2. Book-entry approach

According to the Russian legislation and its understanding in legal practice there is the principle of entry – if the rights in securities are not in the book, they do not exist. That principle is stated by art. 149 (sec. 2) CC, which provides that “operations with uncertificated securities can be effected only with respect to the person, who makes official entries with respect to the rights. Transfer, proprietorship and limitation of rights must be officially recorded by that person, who bears liability for safety of official entries, support of confidentiality, supply of correct data regarding such entries, making of official entries about operations”. This principle is also provided for by Securities Market Act 1996 (art. 28, 29).

Contradictory to this absolutely formal approach seems sec. 5.4 of Instruction № 36, which provides: “however the absence of a record in the depositary account does not preclude an interested party from proving his rights in the securities by reference to other evidence”. This rule in practice has not been applied or discussed either. On the other hand, judgments of High Arbitrazh Court of the RF play a more influential role and one of them held that “the right of pledge in uncertificated securities arises from the moment of its perfection in required manner” (sec. 13 Informational Letter 21.01.2002 № 67).

The book-entry approach is widely supported by jurists and the question regarding a rule governing the effect of an informal disposition (i.e. a disposition made otherwise that by entries in book accounts) over securities will need to be examined in more depth as part of further work with the Russian law.

3. Disposition requirements

The client’s instructions to its intermediary in Russia are made in a reasonably simple and convenient form. Book entries cannot be revoked or reversed without control from the court. The form of instruction on the securities transfer and information inside of it is governed by the Securities Commission (par. 12 sec. 3 art. 8).

The Securities Commission adopted Regulation № 27 and it was disputed in the Supreme Court of the RF with arguments that this Regulation does not require a contract, which is the basis of disposition of the securities and the only instruction could not be sufficient for termination of ownership. The Supreme Court recognised the Regulation valid and held that according to the Securities Market Act 1996 (sec. 3 art. 8) the register holder makes entries on the ground of disposition of the owner, his representative or the nominee holder; and the instruction is a notice about the disposition and claim to the register holder to change the book entries; the reference in the instruction to an invalid contract is a ground for client’s liability which gives the instruction, but the register holder must check the requisites of the instruction only (judgment of SC of the RF of 17.02.2004 № КАС 04-11).

5. Protection from adverse claims

The Securities Market Act 1996 contains the following definition: “The good faith acquirer is a person, who has acquired securities, paid for them and at the moment of such acquisition did not know and could not know about any third party claim in respect of these securities, unless proved otherwise” (part 20 art. 2). This rule has not been applied or discussed as if it did not exist at all. The entire job is on general art. 302 CC, concerning the good faith acquisition. The reasons for the general rule dominance of are that it is not seen difference between rules on bona fide acquisition provided by Securities Market Act 1996 in respect of art. 302 CC. But if they will be seen, jurists would anyway prefer art. 302 CC, because cases regarding good faith acquisition of securities in Russia do not concern circulated on organised securities market, but derives from OTC transaction from hostile takeover context.

Securities Market Act 1996 has the following particularises.