Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USARussian FederationUnder the current regulatory regime, a qualified investor (e.g. a broker) is notpermitted to buy foreign securities or foreign financial instruments for, and holdthem on behalf of, an individual non-qualified investor (e.g. an employee).However, the Securities Market Law allows an individual to obtain the status of aqualified investor. The criteria which an individual must satisfy to obtain thisstatus includes, in particular, reference to the value of securities owned by theinvestor or the amount (value) of obligations under derivative contracts to whichhe is a party and the volume of his dealings in securities and derivatives. 5There is a considerable degree of ambiguity in the new rules governing theoffering of foreign financial instruments and securities in Russia. The applicationof these provisions will depend in particular on their interpretation by the FSFM 6 .for the said securities, currency or goods (as the case may be) and such transaction stipulates thatit should be treated as a derivative transaction.5An individual can be recognised as a qualified investor if such individual satisfies any two of thefollowing requirements:• an individual owns securities and/or other financial instruments with an aggregate value in excessof 3 million roubles; or• an individual has working experience in a Russian or foreign company which is dealing insecurities or other financial instruments, provided that the work experience should be at least: (i) 1year in a company, which is a qualified investor by operation of law (rather than a company thatobtained that status), if he or she has already ceased working with that company; (ii) 3 months in acompany, that is a qualified investor by operation of law, if he or she is still an employee of thatcompany; or (iii) 2 years in any other case; or• an individual (i) has been a party to at least 10 transactions with securities and other financialinstruments during the last 4 quarters provided that the aggregate value of such deals is at least300,000 roubles; or (ii) has been a party to at least 5 transactions with securities and otherfinancial instruments during the last 3 years provided that the aggregate value of such deals is atleast 3 million roubles.6One possible interpretation could be that the basic purpose of the amendments to the SecuritiesMarket Law is to protect Russian investors against the risk of losses as a result of investments inunfamiliar financial instruments. On this basis, arguably, where an acquisition of foreignsecurities/financial instruments does not constitute an investment (e.g. such securities are acquiredsolely for the purpose of establishing an offshore SPV in a holding structure), such acquisition shouldnot be caught by the restrictions on the offering of foreign securities/financial instruments. Taking intoaccount this approach, the offering of options to buy shares should not be restricted where suchoptions are offered to a limited number of employees free of charge. A similar exemption is unlikely tobe available in relation to the exercise of an option relating to foreign shares, as an employee isnormally asked to pay consideration for the shares when exercising the option (i.e. asked to invest).Therefore, in order to be eligible for offering to non-qualified investors, the underlying shares are likelyto still have to comply with the requirements regarding the offering of foreign securities/financialinstruments to non-qualified investors. We note that while this approach seems reasonable to us, it isuntested and there is no guarantee that it will be shared by Russian authorities or courts.UK/1729295/03 161 September 2010