Kyrgyz Government Issues Regulations on Derivatives
Yesterday the Government of the Kyrgyz Republic issued a resolution bringing long-awaited regulation to the domestic financial derivatives business.
The full name of the document is "Regulations on types, terms of issue and circulation of derivative securities in the Kyrgyz Republic and the requirements as to their base asset" (adopted by Government resolution No 185 of 29 March 2017).
We are pleased to inform our clients that we worked closely with the regulator, the Financial Market Regulation and Supervision Service and with the Kyrgyz Government on drafting the Regulations and fine-tuning the concept.
The Regulations created a legal framework for local distribution of derivative financial products, and we consider this to be a positive step for the Kyrgyz securities market.
As an investor protection measure, the Regulations provide that public placement of derivative instruments is only possible if they are issued as "securities" (as defined in the Kyrgyz Civil Code) and their issue is approved in advance by the country's securities market regulator. Publicly placed derivative instruments require an issue prospectus which must be published in generally accessible mass media.
The Regulations provide that the derivative instruments which are not "securities" (e.g., contracts which do not have a single "issuer" and whose terms vary so that they do not form an "issue") may be traded at exchanges or over the counter. Exchange-cleared derivative contracts must have their terms approved by the exchange and filed with the regulator before the trading commences.
Parties to over-the-counter derivative instruments enjoy complete freedom of contract, and no regulatory filings are necessary.
We believe that a further step to developing a finely regulated market in investment products should be amending the law "On the Securities Market" in such a way that no financial derivatives are considered "securities" (which still creates much uncertainty), but are a separate category of investment instruments - such as in Russia and many other countries. The term "securities" is best reserved for instruments with a single issuer and which embody certain rights only transferable with the transfer of the security, as is correctly defined in Article 37 of the Kyrgyz Civil Code.
Interstan Securities will continue to assist the legal team of the regulator and the Government of the Kyrgyz Republic in improving the investment legislation of our country.