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Brief overview of the proposed changes in the Russian stock market legislation.
A draft of new Federal law 418463-5 was proposed by the Government of the Russian Federation in November 2010, significantly amending legislation concerning the procedure for the issue of securities.
The new law updates the requirements regarding disclosure of information in prospectuses and amends the legal rights attaching to preferred shares. It will amend Federal law 39-FZ "On securities market" dated 22 April 1996, Federal law 208-FZ "On Joint Stock Companies" dated 26 December 1995 and Federal law 129-FZ " On State Registration of Legal Entities and Private Entrepreneurs" dated 8 August 2001.
In order to facilitate the supplementary issuance of securities, the filing procedure with respect to subsequent issues of shares of joint stock companies which have previously been approved for listing on the stock exchange will be abolished. These provisions will not apply to supplementary issue of shares by credit organisations due to the fact that such organisations are controlled by the Central Bank of the Russian Federation.
Moreover, it is proposed to adopt the procedure by means of which documents relating to the issue of shares during the reorganization of a company would be submitted to the registration body before the registration of joint stock company during the reorganization.
It is also intended to replace issues made in respect of conversion of preferred shares with a procedure to alter the rights attaching to the shares, which would be initiated by a resolution and certified in due course.
The change concerns special procedure for transferring the rights in securities other than shares in the event of the issuer's reorganization. The proposed new procedure involves the assignee taking the place of the reorganized issuer and becoming liable to the holder of the securities to the extent and on the terms that would apply at the moment of registration. As a result, there is no need for the separate issue of obligations and other securities by the assignee.
As far as payment of shares is concerned, the new law introduces the possibility of issuing securities on a part-paid basis, with the broker undertaking to make full payment. This amendment is aimed at facilitating transactions prior to registration of the issuance outcome report.
The draft also introduces changes regarding resolutions of issue or prospectuses relating to securities, particularly alterations of the rights attaching to securities. Once the law is effective, it will become possible to introduce them after the registration of the issue. Current legislation prohibits such an option.
Adoption of the draft legislation will reduce the administrative barriers facing Russian companies entering into the capital market and increase domestic and overseas investors' confidence in the Russian stock market, thus encouraging a further influx of inward investment. The Russian legislative procedure provides for three readings in the State Duma of the Russian Federation followed by signature of the law by the President of the Russian Federation. The draft law has successfully completed the first reading and the second reading is expected to take place this month. If finally approved, the law will come into force three months after its publication.
