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Russian Legislation Peculiarities
Legal Framework
Securities markets and transactions with securities are generally regulated in Russia by the Federal Law "On the Securities Market", No. 39-FZ (as amended) (hereinafter the "Securities Law"), enacted on April 22, 1996.
Offerings of corporate securities are regulated by the Federal Law "On Joint-Stock Companies" (the "JSC Law"), enacted on December 26, 1995. Only open joint-stock companies may issue shares that are publicly traded. Russian securities are also subject to a number of regulations issued by the Federal Service for Financial Markets (hereinafter the "FSFM"), the Russian Federation Civil Code, and regulations issued by other regulatory agencies (on April 9, 2004 the Federal Commission for the Securities Market was abolished; the Federal Service for Financial Markets was established to supersede it).
Article 143 of the Russian Federation Civil Code provides a list of the securities that may be issued by entities other than joint-stock companies. These securities include negotiable promissory notes, checks, saving certificates, bills of lading, and securities issued in the process of privatization. In addition, since January 1997, the FSFM has included option certificates within the definition of "securities" under Russian law.
Securities Market Regulation
The FSFM is the primary regulator of the Russian securities market. The FSFM's functions, which it carries out either directly or through its pre-authorized agencies, include:
- licensing professional securities market participants;
- authorizing self-regulatory organizations;
- approving standards for securities issuances and prospectuses; and
- classifying and defining different types of securities.
The FSFM has the authority to take certain actions against professional securities market participants that violate securities regulations. These measures include canceling licenses, carrying out enforcement actions, and petitioning for criminal prosecution. In addition, the FSFM has the power to fine legal entities and individual entrepreneurs for various securities violations. Any action pursued against an issuer, such as invalidation of an issuance, must be filed through the courts. Consequently, the ultimate jurisdiction over breaches of securities laws remains with the courts.
Until recently, professional participants in the securities market were obligated to join a Self-Regulating Organization ("SRO"), and participants needed to receive the recommendation of an SRO to obtain a license. An SRO is a non-commercial association licensed by the FSFM for which the foundation documents envision the membership of professional participants. Currently, only three SROs operate in the Russian securities market — "The Professional Association of Registrars, Transfer-Agents, and Depositories" ("PARTAD"), "The National Securities Market Participants' Association" ("NAUFOR"), and "The National Securities Market Association" ("NFA"). This requirement was repealed by the Presidential Decree of October 16, 2000. As further confirmed in a press release from the FSFM on October 23, 2000, professional participants may now directly apply to the FSFM to receive a license. According to the Licensing Regulation, the FSFM shall decide on issuing a license to an applicant within 30 days of when the documents were directly submitted to the FSFM, or within 15 days if an applicant presents a recommendation from an SRO along with the documents. However, since the requirement that a recommendation from an SRO be received prior to licensing still exists in a number of the FSFM's acts, some representatives of SROs consider SRO membership to be an ongoing obligation to receive a license.
Shares and Corporate Bonds
On June 18, 2003, the FSFM adopted Resolution No. 03-30/ps "On Standards for the Issuance of Securities and Registration of Securities Prospectuses" This Resolution unifies and lays down in a single document standards, which were previously separate, for the following:
- For the issuance of bonds and their prospectuses,
- For the issuance of shares placed during the establishment of joint-stock companies and for their prospectuses, and
- For the issuance of additional shares, shares placed by conversion, and bonds convertible into additional shares, and for their prospectuses.
The Law "On Amendments and Addenda to the Federal Law on the Securities Market", No. 185-FZ dated December 28, 2002 came into force on January 4, 2003. This law, inter alia, provides a regulatory framework for the issuance and circulation of secured bonds. It permits bonds to be secured by pledge/mortgage, surety, bank guarantee, and state and municipal guarantees. The conditions of the security need to be set out in:
- the decision to issue the bonds;
- the prospectus; and
- in the case of documentary bonds, on the actual bond certificate.
Unsecured bonds may only be issued by companies, including lending institutions set up as JSCs, that have existed for a minimum of three years. The JSC Law provides that the par value of all unsecured bonds issued by a company must not exceed the company's charter capital and that no bonds may be issued until the charter capital is fully contributed.
 | Federal Law "On the Securities Market"
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| Federal act on foreign investment in Russian Federation
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Russian Legislation Peculiarities
