Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USARussian FederationRussian Federation1. Securities lawOffer of securities: Employee share plans are not explicitly regulated underRussian law. Any offering under an employee share plan is, therefore, subject togeneral Russian legal requirements and restrictions.Shares in foreign companies and options relating to shares in foreign companiesWith effect from May 2009, the Federal Law "On the Securities Market" No. 39-FZ dated 22 April 1996 (as amended) ("Securities Market Law") was significantlyamended to incorporate provisions governing the "placement" and "circulation"of foreign securities in Russia. These amendments were followed by substantialadditional amendments to the Securities Market Law, which introduced theregulation of derivative financial instruments from 1 January 2010. It is now thecase that shares in foreign companies may only be offered 1 in Russia to qualifiedinvestors 2 unless:(a) the shares are assigned with both an International Securities IdentificationNumber (ISIN) and a Classification of Financial Instruments Code (CFI);(b) the shares are classified as "securities" in accordance with the procedureestablished by the Federal Service for Financial Markets ("FSFM") (in theabsence of such a qualification, foreign securities are regarded as "foreignfinancial instruments"); and12The term "offering" is not specifically defined in the Securities Market Law and as the current version ofthe Securities Market Law is relatively new, clarification from the FSFM or relevant court practice is notyet available. At this stage it seems that the term "offering" may be interpreted rather broadly and mayinclude any dealings (whether private or public, solicited or unsolicited) in shares and/or other financialinstruments.Under the Securities Market Law, Russian banks, brokers, dealers, fund managers, joint stockinvestment funds, non-government pension funds, management companies of investment funds,mutual funds and non-government pension funds, insurance companies, the Central Bank of theRussian Federation, the Bank for Development (Vnesheconombank (VEB)), the Russian DepositInsurance Agency, the Russian Corporation of Nanotechnologies, certain not-for-profit organisations inthe form of funds and supranational financial organisations (including the World Bank, IMF, ECB,EBRD etc.) are recognised as "qualified investors" by operation of law.In addition, the Securities Market Law allows a company or an individual to obtain the status of aqualified investor through a special procedure provided that such company or individual satisfiescertain specified criteria. The status of a qualified investor may be granted with respect to either aparticular type or several types of securities or financial instruments.UK/1729295/03 159 September 2010
Employee Share Plans in Europe and the USARussian Federation(c) such shares are admitted to public placement and/or public circulation inRussia. 3Where the shares fail to satisfy any of the criteria referred to above, they mayonly be offered to employees who are qualified investors. The necessarytransactions with the shares should be undertaken through a Russian broker(although it is understood that the securities market regulator intends to removethis requirement for employee option plans in the future). In addition, aprospectus should be registered with the FSFM if the shares in a foreigncompany transferred to employees are newly issued shares placed withemployees for the first time.Options relating to shares in a foreign company are likely to be treated as"foreign financial instruments" 4 and as such may only be offered in Russia toqualified investors.3In order to be admitted to a public placement and/or public circulation in Russia, shares in foreigncompanies must satisfy the requirements described in (a) and (b) and the issuer must either be:• a legal entity incorporated in a member state of either (i) the Organisation for EconomicCooperation and Development (OECD), (ii) the Financial Action Task Force (FATF) and/or (iii) theCouncil of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measuresand the Financing of Terrorism (MONEYVAL); or• a legal entity incorporated in a jurisdiction whose securities market regulator has a cooperationagreement with the FSFM (to date, such treaties have been signed with the securities marketregulators of Brazil, Belarus, Turkey, China, Cyprus, India, UAE, Kyrgyzstan, Germany,Venezuela, Syria, Oman and France); or• a supranational financial organisation included into the list approved by the Russian Government;or• an OECD, FATF or MONEYVAL member state or its central (national) bank.In addition, admission to public placement and/or public circulation is also subject to registration of aprospectus with the Russian financial markets regulator and compliance with certain other formalities.4The Securities Market Law contains a definition of the term "financial instrument". This definitionextends to any proprietary right that arises out of a transaction pursuant to which:• a party is obliged to make payments subject to a change in prices for the securities or goods,change in exchange rates, rates of inflation, other indexes comprising any or all of these, or theoccurrence of an event, which is provided for in the legislation but the occurrence of which isuncertain (including transactions contemplating an obligation to transfer securities, goods orcurrency); or• a party is obliged to buy or sell securities or currency on the terms and conditions agreed upon theexecution of a transaction; or• a party is obliged to transfer title to securities, currency or goods to the other party not earlier thanon the third day after entering into the transaction and the other party is obliged to accept and payUK/1729295/03 160 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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