The RF State Duma is currently preparing for the first reading of amendments to the law "On the Securities Market" which would provide for the introduction of Russian Depositary Receipts ("RDR") in Russia (the "Draft RDR Amendments").
Currently, non-Russian or foreign securities may only be publicly circulated or issued on the Russian securities market if a respective prospectus is registered, which, in turn, is only possible where a relevant international treaty with the issuer's country has been entered into. Since no such international treaties have been entered into, foreign securities, in practice, may not be publicly issued or sold in Russia. Thus, the Draft RDR Amendments would permit foreign securities to be circulated on Russian exchanges in RDR form, a long anticipated opportunity for foreign issuers.
The RDR would be very similar to the American Depositary Receipt (ADR) and Global Depositary Receipt (GDR): an RDR would certify entitlement to a certain amount of shares or bonds of a non-Russian issuer and confirm the right of the holder to demand a respective amount of shares (bonds) from the issuer. The Draft RDR Amendments set forth requirements for RDR issuers comparable to those for ADR and GDR issuers. An RDR issuer may choose to enter into an agreement with any issuer of securities represented by RDRs or proceed unsponsored, unless otherwise required by foreign law.
However, certain of the provisions of the RDR Amendments would require further input from the Federal Financial Markets Service ("FFMS"), without which the law would not work. In particular, this relates to two areas:
Foreign Custodian. The FFMS must approve a list of permissible foreign custodians from whom shares may be issued in RDR form by a Russian custodian.
Foreign Stock. Only stock which is traded on foreign exchanges included in the list to be approved by the FFSM may be used to issue RDRs.
In addition, the Draft RDR Amendments set forth the following requirements that local custodians must meet in order to become an RDR issuer:
- local custodians must be established under the laws of the Russian Federation and be licensed to operate in Russia;
- custodians must hold an account with an "admitted foreign custodian" (i.e., one included in the list to be approved by the FFSM), and all rights of a custodian as an RDR issuer with respect to the represented shares must be properly reflected on such account;
- a custodian must have been operating in Russia for three years.
The RDR issuance procedures would include the following 3 steps:
- adoption of the decision on RDR issuance, which would include procedures for exercising voting rights of the RDRs;
- state registration of the RDR issuance; and
- placement of the RDRs.
The RDR placement procedures would contain some unusual features in comparison with other securities. For instance, in contrast to the requirements for the placement of other Russian securities, where an issuer is required to complete a placement within a one-year term and register a placement report afterwards, an RDR would not be held to such one-year term. The RDR issuer would only be required to first state the maximum amount of RDRs that it will place, and then quarterly register a placement report for the quarters in which it decides to place the RDRs. Such report must contain information on the quantity of RDRs placed in a certain reporting period, the outstanding amount of RDRs to meet the maximum quantity stated by the issuer, and the quantity of securities represented by RDRs.
The Draft RDR Amendments are still in the first stages of development, but are expected to be adopted by the end of 2006.
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