Section 7: Prudential provisions

I. - In order to guarantee their financial stability, their solvency with regard to depositors, their absence of conflicts of interest with their customers and their ability to provide financing for the economy, credit institutions receiving repayable funds from the public, financial holding companies and mixed financial holding companies, whose trading activities in financial instruments exceed thresholds defined by decree of the Conseil d'Etat, are prohibited from carrying out the following transactions other than through subsidiaries dedicated to these activities:

1° Trading activities in financial instruments on their own account, with the exception of activities relating to :

a) the provision of investment services to customers ;

b) Clearing financial instruments;

c) Hedging the risks of the credit institution or the group, within the meaning of III of Article L. 511-20, with the exception of the subsidiary mentioned in this article;

d) Market making. The Minister responsible for the economy may, by order and after obtaining the opinion of the Autorité de contrôle prudentiel et de résolution, set a threshold valid for all institutions or for one institution in particular, expressed in relation to the net banking income of the credit institution, the financial holding company or the mixed financial holding company, above which the market making activities of a credit institution no longer benefit from this exception;

e) Sound and prudent management of the group's cash position, within the meaning of Article L. 511-20, and financial transactions between credit institutions, financial holding companies and mixed financial holding companies, on the one hand, and their subsidiaries belonging to the same group, within the meaning of the same Article L. 511-20, on the other hand;

f) The group's investment transactions, within the meaning of Article L. 511-20 ;

2° Any transaction entered into on its own behalf with leveraged collective investment undertakings or other similar investment vehicles, meeting the characteristics laid down by order of the Minister for the Economy, where the credit institution is not guaranteed by collateral whose characteristics, monitored by the Autorité de contrôle prudentiel et de résolution, meet the quantity, quality and availability requirements, under the conditions laid down by order of the Minister for the Economy. Undertakings for collective investment that are themselves invested in or exposed to leveraged undertakings for collective investment or other similar investment vehicles referred to in this 2° above a threshold specified by order are treated in the same way as the latter. To this end, the credit institution shall transmit to the Autorité de contrôle prudentiel et de résolution, in accordance with the procedures defined by it, the information relating to commitments with these undertakings.

II. - The exposure thresholds mentioned in the first paragraph of I are determined on the basis of the relative importance of market activities and, where applicable, the activities mentioned in the first paragraph of 1° and 2° of I in the overall activities of the credit institution, the financial holding company or the mixed financial holding company.

III. - For the purposes of this article, "provision of investment services to customers" means the activity of an institution:

1° Consisting in providing the investment services mentioned in Article L. 321-1 and the related services mentioned in Article L. 321-2 by becoming a party to transactions in financial instruments with the aim of meeting the hedging, financing or investment needs of its clients ;

2° And whose expected profitability results from the income derived from the services provided to customers and from the sound and prudent management of the risks associated with these services. The associated risks must meet the strict management needs of the business, in accordance with the conditions laid down by order of the Minister for the Economy.

IV. - For the purposes of this article, "hedging" means the activity of an institution referred to in I which enters into transactions in financial instruments with the aim of reducing its exposure to risks of all kinds associated with credit and market activities. The instruments used for these hedging transactions must have an economic relationship with the risks identified, under conditions defined by order of the Minister for the Economy.

V. - For the purposes of this article, "market making" means the activity of an institution which, as an intermediary, is a party to transactions in financial instruments:

1° consisting of the simultaneous communication of firm and competitive bid and offer prices for volumes of comparable size, with the result of providing liquidity to the markets on a regular and continuous basis ;

2° Either necessary, in the course of its normal business, to execute client buy or sell orders or in response to client requests to buy or sell.

The Autorité de contrôle prudentiel et de résolution shall ensure that the market-making activity referred to in 1° and 2° is clearly distinguished from other activities. For the activities referred to in 1°, it shall base this distinction on indicators specifying the conditions for regular presence on the market, the minimum activity on the market, the requirements in terms of proposed spreads, and the internal organisational rules including risk limits. The indicators are adapted according to the type of financial instrument traded and the trading venues on which the market-making activity takes place. The market maker shall provide the Autorité de contrôle prudentiel et de résolution and the Autorité des marchés financiers with the indicators on a regular basis.

For the activities referred to in 2°, the institution must be able to demonstrate a link between customer needs and transactions carried out on its own account. The Autorité de contrôle prudentiel et de résolution shall verify the existence of this link, in particular with regard to the frequency of transactions carried out and the internal organisation put in place to meet customers' needs. It shall inform the Autorité des marchés financiers of the findings of the checks carried out.

An order of the Minister responsible for the economy, after consultation with the Autorité de contrôle prudentiel et de résolution and the Autorité des marchés financiers, sets the list of indicators transmitted to these authorities.

VI. - For the purposes of this article, "group investment transactions" means :

1° The purchase or sale of financial securities acquired with the intention of holding them on a long-term basis, as well as transactions in financial instruments linked to such transactions;

2° The purchase or sale of securities issued by group entities.