Russian Federation: Placement And Circulation Of Foreign Securities In The Russian Market

Last Updated: 14 April 2014
Article by Valentin Petrov and Petr Shevtsov

The Russian Securities Market law expressly sets specific requirement for the following actions in relation to securities of foreign issuers: (1) for placement, (2) for circulation, (3) for public placement (i.e. placement not only at the stock exchange but also to unlimited number of potential acquirers through open subscription), (4) for public circulation (i.e. circulation not only at the stock exchange but also to unlimited number of potential acquirers), as well as (5) for placement and circulation of securities among Qualified Investors (see defined in (5) below).

(1) Rules of placement , i.e. alienation by the initial owner, of securities of foreign issuers in the Russian Federation

Securities of a foreign issuer may, but not necessarily must, be admitted by the Russian securities regulator for placement in the Russian Federation by registering their prospectus provided the securities meet the following eligibility requirements:

  • Assignment of international securities identification number (ISIN) and international code of classification of financial instruments (CFI);
  • Qualification of foreign financial instruments as securities in accordance with the Russian Securities Regulator Order dated October 23, 2007 N 07-105/пн-з "On Approval of the Regulation on Qualification of Foreign Financial Instruments as Securities";
  • Compliance with one of the following criteria:
    • The foreign issuer must be incorporated in a country which is an OECD member state, a FATF member or a member of a FATF Observer body/organisation, or in a member state of MONEYVAL (which is an associate member of FATF).
      • It is however unclear whether the country in which the foreign issuer was established must be a member of all the above organizations or at least one of the organizations.
      • To circumvent this restriction imposed by the new Law, clients may wish to consider placing ADRs and GDRs of foreign issuers not established in member states of FATF, OECD or MONEYVAL in the Russian Federation, since such ADRs or GDRs are issued by depositary banks that are generally established in the member states of FATF, OECD or MONEYVAL. By having the bank issue securities in the form of ADRs or GDRs, this will meet the requirements for circulation and placement in the Russian Federation, notwithstanding that the underlying securities from the foreign corporate issuer may fail this requirement.
      • One should also note that the Federal Law "On Securities Market" does not impose a similar requirement in respect of the country of establishment of the issuer of the securities for instances where Russian Depositary Receipts ("RDR") are issued. Article 27.3 of Federal Law "On Securities Market" provides that the securities underlying of the RDRs must be accounted for by an organization included in the list of the Russian Securities Regulator, and that such underlying securities must be traded on one of the foreign stock exchanges from a list approved by the Russian Securities Regulator (unless the issuer of underlying securities and depositary bank issuing RDRs agree that the issuer of underlying securities will be bound by obligations to RDR owners). Therefore, even if a foreign issuer does not comply with the requirements for placement or circulation of its own securities in the Russian Federation, such a foreign issuer may wish to consider placing RDRs in the Russian Federation in place of its own securities.
    • The foreign issuer is from a state that has entered into a bilateral co-operation agreement with the Russian Securities Regulator. Unfortunately, Russia does not have such agreements with Western European countries;
    • The foreign issuer is an supranational financial organization included in a list approved by the Government of the Russian Federation; or
    • The issuers of foreign securities are (a) sovereign states which are members of FATF, OECD or MONEYVAL or (b) sovereign states with which the Russian Securities Regulator has entered into a bilateral co-operation agreement, or central banks of such sovereign states.
  • Registration of a prospectus. Requirements for the prospectus, as well as its registration procedure must be adopted by the Russian Securities Regulator, but there is no procedure in place as yet.

The foreign issuer must notify the Russian Securities Regulator upon completion of securities placement. The Law, however, does not provide for a form of such notice. Completion of the securities placement by a foreign issuer must also be accompanied by a disclosure on placement completion. The procedure and timeline for such disclosure is yet to be determined by the Russian Securities Regulator.

(2) Rules of circulation, i.e., entering into civil transactions not with the initial owners of securities of foreign issuers in the Russian Federation

Clause 13 of article 51.1 of the Federal Law "On Securities Market" introduced by the Law essentially provides that circulation of securities of a foreign issuer, not admitted for public placement or public circulation, may be carried out only among Qualified Investors – see clause (5) below. Eligibility requirements for securities of a foreign issuer to be admitted for circulation in the Russian are:

  • Assignment of international securities identification number (ISIN) and international code of classification of financial instruments (CFI); and
  • Qualification of foreign financial instruments as securities in accordance with Russian Securities Regulator Order of October 23, 2007 N 07-105/пн-з "On Approval of the Regulation on Qualification of Foreign Financial Instruments as Securities".

Similar requirements for placement of securities (discussed in paragraph (1) above) are not present for circulation of securities of foreign issuers in the Russian Federation.

(3) Rules of public placement of securities of foreign issuers in the Russian Federation

The procedure and eligibility requirements for public placement of foreign issuer securities, to the extent that it is not accompanied by listing on a Russian stock exchange, are similar to those for non-public placement described in (1) above. Additionally, accounting of foreign issuer securities will have to be made by a depositary bank which is a Russian legal entity. Although not expressly stated in the Law, it may be implied that if securities of a foreign issuer are not publicly placed in the Russian Federation, then the rights in respect of such securities may be accounted for by a depositary or registrar being a foreign legal entity.

Public placement of foreign issuer's securities made through stock exchange trading will be regulated by the rules for public circulation described in more detail in (4) below and a prospectus will have to be registered with the Russian Securities Regulator.

4) Rules for public circulation of securities of foreign issuers in the Russian Federation

To be admitted for public circulation in the Russian Federation, securities of foreign issuers must satisfy the following eligibility requirements:

  • Assignment of international securities identification number (ISIN) and international code of classification of financial instruments (CFI);
  • Qualification of foreign financial instruments as securities in accordance with Russian Securities Regulator Order of October 23, 2007 N 07-105/пн-з "On Approval of the Regulation on Qualification of Foreign Financial Instruments as Securities";
  • Compliance with one of the following criteria:
    • The foreign issuer must be incorporated in a country which is an OECD member state, a FATF member or a member of a FATF Observer body/organisation, or in a member state of MONEYVAL (which is an associate member of FATF).
    • The foreign issuer is from a state that has entered into a bilateral co-operation agreement with the Russian Securities Regulator. Unfortunately, Russia does not have such agreements with Western European countries;
    • The foreign issuer is an supranational financial organization included in a list approved by the Government of the Russian Federation; or
    • The issuers of foreign securities are (a) sovereign states which are members of FATF, OECD or MONEYVAL or (b) sovereign states with which the Russian Securities Regulator has entered into a bilateral co-operation agreement, or central banks of such sovereign states.

Securities of a foreign issuer are admitted for public circulation in the Russian Federation in two regimes:

(a) for securities listed on a foreign stock exchange:

The Russian stock exchange must decide to admit securities of a foreign issuer to trading. This decision will be made if such securities of foreign issuers, in accordance with their personal law (i.e. under the law of the jurisdiction where the issuer was incorporated), may be offered to an unlimited number of persons, and such securities are listed on a foreign stock exchange from the Russian Securities Regulator list.

The application for the securities to be admitted for public circulation must be filed with the stock exchange with a prospectus prepared in accordance with the Russian Securities Regulator requirements. The Law does not say that such prospectus must be first registered by the Russian Securities Regulator.

(b) for securities not listed on a foreign stock exchange:

If a Russian stock exchange decides not to admit securities of an issuer to public circulation (e.g., on the basis that such securities are not listed on a foreign stock exchange), the decision to admit them to public circulation in the Russian Federation can be taken by the Russian Securities Regulator. For such a decision to be taken, in addition to the above-mentioned general public circulation criteria, the securities must (i) be eligible, in accordance with the foreign issuer's personal law, for offering to an unlimited number of persons, and (ii) correspond to the liquidity and investment risk levels for the relevant types of securities already traded on the Russian stock exchange. The method for calculation of the liquidity and investment risk levels will be established by the Russian Securities Regulator.

(5) Rules for placement and circulation of securities of foreign issuers in the Russian Federation among Qualified Investors

The concept of a Qualified Investor under the Russian Federal Law "On Securities Market" covers Russian banks, brokers and dealers, management and investment funds, management companies of investment and mutual funds, insurance companies, the Central Bank of the RF, Vnesheconomonbank ("VEB"), supranational organizations (e.g., World Bank, IMF, EBRD) and some other entities specifically listed in the law. Other entities not specifically listed in the law may be recognized as Qualified Investors by Russian brokers if the entities satisfy certain qualitative and quantitative criteria (relating to own capital, assets, revenues, volume of trading of financial instruments). The Law sets a number of regulations which treats Qualified Investors more favorably than ordinary investors for circulation, public placement and public circulation of securities of foreign issuers.

In contrast, Qualified Investors do not enjoy facilitated requirements for placement of securities of foreign issuers and all the requirements and restrictions applied to placement of securities of foreign issuers among ordinary non-qualified investors (for details see clause(1) above) will apply.

Circulation in the Russian Federation of securities of foreign issuers not admitted to public placement and/or public circulation in the Russian Federation is only possible to Qualified Investors. For instance, the securities of foreign issuers not incorporated in the member-states of FATF, OECD or MONEYVAL are allowed to circulate only to Qualified Investors.

Clause 13 of art. 51.1 of the Federal Law "On Securities Market" as amended by the Law expressly states that foreign securities that have not been admitted to public placement and/or public circulation in Russia as well as foreign financial instruments that have not been recognized as securities may not be offered to an unlimited number of investors or non-qualified investors. The clause, therefore, creates an effective prohibition on cross-border derivative trading between non-residents and Russian entities that do not fall within the scope of qualified investors by operation of law (such as, Severstal, Lukoil, Gazprom, etc.) These entities may be recognized as Qualified Investors by Russian brokers. Therefore, one may argue that any derivative trade with the Russian counterparty that is not a Qualified Investor by operation of law shall now be structured to involve the Russian broker responsible for recognition of the Russian counterparty as a Qualified Investor.

Another point to mention is that the Law is not entirely clear whether a Qualified Investor may acquire foreign financial instruments in Russia that are not classified as foreign securities in accordance with the Russian Securities Regulator Order dated October 23, 2007 N 07-105/пн-з "On Approval of the Regulation on Qualification of Foreign Financial Instruments as Securities". If clauses 13 and 14 of art. 51.1 of the Federal Law "On Securities Market" as amended by the Law could be read without reference to the other provisions of the Law, one could imply financial instruments which are not securities can also be circulated among Qualified Investors in the Russian Federation. However, clause 1 of art. 51.1 of the Federal Law "On Securities Market" as amended by the Law prohibits the circulation of financial instruments other than securities in the Russian Federation. Accordingly, until a clarification is issued by the Russian Securities Regulator, the issue whether financial instruments (including derivatives) that are not securities can be acquired by Qualified Investors in Russia remains a pending issue.

The amendments introduced by the Law also allow securities of foreign issuers to be placed in the Russian stock exchange for Qualified Investors without having to comply public placement requirements.

Likewise, the Law provides that securities of foreign issuers meant for circulation only among Qualified Investors may be admitted to trading on the Russian stock exchange among Qualified Investors even if they do not meet the public circulation criteria described in (4) above. The decision on admittance of such securities can be made by the stock exchange itself in accordance with the rules to be developed by the Russian Securities Regulator (paragraph 2 of cl. 14 in art. 51.1 of the Federal Law "On Securities Market" enacted by the Law).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions