Announcement of PARTAD Board of Directors in Relation to the Exclusive Powers of the CSD

     In connection with the information on decisions, taken on the inter-agency meeting on October 7th, 2011, about the exclusive powers of the CSD, we believe necessary to bring our concerns to the several aspects of the draft law on the CSD, approved on the meeting and having direct impact on the interests of the key fund market participants - issuers and investors (Russian and foreign) to the notice of all the interested parties.

     Legislation empowerment of the future CSD with specially defined functions, and, primarily, exclusive powers of the singular nominee holder account in the registers of the securities owners, goes beyond the scope of the initially defined task of the draft law - to centralize the settlements at the organized market. This steps aside from the international practices and may lead to adverse consequences for the ownership relations at the Russian securities market because of the following:

     1) Information on the ownership rights of all the shareholders, represented in the register by means of the institution of the nominee holder, became known for the third party (CSD). At the same time, the CSD is not responsible neither for the safekeeping (in accordance with Federal law No152-FZ "On personal data"), nor for the losses caused to the shareholder due to the loss of the shares or inability to exercise rights proved by him (in accordance with the Art. 44 p. 4 of the Federal law No208-FZ "On JSCs").

     2) Concentration in the CSD, that, according to the given edition of the draft law, is a business entity, of the exclusive information not only on the shareholders, but also on corporate actions of the issuers, will trigger the risks of insiders' activities;

     3) Inability of the issuer and the registrar to influence on the terms and quality of the disclosed information (on shareholders, as well as on corporate actions), the responsibility for which (disclosure) is imposed on the issuers;

     4) Compulsion of the strategic issuers to use CSD services, even if they do not hold the stakes traded at stocks;

     5) Accumulation of all the risks of settlements on transactions, made by the professional (stock and OTC) market participants, will lead to the decline of the stability of the whole accounting system in general, and combination of those risks with risks of keeping of all the Russian securities, circulating at the market;

     6) Technical difficulty of the realization of electronic cooperation of the CSD with the registers of the large number of issuers at the whole territory of the country, that will drive to the increase of the risk of IT bugs and failures of the software;

     7) Inevitable rise of costs of services for CSD clients, as it will be the monopoly function of nominee holder in the registers.

     In the final analysis, empowerment of the CSD with exclusive functions in representing of the interests of the shareholders in the registers, brings it (the CSD) closer to the scenario, when it will be transformed into the Central registrar.

     Actively participating in the shaping of the Russian financial infrastructure and supporting the initiative of the President of the Russian Federation on the creation of the IFC (including the introduction of the CSD institution), PARTAD Board of Directors notes, that we need all the elements be assigned with concrete functions and primarily protect the interests of the investors and the issuers, but not the financial mediators, if we want to make it happen.

     According to the PARTAD Board of Directors view, it is necessary to keep the issuer's right to choose the accounting institution, attracted by them for the purposes of representation of their interests in the register keeping system, without obligatory introduction of the CSD into the ownership rights accounting chain, that increases the cost of investing into the Russian securities and enhances the system infrastructural risks.

     As it can be seen from above, PARTAD Board of Directors believes the decision to empower the CSD with the exclusive right to open nominee holder accounts to be insufficiently elaborated that is able to damage the development of the Russian financial market infrastructure, investors' and issuers' interests and in fact to hinder the shaping of the full scale IFC in the Russian Federation.