Azerbaijan adopts new law on securities market

 

On July 14, 2015 the President of Azerbaijan signs the Law On Securities Market (the “Law”). The Law regulates, among other things, public issue of investment securities – mainly stocks and bonds, activities of investment companies, clearing and settlement and depository system. The Law is a comprehensive regulatory document on matters relating to Azerbaijan’s securities market.

Public Issue of Securities: The Law defines “public issue” of investment securities.  In a nutshell, that is offering securities to indefinite number of people or offering it to more than 50 persons.  Following the approach in Azerbaijan’s Civil Code, which used to be the main regulatory instrument on securities, in the Law “investment securities” include stocks in Open Joint Stock Companies and bonds.  In order to issue securities publicly, the issuer must, among other things, prepare and publish prospectus and register the securities with the Azerbaijani State Committee for Securities (the “SCS”).  The prospectus must disclose information on the issuer, its business, management and etc.  The audited financial statements of the issuer must be attached to the prospectus.

Following issues of the securities and their listing in a stock exchange, issuers must make half-yearly and yearly disclosures.  The implementing regulations that the SCS will issue will provide for more specific list of information that the issuer must disclose.  In general, issuer must disclose information on its business, management and, of course, financial statements.  While half-yearly financial statements do not have to be audited, yearly financial statements must be audited.

Investment Companies: The Law brought more significant changes to regulations on investment companies.  Prior to the Law, Azerbaijan followed the US system of having brokers and dealers.  The Law does not distinguish between brokers and dealers, but instead introduces the concept of “investment company” – this follows the EU approach.  An investment company may engage in certain core and also in ancillary activities.  As part of their core activities investment companies may act as intermediary in the sale and purchase of securities by its clients (such as brokers), may be act as underwriters in securities issues (such as dealers), manage portfolio of securities etc.  Ancillary services include managing clients’ accounts, investment research, foreign currency transactions relating to its core activities etc.

Investment companies must obtain a license from the SCS for providing investment services.  There are no limitations as to nationality of holders of interest in investment companies.  Therefore, foreign investment companies may register their wholly owned subsidiaries.  Alternatively, they may establish their branch office in Azerbaijan, which can provide investment services.

Insider Trading: The Law governs insider information and insider trading.  Insider information is confidential information, which is material for investor’s choice of making investment decision and which, if disclosed, could affect prices of securities.  More specific examples of insider information will be provided in the implementing regulations.  The Law provides for the list of “insiders” – those are mainly managers of the issuer and its certain employees having access to the information, consultants and members of their families.  Unlawful disclosure of insider information is a violation, which leads to penalties.

Depository System: Another important part of the Law concerns depository system.  The depository system consists of one central depository, investment companies, who are its members and also depositories of investment funds.

Lawyer of Remells Rashid Aliyev actively participated in works in connection with drafting the Law and its implementing regulations.

Remells Law Firm’s lawyers have significant experience in Azerbaijan business law. Our lawyers are experienced in cross-border transactions and large scale litigations.  We provide legal services and assist our clients on matters relating to corporate law, finance, oil & gas, IT, employment, tax and other areas of law.

Remells’ lawyers hold law degrees from reputable US and European law schools.

 

Rules for Acting Securities Dealers in Azerbaijan Become Effective

 

The new rule in Azerbaijan defines requirements to securities dealers.

The State Committee for Securities (the “SCS”) has issued Rules On Acting as Dealers in Securities Market on June 30, 2014. The rules became effective on January 1, 2015.

Dealer are professional participants of Azerbaijan’s securities market. A dealer must obtain license from the SCS to be able to operate in Azerbaijan. A dealer may act as market maker – stand ready to buy and sell the securities at their bid and ask prices. More important for Azerbaijani market, dealers act as underwriters in security issues.

The new rules set out new requirements with respect to organizational structure of a dealer. A dealer must have, among others, internal control, internal audit and risk management department.

The rules also set forth capital requirements. In all cases, a dealer’s risk weighed capital must not be below AZN 100,000, which is around USD 125,881. A dealer must also maintain certain amount of so called “total capital”.