A special procedure has been established for making certain transactions with securities

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Pepeliaev Group advises that, further to the President’s Decree No. 138 dated 3 March 2023[1] (Decree No. 138), a special procedure has been established for performing transactions with Russian securities purchased from ‘hostile’ non-residents.

Pursuant to Decree No. 138 a special procedure applies to transactions with shares, equity units, bonds and federal loan bonds purchased from ‘hostile’ non-residents after 1 March 2022. The regulation applies to transactions that give rise to the transfer of ownership title to these securities, and result in them being transferred under trust management or pledge. One may assume that this Decree aims to prevent speculative activities with securities purchased from ‘hostile’ non-residents and transferred from foreign to Russian record-keeping infrastructure. Earlier, the Bank of Russia introduced a quarantine on a number of transactions with securities purchased from ‘hostile’ non-residents[2].

Pursuant to Decree No. 138 the above transactions with securities are performed under a special procedure if such securities or securities of foreign issuers certifying the rights with respect to the shares of a Russian joint stock company are credited to an account with a Russian depository or a register of owners of securities:

  • from a personal account of a foreign company, which is a registrar under its personal law, opened with a register of the owners of the securities;

  • from an account of a foreign nominal holder opened with a Russian depository or register of owners of securities;

  • from a securities account under depositary programmes opened with a Russian depository;

  • from the securities account of a foreign authorised holder opened with a Russian depository;

  • from the owner’s securities (personal) account opened for a foreign company with a Russian depository or register of owners of securities with respect to the securities that a foreign company owns or performs any legal or physical actions with on behalf of another person pursuant to a contract between them.

The above transactions involving a transfer to residents and non-residents under the control of Russian legal entities and individuals pursuant to the Russian President’s Decree No. 95 dated 5 March 2022[3], as well as to ‘friendly’ non-residents, of securities and shares of Russian issuers received further to the redemption of Russian securities of foreign issuers (upon the discharge of an obligation under a foreign financial instrument purchased before 1 March 2022), are performed subject to permissions of the Bank of Russia (if the applicant is a credit institution or a non-credit financial organisation) and Government Commission on Monitoring Foreign Investment in Russia (in other situations).

The requirements of Decree No. 138 do not extend to the following transactions:

а) those performed with shares of Russian joint stock companies acquired further to a conversion of securities issued by foreign issuers and certifying the rights with respect to such shares, provided that these securities came into the ownership of the person on or before 1 March 2022;

b) those performed during a conversion, buy-out or redemption of Russian securities by their issuer;

c) those performed during a buy-out of shares of public joint stock companies and issue-grade securities, which are being converted into such shares;

d) those connected with the redemption of investment units based on a decision of a managing company or in connection with the cessation of a fund’s activities;

e) those connected with Russian securities being returned by way of a discharge of obligations under a loan agreement with the securities, provided that such agreement was entered into before 1 March 2022, and obligations under the second part of a repo agreement concluded before 1 March 2022;

f) those performed under the procedure of a forced transfer of rights in accordance with articles 5.3 and 5.5 of Federal Law No. 319-FZ dated 14 July 2022;

g) those involving a transfer of Russian securities that were obtained by way of universal succession.

What to think about and what to do

Clause 13 of Decree No. 138 provides the Bank of Russia with the right to give official clarifications on the issues of applying the Decree. As the established practice shows, these clarifications often provide information that is important for understanding the terms on which the discussed transactions may be performed.

Moreover, clause 14 of Decree No. 138 provides that the Russian Government must, within a 10-day period, establish a procedure for the Government Commission on Monitoring Foreign Investment in Russia to issue permissions.

Therefore, it is required to follow up on the approval and publication of this procedure for the purposes of planning timeframes for performing transactions with securities and putting together the necessary set of documents. According to case law involving other decrees of the Russian President regulating corporate procedures, such decisions of the Government Commission may often target the public establishing the list of conditions for performing transactions. Conformity with such conditions will be assessed when the authorised entity adopts resolutions to issue or refuse to issue permissions to perform the relevant transactions[4].

Help from your adviser

Pepeliaev Group’s specialists are keeping up to date with the latest developments in corporate legislation and have extensive experience in providing support within the scope of statutory corporate procedures.

Within its range of services, Pepeliaev Group provides legal support for various aspects of companies’ operations connected with corporate legislation, in particular, with the structuring and support of transactions involving securities.

[1] To access the electronic version, please go to: http://publication.pravo.gov.ru/Document/View/0001202303030007.

[2] To access the electronic version, please go to: https://www.cbr.ru/press/event/?id=14067.

[3] The Russian President’s Decree No. 95 “On the temporary procedure for performing obligations to certain foreign creditors” dated 5 March 2022 (“Decree No. 95”). To access the electronic version, please go to: http://publication.pravo.gov.ru/Document/View/0001202203050062.

[4] We have written about some of these protocols of the Government Commission before, for instance: https://www.pgplaw.ru/analytics-and-brochures/alerts/opublikovany-usloviya-soversheniya-sdelok-po-otchuzhdeniyu-nedruzhestvennymi-nerezidentami-aktsiy-i-/

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