NSSMC: securities traders should bring their activities in line with the new requirements

The NSSMC (National Securities and Stock Market Commission) has established new requirements for securities trading activities and for contracts entered into during such activities, by registering two regulations:

• Resolustion of 03.11.2020 №640 “On Approval of the Requirements (rules) for Securities Trading Activities: Brokerage Activity, Dealer Activity, Underwriting, Securities Management“;
• Resolution of 03.11.2020 №641 “On Approval of the Requirements to the Contracts concluded during the Professional Activity in the Stock Market (Securities Market) – Securities Trading Activities: Brokerage Activity, Dealer Activity, Underwriting, Securities Management“.

Please note that these resolutions take effect in 60 days from the date of their official publication. Securities traders need to bring their activities and internal documents in line with the entry into force of resolutions, ie no later than the specified period

In particular, the NSSMC has revised the classification of contracts that may be concluded by a trader when carrying out activities. The following types were excluded from the list of agreements: brokerage service agreement, dealer agreement, securities purchase agreement, performing agreement.

The documents introduce a new type of basic agreement on the provision of services by the trader – the “general agreement”, which establishes the procedure for the provision of investment services by the trader and the method of interaction between the parties. The general agreement is more universal than the brokerage service agreement, and can be concluded with both the client and the trader’s counterparty. The possibility of concluding such agreement with foreign investment firms and other non-residents has been determined. The conclusion of additional contracts to the general contract is provided, in particular, for the purpose of underwriting services, making margin transactions, repo transactions.

Purchase and sale agreements, exchange, loans of financial instruments, fixed-term contracts, can now be concluded through the exchange of counter-messages by certain means of communication between the parties, which greatly simplifies the procedure for concluding such agreements for traders and their clients.

Now the procedure for identifying contracts and fixed-term contracts will be determined by the trader according to his internal documents.

A new list of types of client’s orders submitted to the trader has been established in accordance with international best practices.

These legal and regulatory instruments are aimed at improving the quality of services received by clients from the trader and establish the basic principle of traders, such as protection of their clients from possible risks that accompany investment activities and fulfillment of client’s orders on the most favorable terms for them. To this end, clear mechanisms of interaction are being introduced.

In accordance with international standards, the procedure for making personal agreements, providing investment advice or recommendations, conducting investment research, preventing conflicts of interest, consideration of customer complaints has been established. The requirements for disclosure and provision of information to customers or potential customers, types and scope of such information are also brought in line with the international standards.

These legal and regulatory instruments implement the basic principles and requirements of investment firms, as defined in Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 and Commission Delegated Regulation (EU) 2017/565 of 25 April 2016, which amends this Directive.

Simultaneously with the entry into force by these Resolutions, the Resolution of the State Securities and Stock Market Commission on 12 December 2006 №1449 and the Resolution of the National Securities and Stock Market Commission on 6 November 2012 №1584 will be repealed.