistently. (3) Investment intermediaries submit the rules under para. 1 to the Commission within 7 days from their adoption, or respectively from the adoption of amendments to them.

Art. 8. (Amended - State Gazette, No. 32 of 2008) Investment intermediaries are obliged to account for client assets analytically for the purposes of the valuation performed and to store the information and documents that served for the valuation of financial instruments and other client assets for a period of 5 years.

Section III Method for Determining the Amount of Annual Contributions

Art. 9. (Amended in full - State Gazette, No. 32 of 2008) (1) The amount of the annual contribution for the current year, which investment intermediaries make to the Investor Compensation Fund, is formed as the sum of the product of the average monthly availability of monetary funds for the previous year and the respective percentage determined in accordance with Art. 77n, para. 3 of LPOS, and the product of the average monthly availability of financial instruments and other assets, valued in accordance with this Ordinance for the previous year, and the respective percentage determined in accordance with Art. 77n, para. 3 of LPOS. (2) For credit institutions carrying out activities as investment intermediaries, the amount of the annual contribution for the current year under para. 1 is determined on the basis of the product of the average monthly availability of financial instruments and other assets, valued in accordance with this Ordinance, and the respective percentage determined in accordance with Art. 77n, para. 3 of LPOS. Deposits within the meaning of § 1, item 1 of the Additional Provisions of the Law on Guaranteeing Deposits in Banks are excluded from the scope of client assets under the first sentence.

Section IV Administrative Penalty Provisions

Art. 10. (1) Persons who have committed violations of this Ordinance, as well as persons who have allowed such violations to be committed, are punished in accordance with Art. 221 of LPOS. (2) The acts on violations are drawn up by officials authorized by the Deputy Chairman of the Commission for Financial Supervision, heading the "Supervision of Investment Activities" Directorate, and the penalty orders are issued by the Deputy Chairman of the Commission for Financial Supervision, heading the "Supervision of Investment Activities" Directorate. (3) The establishment of violations, the issuance, appeal, and execution of penalty orders are carried out in accordance with the Law on Administrative Violations and Penalties.

ADDITIONAL PROVISIONS

§ 1. (Repealed - State Gazette, No. 82 of 2007; New - State Gazette, No. 32 of 2008) For the purposes of this Ordinance:

1. "Closing price" of financial instruments admitted to trading on a regulated market for a specific day is the price announced by the regulated market or another trading venue after the end of the trading session for that day, which is determined by a methodology developed and announced by the trading venue.
2. "Trading venue" is a regulated market, a multilateral trading facility, or a systematic internalizer acting as such, as well as a system outside the European Union performing functions similar to a regulated market or a multilateral trading facility.

§ 2. (New - State Gazette, No. 32 of 2008) For investment warrants and hedging instruments within the meaning of the Law on Transactions with Hedging Instruments, which investment intermediaries hold, administer, or manage on behalf of their clients, Art. 3, para. 1 and 2, Art. 4, para. 1-4, Art. 6, para. 1, item 3, Art. 7a, Art. 8, and Art. 9, para. 1 and 2 apply mutatis mutandis.

FINAL PROVISIONS

§ 3. (1) This Ordinance enters into force one month after its publication in the "State Gazette", with the exception of the provision under Art. 4, para. 2, which enters into force from the day of publication of the Ordinance. (2) Investment intermediaries submit to the Commission for Financial Supervision and the Investor Compensation Fund in securities a report on client assets as of the last day of each month for the period from October 2005 until the entry into force of this Ordinance, for which they are obliged to prepare such reports, reflecting the amount of client assets calculated in accordance with this Ordinance, on the day this Ordinance enters into force. (3) The Regulated Securities Market, in connection with the obligation of investment intermediaries under para. 2, announces no later than 14 days before the expiration of the term under para. 2 through its official bulletin and in another appropriate manner information on the price under Art. 4, para. 1 of securities and other client assets for the period from August 2005 until the entry into force of this Ordinance.

§ 4. This Ordinance is issued on the basis of § 16, para. 1 of the Transitional and Final Provisions in connection with Art. 77v, para. 3 and Art. 77n, para. 5 of LPOS and is adopted by Decision No. 50-N of 8.II.2006 of the Commission for Financial Supervision.

§ 5. The Commission for Financial Supervision issues guidelines on the application of this Ordinance.

Transitional and Final Provisions to the Ordinance Amending and Supplementing Ordinance No. 23 of 2006 on the Conditions and Procedure for the Valuation of Client Assets (State Gazette, No. 32 of 25.03.2008)

§ 10. Investment intermediaries, regulated markets, and systematic internalizers shall bring their activities into compliance with the requirements of this Ordinance within 3 months from its entry into force.

Provisions to the Ordinance Amending and Supplementing Regulatory Acts of the Commission for Financial Supervision (State Gazette, No. 20 of 11.03.2025, effective from the date of introduction of the euro in the Republic of Bulgaria)

§ 6. In Ordinance No. 23 of 8 February 2006 on the Conditions and Procedure for the Valuation of Client Assets (Publ., State Gazette, No. 19 of 2006; amended and supplemented, No. 82 of 2007 and No. 32 of 2008), the following amendments are made:

1. In Art. 4, para. 5, the words "500,000 BGN" are replaced with "250,000 euros".
2. In Art. 7, the words "assets in foreign currency are recalculated into their lev equivalent at the exchange rate of the Bulgarian National Bank" are replaced with "assets denominated in a currency other than the euro are recalculated into their euro equivalent, using the reference exchange rates of the euro to foreign currencies published by the Bulgarian National Bank on its website, valid".