Infrastructure of the Russian securities market (brief educational program)
In the past , we discussed the basic scheme of the stock market of our country. However, besides, the actual stock exchanges, brokers and traders, there are other players who have a significant impact on the market. Today we look at the architecture of the domestic market in more detail.
One of the main players in the stock market of any country is the regulator - the state does not allow it to drift. Regulator functions typically include:
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The main property of the regulator is that it represents in the market only the interests of the state, which may not coincide with the interests of market participants, and, in general, society.
In the United States, the Securities and Exchange Commission (SEC) is the stock market regulator, and in Russia, until recently, the Federal Financial Markets Service (FFMS of the Russian Federation) was such a body, but on September 1, 2013 was abolished, and its functions were transferred to the authority of the Central Bank.
The state regulator controls and licenses the work of all participants in the stock market, and in case of any violations of the rights of investors or shareholders, securities market laws or decrees are now the Central Bank of the Russian Federation, the latter’s reaction can be very harsh: from fines to license withdrawal.
For more effective activity of state market regulators, the Federal Law on the Securities Market of the Russian Federation provides for the creation of special non-commercial specialized associations of market participants. Usually they are called self-regulating organizations (SRO), and the regulator shifts to them a part of its own functions for the supervision of its members, in exchange for the opportunity to participate in lawmaking. Participation in an SRO is not mandatory for professional market participants, but is welcomed by the regulator.
Here are some examples of such organizations in Russia:
In the US, the most well-known public organization in the stock market is the National Association of Securities Dealer (NASD).
Soon, when the norms of prudential supervision are adopted, the membership of professional participants in such organizations risks becoming compulsory, and the SROs themselves will take over some of the functions of the regulator to control their members.
Each joint-stock company must have a register of shareholders where they are all recorded. If the joint-stock company has less than 50 shareholders, then such a company, according to the law on joint-stock companies, may itself keep its register. If there are more shareholders, the registry must be transferred to an independent legal entity, which will be called the registrar (or the registrar). So it will be until October 1, 2014. Then the share register will have to be given to the real registrar.
Shareholder accounting is necessary for the accrual of dividends, holding general meetings and exercising other corporate rights of holders of securities. For the maintenance of the register, the company pays the registrar - in fact, it is the payment from various clients for maintaining and making new entries in the registry and is its main income.
Another market participant, without which the turnover of securities would be simply impossible, is the depositary. This organization is intended mostly not for companies-joint-stock companies, but for their shareholders. The depositary shall keep records of the rights of the latter to the securities owned by them. It takes into account the transfer of ownership of the paper clients (they are called depositors ) when they buy and sell them.
In order to keep his securities in the depository, the client must open a special depot account in it, on which his securities will be taken into account. On the basis of documents on the sale and purchase of securities that depositories receive from brokers (who sometimes combine broker and depository activities), clearing houses of stock exchanges and other depositories, transactions are conducted (debited and credited) to customer custody accounts. The fee for these operations is the salary of the depositary. Thus, the depositary is the main guarantor of the investor’s rights to the securities belonging to him.
Depositaries and Registrars are interconnected by a complex network of inter-depositary agreements and relationships that allow a potential depositor to open an account in virtually any depositary and exercise their rights. Here, depositaries for securities will perform functions similar to those of banks with respect to money. And just as there is a Central Bank in the banking sector, in which all banks have correspondent accounts that allow them to exchange payments with each other, the Central Depository has recently appeared on our depository field in our country.
There are members of stock exchange groups, such as CJSC JSCB National Clearing Center (NCC), which is part of the Moscow Exchange group of companies. The main responsibility of the Clearing Center is to calculate, on the basis of the register of transactions made on the stock exchange, and to give correct information about the required write-offs and credits of money and securities to the Clearing Houses and settlement depositories. For Clearing houses and settlement depositories, the clearing report is an unconditional document on the basis of which cash flows on trading and clearing accounts and securities on depot accounts are carried out.
These organizations exist at trading platforms (stock exchanges), and their activities are also carried out under appropriate licenses.
The functions of the clearing house include:
Before the start of trading, participants transfer money from settlement accounts to special trading accounts, after which funds are blocked for trading and you can only buy securities on them. Generally speaking, the clearing house does not have the ability to change the money account of the participants after each completed transaction. This would be too costly in view of the fact that tens of millions of such transactions go through. Therefore, all calculations and changes in the state of accounts (including the exchange commission) are carried out upon completion of clearing.
Upon completion of trading, a clearing session is held as a result of which the clearing center generates reports on the basis of which the clearing house conducts cash flows. After the implementation of all these actions, the funds are withdrawn back to the current accounts and the participant can dispose of them at their own discretion.
As the clearing house is engaged in cash accounting, the clearing depositary is engaged in accounting for securities of bidders, delivers them to the accounts of those who made the purchase, and deducts from the sellers' accounts. The settlement depository is also guided in its actions by clearing reports. Similarly to cash, securities are blocked before trading, and are also written off or credited after clearing.
In principle, the functions of the Settlement Depository and the Settlement Chamber (or the Settlement Chamber and the Clearing Organization, or the Clearing Organization and the Settlement Depository) can be combined in one legal entity. For example, in the group of companies of the Moscow Exchange, the functions of a settlement depository and a clearing house are combined in the National Settlement Depository NGO (CJSC NSD).
Of course, there are still quite a few players on the market, but we will talk about this in the next posts.
In conclusion, we will give the names of the laws that govern the work of this entire complex mechanism.
And plus a mass of bylaws to these laws, which, if correctly applied, provide full protection for investors, fairness and fairness of the market and pricing on it.
That's all for today. Thank you for your attention, we will be happy to answer the questions that have appeared in the comments.
Regulator
One of the main players in the stock market of any country is the regulator - the state does not allow it to drift. Regulator functions typically include:
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- Establishing the rules of the market and circulation of equity securities.
- Licensing and supervision of professional participants of the securities market and trading platforms.
- Issuance of permits for new issues of securities and registration of these issues.
- Control over the observance by issuers - joint stock companies of shareholders' rights.
- Elaboration of recommendations for further improvement of federal legislation on the securities market.
A bit of terminology
The Issuer is an organization that issued (i.e., issued) securities (shares) to develop and finance its work.
Issue - consecutive actions of the issuer to issue and place on the stock exchange its own securities.
Issuance securities are placed serially in equal volumes and have equal periods for the exercise of rights within one issue, regardless of the time of their acquisition.
Issue - consecutive actions of the issuer to issue and place on the stock exchange its own securities.
Issuance securities are placed serially in equal volumes and have equal periods for the exercise of rights within one issue, regardless of the time of their acquisition.
The main property of the regulator is that it represents in the market only the interests of the state, which may not coincide with the interests of market participants, and, in general, society.
In the United States, the Securities and Exchange Commission (SEC) is the stock market regulator, and in Russia, until recently, the Federal Financial Markets Service (FFMS of the Russian Federation) was such a body, but on September 1, 2013 was abolished, and its functions were transferred to the authority of the Central Bank.
The state regulator controls and licenses the work of all participants in the stock market, and in case of any violations of the rights of investors or shareholders, securities market laws or decrees are now the Central Bank of the Russian Federation, the latter’s reaction can be very harsh: from fines to license withdrawal.
Self-Regulatory Organizations
For more effective activity of state market regulators, the Federal Law on the Securities Market of the Russian Federation provides for the creation of special non-commercial specialized associations of market participants. Usually they are called self-regulating organizations (SRO), and the regulator shifts to them a part of its own functions for the supervision of its members, in exchange for the opportunity to participate in lawmaking. Participation in an SRO is not mandatory for professional market participants, but is welcomed by the regulator.
Here are some examples of such organizations in Russia:
- NAUFOR (National Association of Stock Market Participants).
- PARTAD (Professional Association of Registrars, Transfer Agents and Depositories).
- NFA (National Stock Association).
- NLU (National League of Governors).
In the US, the most well-known public organization in the stock market is the National Association of Securities Dealer (NASD).
Soon, when the norms of prudential supervision are adopted, the membership of professional participants in such organizations risks becoming compulsory, and the SROs themselves will take over some of the functions of the regulator to control their members.
Registrar
Each joint-stock company must have a register of shareholders where they are all recorded. If the joint-stock company has less than 50 shareholders, then such a company, according to the law on joint-stock companies, may itself keep its register. If there are more shareholders, the registry must be transferred to an independent legal entity, which will be called the registrar (or the registrar). So it will be until October 1, 2014. Then the share register will have to be given to the real registrar.
Shareholder accounting is necessary for the accrual of dividends, holding general meetings and exercising other corporate rights of holders of securities. For the maintenance of the register, the company pays the registrar - in fact, it is the payment from various clients for maintaining and making new entries in the registry and is its main income.
Depositary
Another market participant, without which the turnover of securities would be simply impossible, is the depositary. This organization is intended mostly not for companies-joint-stock companies, but for their shareholders. The depositary shall keep records of the rights of the latter to the securities owned by them. It takes into account the transfer of ownership of the paper clients (they are called depositors ) when they buy and sell them.
In order to keep his securities in the depository, the client must open a special depot account in it, on which his securities will be taken into account. On the basis of documents on the sale and purchase of securities that depositories receive from brokers (who sometimes combine broker and depository activities), clearing houses of stock exchanges and other depositories, transactions are conducted (debited and credited) to customer custody accounts. The fee for these operations is the salary of the depositary. Thus, the depositary is the main guarantor of the investor’s rights to the securities belonging to him.
Depositaries and Registrars are interconnected by a complex network of inter-depositary agreements and relationships that allow a potential depositor to open an account in virtually any depositary and exercise their rights. Here, depositaries for securities will perform functions similar to those of banks with respect to money. And just as there is a Central Bank in the banking sector, in which all banks have correspondent accounts that allow them to exchange payments with each other, the Central Depository has recently appeared on our depository field in our country.
Clearing organizations and clearing centers
There are members of stock exchange groups, such as CJSC JSCB National Clearing Center (NCC), which is part of the Moscow Exchange group of companies. The main responsibility of the Clearing Center is to calculate, on the basis of the register of transactions made on the stock exchange, and to give correct information about the required write-offs and credits of money and securities to the Clearing Houses and settlement depositories. For Clearing houses and settlement depositories, the clearing report is an unconditional document on the basis of which cash flows on trading and clearing accounts and securities on depot accounts are carried out.
Clearing houses
These organizations exist at trading platforms (stock exchanges), and their activities are also carried out under appropriate licenses.
The functions of the clearing house include:
- Accounting of funds of bidders.
- Delivery of money for each transaction to sellers of securities.
- Write-off of funds from customers' accounts.
- The implementation of external and internal money transfers.
Before the start of trading, participants transfer money from settlement accounts to special trading accounts, after which funds are blocked for trading and you can only buy securities on them. Generally speaking, the clearing house does not have the ability to change the money account of the participants after each completed transaction. This would be too costly in view of the fact that tens of millions of such transactions go through. Therefore, all calculations and changes in the state of accounts (including the exchange commission) are carried out upon completion of clearing.
Upon completion of trading, a clearing session is held as a result of which the clearing center generates reports on the basis of which the clearing house conducts cash flows. After the implementation of all these actions, the funds are withdrawn back to the current accounts and the participant can dispose of them at their own discretion.
Settlement depository
As the clearing house is engaged in cash accounting, the clearing depositary is engaged in accounting for securities of bidders, delivers them to the accounts of those who made the purchase, and deducts from the sellers' accounts. The settlement depository is also guided in its actions by clearing reports. Similarly to cash, securities are blocked before trading, and are also written off or credited after clearing.
In principle, the functions of the Settlement Depository and the Settlement Chamber (or the Settlement Chamber and the Clearing Organization, or the Clearing Organization and the Settlement Depository) can be combined in one legal entity. For example, in the group of companies of the Moscow Exchange, the functions of a settlement depository and a clearing house are combined in the National Settlement Depository NGO (CJSC NSD).
Of course, there are still quite a few players on the market, but we will talk about this in the next posts.
Legislation
In conclusion, we will give the names of the laws that govern the work of this entire complex mechanism.
- Federal Law No. 39 “On the Securities Market”, which regulates the activities of professional participants: brokers, dealers, depositories, etc.
- Federal Law No. 46 “On the Protection of the Rights and Lawful Interests of Investors in the Securities Market”, it is clear from the title what it is written about
- Federal Law No. 7 "On clearing and clearing activities", which regulates clearing activities,
- Federal Law No. 325 “On Organized Trading”, which regulates the activities of stock exchanges,
- Federal Law No. 224 “On Countering the Illegal Use of Insider Information and Market Manipulation”,
- Federal Law No. 414 “On the Central Depository”, which determines the place and role of the central depository in the picture of the country's stock market
And plus a mass of bylaws to these laws, which, if correctly applied, provide full protection for investors, fairness and fairness of the market and pricing on it.
That's all for today. Thank you for your attention, we will be happy to answer the questions that have appeared in the comments.
Source: https://habr.com/ru/post/201344/
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