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DOI: http://dx.doi.org/10.20534/EJLPS-16-4-98-103
Ponomarev Oleg Vladimirovichj Fedorova Ekaterina Vitalevna, Protokovilova Anastasiia Andreevna, FEFU, School of Economics and Management, "Finance and credit", B1401F E-mail: o. v.ponomarev@mail.ru
Legal regulation of the market participant's work with securities
Abstract: In this article the current state of the market participants' work with securities is analyzed. Also it's main disadvantages and problems are identified. The ways of improving the legislation with the aim of increasing the efficiency of the market securities' operation and with the aim of risk reduction in its participants' activities are offered in this work.
Keywords: securities, risk, market participants, legal regulation.
Economically, the securities' market is a mechanism of capital redistribution between participants of business, individuals and legal entities [15; 17]. Its effective performance contributes an acquisition of the enterprises' extra revenue due to the financial operations, as well as the growth of their capitalization. On the other hand, transactions in the securities' market are an important source of income for individuals who are shareholders of a company and may receive income both in the form of dividends or as due to the resale of shares.
At the same time, securities' market activity is related to the higher risk level not only because of possible sharp fluctuations of a conjuncture, but also due to the potential dishonest activities of market participants. Beyond that, a significant degree of monopolization of securities' market is a risk factor for many small companies and for the holders of their shares, too. That's why a legal regulation by the state is necessary for providing the operation transparency in the market, for development the healthy competition and for reducing the risk of the unfair activities of the individual market participants.
Today from a formal point of view the legal framework of the securities' market regulation in Russia has already been sufficiently developed. Among the basic regulations are the Civil Code of the Russian Federation (the list of the officially recognized securities is given in Article 143) [1], the Federal Law "On Securities' Market", in which the procedures of issue, registration, accounting and storage of securities are considered [8]. In addition, as O. P. Pahutko notes that the basic federal laws to regulate the securities' market infrastructure were adopted in 2011. They are laws respecting the organized trading, the central depositary, the clearing and its activities [21].
Federal Law from 05.03.1999 No 46 FZ "On protection ofrights and legal interests of investors at the security market" [6] has special emphasis for the capital safekeeping and legal interests protection of investors at the security market. Also, as for limiting monopolistic activity and developing business competition Federal Law from 26.07.2006 No 135-FZ "On business competition protection" [5] plays an important role.
This act establishes base requirements ofprice setting and render services quality at the services market, initiates limitations, restraining individual companies to exclude a competitor from the stock market. To this effect the Law determines the conception "competitive price" and "financial services" [21].
Code of Administrative Offences includes articles, which establishes sanctions for security market participants' violations. Those are articles 15.18 "Illegal operations with equity securities", 15.19 "Infraction of the law on presenting and information disclosure at financial markets", 15.29 "Infraction of the law on security market professional participants..." [2]. Also Code of Administrative Offences includes article 185 "Abuse on security issuing", 185.1 "Persistent evasion on opening or making available the information, which is determined by the Federal Law", 185.2 "On violating of security right stock-taking", 185.4 "On blocking to provide or illegal limit security holders rights" [3].
However nowadays legal regulation of the security stock market in Russia can not be considered to be formed. D. A. Kurazova notices, that investors' guarantees are still insufficient [18]. Preservation of capital, which were spent on buying securities, is not hundred-per-cent, because market swings as up, as down. But reliable and transparent rules must be provided. They should not be changed in point of the investor during all the term of holding equity.
It should be noted that nowadays Moscow Stock Exchange performs the main function on the regulation in the securities' market in Russia. It was formed as a result merging of the Russian Trade System and Moscow Interbank Currency Exchange. But its activity regulation is poorly developed.
E. A. Shulga notices that key problem ofsecurity stock is coordination mechanism of an issuer's and an investor's interests [22]. Today in the Russian Federation such coordination is provided by noncommercial organizations, which must obtain an approval from the Central Bank. These organizations develop rules and standards of the market participants' activity, provide its observance and its information support. The disadvantage of this system is an assumption of the government regulation func-
tion by these organizations. It may cause an activity risk as for investors and for issuers.
Insufficient corporate transparency is another main problem of the market activity. Because of it rates of some securities can become higher in comparison with real value of the company. It makes them high-risk product. So some authors reasonably offer to transfer joint-stock companies into international standards of business accounting.
Another problem of legal regulation is connected with the taxation system. On the one part, issuers must pay duty and it doesn't stimulate them and deters their activity. On the other part, there is a problem of a double taxation in making profit from operations with securities.
E. A. Shulga reasonably offers to introduce tax remissions at least for those issuers who buy securities from the priority economic sector or innovative companies [22].
Intensification of the state regulation of the unorganized securities' market, so-called secondary market, acting out of stock exchange has a great importance. As a rule, a stock price in such a market is significantly lower and with it and simultaneously the investors' risk is increasing including the fraudulent deals. It is necessary to develop legal acts making participants of unorganized market follow the rules of security trade. Introduction of obligatory auditing is possible.
It is necessary to notice that above mentioned and other problems of the securities' market legal regulation are realized at the state level. That is why different actions of order improvement in such a regulation have been taking. Particularly The Central Bank of the Russian Federation includes the special service of the financial markets. Its functions provide keeping the demands of the Russian Law in check conjunctions and in the controlling the financial stability of the market participants.
Since the 1st September, 2013 on the Central Bank basis the financial Mega regulator was established. This authority professionally initiate the legislation concerning the improvement of the legal regulation. At the same time S. A. Minligareeva notices that such activity may cause negative effects [19]. On the one part its activity is to limit market monopolization possibilities. On the other part, because of its initial connection with the Central Bank
and The Moscow Interbank Stock Exchange, it can be an apparatus of monopolization growth excluding small-scale and medium-scale business from the security market.
By 2015 Central Bank security market service has worked out more than 100 subordinate regulatory acts, which are aimed at the market transparency and its infrastructure improvement [22]. But problems of choosing the certain ways of its perfection are still exist. For instance, it is necessary to perfect licensing. On the one part its strict requirements, which are compulsory for professional activity at the market, limit entry into the market and business competition. On the other part, if the licensing procedure is soften it will cause the risk of unfair players and shareholders.
Nowadays certain steps for improving the procedures of licensing of the securities' market have been taken by the Central Bank of the Russian Federation. An Instruction № 168-I «On licensing procedure of professional activity at the securities' market and order of keeping the register of securities' market professionals of the Bank of Russia » was adopted on the 13th September, 2015 by the Bank of Russia. This instruction sets the list of the required documents, the procedure for a license renewal, forms and rules of filling the relevant forms and so on. [10]. A Regulation № 529-P dated 18 January, 2016 has established the procedure of suspending, resuming and cancellation of licenses [11]. According to the Directions of the Central Bank of the Russian Federation № 3937-U (12), 3938-U [13] dated 18January 2016 and № 3956-U dated 05 February 2016 [14], order of licensing and order of passing the qualifying examinations has been changed [20]. However while the sub-legislative acts adopted in this sphere are more concerned with the formal side of the licensing procedure, but a qualitative development of the criteria of licenses' issuance is necessary for the professional activity in this market.
Moreover, today there is a problem of money laundering of the proceeds and of the terrorism financing, which strengthens the importance of monitoring the movement of securities. The Federal Law "On securities' market" assigns responsibilities in making necessary changes into the registry system [8]. At the same time, the Federal Law "On Combat-
ing Money Laundering of the Proceeds got criminally and Terrorism Financing" [7] gives banks the right to abort this order. It increases the risk of using the securities as a legal instrument for laundering "shadow" or criminal proceeds.
Nowadays a great problem is the regulation of mutual funds. The Federal Law "On Investment Funds" [9] provides the right of confidential management of such funds to the management companies. However, a procedure of monitoring compliance with the established amount and term of compensation is defined insufficiently. It increases the risk of activities either for funds or for their depositors.
Formation of ranting evaluation of issuers is a significant gap in the sphere of legal regulation of the securities' market activity. The investor often makes a decision about choosing the securities of a company according to this assessment. However, to date there are no guarantees that this ranking score has a high quality and that it is able to reflect the real circumstances, and doesn't just determine the interests of one or another company. It is necessary to have at least one official rating of issuers, in which the order of formation and evaluation indicators would be determined by law, as well as the criteria for calculation of these indicators. This step would help to reduce the risks and improve the image of the securities' market in Russia.
The Federal Law № 222-FZ "On the activities of credit rating agencies..." dated 13 July, 2015 became a certain step in this direction [4]. This law established the minimum requirements for such agencies, in particular, according to the size of their equity funds (not less than 50 million rubles), and according to the staff of founders and management bodies. Besides, the law forbade to combine this activity with other activities [16]. It is necessary to move further along this way and to impose a tougher order of formation such ratings. It can minimize risks for investors in the securities' market.
In our view, it is necessary to develop an insurance mechanism of funds invested in securities. Moreover, this system should operate in the manner determined by law. It is also important to create legislative minimum requirements for corporate transparency of joint stock companies, including non-public companies. To make a reasonable deci-
sion, the investor needs not only to know the official financial statements and current rate. He must be aware of the status of activities and business procedures of a company.
In addition, today a lot of operations in the securities' market are made on the Internet, where the risk to work with unconscientiously intermediaries engaged in the processes of purchase and sale of securities is higher. We believe it would be inappropriate to regulate Internet transactions in the securities' market by a special federal law.
As a result, according to the views of the modern Russian experts in the sphere of the securities' market, we can offer a few basic ways to improve the regulatory activities of market participants. Firstly, it is necessary to impose and regulate the official rating of issuers of securities in the Russian Federation by law. Secondly, we need a clear definition of the functions of mega-regulator to prevent its transformation into a mechanism of a market monopolization. Thirdly, it is important to adopt a special federal law regulating securities' transactions on the Internet in Russia. Fourthly, it is necessary to establish well-defined minimum of requirements for disclosure complementary information by joint stock companies, in addition to the obligatory financial statements, as well as their gradual transition to international accounting standards. Fifthly, it is required the development and legislative approval of the transparent rules of the mutual funds' functioning and their management companies, for example, by the adoption of the Mutual Funds Act. Sixthly, the establishment of the utmost definite requirements for the licensing of market participants, and toughen sanctions for their violation and imposition of the corresponding articles into the Code of Administrative Offences and the Criminal Code. Also it is necessary to strengthen the regulation of the unorganized securities' market, to improve the tax treatment of issuers, as well as to impose tax advantages for investors who buy shares of companies with highest priority for the economy and innovative companies.
Implementation of these measures would help to reduce the risks and to improve the efficiency in the securities' market for either issuers or investors. Besides that, it would improve the image of Russian
securities' market, and it can lead to attraction of fi- tative development of the securities' market, which
nancial resources not only from Russian investors, should have a positive impact on the real sector of
but also from foreign ones. This will ensure the quali- Russian economy.
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