Securities & Banking: Update

This White & Case’s update on recent legislative changes in Securities and Banking includes developments in law on central depositaries, operation of stock exchanges and organizers of trades, on notifications by shareholders to the Federal Service for Financial Markets and the company and on the Central Bank’s requirements to settlement of cashless payment and provisions for potential losses related to securities rights.

Central Depositary

On 7 December 2011 the President signed Federal Law No. 414-FZ “On the Central Depositary” and Federal Law No. 415-FZ amending certain legislative acts in connection with the adoption of Federal Law No. 414-FZ.

Federal Law No. 414-FZ establishes distinctive features of the central depositary and operation (including its rights, obligations and restrictions of its operation, exclusive functions and material conditions of the depository agreement); it also sets forth the procedure for obtaining its status, and distinctive features of state control and supervision over its operation.

A central depositary may only be a joint-stock company whose shareholders comprise any of the following Russian entities:

(i) management companies of investment unit funds, joint-stock investment funds and non-state pension funds; (ii) professional participants in the securities market; (iii) organizers of trades, (iv) clearing organizations, and (iv) other persons if so provided for under the central depositary’s charter.

Federal Law No. 415-FZ amends federal laws “On Joint-stock Companies”, “On the Securities Market”, “On Insolvency (Bankruptcy)”, “On Enforcement Proceedings” in connection with records of rights to securities by the central depositary.

Federal Law No. 414-FZ entered into force on 1 January 2012, save for certain provisions. Federal Law No. 415-FZ will enter into force on 1 July 2012, save for certain provisions.

Organized Trades

On 21 October 2011 the President signed Federal Law No. 325-FZ “On Organized Trades” and Federal Law No. 327-FZ amending certain legislative acts in connection with the adoption of Federal Law No. 325-FZ.

Federal Law No. 325-FZ systematized and detailed current regulatory framework overseeing the operation of stock exchanges and organizers of trades, and introduced a single terminology used in this sphere. In particular, an organizer of trades may be any business entity, and a stock exchange may only be a joint-stock company. An organizer of trades must obtain a license either for a stock exchange or for a “trading system” and must possess funds in an amount of no less than RUB 100 million (stock exchange) and no less than RUB 50 million (trading system).

Federal Law No. 325-FZ also sets out requirements for founders, management bodies and employees of organizers of trades and participants of trades, as well as principal provisions of state regulation and state control over organization of trades.

Federal Law No. 327-FZ amended more than 40 laws, in particular, federal laws “On Joint-stock Companies”, “On the Securities Market”, “On Non-state Pension Funds”, “On Investment Funds”, “On Mortgage Securities”, “On Appraisal Activity”, “On the Central Bank of the Russian Federation”, “On the Foundations of Trading in Russia”, the Administrative Offences and the Budgetary Codes of the Russian Federation, and other acts.

Federal Law No. 325-FZ entered into force on 1 January 2012, save for a number of provisions calling for a period of transition (namely, change of the organizational form of operative stock exchanges, which will be possible starting from the date of official publication of the law, and also obtaining of new licenses by stock exchanges and organizers of trades) that will be ended by 1 January 2014.

Notifications

On 4 October 2011 the Federal Service for Financial Markets (“FSFM”) issued Order No. 11-44/pz-n setting requirements, forms, terms and procedure for giving

notifications by shareholders (participants) according to securities market legislation.

The Order was registered with the Ministry of Justice on 25 November 2011.

According to Federal Law No. 39-FZ “On the Securities Market”, there is an obligation to provide notifications to the issuer and the FSFM concerning:

  • Appearance (absence) of a controlling entity by persons owning five or more percent of voting shares in the issuer;
  • Acquisition by a person of a right to dispose of, directly or indirectly and independently or together with other persons specified in the Law, a certain amount of voting shares in the issuer, if the amount of such voting shares is five percent or becomes more or less than 5, 10, 15, 20, 25, 30, 50, 75 or 95 percent of the total number of voting shares;
  • Acquisition (disposition) of voting shares in the issuer by an entity controlled by the issuer;
  • Gaining powers necessary for calling and holding an extraordinary general shareholders’ meeting by shareholders or other persons in case of charging them with such duty by the court.

The Order now sets the requirements for the content, form, terms and procedure for giving such notifications. The notifications are to be provided within ten days from the date when a person found out, or should have found out, about the occurrence of the respective event (within one day from the date when a person found out, or should have found out, about entry into force of the respective commercial court decision in case of gaining powers for calling and holding an extraordinary general shareholders’ meeting).

The Order will enter into force 10 days after the date of its official publication (as of 17 January 2012, the Order has not been published).

Cashless payment settlements

On 23 December 2011 the Central Bank issued Letter No. 196-T regarding payment demands.

The Letter is issued in view of Central Bank Directive No. 2749-U (which became effective on 29 December 2011). The Directive divided payment demands into those (i) payable with the payer’s acceptance and (ii) payable with an acceptance granted in advance (as opposed to payment demands payable with or without acceptance, previously).

The Letter clarifies that after 29 December 2011 banks should not accept payment demands which refer to payment “without acceptance.” However, if an agreement provides for direct debiting of a payer’s account, banks should accept payment demands which refer to payment “with acceptance” and fulfil such payment demands as payable with an acceptance granted in advance.

The Letter was published in the Central Bank Herald on 29 December 2011.

Provisions for potential losses

On 17 November 2011 the Central Bank issued Directive No. 2732-U regarding formation of provisions for losses in operations with securities rights which are recorded by depositaries.

The Directive was registered with the Ministry of Justice on 12 December 2011.

According to the Directive, banks are to make provisions for potential losses related to securities rights which are recorded by organizations (depositaries), unless those organizations (depositaries) meet the criteria set forth in the Directive. The provisions should amount to 50% of the securities’ value.

Banks that form the provisions for such securities in accordance with Central Bank Regulation No. 283-P should form additional provisions if the formed provisions are below the above amount.

The Directive will enter into force on 20 May 2012.

For further information please contact Igor Ostapets, Grigory Chernyshov or Irina Dmitrieva in the Moscow office of White & Case, tel + 7 495 787 3000 .

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