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Pro-IPO amendments to securities legislation

At press time the Russian state Duma was considering several amendments to the Federal law on the Securities Market No. 39-FZ of April 22 1996 and the Federal law on joint-stock companies No. 208-FZ of December 26 1995. The amendments are designed to facilitate the IPO (initial public offering) process and to bring Russian IPOs more in line with western standards and practices.

As of the end of November 2005, the state Duma passed in the second reading (three readings are normally required to adopt a law) amendments that would streamline procedures for handling preemptive rights during IPOs and facilitate the bookbuilding process of securities' price formation during offerings. According to the proposed amendments, the price of issued securities can be determined after expiry of preemptive rights (that is, not only before or on the date of beginning of placement). Also, the mandatory period for exercise of preemptive rights might be reduced to 20 days (now 45 days). The net effect would level the field for various players and to make the process more market-oriented.

Additionally, according to the amendments, registration of a report on IPO issue results is replaced with a mere notification to the registration body, which enables immediate trading of securities after the placement.

Moreover, the amendments (if adopted) should allow the issuer to sell only to so-called desirable investors during the open subscription and thereby ensure an adequate shareholding structure, and protect the company from hostile investors.

The draft amendments also include the requirement to disclose in the issue prospectus the fees of professional securities market participants who act as arrangers of offerings. The amendments give Russian regulator the Federal Financial Markets Service wider regulatory powers to reduce the risk of conflicts of interest among professional participants in securities markets.

Speculation continues that the regulators are looking for ways to make it difficult for Russian issuers to do foreign IPOs without listing in Russia first, but it remains to be seen what legal acts, if any, will be adopted in this respect.

Changes to the credit histories law

Amendments to the FederalLaw on credit histories No. 218-FZ of December 30 2004 (in force since June 2005), will also soon be considered by the Duma. According to the draft amendments, banks would need borrowers' consent to make information about them available to credit bureaus, and borrowers would receive legal standing to obtain information from their own credit files. These amendments are aimed at protecting borrowers' rights.

Sergey B Komolov

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