19. Securities market regulation in Russia and abroad.

The FSFM is the primary regulator of the Russian securities market. The FSFM's functions, which it carries out either directly or through its pre-authorized agencies, include:

licensing professional securities market participants;

authorizing self-regulatory organizations;

approving standards for securities issuances and prospectuses; and

classifying and defining different types of securities.

The FSFM has the authority to take certain actions against professional securities market participants that violate securities regulations. These measures include canceling licenses, carrying out enforcement actions, and petitioning for criminal prosecution. In addition, the FSFM has the power to fine legal entities and individual entrepreneurs for various securities violations. Any action pursued against an issuer, such as invalidation of an issuance, must be filed through the courts. Consequently, the ultimate jurisdiction over breaches of securities laws remains with the courts.

Until recently, professional participants in the securities market were obligated to join a Self-Regulating Organization ("SRO"), and participants needed to receive the recommendation of an SRO to obtain a license. An SRO is a non-commercial association licensed by the FSFM for which the foundation documents envision the membership of professional participants. Currently, only three SROs operate in the Russian securities market — "The Professional Association of Registrars, Transfer-Agents, and Depositories" ("PARTAD"), "The National Securities Market Participants' Association" ("NAUFOR"), and "The National Securities Market Association" ("NFA"). This requirement was repealed by the Presidential Decree of October 16, 2000. As further confirmed in a press release from the FSFM on October 23, 2000, professional participants may now directly apply to the FSFM to receive a license. According to the Licensing Regulation, the FSFM shall decide on issuing a license to an applicant within 30 days of when the documents were directly submitted to the FSFM, or within 15 days if an applicant presents a recommendation from an SRO along with the documents. However, since the requirement that a recommendation from an SRO be received prior to licensing still exists in a number of the FSFM's acts, some representatives of SROs consider SRO membership to be an ongoing obligation to receive a license.

20. Professional activity on securities market.

The following types of professional activities can be carried out in the securities market:

a) Brokerage activity;

b) Dealer activities, except for cases stipulated in paragraph (2) of Article 33;

c) Underwriting;

d) Investment management;

e) Registry maintenance;

f) Depository activity;

g) Clearing activity

  Brokerage Activity

Brokers shall transfer the power of attorney for carrying out transactions only to brokers. The transfer is allowed if it is stipulated in the brokerage services agreement or in cases when a broker is forced to do so in order to protect the interests of his client with the notification of the latter. Transfer of power of attorney shall be carried out in compliance with legislation. The broker shall execute clients' instructions in good faith and on terms favorable for the client and in the order in which they were received, unless the agreement with the client or his instruction envisions otherwise. Security transactions executed by the broker upon the clients' instruction should be executed with priority over the dealer transactions of the broker, in case these two types of activity are combined, or over transactions executed by the broker upon instruction of its affiliated persons. In the event that the broker has an interest which prevents him from executing the client's instruction on the terms most beneficial for the client, the broker shall immediately notify the latter of such an interest. In the event that a conflict of interests between the broker and his client, of which the client was not notified before the broker received the respective instruction, led to execution of the instruction to the detriment of the client's interests, the broker is obliged to compensate for the losses from his own account as set forth in civil legislation. The broker shall compensate in full for the losses incurred by a client as a result of non-execution or improper execution by the broker of his obligations under the agreement on brokerage services. In the event that the broker is deemed insolvent (bankrupt), the property that he holds under agreements on brokerage services and which belongs to his clients shall not be included in tender stock.

 Dealer Activity

Professional participant in securities market who carries out dealer activity shall be called dealer. Announcing the price, the dealer is committed to announce other essential conditions of the buy-sell contract of securities: minimum and maximum number of securities subject to purchase and/or sale, as well as the term of announced prices validity. A person is not considered a dealer making securities transactions in unsystematical manner and the sum charged from securities transactions, pursuant to the results of reporting semester, constitutes less than 35% out of the total sum obtained from production distribution (workers, services).

 Underwriting Activity

Professional participant in securities market who carries out underwriting activity shall be called underwriter. Underwriters shall act on the basis of the underwriting agreement concluded with the issuer. The sample of modal-contract on underwriter is stipulated by the National Commission.

Investment Management

Investment management is carried out by an investment manager who is a professional securities market participant. The investment management procedures, the rights and obligations of an investment manager shall be set forth by legislation and agreements on investment management. The sample of modal-contract on investment management is stipulated by the National Commission. In conformity with the investment management agreement, one party (management founder) shall transfer to another party (investment manager) property for fiduciary management for a certain period of time, and another party shall assume the obligation to manage this property in the interests of the management founder or the person specified thereby (beneficiary). Transfer of securities into fiduciary management shall not result in the transfer of ownership rights therein to the investment manager. Activity of the investment fund manager is considered as activity of investment administration. Investment manager shall indicate that it acts as a fiduciary manager while carrying out its activity. In the event that a conflict of interests between an investment manager and its client or different clients of one investment manager, of which all the parties had not been notified in advance, resulted in such actions of the manager that have caused damage to a client, the manager shall compensate losses from his own account in conformity with the procedure set forth in the legislation.

Registry Maintenance

Registry maintenance shall be performed by a registry keeper who can either be an issuer or an independent registrar who carries out registry maintenance on the basis of an agreement on registry maintenance entered into with the issuer. Mandatory requirements to the registry maintenance agreement and the maximum amount of remuneration for the registry keeper services on entering the data into the registry and issuing extracts from the registry shall be set by the National Commission.

A registry keeper shall:

a) comply with the established registry maintenance procedures;

b) open a personal account in the registry maintenance system for each registered person on the basis of the transfer instruction;

c) enter all necessary changes and additions into the registry maintenance system;

d) perform transactions in the personal accounts of registered persons at their instruction;

e) deliver to the registered persons information provided by the issuer;

f) inform registered persons of the rights certified by the securities and of the ways and methods of exercising these rights;

g) send a respective notice to the Stock Exchange in cases when the number of registered holders of a certain class of issuer's securities exceeds 50;

h) comply with the established procedure of transfer of the registry maintenance system in the event of termination of the agreement with the issuer; and

I) perform other activities as set forth in this Law.

The registry keeper is not entitled to impose other requirements upon making changes in the system of registry maintenance of security owners besides those set in conformity with this Law. Independent registrar is prohibited from carrying out transactions with the securities of issuers with which it signed the registry maintenance agreement.The registry keeper shall be held responsible for the information contained in the registry extracts issued thereby.

Depository Activity

Depository acts on the basis of the contract on providing depository services concluded with the depositor. The sample of modal-contract on providing depository services is set forth by the National Commission. Conclusion of the depository agreement shall not entail the transfer of ownership rights in the depositor's securities to the depository. Depository is committed to keep records of securities, included rights granted by these, as well as securities encumbering with obligations in the compliance with the present law and contract concluded with securities holder. In compliance with the depository agreement, a depository is entitled to get registered in the registry maintenance system of the securities holders or with another depository as a nominee owner. Depository has no right to dispose of depositor's securities unless he is authorized to do so by the legislation. No claims related to the depository's obligations may be attached to the securities of its depositors. In compliance with the legislation, a depository shall be held liable for disclosure of confidential information obtained by it as a result of fulfilling its obligations under the depository agreement, for loss and destruction of security certificates deposited with it, as well as for failure to execute or improper execution of its obligations with respect to accounting of rights in the securities, including for unauthentic and untimely entries in the DEPO accounts.

Clearing Activity

In connection with settlements on securities transactions clearing organizations shall accept for execution accounting documents, whose form and nomenclature are set forth by the National Commission, prepared upon determination of mutual obligations, on the basis of agreements with participants of the securities markets for which the respective settlements are performed. Clearing organizations are also entitled to settle security trades by means of transferring money and delivering securities to the trade participants. Clearing organizations which settle security trades shall create special funds with the aim of reducing the risk of security trade failure. The minimum size of these special funds for clearing organizations shall be set by the National Commission.