This content is from: Local Insights

Governmental securities (Part 2)

Governmental securities (G-Securities) are issued in book entry form and are transferable. Every transfer of property from the owner of the G-Securities to the purchaser must be registered, for the transfer to take effect.

The Bank of Albania maintains the registry of the first level, referred as the synthetic registry. Registrars licensed by the FSA (for example, Raiffeissen Bank and the American Bank of Albania) maintain the registry of the second level, referred as the analytic registry.

Albanian law does not prohibit foreign investors from acquiring, holding and selling Albanian G-Securities, as long as this activity complies with the provisions and limitations of Albanian law.

A foreign investor, being a natural or juridical person, can acquire and hold G-Securities on its own account like a resident investor either (i) in the G-securities primary market (GSPM), directly or indirectly through a licensed intermediary; or (ii) in the G-securities retail market (GSRM), subject to certain requirements and criteria.

On the other hand, if the foreign investor directly acquires, holds and sells the G-Securities in the GSPM or the GSRM as part of a commercial activity on its own account or on account of its clients, then the investor will be deemed to conduct a securities investments activity for which an FSA licence is required.

However, the actual trading of the G-Securities by a foreign investor – the acquisition of G-Securities for the purpose of selling them before or on the date of maturity – encounters two legal difficulties that are still unsettled.

First, it remains ambiguous and subject to regulators' clarification whether the selling of the G-Securities offshore is allowed. It is also uncertain how this may be carried out without infringing the law. Given that the G-Securities are transferred only pursuant to the registration of the transfer with the Albanian licensed registries, the completion of such a transfer in Albanian territory is imperative. But the questions that the regulator still needs to address are whether (i) the investor residing offshore may transfer the G-Security to another offshore residing party by recording the transfer in the registry, outside the Albanian GSRM; or (ii) the offshore residing investor can transfer the G-Security to another offshore residing party only through the GSRM.

The regulators themselves seem to differ on the matter, though this is not officially noted. The Central Bank of Albania (BoA) interprets the agreements with the Ministry of Finance conservatively, to keep the trading of G-Securities in Albania and to restrict the holder of the G-Security so that it can only sell the security through the Albanian GSRM. The BoA prohibits direct trading of the security offshore. In support of this interpretation, article 24 of the T-Bills Agreement states that the holder of the T-Bills may transfer the ownership on such securities only to Albanian licensed banks. Similarity, according to article 22 of the G-Bond Agreement, G-Bonds can be sold or purchased before their maturity only in the retail market regulated by the BoA and the FSA (that is, the GSRM). On the other hand, unlike the BoA, the FSA interprets the law as allowing the foreign holder of the G-Security to trade the security offshore without the intermediation of the GSRM.

Secondly, Albanian law does not address the role of the securities custodian in cross-border trading of G-Securities. The Forex regime (articles 8 and 9 of the Law on Foreign Exchange Activity, Law 64 of July 30 2003) requires that non-residents acquire or sell securities in the territory of Albania solely through local custodians. Licensing of the custodian is a requirement of the securities laws and/or banking laws, but no rules regulate the custodian's role or operation. In addition, the need for a local custodian in the trading of electronic G-Securities remains to be clarified, as does the question whether the G-Securities registry replaces the role of the custodian and satisfies the Forex requirement for intermediation.

There is growing interest from foreign investors in Albanian G-Securities. It means that legal and practical measures must be put in place. To avoid conflicting interpretations and uncertainty it is advisable that parties write to the regulators asking for their opinion on the concerns raised, in particular regarding offshore trading of G-Securities.

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