Russia’s Federal Financial Markets Service (FFMS) recently issued the Draft Order "On Adoption of the Regulation on the Procedure for the Issuance by the Federal Financial Markets Service of Consents to the Placement and/or Trading of the Issue-Grade Securities of Russian Issuers Outside the Russian Federation."

The Draft Order, which has not yet been approved, is intended to supersede Order No. 06-5/??-?, dated 12 January 2006, "On Adoption of the Regulation on the Procedure for the Issuance by the Federal Financial Markets Service of Consents to the Placement and/or Trading of the Issue-Grade Securities of Russian Issuers Outside the Russian Federation" (as amended). The Draft Order would amend the current rules on the placement and trading of Russian securities outside Russia including foreign securities.

Although the Draft Order would regulate placement of Russian securities outside Russia, most of the new restrictions address Russian share placement.

A summary of the Draft Order follows.

New Percentage Cap

For any single issue of Russian shares, the total portion that may be placed or traded outside Russia will be reduced from 70 percent to 50 percent. The percentage cap applies to both initial placements and combinations of initial and secondary placements.

Russian publicly offered shares and Russian secondary shares may be offered outside Russia only if they are offered in Russia simultaneously.

Publicly offered shares are considered to be offered in Russia if the conditions of their placement provide for their trading on a Russian stock exchange or their offer by a Russia-based broker. The secondary shares are considered to be offered in Russia if they are traded on a Russian stock exchange or offered by a Russia-based broker.

In case of secondary share placement, no more than 50 percent of the shares offered within Russia by the shareholder-owner may be offered outside Russia.

New Thresholds

The Draft Order would set new thresholds for the percentage of Russian shares that may be placed or traded outside Russia (decreasing the current 30-percent threshold set for all quotation lists of Russian stock exchanges):

  • No more than 25 percent of a Russia-based issuer’s shares of the same category that are included in the A (level 1 or 2) quotation list of a Russian stock exchange;
  • No more than 15 percent of a Russia-based issuer’s shares of the same category that are included in the B quotation list of a Russian stock exchange; and
  • No more than 5 percent of a Russia-based issuer’s shares of the same category that are included in the C or I quotation list of a Russian stock exchange.

The Draft Order reaffirms provisions in the current regulations that allow for the placement or trading outside Russia of no more than 5 percent of the total number of shares of a Russia-based joint stock company that is recognized as strategically important for national defense and national security[1] and that prospects subsoil or explores and extracts mineral resources on federally designated subsoil properties.

Required Documentation

The list of documents that must be filed with the FFMS to receive the FFMS’ consent for the placement and trading of Russian securities outside Russia was expanded to include the following documents:

  • An extract from the proposed issuer’s ledger (depo) account of the depositary receipts evidencing ownership of the Russian shares;
  • A payment order evidencing the applicant’s effective payment of the appropriate state duty for the application examination; and
  • A payment order evidencing the applicant’s effective payment of the applicable state duty for the respective FFMS consent issuance.

Term of Consent

In addition the Draft Order provides for the set term of the validity of the FFMS’ consent – one year from the date of its issuance – and requires the issuer or shareholder who proposed the shares to provide the FFMS with a report on the results of Russian shares’ placement within 30 days of the last day of the term of placement.