March 10, 2023
Depository activities in the securities market
4. Functions and responsibilities of the investment intermediary (“depositary”)
5. The procedure for obtaining an investment intermediary (“depositary”)
6. Requirements for the performance of depositary activities
6.1. Requirements for premises and storage facilities
6.3. Requirements for technical support
6.4. Requirements for the preservation and storage of information
6.5. Requirements for internal technological documentation
6.6. Internal control requirements
Table 1. A minimum list of basic depositary services
The securities market in the Republic of Uzbekistan plays an important role in the country’s economy. They characterise the state of a country’s economy. Stable securities rates generally indicate a good economic situation (more information on securities can be found in this memorandum). Depositaries are important participants in the securities market. This memorandum aims to address the legal framework for depositories in the Republic of Uzbekistan.
The following acts of legislation regulate depositary activities in the Republic of Uzbekistan:
- Law of the Republic of Uzbekistan No. LRU-387 of 03.06.2015. “On the Securities Market”;
- Law of the Republic of Uzbekistan No. LRU-370 of 06.05.2014. “On Joint Stock Companies and Protection of Shareholder Rights;
- Law of the Republic of Uzbekistan No. LRU-701 of 14.07.2021 on Licensing, Permitting and Notification Procedures;
- Law of the Republic of Uzbekistan No. LRU-730 of 23.11.2021 on Insurance Activities;
- Law of the Republic of Uzbekistan No. LRU-252 of 15.06.2010. “On Archives”;
- Decree of the Cabinet of Ministers of the Republic of Uzbekistan No. 304 of 07.06.2022 “On approval of administrative regulations for the provision of public services for the certification (recertification) of natural persons to grant the right to carry out operations with securities”;
- Decree of the Cabinet of Ministers of the Republic of Uzbekistan No. 80 of 21.02.2022 “On Approval of the Single Regulation on the Procedure for Licensing Certain Types of Activities by means of a Special Electronic System”;
- Order of the General Director of the Centre for Coordination and Control over the Functioning of the Securities Market under the State Property Committee of the Republic of Uzbekistan No. 1108 of 13.03.2002. “On Approval of the Regulation on the Activity of an Investment Intermediary on the Securities Market”;
- Order No. 1915 of the Director General of the Centre for Coordination and Control of Securities Market Functioning under the State Property Committee of the Republic of Uzbekistan dated 07.03.2009. “On approval of the regulation on accounting by a professional securities market participant of transactions and deals on the securities market, storage of documents for their accounting”;
- Regulation of the Centre for Co-ordination and Control of Securities Market Functioning under the State Property Committee of the Republic of Uzbekistan No. 809 dated 31.08.1999 “On Requirements for the Performance of Depository Activities” (hereinafter – “Regulation on Requirements for the Performance of Depository Activities”);
- Uniform Rules (Standards) for ” Depositary Accounting and Reporting” of the Centre for Coordination and Control of Securities Market Functioning under the State Property Committee of the Republic of Uzbekistan No. 844 dated 01.12.1999;
- Standard regulation No. 482 of 30 October 1999 on departmental archives in the State authorities and administration, enterprises, institutions and organizations of the Republic of Uzbekistan.
Under the regulations on the requirements for the operation of a depositary, a depositary is understood to be a legal entity that provides services for the safekeeping of securities and the recording and certification of rights to securities. Before the adoption of the amended Securities Market Law (from 2015), depositaries existed on the market as a separate entity. However, due to changes in legislation, depositary operations are now carried out by investment intermediaries, thereby expanding the powers of investment intermediaries. Previously (until 2015), an investment intermediary was only engaged in brokerage and dealing activities.
An investment intermediary is a professional securities market participant who carries out transactions and operations with securities on behalf of, on behalf of and at the expense of a client. An investment intermediary is required to obtain a licence in order to carry out the activities of an investment intermediary. The procedure for obtaining a licence is described below.
When carrying out depositary operations, an investment intermediary has the following functions:
- storage of securities;
- accounting and confirmation of rights to cash and non-cash securities with the issuance of a certificate;
- records the encumbrance and termination of securities.
An investment intermediary shall, when carrying out depository operations, be obliged to:
- ensure that the rules of securities and cash accounting are available to those concerned;
- keep records of the number and nominal value of securities held by each depositor;
- keep records of the encumbrance and termination of securities;
- keep in the departmental archive the documents that form the basis for securities transactions and customer account transactions;
- carry out transactions on depo accounts on the basis of written instructions from depositors or persons authorised by them, except in cases provided for by law;
- confirm ownership and other rights of possession of the depositor’s securities by issuing appropriate depo account statements;
- ensure the confidentiality of information on the existence, movement and condition of securities and funds in clients’ accounts;
- suspend operations on a securities account on the basis of decisions of the authorised state securities market regulator, state anti-monopoly authority, as well as court, enquiry and investigation bodies in the manner prescribed by law;
- provide, upon written request of the authorised state securities market regulator, state tax authority, state anti-monopoly authority, as well as court, enquiry and investigation bodies, within the limits and in accordance with the procedure determined by law, information related to its activities;
- provide for the possibility of compensating them for losses incurred by participating in the formation of a guarantee fund;
- provide, at the request of the Central Securities Depositary, information on the owners of securities necessary for the formation of the register of owners of securities;
- make changes to the details of the securities it holds and their issuers based on data received from the Central Securities Depositary.
The procedure for recording and safeguarding client money by an investment intermediary is established by the authorised state securities market regulator (Department of Capital Market Development, Ministry of Economy and Finance).
There are two subspecies of a securities market license:
- the activities of an investment intremediary;
- the activities of an investment asset trustee;
Note:
Insurance companies may carry out professional activities on the securities market as an investment intermediary. However, the insurer is not required to obtain a licence to carry out this type of activity.
In order to obtain a licence to operate as an investment intermediary on the securities market, the following documents must be submitted to the Ministry of Finance of the Republic of Uzbekistan:
- Application;
The application must contain the name and legal form of the legal entity, postal address, place of business, name of the servicing bank and bank account, telephone number, TIN, e-mail address (if any), choice of licence (investment intermediary), reason for filling in the application (obtaining a licence or re-registration).
- A copy of the balance sheet together with the income statement as at the last reporting date;
- Calculation of the amount of own funds (investments) in monetary form as not less than 1000-fold of the basic calculation amount (300 million UZS ≈ 26400 USD) for each sub-type of licensed activity on the last reporting date in accordance with the approved order by the licensing authority (Ministry of Economy and Finance of the Republic of Uzbekistan);
- A copy of the licence agreement for commercial use of the custody software concluded with the organisation that sold (provided) the custody software;
- Technical description of the software for depositary operations;
- A list with a description of the technical means used for depositary operations;
- Conclusion of the Central Securities Depositary on the compliance of the software and hardware with the established requirements for the software and hardware complexes of investment intermediaries and readiness for electronic interaction with professional securities market participants, the stock exchange and the Central Securities Depositary.
The cost of obtaining a licence: 4 BCV (1 million 200 thousand soums ≈105 USD).
Timeframe for obtaining a licence: 20 working days.
Duration of licence (once obtained): not limited.
Note:
A legal entity applying for an investment intermediary licence must have at least two employees with a securities market specialist qualification certificate. This certificate is issued for a period of five years.
The register of professional securities market participants in Uzbekistan is listed on this website (https://openinfo.uz/ru/pages/emitent/) as of 1 January 2023.
A legal entity conducting the depositary activities must have:
- a minimum list of basic depositary services (see Table 1);
- the depositary is required to have approved tariffs for the services provided in accordance with the established minimum list of core depositary services.
The Regulation on Requirements for the Performance of Depositary Activities also stipulates the following requirements for depositary activities:
Depositary premises and vaults shall comply with the following requirements:
- the room where the computer equipment is installed and where the information base is stored and processed should be protected from access by unauthorised persons, the range of which should be defined in the depository’s internal documents;
- the premises must have fire safety and security alarms;
- the depositary should ensure that documents are stored in a separate room – an archive (the archive room should be isolated and the entrance door and windows of the archive should provide protection against unauthorised access. The storage conditions should prevent documents from being damaged for various reasons);
- a depositary must have specially equipped premises (vault) for the storage of documentary securities; if such premises are not available, conclude an agreement with the bank for the use of the bank’s vault for this purpose.
The depositary shall have software that meets the following requirements in order to carry out its activities:
- measures should be in place to prevent leakage, distortion, forgery, destruction of information and unauthorised access to it;
- software should ensure the integrity of depositary databases;
- software should have functions to control the entry of the necessary details of the objects of the depositary records;
- the depositary software should contain and use directories that are compatible in content and coding system with the relevant Central Securities Depositary directories.
- The depositary software shall perform the following depositary operations:
- registering, amending, closing depo account descriptions;
- maintaining passive and active securities accounts, including NOSTRO accounts;
- registering, amending, closing descriptions of securities with a mandatory indication of the type, category and state registration code of the security assigned by the authorised state body;
- other operations as provided for in the Regulation on the requirements for the performance of depositary activities;
- depository software should ensure that inter-depositary transfers and other inter-depositary transactions are carried out in accordance with established procedures;
- there are also information and virus security requirements for the depository software.
The depositary shall have the following types equipment:
- computer equipment for the operation of the software;
- means of communication;
- distribution to install the software on the server and workstations, and in the case of the stand-alone (non-networked) variant, a distribution only for installation on the workstation is required;
- magnetic media for database backup;
- device or capacity for authentication of certificated securities.
In order to ensure the safekeeping and storage of information, the depositary shall have:
- internal procedures for copying, storing and restoring depository databases;
- internal procedure for registering and storing passwords for depositary software users;
- internal procedure for the separation of powers of depositary officials and rights of access to information, documents and premises;
- the procedure for the retention of documents for depositary operations;
- internal procedure for the management of records kept in the archives;
- internal procedure for the destruction of paper-based information;
- and other documents specified in the Regulation on the requirements for the performance of depositary activities.
The depositary shall have the following internal technological documentation:
- regulations on departments and job descriptions of depositary staff;
- customer service regulations (account terms and conditions), which are an integral part of the custody agreement and are presented to the client at the conclusion of the agreement;
- internal regulations for conducting operations;
- procedure for an inventory of certificated securities in a vault;
- model depositary agreements.
The depositary shall organise internal periodic monitoring of the depositary’s activities, which shall include
- checking that the depositary’s internal documentation complies with applicable laws and regulations;
- checking the performance of depositary operations at all stages of their execution with the preparation of the relevant verification reports;
- checking the maintenance of depositary records in accordance with the applicable depositary record-keeping rules;
- checking that depositary staff perform their functional duties;
- conduct performance appraisals of depositary staff for their positions;
- checking compliance with the depositary’s internal regulations.
Table 1. A minimum list of basic depositary services
| № | Name of operation |
| 1 | Custody of certificated securities |
| 2 | Accounting for rights to securities |
| 3 | Opening a DEPO account |
| 4 | Change of DEPO details |
| 5 | Closing the DEPO account |
| 6 | Acceptance for safekeeping of certificated securities |
| 7 | De-registration of an uncertificated issue of securities |
| 8 | Acceptance of an uncertificated issue of securities |
| 9 | De-registration of an uncertificated issue of securities |
| 10 | Account transfers on the placement of shares from the workforce share of a privatised joint stock company |
| 11 | Account transfers on placement of shares of the founders of a newly created joint stock company |
| 12 | Intra-depositary transfers for all types of transactions |
| 13 | Inter-depositary debit of securities to the Central Securities Depository for exchange and over-the-counter trading |
| 14 | Inter-depositary crediting of securities from the Central Securities Depositary based on the results of exchange-traded and over-the-counter trades |
| 15 | Inter-depositary debit of securities to another depositary |
| 16 | Inter-depositary transfer of securities from another depositary |
| 17 | Account transfers in corporate action |
| 18 | Transfers of accounts in the case of liquidation and reorganisation of a joint stock company |
| 19 | Blocking and unblocking of securities |
| 20 | Pledging of securities and repossession of securities |
| 21 | Transfer of securities into and out of trust |
| 22 | Issuing a certificate as a result of an administrative operation |
| 23 | Issuing a statement from the DEPO account |
| 24 | Issuance of a list of securities holders |
| 25 | Issuance of a historical statement on the movement of the issuer’s securities |
| 26 |
Registration of over-the-counter transactions in securities |
