Legislative Framework for Corporate Actions Reform in force from 1 July 2016

AO UniCredit Bank
Summary: 
The President of the Russian Federation enacted a new federal law amending certain other Russian laws, thus enabling the accomplishment of major steps of the ongoing corporate actions reform on the Russian securities market.
Tue, 21/07/2015

As a result of the recent amendments to certain laws of the Russian Federation, the following changes in corporate actions processing come into effect from 1 July 2016.

•   Establishment of official source of corporate actions information on public companies at the CSD: Information disclosed by the National Settlement Depository (NSD) will prevail over other sources of information. The issuers of public companies will be obliged to provide NSD with corporate actions information and NSD will be liable for misrepresentation of information received from the issuers.

•    New procedure for exercising rights attached to Russian securities:
-    Shareholders using custodians will have the right to participate in GMs via their custodians (e-proxy voting), if it is stipulated in the custody agreement, either attending the GM in person or via representative (proxy).  E-voting without physical attendance at GMs, via web channels, will also be possible.
-    Participation in other corporate events, such as issues of pre-emptive rights, tender offers, buy-backs and squeeze-outs, will be obligatorily arranged through custodians. Information on corporate actions will be cascaded by the issuers through NSD to the custodians and their clients. Custodians in return will pass applications for participation in corporate actions through NSD back to the issuers. The cascading principle will also be applied to all payments related to corporate actions.
-    Abolishment of the Power of Attorney for participation in corporate events through custodians. Custodians will be authorised to participate in corporate events on behalf of their clients based on the clients' instructions.

•   New disclosure rules:
-    Disclosure of entitled investors under nominee holders and Foreign Nominee Holders (FNH) will not be required in case of non-participation of the entitled investors in the corporate events. Nominee holders and FNHs may not disclose information on their underlying clients, if that is stipulated in the custody agreement.
-    Securities owners should be obligatorily disclosed if requested by the Central Bank or by an issuer, in the cases prescribed by the legislation (i.e. requests not related to corporate events), within 15 days from the date when the disclosure request was received.

•    Changes in the determination of record dates:

                            Current timelines          Future timelines (as of 1 July 2016)
GM Record date - 10 and 50 days before the GM date - more than 80 days prior to the GM date, if re-election of the Board of Directors is part of the agenda - 10 and 25 days before the GM date - more than 55 days prior to the GM date  if re-election of the Board of Directors is part of the agenda          
Pre-emptive rights Record date -if a decision on the issue of pre-emptive right has been taken by the Board of Directors, the record date is fixed on the day of such decision   -10 days after the decision of the Board of the Directors has been taken

Other amendments introduced by the Law effective from 1 July 2015:

•    Clarification of the confidentiality policy with respect to pledged securities. Information on securities pledged on the pledger’s account may be provided to the pledgee in favour of whom the pledge is registered by the custodian or by the registrar.

•    Introduction of new type of security participation clearing certificate - non-emissive documentary security with global certificate issued by a clearing organisation, which can be used as collateral for REPO transactions conducted on Moscow Exchange with the Central Counterparty and the Central Bank.

•    New AML rules concerning the definition of beneficial owner with respect to individual clients. An individual client is recognised as beneficial owner, except for the cases where there are reasons to consider another individual client as the beneficial owner.

Impact on investors: Significant simplification of the process for participation in corporate actions for foreign and local investors, cost and risk reduction, enhancement of the efficiency of the whole process of exercising rights attached to securities on the Russian market.