The year 2014 saw the launch of the corporate actions reform in Russia which was initiated by the Russian central securities depository and backed by securities market participants. In 2015, the legal framework for the reform was approved: on 29 June 2015, the President of the Russian Federation signed Federal Law No. 210-FZ “On Making Amendments to Certain Laws of the Russian Federation and Repeal of Some Provisions of Certain Laws of the Russian Federation”.
Federal Law No. 210-FZ makes amendments to the Federal Laws “On Joint-Stock Companies”, “On the Securities Market”, and “On the Central Securities Depository”, which reflect the key aspects of the corporate actions reform. In particular, the new statutory provisions:
- Change the approach to the drawing up of a list of security holders;
- Introduce a new procedure for exercising security holders’ rights in the course of corporate actions in a centralized manner through securities depositories or registrars;
- Authorize the central securities depository to determine electronic data interchange formats to be used for the purpose of exercising rights attached to securities;
- Introduce new methods of participation in general meetings of security holders, such as e-proxy voting through a securities depository, or e-voting on a web site;
- Establishment of a corporate information center on the basis of the CSD.
The above changes will take effect on 1 July 2016.
Changes Affecting Investors
The changes will contribute to greater protection of investors holding Russian local securities, as well as to the reduction of costs for participation in corporate actions. Before, there existed different approaches that were used for the processing of similar corporate actions in the Russian market, which resulted in extra costs and risks for investors. The new statutory provisions allow for the implementation of the international standards for corporate actions processing, including the use of ISO standards in formalized electronic data interchange. E-voting and e-proxy voting will allow security holders to remotely participate in corporate actions. In addition, thanks to the possibility for investors to exercise their rights attached to securities through a securities depository, investors will be able to receive a full range of securities services provided by the same organization, i.e., the securities depository. Thus, an investor will be able to exercise all of his rights attached to securities wherever the investor is located.
Changes Affecting Professional Securities Market Participants
Before, issuers used to interact with shareholders without involvement of securities depositories or registrars. In accordance with the new statutory provisions, all corporate actions will be processed in a centralized manner through securities depositories or registrars. Both professional securities market participants and investors will have access to NSD as a single source of official information on corporate actions, and such information will have a priority over any other information. To enable issuers, registrars, and NSD’s clients to comply with the new laws, a new service will be launched – a dedicated web client that will be a primary channel for communications between the central securities depository and securities market participants in the course of corporate actions reporting and processing. Securities market participants will also be able to use the SWIFT system and the web-service to communicate with NSD. The introduction of electronic data interchange as part of the reform will allow issuers to reduce their costs for providing information on corporate actions in hard copy.
New Method of Exercising Rights Attached to Securities and Exercisable through Nominee Holders Only
A number of amendments made to the Federal Law “On Joint-Stock Companies” need to be mentioned specifically. Such amendments require that certain rights attached to securities be only exercised through nominee holders, i.e., through persons responsible for the recordkeeping of rights to securities:
- pre-emptive right;
- acquisition of securities by the issuing company;
- share repurchase by the issuing company at shareholders’ request;
- voluntary tender offer to purchase shares;
- mandatory tender offer to purchase shares;
- mandatory purchase of shares from minority shareholders by a shareholder with a 95%+ interest; and
- redemption of securities.
Communications between the central securities depository and registrars and NSD’s clients in connection with the above corporate actions will be maintained in electronic format only, without using hard copy documents.
E-proxy Voting and E-voting
The corporate actions reform in the Russian securities market will bring about the new methods of security holders’ participation in general meetings:
- E-proxy voting. In accordance with this method, an investor will submit electronic voting instructions through the securities depository that provides services to the investor. However, the investor will still be able to attend general meetings either personally or by proxy. This method has been available earlier and is now confirmed by the new law.
- E-voting. This method implies voting through an electronic system (such as a web site) that allows for the submission and calculation of votes. This method does not require the use of hard-copy documents or personal attendance.
Information about the Corporate Actions Reform
As an active participant of the reform, NSD seeks to ensure that the reform is as comfortable as possible for securities market participants. For the updated information on the reform progress, please visit the dedicated web portal corpactions.ru. The full text of Federal Law No. 210-FZ was posted on 1 July 2015 on the official legal information portal.