by ACI Partners

Publications9 July 20150 comments

Recent amendments in Capital Market regulations concerning registers of securities holders

Moldovan capital market undergoes continuous formation and development. This is true not only due to a variety of transactions operated on the market but also because of the periodic improvements of the legal framework in this area. The latest amendments in the legislation on capital market come to prove the statement.

We will refer in this brief note to the recent Decision of the National Commission of Financial Market (NCFM) No 12/4 dated 10.03.2015 on Provisory Measures on the Capital Market (in force as of 13.03.2015) and the Law on Measures on the Capital Market No 117 dated 28.05.2015 (in force as of 12.06.2015). The last amendments specifically refer to the activity of the Central Depository to be created for public interest entities.

What are the functions of the Central Depository?

Based on the Law on Capital Market, the Central Depository may carry out such activities as:

• financial instruments depositing;
• keeping the registry of securities holders of public interest entities;
• keeping the registry of securities holders of entities, other than the public interest entities;
• operations on clearing and settlement of financial instruments admitted to trading on a regulated market.

The Law also requires that all the above-mentioned activities, except for keeping the registry of securities holders of entities other than the public interest entities, will be carried out only by the Central Depository.

Thus, one can note that basically at any stage of trading with securities on a regulated market, the role of the Central Depository is not the one to be neglected.

It is worth mentioning however, that the definition of a depositary, describing its functions and activities, is not actually an entirely new one on the capital market of Moldova. The National Securities Depository of Moldova (“National Depository”) was dealing with analogical functions starting from its foundation in July of 1998.

However, the presence and activity for more than fifteen years of the National Depository did not prevent the Moldovan Parliament to create the Central Depository for public interest entities that are financial institutions and a separate Central Depository for public interest entities, other than financial institutions. The Central Depository for the former entities is being held by the National Bank and the Central Depository for the latter is being held by the Ministry of Justice. The creation of these depositories is mandated by the Law No 180 on Amending and Supplementing of Certain Laws of 25.07.2014.

Creation of these two new depositories, dedicated mainly to public interest entities, aims at establishing and developing of new standards and practices of the activities carried out by depositories, however, one may consider that function of clearing and settlement of financial instruments is somehow dissociate with the functions of the Ministry of Justice. Nevertheless, leaving aside the question whether creation of additional separate depositaries is expedient, following these changes, financial institutions, insurance companies, leasing companies (if incorporated as a joint stock company), alternative pension funds as well as any other issuers whose securities are admitted to trading on the regulated market, whichever of them separately being classified as public interest entity, have to comply with new requirements related to the Central Depository.

What are these requirements?

According to the new amendments:

1. any transaction on the regulated market will be completed only with depositing of securities with the respective Central Depository (at the National Bank of Moldova or the Ministry of Justice depending on the type of public interest entity);
2. any public interest entity must submit keeping of the registry of holders of securities to the respective Central Depository within a period of one month from the date on which the issuer falls under the criteria of public interest entity.

Although the law does not expressly deal with this, but one could reasonably infer that for entities which were previously qualified as public interest entity the one month transition period starts from the moment of entry into force of the respective amendments made by Law No 180. 

If the public interest entity fails to transfer the registry of securities holders to the Central Depository within the mentioned period, transactions with securities of public interest entities (and all transfers that are not transactions with such securities) shall be suspended. Therefore the requirement to submit the registry to the Central Depository is not just a formal requirement but also an action to be taken. 

Obligation to pass the registry of securities holders to the Central Depository is incumbent not only to public interest entities but also to independent registrars and register societies.

Meanwhile, by the entry into force of the amendments made by Law No 180, neither of the two depositories has been yet established. As a result, the National Commission, as the supervisory body of the capital market, pursuing the objective of ensuring and maintaining stability and continuity of the capital market, has intervened with a new Law No 117 on Capital Market Measures (as we have mentioned it at the beginning of this article) that establishes that:

• transmitting of registries of securities holders of public interest entities to the Central Depositories held by the National Bank and Ministry of Justice will be completed upon their creation, and
• until creation of these two depositories clearing and settlement of public interest entities securities will be operated by the joint stock company authorized according to  the National Commission’s regulations.

Law No 117 does not set any deadline when these two depositories should be created. However, the registries of securities holders still remain in the administration of either register societies or entities themselves. As far as clearing and settlement function in case of trading on the regulated market of securities issued by public interest entities is concerned, it will be carried out by the National Securities Depository of Moldova, as communicated in a press release of the National Commission.

In conclusion, it could be noted that measures taken by the National Commission have removed certain ambiguities previously existing. The capital market follows its track and transactions are not being further blocked by certain legal obstacles, at least not in connection with the depositories. In this context, although preconceived by ones, the tendency to create advantageous conditions for development and activity of institutional investors, efficient administration of investments, creating conditions for the development of an efficient market, adjusted to the international capital market, appears to be more achievable.

Should you be interested to know more about the capital market in Moldova, please contact Maia Pircalab, Head of Banking & Finance Service Line.