Changes in securities regulations
On October 1, 2013 amendments to Chapter 7, Subsection 3, Part 1 of the Russian Federation Civil Code (hereinafter the “Civil Code”) dedicated to legal regulation of the institute of securities entered into effect.
1. Concept and types of securities
The lawmakers have divided the single concept of securities previously given in the Civil Code into two separate concepts: certificated securities and book-entry securities.
The concept of certificated securities has been expanded significantly. Now it is determined that certificated securities certify certain contractual and other rights (both proprietary and non-proprietary) which can be exercised or assigned only against such documents (Clause 1 Article 142 of the Civil Code).
Book-entry securities mean certain contractual and other rights determined by the decision on issuance or other act of the issuer, and such rights can be exercised and assigned only subject to rules of recordkeeping for such rights (Clause 1 Article 142 of the Civil Code).
Furthermore, lawmakers eliminated unambiguity related to regulatory legal acts which may envisage particular securities not listed in the Civil Code. Other types of securities may be determined by any other law or acknowledged as such in accordance with the procedure established by law (Article 142 of the Civil Code).
2. Book-entry securities
The regulation of book-entry securities has undergone the most essential amendments.
Records on regulating rights to book-entry securities shall be maintained only by persons with a license as provided by law, i.e. professional registrars (Clause 2 Article 149 of the Civil Code).
In this connection, joint stock companies which maintain the shareholders registers on their own must hand over the register maintenance to persons with relevant licenses by October 1, 2014.
The legislative recognition of a possibility to claim book-entry securities from unlawful possession by other persons is also very essential.
According to the general rule, the rightholders whose book-entry securities have been written off unlawfully from their account may request the following from the person to whose account such securities were deposited :
- to return the same number of relevant securities, or
- to assign to them the securities into which the book-entry securities written off unlawfully have been converted (if applicable) (Clauses 1 and 2 of Article 149.3 of the Civil Code).
However, there is a ban on claiming book-entry securities from a bona fide purchaser (unless such securities are acquired free of charge) if such securities:
- certify a monetary right only; and/or
- are acquired at formal auctions (Clause 1 Article 149.3 of the Civil Code).
In the event an unauthorized person exercises rights to participate in adopting a decision at a meeting (e.g. general meeting of shareholders) certified by a book-entry security, the rightholder is entitled to dispute such decision of the meeting within three (3) months from the date he became aware or should have become aware of unlawful writing off of securities from his account, but no later than one (1) year from the date such decision was adopted (Article 149 of the Civil Code).
At the same time, the court may resolve to keep such decision in force if the acknowledgement of this decision invalid would result in incommensurate detriment to third parties.
3. Certificated securities
The principle of public accuracy is determined for certificated securities by the law. It is stipulated that a person with obligations under a security is entitled to raise against its holder only those objections which arise from the security as such or are based on the relations between these persons (Clause 1 Article 145 of the Civil Code).
This principle does not apply to cases when the holder of a security acts in bad faith or to objections associated with the forgery of a security (Paragraph 3 Clause 1 and Clause 3 of Article 145 of the Civil Code)
Furthermore, lawmakers have specified that shortcomings related to execution of certificated securities (e.g. absence of mandatory requisites) result in such documents not being acknowledged as securities, while keeping their legal force as written evidence (Clause 2 Article 143.1 of the Civil Code).
Federal Law No.142-FZ “On amending Subsection 3 Section I Part I of the Civil Code of the Russian Federation” dated July 2, 2013
Should any questions arise in connection with the above or if you need any additional materials, please contact Anastasia Fomicheva or Anna Chaykina, St. Petersburg Office of Capital Legal Services.
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