Recent developments

The Ukrainian Parliament has approved a few changes to the securities laws. The new law will significantly broaden the powers of the National Securities and Stock Market Commission (Commission).

Implications for the securities market

The new law was designed to achieve transparent and effective regulation of the securities market, afford better protection to investors and rid the market of sham participants.  In practice, it will translate into more state control over the securities market and an increased regulatory burden.  Whilst the new law deals with a whole range of matters, particularly noteworthy are the Commission’s power to go to court to liquidate non-compliant joint stock companies, a newly introduced concept of prudential supervision by the Commission, extended reporting requirements and new rules on advertising of securities.1  As assessment of the imminent changes must be made to ensure compliance going forward.

What the law says

The new law2 was approved by the Parliament on 4 July and signed by the President on 1 August.  It is expected to be published shortly.  Changes will be made to a number of laws including the Civil Code of Ukraine, Commercial Code of Ukraine, Law of Ukraine “On state regulation of securities market of Ukraine”, Law of Ukraine “On banks and banking activity”, Law of Ukraine “On securities and stock market” and Law of Ukraine “On advertising”.  All provisions except for the prudential supervision provisions will come into effect in six months after the new law is published, that is in early 2013.  The prudential supervision provisions, which will be set out in an amended Article 27 of the Law of Ukraine “On securities and stock market”, are to come into effect on the next day after the new law is published.

The Commission will enjoy a number of new powers.  In an effort to clean up the market, the Commission will be able to apply to court for liquidation of a joint stock company where that company:

  • was set up with violations that cannot be rectified;
  • in two consecutive years, did not report to the Commission as required by law;
  • did not form its management bodies within a year of the Commission registering the results of a private placement by that company.  This requirement should not extend to audit commissions because Ukrainian joint stock companies are not required to form audit commissions, but the Commission’s view on audit commissions in this context is yet to be seen; or
  • did not hold a general shareholders meeting in two consecutive years.

The Commission will also be allowed to notify the state registrar where an issuer of shares or other securities is not found at its registered address.  Some of the other new powers of the Commission will include the power to:

  • require banks to disclose, upon the Commission’s request, client information with regards to securities transactions of a particular person; and
  • ban any advertisement of securities that had already been published.

The new law contemplates a number of changes that will impact transactions with securities, namely:

  • requirements to securities transactions as regards the involvement of brokers will be clarified.  There will be an express provision in the law that a securities transaction done without a broker (where their involvement was required) is void;
  • with a view to prevent stock market manipulation, it will be prohibited to terminate agreements for purchase of listed securities (except where the law allows);
  • there will be a maximum time period for performance of securities sale and purchase agreements, which will be set by the Commission;
  • stages of public offering and private placement will be amended.  In particular, the stages of a private placement will now include entering into agreements with the underwriter, depositary and/or securities registrar (as applicable); and
  • all securities transactions (both on-market and off-market) will be reported to the Commission and included in a publicly accessibly database that the Commission will maintain.  The new law sets out a non-exhaustive list of information to be so disclosed, including a catch-all category of “other information as the Commission may determine”.  Most importantly, the price of the securities will have to be disclosed and, hence, will become a matter of public record. 

Conclusion

The Commission will receive quite a few additional powers in dealing with those who issue securities and PPSMs.  Those who buy securities may also be affected.  We suggest assessing the proposed changes as applicable in each case and where necessary, taking steps to comply.  For joint stock companies, it will be important to put their house in order to avoid falling prey to the Commission’s cleaning up campaign.  As far as PPSMs are concerned, an analysis of changes affecting this category of the securities market participants can be provided upon request.