Securities Decrees to the Rescue

Never before has so much key legislation affecting the Russian securities market been pending, including: new federal laws on the securities market, joint-stock societies and foreign investment; laws introducing stiff penalties and prison sentences for misleading investors and other violations of securities laws; and several government decrees and presidential edicts that would regulate more closely brokers, depositories and other market participants.

Whatever happens before the parliament recesses for the summer, it is clear that regulation of the Russian securities market is headed for a serious restructuring in the near future, and that last December's formation of the Federal Commission on Securities and the Securities Market -- and its recent active involvement in the legislative process -- could not be more timely.

The commission's legislative function has thus far been the most visible. When it appeared that the passage of key federal laws before the recess of parliament was unlikely, the government stepped in to prepare temporary legislation dealing with serious weaknesses in the existing regulation.

During the next weeks, it is likely that the president and the government will issue a series of these key edicts and decrees drafted with the assistance of the commission. Among these new measures put forward will likely be: government decrees clarifying the procedure for acquisition by foreign investors of securities of Russian issuers and on amending the basic existing legislation on the securities market (pending the adoption of a long-awaited law by parliament) and presidential edicts on investment brokers, self-regulation of securities market participants and protection of rights of investors.

The commission has also worked on federal laws amending the criminal and administrative codes to incorporate penalties -- including prison sentences -- for engaging in various activities harmful to the market or individual investors, in particular for preparing misleading advertising and misleading information contained in prospectuses.

Perhaps one of the most important questions for investors is -- or should be -- whether the commission will play a proactive role in defining the regulatory framework for the securities market.

Its role as an initiator of legislation places it in a unique position to influence draft legislation, but it remains unclear whether the commission will play a more visible role as an intermediary between the public, the participants in the securities market and the legislative and executive government bodies.

It could do so, for example, by receiving and analyzing comments from the public on draft legislation, by issuing private rulings on questions arising under securities laws and by being accessible to members of the public who have questions regarding their rights as investors.

Such a role could enhance considerably investor confidence in the market, and those who regulate it.

Maryann Gashi-Butler, a partner at White & Case, has been practicing law in Russia since 1990.