Compliance Report ISSA Recommendations 2000

ISSA - International Securtities Services Association

Compliance to the ISSA Recommendations 2000

Market: Russia

Status: October 23, 2001

Recommendation 1
Recommendation 2
Recommendation 3
Recommendation 4

Recommendation 5
Recommendation 6
Recommendation 7
Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1. Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents? Securities lending and borrowing is not a regulated market practice. There are no specific laws and regulations, which stipulate securities lending, although current laws do not outright prohibit it.

2. Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest? Not applicable to Russian market. The Moscow Interbank Currency Exchange (MICEX), the only one centralised DVP clearing and settlement system in the market, operates on securities and cash pre-funding basis only. Clearing and settlement occur in on-line regime and failed trades are automatically cancelled.

3. Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover? Guarantee funds are not practised on the market yet, the market works either on free receive/free deliver basis with the cash part settled separately (commonly in foreign currency off-shore) or on DVP basis with obligatory pre-funding of cash and securities.

4. Are the stock transfer agents (share registrars) linked electronically to the depository? Some of the major and technologically developed registrars have created the electronic links to the depositories (DCC and NDC).

5. Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline? In accordance with the legislation, the registrars of shareholders are obliged to arrange the ownership transfer within 3 (three) days upon receipt of the required documents. Nevertheless, taking into account that the registrars of shareholders are located all over the country and in most cases the physical delivery of the paper form documents is required for the ownership transfer, the transfer period is variable and is not formally fixed. The common market practise assumes that the ownership transfer is arranged within TD+5 at the registrars based in Moscow and up till TD+15 at the registrars located in other regions.

6. Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced? The investors are entitled to the benefits arising on a security from the moment of re-registration of the securities in their name at the registrar of shareholders or entry of the securities to their account opened with a custodian.

7. Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method? Proxy voting is permissible on the Russian market, in most cases the issuers allow the voting by post.

8. Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions? The local market regulations include the minimum or maximum or both lapsed times for the key corporate events. For example, the GSM can be held not earlier than 30 days after its public announcement, the investors are allowed to exercise the pre-emptive rights within 30 days; the record date for fixing of the register of shareholders who can participate at the GSM may not be established earlier than the date of the adoption of the decision on the holding of the GSM no more than 60 days before the date of holding the GSM; decisions adopted by the GSM and the results of the voting shall be brought to the attention of the shareholders not later than 45 days from the date of the adoption of such decisions; the voting ballots for voting by post must be established not later than 30 days before the date of ending of the acceptance of ballots by the issuer etc.

The new amendments to the Joint Stock Company Law that will take effect from January 1st, 2002 will establish additional strict lapsed time procedures, such as the period for the exercise of the pre-emptive rights will be extended from 30 to 45 days, holding the ESM can take place only after 40 days after the notice is sent out and 70 days if the agenda includes the appointment of the board members; dividends have to be paid within 60 days from the date of announcement.

9. Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors? There is no central mechanism for advising the corporate information, the issuers send the individual notifications to their shareholders and make the information publicly available through mass media. Depositories, stock exchanges, information agencies and self-regulatory organizations of the securities market participants post the corporate information on their web sites or publish in the form of bulletins.

10. Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion? The issuers usually do not provide the corporate actions information in the electronic form, while the securities market participants make it available in the electronic form for their clients. In most cases the lapsed time is sufficient for the domestic and foreign clients to respond. But it may occur that the issuer, by negligence or intentionally, delays with the provision of the information to the shareholders within a stipulated time period and in such cases it is problematic for investors to respond in time. In other cases the issuers may publish the information on corporate events in local newspapers to which the majority of the shareholders have no access.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	Securities lending and borrowing is not a regulated market practice. There are no specific laws and regulations, which stipulate securities lending, although current laws do not outright prohibit it.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	Not applicable to Russian market. The Moscow Interbank Currency Exchange (MICEX), the only one centralised DVP clearing and settlement system in the market, operates on securities and cash pre-funding basis only. Clearing and settlement occur in on-line regime and failed trades are automatically cancelled.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	Guarantee funds are not practised on the market yet, the market works either on free receive/free deliver basis with the cash part settled separately (commonly in foreign currency off-shore) or on DVP basis with obligatory pre-funding of cash and securities.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	Some of the major and technologically developed registrars have created the electronic links to the depositories (DCC and NDC).
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	In accordance with the legislation, the registrars of shareholders are obliged to arrange the ownership transfer within 3 (three) days upon receipt of the required documents. Nevertheless, taking into account that the registrars of shareholders are located all over the country and in most cases the physical delivery of the paper form documents is required for the ownership transfer, the transfer period is variable and is not formally fixed. The common market practise assumes that the ownership transfer is arranged within TD+5 at the registrars based in Moscow and up till TD+15 at the registrars located in other regions.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	The investors are entitled to the benefits arising on a security from the moment of re-registration of the securities in their name at the registrar of shareholders or entry of the securities to their account opened with a custodian.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	Proxy voting is permissible on the Russian market, in most cases the issuers allow the voting by post.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	The local market regulations include the minimum or maximum or both lapsed times for the key corporate events. For example, the GSM can be held not earlier than 30 days after its public announcement, the investors are allowed to exercise the pre-emptive rights within 30 days; the record date for fixing of the register of shareholders who can participate at the GSM may not be established earlier than the date of the adoption of the decision on the holding of the GSM no more than 60 days before the date of holding the GSM; decisions adopted by the GSM and the results of the voting shall be brought to the attention of the shareholders not later than 45 days from the date of the adoption of such decisions; the voting ballots for voting by post must be established not later than 30 days before the date of ending of the acceptance of ballots by the issuer etc. The new amendments to the Joint Stock Company Law that will take effect from January 1st, 2002 will establish additional strict lapsed time procedures, such as the period for the exercise of the pre-emptive rights will be extended from 30 to 45 days, holding the ESM can take place only after 40 days after the notice is sent out and 70 days if the agenda includes the appointment of the board members; dividends have to be paid within 60 days from the date of announcement.
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	There is no central mechanism for advising the corporate information, the issuers send the individual notifications to their shareholders and make the information publicly available through mass media. Depositories, stock exchanges, information agencies and self-regulatory organizations of the securities market participants post the corporate information on their web sites or publish in the form of bulletins.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	The issuers usually do not provide the corporate actions information in the electronic form, while the securities market participants make it available in the electronic form for their clients. In most cases the lapsed time is sufficient for the domestic and foreign clients to respond. But it may occur that the issuer, by negligence or intentionally, delays with the provision of the information to the shareholders within a stipulated time period and in such cases it is problematic for investors to respond in time. In other cases the issuers may publish the information on corporate events in local newspapers to which the majority of the shareholders have no access.