FAO: Heads of Legal in financial institutions and other organizations

Pepeliaev Group advises you that the Russian Federal Law No. 218-FZ “On Amending Certain Legislative Acts of the Russian Federation” came into effect on August 2, 2014.  The Law simplifies the procedure for foreign securities to be admitted to the Russian financial markets.

  1. Broader Admission of Foreign Securities

According to the amendments, the securities of foreign issuers may be admitted to “public circulation” (trading), including by being offered or placed on organized markets, by a decision of the relevant exchange or trading system without entering into an agreement with the issuer.  Such admission is subject to a number of conditions, which include  the securities in question must be listed on foreign exchanges approved by the Russian Central Bank (the “CBR”)1 and  the CBR must classify these financial instruments as securities.

The relevant exchange or the trading system that has admitted foreign securities to trading will need to comply with a number of obligations, in particular, with respect to the disclosure of information regarding the securities and the issuer, as well as with respect to notifying the issuer of its decision.

  1. Brokers are allowed to offer securities of foreign issuers to persons without qualified investor status

A broker or a fund manager is allowed to purchase securities of foreign issuers for clients who are not qualified investors if the broker or the fund manager is a member of an SRO that has approved and registered with the CBR its standards (procedures) for notifying clients of the risks related to investing in foreign securities.

At present it has been reported that the NAUFOR has submitted its standards to be registered by the CBR.2  No such information is available with respect to the NFA.

However, it is not clear whether the amendments allow persons without qualified investor status to purchase securities that have not been admitted for “public circulation” (trading) in Russia.  Article 51.1 (14) of the Law “On the Securities Market” still limits the ability of non-qualified investors to purchase foreign securities that have not been admitted for “public placement or circulation”.     

Therefore, the amendments may be interpreted as applicable only to foreign securities admitted to be traded on organized markets in Russia. 

  1. Relaxation of the Rules for Obtaining the Qualified Investor Status for Individuals

As of July 1, 2014 an individual may be granted qualified investor status if he or she meets at least one of the criteria listed in Article 51.2(4) of the Law “On the Securities Market”.  Previously the law required an individual investor to meet at least two such criteria.  (However, the FSMS’s Order № 08-12/pz-n dated 18.03.2008, which approved the procedure for qualified investor status to be granted, is yet to be amended to reflect the corresponding change in the law).

In addition, the amendments introduce new criteria that an individual may meet in order to obtain qualified investor status, namely, the size of personal assets and education or qualification certificates held by the individual.  The CBR may be expected to issue additional guidance on how these new criteria will be applied. 

  1. Participation in Shareholders’ Meetings by Investors Whose Securities are Held by Nominee Holders

As of August 1, 2014 a nominee holder may participate and vote at shareholders’ meeting on behalf of, and pursuant to the instructions received from, its clients (the shareholders) without a power-of-attorney from those clients.  The procedure for instructions to be issued to the nominee may be provided for in a contract between the nominee holder and the client.

At the same time it should be noted that under Article 52(4) of the Law “On Joint Stock Companies” the nominee will still be required to forward to its client notices of upcoming shareholders’ meetings and related information (materials).

  1. Subsequent Pledges of Assets Pledged to the CBR

The amendments establish special regulation for subsequent pledges of (movable) assets that have been pledged by credit organizations in favor of the CBR.  Subsequent pledges of such assets are permitted only if an agreement between the credit organization and the CBR so provides.

 In other cases, as of July 1, 2014, a subsequent pledge of movable assets is allowed unless the law expressly prohibits it.

Vladislav Korablin