How to enter the capital market:

Are you considering a public listing or raising capital in the European Union? This guide provides clear, practical answers for foreign companies looking to enter the Czech capital market. This article outlines the legal framework, the listing process on the Prague Stock Exchange (PSE), and how an English-speaking lawyer can help you navigate the regulations successfully.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Marek Hučík", an expert on the subject.

The Czech Republic: Your Strategic Entry Point to EU Capital Markets

For foreign companies and investors, the Czech Republic represents more than just a national market; it is a stable and strategic gateway to the entire European Union capital system. The country's commitment to fostering a robust financial environment is codified in its National Strategy, which aims to support economic growth and increase national competitiveness through well-functioning capital markets. This proactive government stance signals a supportive and developing regulatory landscape for new entrants.

The investment climate is secured by the Czech Republic's full EU membership, which ensures a transparent legal framework harmonized with predictable European standards. This provides a significant advantage for foreign investors, particularly those already familiar with EU regulations. The legal system, while having evolved rapidly since the 1990s from a "clean slate" into a modern, market-oriented framework, benefits from this EU integration, reducing legal uncertainty and operational risk for international businesses.

This alignment with a pan-European framework means that core principles of corporate governance, investor protection, and disclosure are consistent with those in major financial centers. For a foreign company, this drastically reduces the legal and operational learning curve. You are not entering an entirely alien system but rather a jurisdiction that implements a familiar set of high-level rules. This creates a "legal shield" of predictability, making the Czech market a less risky and more accessible entry point into the EU's capital ecosystem.

The country’s central location, skilled workforce, and stable political system further enhance its appeal as a safe and strategic base for capital market activities within the European Union. ARROWS lawyers regularly advise foreign entities on leveraging these advantages. For tailored legal solutions, get in touch by writing to office@arws.cz.

Navigating the Regulatory Framework: Core Legislation and Supervision

The Czech capital market is built on a solid foundation of national legislation that is deeply integrated with EU law. This dual structure provides both local clarity and cross-border consistency. Critically, all regulatory and supervisory functions are consolidated under a single, powerful authority: the Czech National Bank (CNB).

The Legal Cornerstones: The Act on Capital Market Business

The primary legislation governing the market is Act No. 256/2004 Coll., on Business on the Capital Market. This Act is not a standalone piece of local law; it explicitly incorporates and builds upon a suite of directly applicable EU regulations. This includes the Market Abuse Regulation (MAR), the Prospectus Regulation, and the Markets in Financial Instruments Directive (MiFID II).

This deep integration ensures that the Czech market operates on principles familiar to any international company active in the EEA. To further facilitate access for foreign investors, the Czech Ministry of Finance publishes official English translations of key capital market laws, demonstrating a clear commitment to transparency and accessibility.

The Role of the Czech National Bank (CNB): Your Single Point of Contact

Unlike jurisdictions with multiple regulatory bodies, the Czech Republic has a "one-stop-shop" for financial supervision. The Czech National Bank (CNB) is the sole, integrated supervisor for the entire financial market, covering everything from banking and insurance to the capital markets. This centralized structure can significantly streamline regulatory interactions for listing companies.

The CNB’s mandate is comprehensive, encompassing all licensing and approval proceedings, on-site and off-site supervision, and enforcement actions, including the power to issue significant penalties for non-compliance. For companies seeking to list on a regulated market, one of the CNB's most critical functions is the review and approval of the mandatory securities prospectus. While this concentration of power simplifies the administrative landscape, it also elevates the importance of every interaction with the regulator, making expert legal representation essential.

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FAQ – Legal tips about Czech Market Fundamentals

1. What is the primary law governing capital markets in the Czech Republic?
The main law is Act No. 256/2004 Coll., on Business on the Capital Market. It is fully harmonized with EU regulations. For a detailed analysis of how this law applies to your business, contact our lawyers at office@arws.cz.

2. Is Czech regulation very different from other EU countries?
No. The Czech legal framework is built on directly applicable EU regulations like MAR and the Prospectus Regulation, ensuring a high degree of consistency across the EU. Need to understand the specific local nuances? Email us at office@arws.cz.

3. Who is the main regulator I will be dealing with?
The Czech National Bank (CNB) is the single, integrated supervisor for the entire financial market, including all capital market activities. For assistance with CNB proceedings, write to our experts at office@arws.cz.

A Practical Guide to Listing on the Prague Stock Exchange (PSE)

The Prague Stock Exchange (PSE) offers a flexible, multi-tiered market structure designed to accommodate a diverse range of companies. Whether you are an established multinational or a high-growth SME, the PSE provides a clear path to listing, with accessible and transparent requirements for foreign issuers.

Which Market is Right for Your Company?

The PSE is divided into two main segments, each with distinct markets tailored to different issuer needs:

• EU-Regulated Markets: These are the official markets operating under the highest EU transparency standards.

• Prime Market: The most prestigious segment, designed for large, established "blue chip" companies that meet stringent reporting and liquidity requirements.
• Standard Market: Also an EU-regulated market, it offers high visibility and credibility with slightly more flexible requirements than the Prime Market, making it suitable for a broader range of established companies.

• Exchange-Regulated Markets (Multilateral Trading Facility - MTF): These markets have a lower level of regulatory requirements, making them more accessible.
• START Market: Specifically designed to support small and medium-sized enterprises (SMEs). It offers simplified conditions, with no minimum requirements on company size, free-float, or operating history, and does not mandate IFRS accounting. This creates a uniquely accessible entry point for foreign SMEs looking for a foothold in the EU public markets.
• Free Market: Allows for the trading of securities, including those from foreign exchanges, often without the issuer's direct involvement or consent (an unsponsored listing).

Eligibility Checklist for Foreign Issuers (Prime & Standard Markets)

For a foreign company seeking a listing on the PSE's main regulated markets, the requirements are clear and closely aligned with international standards. There are very few differences in the core requirements for foreign versus domestic companies.

Financial History: While there are no specific profit or revenue requirements, applicants must submit three years of audited annual financial statements.

• Market Capitalisation: A minimum market capitalisation equivalent to €1 million is required for the "official market" designation on the Prime and Standard markets.
• Public Float: At least 25% of the shares to be listed must be distributed to the public (the "free-float") in one or more European Economic Area (EEA) states.
• Accounting Standards: Companies incorporated in the EEA must prepare accounts under International Financial Reporting Standards (IFRS). Non-EEA companies can use IFRS or a national GAAP deemed equivalent by the European Commission, such as US, Japanese, or Canadian GAAP.
• Legal Status: A foreign issuer must provide a declaration confirming that its legal status complies with the laws of its home country.

The Prospectus: Your Key to Market Entry

For any public offering of securities or admission to a regulated market like the Prime or Standard Market, a prospectus is the central legal document. This document must be formally approved by the Czech National Bank (CNB) before the listing can proceed. It must contain all information necessary for an investor to make an informed assessment of the company's assets, financial position, and prospects.

Under the EU Prospectus Regulation, there is a significant advantage for companies already active in Europe. A prospectus approved by the competent authority in another EEA member state can be "passported" for use in the Czech Republic, streamlining the process for dual listings. Furthermore, the EU regulation exempts public offers with a total consideration of less than €1 million (calculated over 12 months) from the obligation to publish a prospectus, a threshold the Czech Republic has adopted.

Pre-Listing Application and Documentation Risks

Risks and penalties	How ARROWS helps
Incomplete or non-compliant prospectus leading to rejection by the CNB. Penalties include significant delays to the IPO timeline, increased costs, and potential loss of market confidence.	Prospectus drafting and review. We ensure full compliance with both EU and Czech regulations. Need your prospectus reviewed? Write to office@arws.cz.
Failure to meet the 25% free-float requirement. This results in ineligibility for the official Prime or Standard markets, limiting investor access and prestige.	Legal structuring advice. We help structure your offering to ensure share distribution meets regulatory thresholds. For immediate assistance, contact us at office@arws.cz.
Financial statements not compliant with IFRS or an accepted equivalent. Your application will be rejected, requiring a costly and time-consuming restatement of accounts.	Legal consultations. We work with your auditors to confirm accounting standards compliance from a legal perspective. Our lawyers are ready to assist you – email us at office@arws.cz.
Incorrect declaration of foreign legal status. This can lead to application rejection and questions about the company's governance and legal standing.	Drafting legally required documentation. We prepare all necessary declarations to ensure a smooth application process. Get tailored legal solutions by writing to office@arws.cz.

Life as a Public Company: Ongoing Obligations and High-Stakes Sanctions

Achieving a listing on the Prague Stock Exchange is a significant milestone, but it marks the beginning of a new set of responsibilities. Life as a public company in the Czech Republic involves stringent, ongoing compliance and disclosure obligations governed by EU-wide rules. Failure to adhere to these rules, particularly those concerning market abuse, carries severe financial and even criminal penalties enforced rigorously by the Czech National Bank.

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Maintaining Transparency: Your Continuous Disclosure Duties

Once listed, a company must maintain a high level of transparency with the market and investors. Key ongoing obligations for companies on the Prime and Standard markets include:

• Financial Reporting: Publication of audited annual reports within four months of the financial year-end and semi-annual reports within three months of the period's end.
• Disclosure of Inside Information: This is one of the most critical obligations. Any non-public, price-sensitive information—defined as inside information—that directly relates to the company must be disclosed to the public as soon as possible. Delaying this disclosure is permitted only under very strict, narrow conditions.
• Other Material Events: Companies must also publish notices of general meetings, dividend distributions, changes in share capital, and any other information that could significantly affect the share price.

The Red Lines: Market Abuse and Insider Dealing

The rules designed to protect market integrity are governed directly by the EU Market Abuse Regulation (MAR), which is directly applicable in the Czech Republic without needing significant local legislation. This means the compliance risks for a company listed in Prague are identical to those in Frankfurt or Paris. The two most serious offenses are:

1. Insider Dealing: This offense, defined in Article 14 of MAR, occurs when a person possesses inside information and uses it to acquire or dispose of financial instruments for their own account or for a third party. It also includes recommending or inducing another person to engage in trading based on that information. Crucially, this also covers the act of cancelling or amending an order after coming into possession of inside information.
2. Market Manipulation: Defined in Article 15 of MAR, this involves engaging in activities that give, or are likely to give, false or misleading signals as to the supply, demand, or price of a financial instrument, or that secure the price at an artificial level. This includes practices like spreading false rumors through media or online channels or executing trades that create a false impression of activity (e.g., "wash trades").

The High Cost of Non-Compliance: CNB Enforcement

The CNB has broad powers to investigate and sanction any breaches of capital market rules. The penalties for market abuse are severe and are set at the EU level, underscoring the gravity of these offenses.

• Administrative Sanctions: Under MAR, the maximum administrative fines are substantial. For legal persons (companies), a breach like insider dealing or market manipulation can result in fines of up to €15 million or 15% of the total annual turnover, whichever is higher. For natural persons (individuals), the maximum fine is €5 million.
• Criminal Sanctions: Beyond fines, the EU Directive on criminal sanctions for market abuse, fully implemented in Czech law, mandates severe criminal penalties. Intentional insider dealing and market manipulation are punishable by a maximum term of imprisonment of at least four years. The unlawful disclosure of inside information carries a maximum term of at least two years.

While specific CNB fines for market abuse are not always publicised, the regulator has a clear track record of imposing multi-million Czech koruna fines for other regulatory violations, demonstrating its willingness to use its enforcement powers to their full extent.

Post-Listing Compliance and Market Abuse Penalties

Risks and penalties	How ARROWS helps
Accidental or intentional insider dealing by an employee. Penalties include fines up to €15 million or 15% of annual turnover for the company, and up to €5 million and imprisonment for the individual involved.	Preparation of internal company policies. We draft robust policies and provide professional training for management and employees on market abuse rules. Need legal help? Contact us at office@arws.cz.
Delayed disclosure of price-sensitive "inside information." Penalties can reach up to €2.5 million or 2% of annual turnover, accompanied by severe reputational damage and loss of investor trust.	Legal consultations. We provide ongoing legal advice to help your management team identify inside information and ensure timely, compliant disclosure. For immediate assistance, write to us at office@arws.cz.
Actions by marketing or PR departments being construed as market manipulation. Penalties can be as high as €15 million or 15% of turnover, along with the risk of a criminal investigation.	Drafting documentation and legal opinions. We review communications and provide legal opinions to prevent sanctions and ensure your public statements are compliant. Do not hesitate to contact our firm – office@arws.cz.

Special Considerations for International and Non-EU Investors

Beyond the standard capital market regulations, international and particularly non-EU investors must navigate an additional layer of strategic investment screening. Furthermore, the success of any cross-border capital market transaction, from an IPO to ongoing compliance, hinges on leveraging a legal partner with a robust international network and deep multi-jurisdictional expertise.

Navigating the Foreign Investments Screening Act

The Czech Foreign Investments Screening Act (FDI Act) introduced a framework to review certain foreign investments to protect national security and public order. This is a critical consideration for any non-EU entity planning a significant acquisition or investment in the Czech Republic.

• Who is affected? The FDI Act applies to non-EU investors who acquire an effective control or at least 10% of the voting rights in a Czech company operating in sensitive sectors.
• What is a sensitive sector? This includes the manufacturing of military equipment, the operation of critical infrastructure, and other strategic areas defined by the Act.
• Who is the regulator? The screening is conducted by the Ministry of Industry and Trade, not the CNB. The Ministry has the power to review transactions retrospectively for up to five years after their completion, creating potential long-term risk.
• How can you mitigate risk? The Act allows investors to engage in a voluntary consultation with the Ministry before completing a transaction. This is a crucial risk-mitigation tool that provides legal certainty and helps avoid a costly and disruptive retroactive ban on the investment.

Leveraging Global Expertise: The ARROWS International Advantage

Capital market transactions are rarely confined to a single jurisdiction. They involve coordinating with parent companies, international investors, and regulators across multiple countries. This complexity demands a law firm with a genuine global reach. ARROWS, an international law firm operating from Prague, European Union, provides this through its ARROWS International network.

Built over 10 years, our network operates in 90 countries, giving our clients immediate access to trusted, local legal expertise in their home jurisdiction and key financial centers worldwide. This integrated approach offers tangible benefits:

• Seamless Coordination: Our team in Prague acts as your single point of contact, seamlessly coordinating with our network partners to manage documentation, ensure regulatory compliance, and provide legal opinions that cover both Czech and home-country law.
• Multi-Jurisdictional Expertise: We navigate complex issues like cross-border tax implications, differences in corporate governance standards, and international dispute resolution, avoiding the costly mistakes that can arise from a fragmented legal approach.
• Efficiency and Cost-Effectiveness: An established network provides the capabilities of a multinational firm without the associated overhead, delivering efficient and well-integrated legal solutions for everything from IPOs to ongoing compliance.

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Cross-Border and Foreign Investor-Specific Challenges

Risks and penalties	How ARROWS helps
Investment being blocked or unwound under the FDI Act. This can result in the complete failure of the transaction, wasted costs, and forced divestment orders from the Ministry.	Representation before public authorities. We manage the entire FDI screening process, including voluntary consultations, to secure approval. Get tailored legal solutions by writing to office@arws.cz.
Conflicts between Czech corporate law and home country regulations. This can lead to legal disputes, compliance failures, shareholder conflicts, and potential double taxation issues.	Coordinated legal opinions. Our ARROWS International network provides integrated advice covering all relevant jurisdictions. Need legal help? Contact us at office@arws.cz.
Inefficient management of legal work across multiple jurisdictions for an IPO. Miscommunication and lack of coordination can cause significant delays, increase legal costs, and jeopardize the transaction.	A single point of contact. Our team in Prague coordinates with our global network for seamless, efficient service. Our lawyers are ready to assist you – email us at office@arws.cz.

Your Legal Partner for Capital Market Success in Prague

Successfully entering and thriving in the Czech capital market requires more than just understanding the rules; it demands a strategic legal partner. You need a team that can manage the entire lifecycle of the process, from initial structuring and prospectus drafting to navigating the CNB's stringent requirements and ensuring ongoing compliance with complex EU regulations. The potential financial and criminal penalties for missteps are too severe to risk.

ARROWS is a leading Czech law firm with a proven track record of guiding foreign companies through these challenges. We support over 150 joint-stock companies and 250 limited liability companies, leveraging our deep knowledge of both local and international law. Our comprehensive services are designed to provide end-to-end support for your capital market ambitions.

We offer:

• Preparation of your prospectus and all other legally required documentation.
• Representation before public authorities, including the Czech National Bank and the Ministry of Industry and Trade.
• Drafting of internal company policies to prevent fines and ensure compliance with market abuse rules.
• Professional training for your employees and management on their legal obligations as a public company.
• Contract drafting and review for all related transactions.

Don't navigate this complex process alone. Let our team of experienced lawyers at our law firm based in Prague, European Union, provide the expert guidance you need for a successful entry into the EU capital markets.

For a confidential consultation on your capital market ambitions, contact us today at office@arws.cz.

FAQ – Most common legal questions about the Czech Capital Market

1. What are the typical costs and fees for listing on the PSE?
Fees are relatively low compared to larger exchanges. For example, the Prime Market has no entry fee, and the annual fee is 0.05% of market capitalisation, capped at a maximum of CZK 300,000. The START market has an admission fee of CZK 30,000 and no annual fee if certain conditions are met. For a full breakdown of expected legal and administrative costs, please contact our team at office@arws.cz.

2. If we already have a prospectus approved in another EU country, can we use it in the Czech Republic?
Yes. Under the EU's "prospectus passport" regime, a prospectus approved by the competent authority of another EEA member state can be used for a public offer or listing in the Czech Republic after a simple notification procedure. To ensure your passporting process is handled correctly, get in touch with us at office@arws.cz.

3. Do we need to establish a Czech legal entity to list on the PSE?
No, a foreign company can list its existing shares directly. There are no jurisdictions of incorporation that are unacceptable, and the PSE rules apply almost equally to domestic and foreign companies. To understand the legal implications for your specific corporate structure, write to us at office@arws.cz.

4. How long does the entire listing process typically take from start to finish?
The formal review period by the PSE is very quick, typically 10-15 days. However, the overall process, including prospectus preparation, due diligence, and CNB approval, takes several months. Planning and coordination are key. For help creating a realistic timeline for your IPO, our lawyers are ready to assist you – email us at office@arws.cz.

5. What are the main differences in ongoing reporting between the Prime and START markets?
The Prime Market requires full compliance with EU regulated market standards, including audited annual and semi-annual reports and immediate disclosure of all inside information. The START Market has simplified reporting requirements tailored to the needs of SMEs, significantly reducing the administrative burden. To determine the best market for your company's needs, contact us for a consultation at office@arws.cz.

6. Can our company's shares be traded in both EUR and CZK?
Yes, trading on the PSE is conducted through the XETRA® trading system, which can support trading in multiple currencies. This offers flexibility for international companies and investors. For specific advice on structuring your listing, do not hesitate to contact our firm – office@arws.cz.