GF OCP was introduced into the Czech legislation at the beginning of the year 2001 by an amendment to the existing Law No. 591/1992 Coll., on securities. The objective of the amendment was to harmonise the Czech legal regulation with the requirements of the EC Directive No. 97/9 on guarantee schemes for investors.
Under the conditions of the Czech capital market this guarantee scheme is in fact a property insurance system (money means and investment instruments) of investors – clients – customers, trusted to the securities traders (bank and non-bank) for the purpose of investment service and forming a commitment of the securities traders to the clients.
It is an investor insurance system for situations, when the securities trader for reasons linked directly to his financial situation is not capable to fulfil his commitments to the customers and there is no prospect that he would be able to do so in the future. Key provisions in the first GF OCP regulation are the following:
- customer property does not form a part of the securities trader property
- every securities trader is obliged to contribute to the Fund, while the contribution rate is 0.3 per cent of the value of insured customer property, calculated as an arithmetical average of these property values, stated in the balance sheet of the securities trader to the end of the last day of each month of the calendar year
- contribution to the GF OCP is payable no later than on 31 March of the year, following the reference year for calculation
- GF OCP compensations for the clients of the securities traders correspond to 90 per cent of their full (customer) property, with a compensation amount ceiling of 400 thousand CZK per customer and trader
If the resources of the GF OCP are not sufficient to cover the sum of compensations, 50 per cent of the lacking sum is provided by the State in the form of a repayable financial loan and 50 per cent of the lacking sum will be provided by the Fund on the financial market.
As the existing legal regulation of the Fund functioning revealed some shortcomings, a further amendment to the Securities Law was initiated and adopted. The amendment entered into force on 12 July 2002 as an Act No.308/2002 Coll., modifying the Securities Commission Act No. 15/1998 Coll. For the GF OCP the amendment brought the following major changes:
- securities traders contribution into the GF OCP was decreased from 0.3 per cent to 0.01 per cent of the value of customer property
- the scope of items to be included into the calculation of the contribution was expanded: the base is no more the value, reported in the balance sheet, but the value recorded in accountancy (that is items recorded on the balance sheet plus off-balance items)
- customer property no more includes money means accepted by the securities trader, if this is a bank or a branch of foreign bank and which are kept on accounts, protected under the Law No. 21/1992, on Banks (as amended) - (that is covered by the Deposit Insurance Fund)
a compensation from the GF OCP applies also to the insured customer property of clients from the EU member countries and from other countries, belonging to the European Economic Area.
Law No. 256/2004 Coll., on Capital Market Undertakings, entered into force on 1 May 2004, that is to the day of the accession of the Czech Republic to the EU. The provisions of the former Securities Act were transposed with the following modifications:
- minimum annual contribution of securities trader to the Fund is 10 thousand CZK
- the ceiling of the compensation is an equivalent of 20 thousand eur
- if the resources of the GF OCP are not sufficient to cover the compensations, the Fund has to provide all lacking amount only on the financial market
- foreign person providing financial services in the Czech Republic and is not participating in a guarantee scheme of financial providers in the country of its domicile and its actual seat is obliged to participate in the GF OCP compensation scheme under the same conditions, as local securities traders.
For more detail see, please, official web site of the Guarantee Fund of the Securities Traders.