Guidelines for Issuers Conducting Buybacks of Own Shares on a Regulated Market

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The Croatian Financial Services Supervisory Agency, pursuant to Article 15(4) of the Act on the Croatian Financial Services Supervisory Agency (Official Gazette, No. 140/05, 154/11, and 12/12) and Article 696 of the Capital Market Act (Official Gazette, No. 65/18, 17/20, 83/21, 151/22, 85/24), at the meeting of the Board of Directors held on October 9, 2025, adopts

GUIDELINES

for issuers conducting buybacks of own shares on a regulated market

Objective and Purpose of the Guidelines

The Croatian Financial Services Supervisory Agency (hereinafter: "Hanfa"), following the increased intensity of buybacks of own shares by issuers whose shares are listed on the regulated market managed by Zagreb Stock Exchange d.d., Zagreb, Ivana Lučića 2a/22, OIB: 84368186611, LEI: 7478000050A040C0D041 (hereinafter: "Exchange", "ZSE") observed during 2024 and continuing into 2025, as well as following several inquiries from issuers and investment companies conducting buybacks of own shares on behalf of issuers regarding the interpretation of the provisions of the safe harbour regime prescribed by Article 5 of Regulation No. 596/2014 on market abuse (hereinafter: "Market Abuse Regulation", "MAR")1 and the corresponding Delegated Regulation No. 2016/1052 regarding regulatory technical standards for conditions applicable to buyback and stabilization programmes (hereinafter: "RTS 2016/1052")2, adopts these Guidelines. These Guidelines aim to clarify and interpret in more detail the requirements, criteria, and conditions set out in the Market Abuse Regulation and RTS 2016/1052 that must be met for issuers to avail themselves of the benefits of the safe harbour regime when conducting buybacks of own shares on a regulated market.

Furthermore, given that issuers conducting buybacks of own shares on the regulated market of the Exchange have generally not used the possibility of the safe harbour regime under Article 5 of the Market Abuse Regulation, these Guidelines additionally draw the attention of issuers to a set of measures, arrangements, procedures, and protocols they may establish to ensure that transactions involving the buyback of own shares on the regulated market cannot be characterized as market abuse through trading on inside information and/or manipulation, or so that issuers can, in the event of Hanfa supervision regarding each purchase order/transaction with own shares on the regulated market, demonstrate the legitimacy of their conduct in accordance with Article 9(1) of the Market Abuse Regulation. The aforementioned list of measures, arrangements, procedures, and protocols is not exhaustive; rather, Hanfa provides it as an example for issuers. Thus, each issuer may implement other measures, arrangements, and procedures that achieve the same and/or similar purpose, namely that the issuer can argue and demonstrate to Hanfa in the supervisory procedure that it did not abuse the capital market through its purchase transactions with own shares, i.e., that it did not undermine market integrity.

1 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC 2 Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for conditions applicable to buyback and stabilization programmes

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I. Buyback of own shares on a regulated market outside the scope of the so-called safe harbour regime

For issuers conducting buybacks of own shares outside the scope of the safe harbour regime, it is important to emphasize that the mere fact that an issuer does not use the safe harbour regime from Article 5 of MAR and RTS 2016/1052 does not mean that the issuer has abused the market3. Hanfa, as the competent authority, assesses on a case-by-case basis whether placing a specific purchase order by an issuer not using the safe harbour regime and its execution on the ZSE constituted market abuse through trading on inside information/manipulation, in which case Hanfa will assess the set of measures, arrangements, protocols, and procedures that the issuer has internally implemented for the purpose of proving the legitimacy of the issuer's conduct. ESMA, in its Q&A No. 1736 of November 12, 20184, specifically in Question and Answer No. 10 of Part 7 related to the topic of manager transactions, emphasized that any transaction by an issuer with own shares executed during the trading ban period under Article 19(11) of MAR should be carefully considered, given that the issuer remains bound by the prohibition of market abuse through trading on inside information under Article 14 of MAR, and that an issuer in possession of inside information related to its own shares should not trade its own shares unless it has established and implemented internal mechanisms, procedures, and arrangements under Article 9(1) of MAR relating to the so-called legitimate conduct of a legal entity possessing or having possessed inside information concerning a financial instrument and trading in that financial instrument.

Below are examples of measures, arrangements, procedures, and protocols that issuers may implement to dispel suspicions of market abuse through trading on inside information or manipulation during the conduct of buybacks of own shares outside the safe harbour regime in the Hanfa supervisory procedure:

1. Ensure that persons placing purchase orders on behalf of the issuer to investment companies are not on the issuer's list of insiders, i.e., do not possess inside information regarding the issuer. This includes procedures and protocols whereby the persons placing purchase orders on behalf of the issuer are separated from sources of inside information, i.e., persons possessing inside information at the level of the issuer and other organizational units of the issuer (so-called Chinese walls); then, the existence of procedures in case persons placing orders do come into possession of inside information (e.g., further cessation of placing orders until the inside information is published, etc.).

2. When placing purchase orders with an investment company, for example:
   (i) Establish a standard pattern for placing orders (e.g., every week at approximately the same/similar time, placing the same/similar quantity of shares in the purchase order) which pattern does not change regardless of published inside information of the issuer and its impact on the share price; (ii) Establish such an arrangement with the investment company whereby the issuer will place purchase orders with the investment company with a longer execution period (e.g., three months or more) according to parameters (maximum quantity of shares, price range) determined in the decision of the general meeting/board of directors of the issuer, on the basis of which orders the investment company will then buy back own shares on behalf of the issuer on the ZSE during the described period, independently deciding on the timing of execution of transactions within that period and independently of inside information published by the issuer during that period. In this way, placing a purchase order with a longer execution period and for a larger quantity of shares reduces the possibility of problematic certain executed purchase orders/transactions of the issuer and their eventual connection with published inside information. Such an arrangement would thus encompass a wider time period for possible execution of transactions (it would not be tied to weekly, bi-weekly, or sometimes orders with shorter execution times which could then be problematic depending on inside information published during the period when such orders were placed), thereby encompassing all inside information that may arise regarding the issuer and be published during that period. By extending the time period for order execution, the issuer's influence on the timing of order execution is reduced (as the issuer gave one initial purchase order that is executed during the validity period of the order), and the decision on the timing of execution lies with the investment company as an independent third party that has no influence on the timing of the publication of inside information.

3. Although issuers not using the safe harbour regime are not obliged to adhere to the conditions and restrictions on the buyback of own shares as set out in the aforementioned RTS 2016/1052, Hanfa suggests to issuers and investment companies executing orders on behalf of the issuers that, when buying back own shares, they take into account or pay attention to the conditions/restrictions from RTS 2016/1052 and align with them to the greatest extent possible to thereby prove and argue to Hanfa, as the competent authority conducting market abuse supervision, that no market abuse occurred through the buyback of own shares. Regarding the aforementioned, issuers and investment companies executing orders on behalf of the issuer are primarily pointed out to pay attention to the restriction regarding the price of acquiring own shares under Article 3(2) of RTS 2016/1052, i.e., that the buyback of own shares does not result in an aggressive rise in the issuer's share price, etc.

In addition to the aforementioned examples of measures, arrangements, and procedures for ensuring the legitimacy of their conduct in the buyback of own shares outside the safe harbour regime, issuers may establish any other measures they believe will achieve the same purpose, namely the legitimacy of the issuer's conduct during the buyback of own shares. Hanfa, as the competent authority, will assess on a case-by-case basis whether placing a specific purchase order by an issuer not using the safe harbour regime and its execution on the ZSE constituted market abuse through trading on inside information/manipulation, in which case Hanfa, when conducting supervision of buyback activities, will assess, among other things, the established set of measures, arrangements, protocols, and procedures that the issuer has internally implemented for the purpose of proving the legitimacy of conduct, as well as the adequacy of the aforementioned measures, arrangements, and protocols in practice.

II. Buyback of own shares on a regulated market within the so-called safe harbour regime

The safe harbour regime under Article 5 of the Market Abuse Regulation and RTS 2016/1052 is a set of rules that allows issuers an exemption from the prohibition of trading on inside information and/or manipulation when conducting programmes for the buyback of own shares. To avail themselves of the exemption, issuers must meet certain conditions: transparent reporting to the investment public and national competent authorities about transactions concluded within the programme for the buyback of own shares, adherence to conditions relating to the price of acquiring own shares, limits in terms of quantity (volume) of own shares allowed to be acquired in one trading day, then the prohibition of acquiring own shares at certain moments that are particularly sensitive for the issuer, e.g., the period of delay in publishing inside information, etc. Provided that issuers duly meet all conditions under Article 5 of the Market Abuse Regulation and RTS 2016/1052, Hanfa will not individually examine purchase orders/transactions with own shares of such issuers, as it is considered that no market abuse occurred in such a case because issuers are covered by the exemption (safe harbour). The main advantage of this regime is that the issuer does not have to prove each time separately that its buybacks did not undermine market integrity, unlike buybacks outside the safe harbour regime, where that burden of proof always exists.

Below, Hanfa provides a more detailed review of the criteria and conditions that must be met by issuers for the successful application of the safe harbour regime, with the aim of answering specific questions posed by issuers and/or brokers on the topic of the safe harbour regime at appropriate places:

(i) Purpose for which the buyback of own shares is conducted

The buyback programme must have as its purpose: a) reduction of the issuer's share capital, b) fulfillment of obligations arising from debt financial instruments that can be converted into equity instruments, or c) fulfillment of obligations arising from employee share offer programmes by the employer or other allocations of shares to employees or members of administrative, management, or supervisory bodies of the issuer or a related company.

Therefore, the first and basic condition for using the exemption under Article 5 of the Market Abuse Regulation and RTS 2016/1052 is that the buyback of own shares is conducted for one of the three aforementioned purposes under Article 5(2) of the Market Abuse Regulation; i.e., this is an exhaustive list of purposes for which the exemption may be used. In the event that the buyback of own shares is conducted for a purpose not defined in Article 5(2) of the Market Abuse Regulation, the safe harbour exemption does not apply, and the provisions of Articles 14 and 15 of the Market Abuse Regulation regarding the prohibition of trading on inside information and the prohibition of manipulative conduct apply in full; i.e., in the aforementioned case, the issuer will be expected to prove the legitimacy of its conduct when placing purchase orders for the acquisition of own shares (regarding measures and arrangements the issuer may establish for the purpose of proving the legitimacy of conduct, see above ad I.).

Additionally, the exemption under Article 5 of the Market Abuse Regulation and RTS 2016/1052 applies exclusively to transactions for the acquisition of own shares executed on the regulated market on which the issuer's shares are listed, and does not cover transactions for the acquisition of own shares OTC (over the counter).

(ii) Obligations to publish and report before the start of the buyback and during its duration

Before the start of trading within the buyback programme, the issuer ensures appropriate public publication5 of the following information: the purpose of the programme, the maximum monetary amount allocated to the programme, the maximum number of shares to be acquired, the period for which the authorization for the programme was given (duration of the programme). Thus, through Hanfa's Official Register of Prescribed Information and the eho.zse system of the Zagreb Stock Exchange, it is expected that the issuer publicly publishes the aforementioned details about the buyback of own shares before the start of the buyback of own shares (either by publishing the complete buyback programme or via a detailed notice containing the required data on the buyback of own shares under Article 2(1) of RTS 2016/1052).

During the duration of the buyback of own shares under the programme, the issuer reports to Hanfa about the details of transactions relating to the buyback programme of own shares, which includes a set of data under Article 26 of Regulation No. 600/2014 on markets in financial instruments (hereinafter: "MIFIR") and the corresponding Delegated Regulation No. 2017/590 regarding regulatory technical standards for reporting transactions to competent authorities (hereinafter: "RTS 2017/590"), all within seven trading days from the date of execution of the transaction. In this regard, templates of forms with information that issuers conducting buybacks of own shares under the Market Abuse Regulation and RTS 2016/1052 should submit to Hanfa and publish to the public have been published on Hanfa's website - https://www.hanfa.hr/podrucja-nadzora/trziste-kapitala/zlouporaba-trzista/program-otkupa-vlastitih-dionica-i-stabilizacije-vrijednosnih-papira/.

At the aforementioned link, issuers will also find instructions on the method of reporting to the public about transactions within the buyback programme of own shares, then obligations to publish data on transactions with own shares on their own websites, as well as the relationship of reporting to Article 2 of RTS 2016/1052 and Article 474 of the Capital Market Act (Official Gazette No. 65/18, 17/20, 83/21, 151/22, 85/24, hereinafter: "ZTK")6.

(iii) Trading conditions

For the successful application of the safe harbour exemption, it is necessary that transactions for the acquisition of own shares meet the following conditions: a) the issuer buys shares on a trading venue where they are listed for trading or traded; b) for shares continuously traded on the trading venue, orders are not placed during the auction phase, and orders placed before the start of the auction phase are not changed during that phase; c) for shares traded on the trading venue only at auctions, the issuer places and changes orders during the auction, provided that other market participants have sufficient time to react to them.

Furthermore, regarding price restrictions on the acquisition of own shares, the condition is that issuers do not buy shares at a price higher than the price of the last independent transaction or (depending on which is higher) the highest current independent offer on the trading venue where the purchase is made.

Question from the issuer regarding price restrictions:

What is the relationship between the price restrictions under Article 3(2) of RTS 2016/1052, according to which own shares are not bought at a price higher than the price of the last independent transaction or (depending on which is higher) the highest current independent offer on the trading venue where the purchase is made, and the price restrictions for the acquisition of own shares established by the decision of the general meeting of a specific issuer (e.g., the company is authorized to acquire own shares at a price that is +/- 10% from the average market price in the previous trading day and similar price restrictions independently and freely determined by the general meeting of a specific issuer).

Hanfa's Answer:

First of all, Hanfa draws attention to the fact that any buyback of own shares in joint-stock companies (regardless of whether conducted under the safe harbour regime or not) must be conducted in accordance with the provisions of the Companies Act (Official Gazette No. 111/1993, 34/1999, 121/1999, 52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 111/2012, 125/2011, 68/2013, 110/2015, 40/2019, 34/2022, 114/2022, 18/2023, 130/2023, 136/2024, hereinafter: "ZTD"), i.e., the buyback of own shares by the issuer must have a clear legal basis in the provisions of ZTD7. In the specific case, Hanfa is of the opinion that the price range for the acquisition of own shares established by the decision of the general meeting represents the framework within which the management of the company may acquire own shares. On the other hand, the price restriction under Article 3(2) of RTS 2016/1052 applies to issuers, as well as to investment companies that acquire own shares on behalf of the issuer on the regulated market, and the aforementioned restriction aims to ensure that issuers do not raise the price with their purchase orders relative to the last independent transaction in the share or relative to the highest current offer for purchase in the order book. The restriction under Article 3(2) of RTS 2016/1052 is one of the cumulative conditions that must be met in the event that an issuer intends to use the safe harbour.

Thus, if, for example, a certain issuer were within the limits of price restrictions established by the decision of the general meeting of that issuer when placing purchase orders, such an issuer, if it wished to use the safe harbour regime, could not place purchase orders that are contrary to the aforementioned restriction from RTS 2016/1052 (e.g., a purchase order stating a higher price than the last independent transaction on the market and/or a purchase order that represents the highest current offer for purchase) and would be bound by the restrictions prescribed by RTS 2016/1052 regardless of the price ranges from the decision of the general meeting.

Furthermore, RTS 2016/1052 prescribes daily limits for the acquisition of own shares within the safe harbour regime. Thus, when executing transactions within the buyback programme, the issuer does not buy more than 25% of the average daily volume of shares in one trading day on the trading venue where the purchase is made, whereby the average daily volume is based on the average daily trading volume during any of the following periods: (i) the month preceding the month of publication of the buyback programme, whereby the buyback programme refers to such determined volume and it is applied during the duration of that programme; (ii) 20 trading days preceding the day of purchase, when the programme does not refer to that volume.

Question from issuers and investment companies regarding the restriction on the volume of own shares that can be acquired in one trading day within the safe harbour regime:

Do block transactions enter the percentage of the allowed average daily volume of shares of 25% in one trading day?

Hanfa's Answer:

The European Commission, within its authority to interpret European Union law, answered the aforementioned question in such a way that, when calculating the average daily volume under Article 3(3) of RTS 2016/1052, volumes resulting from transactions that represent an exception to pre-trade transparency (LIS waivers) should be excluded. Thus, block transactions are excluded from the calculation of the average daily volume in the previous 20 trading days, and with the aforementioned, they do not enter the acquisition limit in one trading day. The answer of the European Commission is publicly available at: https://www.esma.europa.eu/publications-data/questions-answers/901

Finally, according to RTS 2016/1052, the issuer during the duration of the buyback programme of own shares: (i) does not sell own shares, (ii) does not trade own shares during the trading ban period under Article 19(11) of MAR.

5 By appropriate public publication is meant the public publication of information via the officially designated mechanism under Article 21 of Directive 2004/109/EC on transparency, i.e., for issuers with registered office in the Republic of Croatia and listed on the ZSE, the publication of information is carried out via Hanfa's Official Register of Prescribed Information and the eho.zse system of Zagreb Stock Exchange d.d.
6 Issuers, independently of reporting on transactions within the buyback programme under Article 5(3) of the Market Abuse Regulation and under Article 2 of RTS 2016/1052, which are reported within seven trading days after the date of acquisition, further have the obligation to report to Hanfa and the investment public about information related to the acquisition and disposal of own shares under Article 474 of ZTK, all within two trading days from the date of acquisition/disposal. Reporting under the provisions of Art. 474 of ZTK encompasses a wider set of data than reporting under RTS 2016/1052 because it encompasses, for example: data on transactions disposing of own shares; data on transactions acquiring own shares OTC; data on the acquisition of own shares outside the scope of the safe harbour regime, etc.
7 Primarily Articles 233 to 238 of ZTD. In this regard, Hanfa notes here that it is not the competent authority for the interpretation and interpretation of the provisions of ZTD and questions such as, for example, the existence of valid authorization for the management to acquire own shares by the general meeting, the existence of conditions for the acquisition of own shares without the necessary authorization of the general meeting, eventual exceedance of management authority in the acquisition of own shares or non-compliance with the provisions of decisions of the general meeting on granting authorization for the acquisition of own shares, etc.