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the lessee does not have the right to depreciate fixtures even reimbursement is done after the termination of the lease contract or not to the fullest extent of the expenditure incurred.
Eventually, the matter of including capital expenditures in the expenses by the lessee in case the lessee gets reimbursement after the termination of the lease contract, resolves itself into determination of period of their acknowledgment:
- gradually during the term of the lease contract and in net asset value in realization/transfer of the fixture to the lessor;
- at the moment of termination of the lease contract in estimation of financial result of such a transfer.
The question is solved depending on the tax tactics chosen by the lessee and after the analysis of each situation is carried out [6].
According to the provisions of the Tax Code of the Russian Federation accrual of depreciation on capital expenditures for tax purposes is not directly dependent on the fact how the lessee recognizes capital works. It should be admitted that accounting and tax legislation approaches are identical, though.
In practice it can be that procedure for the reimbursement of the expenses is not agreed by the parties. For example, if the contract provides that procedure for the reimbursement of the expenses is agreed on additionally. In relation to this we consider that until proved otherwise (reimbursement of the expenses will be done) this situation can be considered as not supposed for reimbursement. This is explained by the fact the lessee may not exercise the right to reimbursement of expenses as the responsibility of the lessor to reimburse expenses for fixtures is provided not mandatory in the Civil Code of the Russian Federation.
Taking all the aforesaid into consideration, it should be noted that there is a number of ambiguities in the current version of Chapter 25 of the Tax Code of the Russian Federation. Thus, in our opinion the moment the lessor agrees to creation of a fixture without reimbursement should not serve as a basis for possibility of expenses incurrence of the expenditures on the fixture creation from the lessee for profit tax purposes. It is because the fact whether the lessor agrees or does not agree to these activities is of commercial nature (is a commercial provision of the contract) and should not have an impact on tax liabilities of the lessee. Due to this several amendments should be made by law in Article 256 of the Tax Code of the Russian Federation, namely sub-sub-paragraph 4 paragraph 1 is replaced
by the following: “recognized as depreciated property shall be the capital investments into the leased fixed assets in the form of fixtures created by the lessee irrespective of the agreement of the lessor as well as the capital investments into the leased fixed assets in the form of fixtures created by the organization-borrower irrespective of the agreement of the organization-lender”.
Besides, we believe that legislative framework should also reflect the aspects of transfer of title for the created by the lessee fixtures as they directly influence on tax liabilities of the lessee concerning both income and property taxes. Provision of these bases in the lease contract should be facultative (“except as otherwise provided in the contract”), and failing this they should be treated under norms of the law
1. Official Letter of Federal Tax Agency Department in Moscow dated June 6, 2008 № 20-12/053638 “On Accounting Treatment of Income Tax Expenses on Ordinary Maintenance for Tax Purpos-es”// Moscow Tax Courier. 2008. № 15 - 16.; Official Letter of. Federal Tax Agency Department in Moscow dated February 18, 2008 № 20-12/015152.2 “On Accounting Treatment of Lease Payments for the Leased Property and Its Repairs in Profit Tax Purpos-es”// Moscow Tax Courier. 2008. № 7 - 8.
2. Official Letter of Federal Tax Agency Department in Moscow dated March 18, 2008 № 20-12/025122.1 “On Records of Depreciation Expenditures on Fixtures within the Lease Contract Terms for Profit Taxation Purposes” // Moscow Tax Courier. 2008. № 9 - 10.
3. Vasiliev Yu.A. Fixtures in the Lessee or the Lessor Statements: What Party Benefits? // Topical Issues of Accounting and Taxation. 2006. № 19.
4. Zahariin V.R. Repairs of Capital Fixed Assets as Seen by an Accountant // Economic and Legislative Bulletin. 2008. № 9.
5. Zernova I. Expenditures on the Repairs of the Leased Premises // Budgetary Organizations: Accounting and Taxation. 2008. № 3.
6. Kalashnikova I.N. “Impact on Control Technologies on Tax Administration Quality in Russia”// Bulletin of Saratov State SocioEconomic University. 2010. № 4 (33).
7. Kiryushina I.M. Improvement of the Leased Property // New Accounting. 2008. № 1.
8. Kozlova N. Who Depreciates Fixtures? // Practical Accounting. 2008. № 2.
9. Kuzmin D.V. Peculiarities of VAT Estimation in Consolidated Accounts // Finance and Credit. 2009. № 14 (350).
10. Resnyanskaya N.S. Reconstruction and the Subject of the Lease Contract. Making a Contract // Finance and Accounting Consultations. 2008. № 3.
ym 336.717 d.G. Chernyshkin
REGULATION ON MARGIN TRANSACTION SETTLEMENT IN RUSSIA
Criticism of the present legal environment of margin transactions settlement at the Russian securities market is presented. Suggestions on development of efficient system of regulation of securities market segment are made.
Key words: margin transactions, securities market, regulation.
Д.Г. Чернышкин
РЕГУЛИРОВАНИЕ МАРЖИНАЛЬНЫХ СДЕЛОК В РОССИИ
Статья содержит критику существующего правового поля совершения маржинальных сделок на российском рынке ценных бумаг и включает авторские предложения по созданию эффективной системы регулирования данного сегмента фондового рынка.
Ключевые слова: маржинальные сделки, рынок ценных бумаг, регулирование.
In 2006 the Federal Financial Market Service approved a new regulation on margin transaction settlement by professional participants of securities market. The main innovation of this regulation is distinguishing a special category of clients of Russian brokerage companies - high risk clients. According to this regulation it is within broker's rights to classify a client under the category of high risk clients in case several requirements are met simultaneously. The most essential of them are the following:
1. Prior to being classified under the category of highrisk clients, the client is to have used brokerage services in the securities market for six months or longer immediately before the date of the decision is made to classify the client under the category of high-risk clients. During three months immediately preceding the date of the decision made by the brokerage company to classify the client under the category of high-risk clients, there were to be margin or unsecured transactions made by the client.
2. The sum of money and market value of securities of the client meeting the applicable criteria must be not less than 600.000 Rub.
3. The sum of money of the brokerage company must be not less than 100.000.000 Rub.
The reason of classifying high-risk clients under a separate category is cherry picking of the regulatory organizations and professional participants of securities market to the clients who only start the practice at the securities market. Identical financial leverage for experienced and beginning clients of brokerage companies provides the possibility for a considerable decrease in the size of investment portfolio of the beginning clients in comparison to the experienced ones. In this regard the Federal Financial Market Service limited the ratio of financial leverage to 1: 1 for beginning clients, and to 1: 4 for high-risk clients. It means that a beginning client can utilize one extra Rub. of the brokerage company assets on one Rub. of the client's capital (in monetary assets or securities). A high-risk client can anticipate utilizing three Rub. of the borrowed proceeds on every Rub. of the client's capital. Besides, for clients restrictive margin requirement is assigned as not less than 50%, reduction value (in the formula for big bond settlement) is assigned as not less than 25%, and requirement for a margin call issue is assigned as not less than 35%; and for high-risk clients the requirements are as follows: not less than 25%, 15% and 20% respectively.
In our opinion, in practice the application of this innovation introduced by the Federal Financial Market Service has some limitations. Firstly, the signs are becoming clear that there is confusion of the notions “high-risk investor” which was introduced by the Federal Financial Market Service before and “qualified investor”. Analysis of the regulations adopted by the Federal Financial Market Service makes it possible to conclude that at present these two notions are interpreted identically which is not quite relevant, though.
We believe the notion “qualified investor” is associated with stricter criteria for classifying clients under the given category. A high-risk investor has limitations of financial leverage ratio to 1: 4; a qualified investor can take higher risks including those this client can experience in executing transactions at the market of short-term financial instruments [4]. Thus, this client can avoid limitations of financial leverage ratio introduced by the Federal Financial Market Service.
Secondly, a new kind of transactions is mentioned in the new regulation of the Federal Financial Market Service
- unsecured transactions. The aforementioned regulation on margin transaction settlement states that unsecured transactions are stock-exchange deals of account dealings in case at the moment of settlement of the deal the amount of the client's money is not sufficient for fulfillment of the given deal obligations. The amount of money is val-uated with the internal control of the client's assets in monetary assets or securities, of the client's assets in securities, of the client's receivables and obligations to pay with money or securities for previously settled transactions. At first thought the notions “margin transaction” and “unsecured transaction” interpreted by the Federal Financial Market Service seem to be identical. However, there is a great difference between a margin transaction and an unsecured transaction [3]. A margin transaction is a transaction settled with the use of borrowed proceeds lent to the client by the brokerage company. Level of margin should be limited to the ratio 1: 1 or 1: 4 which depends on the fact whether the client is classified under high-risk category However, this transaction becomes a margin transaction only at the moment of clearing. In other words, theoretically before clearing a broker has a right to provide big loans to the clients thus avoiding the restrictions of the Federal Financial Market Service. To stop this high-risky practice the notion of unsecured transaction was introduced. An unsecured transaction is any transaction settled with borrowed proceeds. It becomes a margin transaction only at the moment of clearing. Consequently, irrespective of its name an unsecured transaction as well as a margin transaction is asset-backed and is within the scope of the regulations of the Federal Financial Market Service thus placing a brokerage company under a duty to follow the regulations on the level of margin and the financial leverage ratio of unsecured transactions.
In summary the notion of “unsecured transaction” was introduced into practice to reduce risks of intraday trading when every transaction settled with borrowed proceeds is not considered to be a margin operation.
Among other innovations of the regulation of margin transaction settlement the following ones should be paid attention to:
1) Enabling a stock broker (sub broker) acting through another accredited by the stock exchange broker to settle
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margin transactions on behalf of the clients. In spite this innovation is a progress, it is worth mentioning that small regional brokerage companies acting as sub brokers create specific risks as they settle margin transactions for their clients;
2) Introducing an appropriate technique of assessment of liquidity used for a margin transaction settlement [1]. Brokerage companies have a right to advance borrowed money proceeds only against marginable securities and to advance borrowed money proceeds to their clients also against marginable securities to open short positions;
3) Authorization of a Repo transaction settlement in extended trading hours for restructuring the client's collateral. It also causes accumulation of risks specific to margin transactions;
4) Establishing real-time control for margin trading parameters: margin and collateral levels. It cannot be mentioned that this measure is well-timed and necessary in increased volatility of the Russian securities market.
In the meantime a wide range of problems characteristic to the modern Russian securities market is still unsolved [2].
Firstly, brokerage companies still avoid the regulation of the Federal Financial Market Service and provide their clients with a possibility to considerably exceed the officially permitted financial leverage ratio. At present there are a lot of shadow schemes at the Russian securities market. Using them brokerage companies implicitly violate the regulations of the Federal Financial Market Service. The scheme which is applied most often is obtaining a bank license and increasing the financial leverage ratio by stating “credit granting against investment portfolio”. Practically all big federal brokerage companies freely apply this shadowy scheme. Not a case of drastic punishment for applying these schemes has been registered, though.
Secondly, classification of clients into non-qualified and high-risk categories does not prevent a brokerage company to apply shadowy schemes to increase the officially permitted financial leverage ratio. Due to gaps in the Russian legislation brokerage companies can avoid regulations of the Federal Financial Market Service and provide the financial leverage ratio of 1: 4 to beginning clients as well.
We assume that all the aforementioned disadvantages of the regulation on margin transaction settlement will be in force until an appropriate amenability for violation of the Federal Financial Market Service regulations is legislated. It was already mentioned that at present almost 70% of all income basis of Russian brokerage companies is margin transaction service income. As a consequence brokers have a vested interest in increasing the officially permitted financial leverage ratio of their clients' margin transactions.
Thirdly, the regulations on margin transaction settlement do not solve its main task - to prevent the beginning participants of the market from settlement of transactions with a high ratio of financial leverage. This can be done because there is the market of short-term financial instruments (futures and options) as well. At this market of shortterm financial instruments the ratio of financial leverage can be 1 : 20. There is no classification of clients under the categories of experienced and inexperienced ones and any operations of a beginning participant of the market related to creating high risks are not restricted by regulatory authorities.
Fourthly, the problem of improper use of clients' assets (monetary assets and securities) by brokerage companies remains unsolved. Brokerage companies have a vested interest in increasing the volume of margin transactions. However, they try to build up their liabilities out of the funds of other clients as there are not any additional expenses as opposed to bank loans (for monetary assets) and Repo transactions (for securities). This is the reason small regional brokerage companies rather often improperly use their clients' assets providing them as borrowed proceeds to other clients and disqualifying the true owners from the opportunity to operate their assets. Not a case of punishment for tricks of this kind has been registered as everything is settled within the walls of the particular brokerage company A brokerage company often has a formal right to use the clients' assets for its own needs and this helps shunning publicity. Thus, in accordance with the Regulation of the Federal Financial Market Service 03-39/ ps a broker can exploit monetary assets of the client only in case the client delegates authority to the broker to exploit the assets as a result of the brokerage services contract. At this a brokerage company can transfer the monetary assets from a special brokerage account to its own account to the fullest extent. At the same time there is no amenability of the broker described for the cases when the client is disqualified from the opportunity to operate the assets for the reason the assets are used by other clients for margin transaction settlement. Thus, this gap in legislation can have a serious negative impact. For instance, in acute phase of financial crisis reached in the fall 2008 many clients of Russian brokerage companies took a bath because they did not have an opportunity to promptly sell securities on their accounts which had been loaned to other clients for bear transactions.
Fifthly, the Federal Financial Market Service does not provide an opportunity to settle margin transactions using accounts open within the framework of trust deeds. Refusing to regulate this market segment the Federal Financial Market Service actually makes trust managers search for shadowy schemes which enable them to use borrowed proceeds and to avoid restrictions of the Federal Financial Market Service. One of the widespread ways to hide a margin transaction settlement is to settle a Repo transaction which is a perfect way to do it. At the same time a Repo transaction has a number of specific risks. It cannot be ruled out that in case they are actual risks, they can inflict more harm on the trustor than risks of a margin transaction settlement. It is our understanding, that it is important to legalize margin transactions for trust managers to increase transparency and decrease risk possibilities of this market segment.
Sixthly, the problem of finding solutions providing an opportunity to quickly add to the trading account of the client in case margin level becomes critically low has not been solved. This opportunity to quickly add to the trading account is one of the most significant factors determining the efficiency of financial leverage at the securities market. Hence, it deserves a special attention of the regulatory authorities and professional participants of the securities market. There is no official position of the Federal Financial Market Service on this matter. That is the reason Russian brokerage companies set the time limit when the client must add the monetary assets or securities to his/her trading account themselves. When making decisions on
the time limits of adding monetary assets or securities to a client's account a brokerage company takes the situation at the market, forecasts of the future market environment and degree of professionalism of a client into consideration. In other words, all criteria employed by brokerage companies for making decisions on the time limit when the client's account should be added are unclear and very subjective. This problem can cause prepossession for a client or a situation when one of the numerous risks of margin transactions becomes an actual risk in case the risk manager of a brokerage company has made the wrong decision. In summary, it is our understanding that this gap
in legislation should be eliminated, clear time limits should be set, and methods of depositing funds to trading accounts should be defined in case margin level becomes critically low.
1. Vain S. Liquidity // Securities Market. 2002. № 18.
2. Evstigneev V.R. Financial Market in Transition Economy. M.: Publishing House “Editorial URSS”, 2004.
3. Kiselev M.V. Aspects of Regulation of Derivatives Market // Bulletin of Saratov State Socio-Economic University. 2009. № 1 (25).
4. Kiselev M.V. Systemic Approach to Regulation of Derivatives Market in Russia // Business, Management and Law. 2009. № 2
удк 338.24 A.N. Chimarov
EXIT FROM THE BUSINESS THROUGH THE PUBLIC MARKET
A strategy of exiting from the business through the public market is touched upon. Interrelation of IPO market and M&A transactions market is studied. Objective and subjective reasons which have an impact on the efficiency of exit from the business though an IPO are revealed. Positive and negative aspects of IPO are determined. The main risks of exit from the business through an IPO are analyzed. Methodic approaches to risk management are suggested.
Key words: initial public offering, mergers and acquisitions, risk factors, risk management.
A.H. Чимаров
ВЫХОД ИЗ БИЗНЕСА ЧЕРЕЗ ПУБЛИЧНЫЙ РЫНОК
В статье рассмотрен вариант стратегии выхода из бизнеса через публичный рынок, показана взаимосвязь рынка IPO и рынка слияний и поглощений. Выделены объективные и субъективные причины, влияющие на эффективность выхода компании на публичный рынок, определены положительные и отрицательные стороны использования инструмента IPO. Проанализированы основные риски при выходе посредством IPO и предложены методические подходы по управлению рисками.
Ключевые слова: публичное размещение акций, слияния и поглощения, факторы риска, управление риском.
Transactions in the market for corporate control involve not only integration processes (mergers and acquisitions) but purchase and sale of the business which manifest themselves in strategies of exit from the business. Merger and acquisition transactions are mostly considered from the viewpoint of the purchaser because the purchaser is an active player in the market for corporate control. Many publications and analytical reviews have already been devoted to integration transactions. They describe the main methodological approaches to strategy development, criteria for selecting enterprises as objects for these transactions, estimation methods related to working out projects of purchase-sale of assets, etc. At this the information material informs the purchaser to a large extent and does not provide information to the seller or the owners of the enterprise which is the object of this kind of transactions [3]. In this regard a question arises as to what the owner of a company should do within the framework of total consolidation of assets and capital investment and what the owner should do to get the maximum benefit, what factors influence the efficiency of exit of the owner from the business, what a seller should do to achieve profit maximization through purchase and sale transaction. There are many options for exit from the business. Only one of them
- an IPO strategy is discussed.
Studying the IPO market in Russia it is worth mentioning that the results of the IPO market of Russian compa-
nies in 2010 are optimistic. Quantitative volume (13 public offerings) reached close to its maximum for the whole period of Russian market of IPO/SPO in its existence (in 2007). Its value ($ 3.9 billion) is less than the value of the peak in 2007 (which was due to offerings of VTB, Sberbank, PIK, “Uralkali”, etc.) [5]. Table 1 presents statistical data on the development of the IPO market for the seven-year period (2004 - 2010).
T a b l e 1
Statistics of IPO Market (2004 - 2010)
Period 2004 2005 2006 2 007 2008 2009 2010
Volu me of offerings, $ mln. 1 78,8 2707,4 3211,7 1 884 7,8 178 3,6 134,5 3938,9
Numbe r of offerings, $ mln. 2 7 10 14 12 3 13
It should be pointed out that 57% of value falls on one offering “Rusal” (IPO, $ 2.2 bln.). It was the first Russian company which placed its shares at the Hong Kong Stock Exchange. There are still debates among analysts on this ambivalent IPO. Demand for the shares of “Rusal” was really high among Asian, European and North American investors. But almost immediately after offering the shares of the company receded considerably and receded by 30% during the next month. In May their price sunk below offer price. Experts still worry this can scare foreign investors away from the Russian market [1].
