On August 4, 2011 the Federal Service for Financial Markets of
the Russian Federation (FSFM) registered and sent to the Ministry
of Justice the Draft Order "On the Amendments to the
Regulations of Offerings and/or Trading of Securities of Russian
Issuers Outside the Russian Federation"sup>1 (Draft Order),
which is expected to introduce significant changes to the existing
rules for depositary receipts programs over Russian issuers'
shares abroad (American depositary receipts [ADRs]/ global
depositary receipts [GDRs]). The Draft Order was developed by the
FSFM in response to a proposal by President Medvedev to remove
existing limitations on Russian securities trading outside
The Draft Order provides for the liberalization of rules
applicable to offerings by Russian issuers, namely:
Under the existing rules, the number of shares of a Russian
issuer offered and traded abroad (in the form of depositary
receipts) may not exceed 25 percent of the issuer's total
number of shares. The Draft Order increases this cap to 100
percent, regardless of the level of listing obtained on the
relevant Russian stock exchange. Companies therefore will get
greater flexibility to raise capital outside Russia.
Pursuant to the Draft Order, those issuers with strategic
importance for national defense and national security will be able
to trade abroad no more than 25 percent of shares.2 For
the issuers of strategic importance that perform geological studies
of natural resources and/or explores and produces mineral resources
at subsoil sites of federal importance, the cap is 5 percent.
The requirement for international offerings of depositary
receipts to be accompanied by offerings of the underlying shares,
and the requirement to involve a Russian stock exchange in an
offering that has a depositary receipt tranche) would be
The requirement that no more than half of the number of shares
offered in Russia can be sold outside Russia in the form of
depositary receipts would be removed.
The Draft Order, when adopted, will change the current procedure
and streamline Russia's regulation of depositary receipts.
However, a number of issues would have to be resolved. One is the
status of the foreign depositaries issuing the depositary receipts;
these depositaries are treated as shareholders of Russian companies
according to Russian law. They therefore are required to extend a
mandatory tender offer to all other shareholders when acquiring
more than 30 percent of the shares in a Russian company.
Consequently, unless the current legislation is amended to
eliminate the above requirement regarding foreign depositaries, any
particular depositary will have to make an extra efforts to have
effective cap exceeding 30 percent on the depositary receipts
The amendments will become effective when the Federal Law on
Central Securities Depositary (Law on CSD) comes into force. The
draft law on CSD was prepared in the spring of 2007 and has been
adopted by the State Duma of the Russian Federation in the first
reading. The draft granted monopolistic authorities to the CSD in
relation to accounts being opened in registers of securities
owners. The creation of the CSD was one of the steps in the process
of the formation of the International Financial Centre aiming to
remove restrictions against Russian issuers placing securities
outside Russia. This initiative was encapsulated in instructions
from President Medvedev who asked the Russian government to
undertake certain particular steps prior to September 1, 2011.
However, the Law on CSD has not yet been enacted, and therefore
there is no current indication as to when the Draft Order would be
1. FSFM Order "On the Amendments to Regulations on the
Approval by the Federal Service for Financial Markets of Offerings
and/or Trading of Securities of Russian Issuers Outside the Russian
Federation of June 10, 2009 N 09-21/ pz-n."
2. See Federal Law No. 57-FZ dated January 29, 2008 on
Foreign Investment in Commercial Entities of Strategic Importance
for National Defense and National Security.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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