Legal grounds for reforming corporate actions were approved
In 2014 reformation of corporate actions began in Russia. The reformation was initiated by the central depositary and supported by the majority of players of the capital market. In 2015 the reform got a legal frame after the President of the Russian Federation signed the Federal Law No. 210-FZ On Amending Certain Enactments of the Russian Federation and Termination of Certain Provisions of Enactments of the Russian Federation (June 29, 2015).
The Federal Law No. 210-FZ amended a number of legal acts: (i) Federal Law On Joint Stock Companies; (ii) Federal Law On Capital Markets; and (iii) Federal Law On Central Depositary. The key points of the reform are:
- Changes in the approach of making a list of securities holders;
- New procedure of execution of rights during performance of corporate actions is introduced;
- The central depositary will be entitled establishing formats of electronic communication during execution of rights under the securities;
- The new forms of participation in general meetings of securities holders are introduced, for example electronic voting through depositary (e-proxy voting) and electronic voting by the means of Internet (e-voting);
- Establishment of the center of corporate information on the base of the central depositary.
The amendments became effective on July 1, 2016.
Amendments effecting investors
The reform will allow to increase the level protection of domestic securities and to decrease expenses for participation in corporate actions. Previously different approaches to similar corporate actions existed on the Russian market. It resulted in negative consequences and additional expenses to investors. The latest amendments introduced international standards for the corporate actions such as electronic documentation with ISO standards. The electronic voting (e-voting and e-proxy voting) is allowing the holders of securities to participate in corporate actions remotely. Possibility of the investor to apply for execution of rights directly to a depositary allowing communicating with one participant only that provides all the required services. Therefore an investor will be able to execute its rights under the securities irrespectively to its location.
Amendments effecting professional operators in the market
Previously communication between an issuer of securities and shareholders did not involve recordkeeping institutions. The latest amendments are bringing under regulation that all the corporate actions must be performed through recordkeeping institutions. Professional operators in the market and investors will have a single informational recourse represented by NSD. Such information will prevail. For the purposes of realization of the new amendments by issuers, stock registrars and NSD’s clients a new electronic service will be established i.e. a website which will be one of the main sources of communication of the central depositary with professional operators in the market during performance of corporate actions. Additionally market operators will be able to use SWIFT and web-service for communication with NSD. Performance of electronic communication will allow to issuers to reduce expenses on mailing notifications on corporate actions as hard copies.
New ways of execution of rights under the securities by the means of nominee holders
Some of the amendments to the Federal Law On Joint Stock Companies need to be highlighted separately. A number of rights provided by the securities may be realized by the means of nominee holders only (recordkeeping institution), for example:
- Preemptive right of purchase of securities;
- Purchase of securities by an issuer;
- Purchase of shares by an issuer under a demand of shareholders;
- Voluntary offer to acquire shares;
- Mandatory offer to acquire shares;
- Mandatory acquisition of shares under a demand of an owner of sharer exceeding 95%;
- Redemption of securities.
All communications between the central depositary, stock registrars and NSD’s clients related to the mentioned above corporate actions will only be performed electronically. Hard copy flow will be cancelled.
Source: Depositarium Magazine.
Amendments to Regulation “On Ways and Forms of Provision of Information by Foreign Organizations Regarding Owners of Securities and other Persons Realizing Rights under Securities”
Regulation of the Bank of Russia No. 3995-Y dated 13.04.2016 “On Procedure of Provision of Information by Foreign Organizations, Acting in Favor of Other Persons, Information Regarding Securities Owners and Other Persons Realizing the Rights Under Securities, and On the Amount of Securities Held by Such Persons” (the “Regulation”) came into force on May 9, 2016.
Amendments performed by the Regulation are specifying information that needs to be provided to Russian depositaries by foreign nominees for execution of rights to participate in the general meetings by holders of depositary receipts.
According to the introduced amendments holders of depositary receipts (Russian and foreign legal entities) for their identification (besides names) are entitled to submit legal entities identification code (LEI). Such information is considered as sufficient. For organizations that are not recognized as a legal entities, provision of names and addresses will be sufficient (or any other identification data in accordance with the laws of country of incorporation).
The respective amendments were introduced for avoidance of practicable difficulties faced by foreign recordkeeping institutions during accumulation of information for disclosure. Such inconveniences could have resulted in negative consequences for depositary receipts holders during shareholders meetings.
“Regulation оn Information Provided by Issuers to the Central Depositary Regarding Rights under Securities, Terms and Procedures of its Provision as well as on Central Depositary Procedures on Access to such Information” came into force.
Regulation of the Bank of Russia No. 546-Р dated 01.06.2016 “Regulation оn Information Provided by Issuers to the Central Depositary Regarding Rights under Securities, Terms and Procedures of its Provision as well as on Central Depositary Procedures on Access to such Information” (the “Regulation”) came into force on July 19, 2016.
The Regulation sets information regarding execution of rights under securities that must be provided by an issuer to the central depositary as well as terms of its provision. Furthermore, the Regulation describes the access procedure to such information organized by the central depositary.
The Regulation is mandatory for issuers having CSD’s nominee account held with a register of securities owners and issuers of bonds with mandatory centralized safekeeping if the safekeeping is performed by the central depositary.
The Bank of Russia introduced draft Regulation “On Additional Requirements to Organization, Convocation and Holding of General Meetings of Shareholders”
Pursuant to the explanation letter the Regulation is prepared in accordance with Subclause 2 Article 47 of the Federal Law “On Joint Stock Companies” No. 208-FZ dated 26.12.1995 and sets additional requirements to organization of the shareholders meetings. The Regulation will be mandatory for joint stock companies.
The purpose of the Regulation is to settle relations arising from execution of rights to participate at the shareholders meetings by shareholders those rights to the shares are being recorded by nominees, foreign nominees and/or foreign organizations.
The Regulation is a follow-up of an ongoing reform of corporate actions. The Regulation will set procedure of organization, convocation and holding of the General Meetings considering availability to vote by the means of Internet or other telecommunication technologies.
It is expected that the Regulation will come into force in the second quarter 2016. Order of Federal Service for Financial Markets No. 12-6/pz-n от 02.02.2012 will lose its effect upon approval of the Regulation.
A draft of Information Letter “On some issues concerning purchasing of Bonds on Bonds Holders demand” No. IN-06-52/56 dated 26/07/2016 is prepared and presented to participants of the securities market by Bank of Russia
In this Information Letter is outlined the Bank of Russia’s position on re-purchase of bonds by an issuer when Article 8.9 of the Federal Law “On Securities Marked” No. 39-FZ dated 22.04. 1996 comes into force.
According to the Information Letter:
- Owners of bonds after 01.07.2016 are entitled at their own discretion to demand re-purchase of bonds by an issuer in accordance: (i) with the rules set by Article 8.9 of the Federal Law “On Securities Marked”; or (ii) in accordance with terms and conditions of bonds issuance*;
- It is not obligatory to amend terms and conditions of bonds issuance registered before 01.07.2016 in order to comply with provision of Article 8.9 of the Federal Law “On Securities Marked”. Furthermore, an information disclosed after 01.07.2016 and/or notification on re-purchase of bonds made by an issuer after 01.07.2016 (if grounds to demand re-purchase of bonds occurred after 01.07.2016) shall stipulate that the bonds may also be re-purchased in accordance with the procedure as set in Article 8.9 of the Federal Law “On Securities Marked.
* NSD Comments: We assume that it is worth mentioning that this paragraph relates to bonds issued and registered prior 01.07.2016.