On Monday, October 17, Russian lawmakers discussed the means of protecting rights of the holders of American Depositary Receipts (ADR) certificates, the securities that represent shares in Russian companies.

On Monday, October 17, Russian lawmakers discussed the means of protecting rights of the holders of American Depositary Receipts (ADR) certificates, the securities that represent shares in Russian companies. Russian deputies submitted two proposals aimed at improving the situation on Russian ADR market. Lawmakers offer, firstly, to restrict access of foreign intermediary banks to the Russian stock market, and secondly, to curtail ADR-holders’’ rights to grant voting proxies to third persons. ADRs are a share proxy system, under which a depositary bank holds shares on trust and issues ADR certificates that can be then traded on international securities markets. A depositary receipt is a negotiable certificate that usually represents a company’’s publicly traded equity. Depositary Receipts are issued when a broker purchases the company’’s shares on the domestic stock market and delivers those to the depositary’’s local custodian bank, which then instructs the depositary bank, such as the BoNY, the key issuer of ADRs on Russian companies’’ shares, to issue DR-certificates. A depositary receipt may be traded freely, just as any other security, and may be used to raise capital. Monday lower house hearings were sequential to the debates launched this spring and pertaining to the alleged Russian mafia’’s money-laundering scheme that involved the Bank of New York. Albeit no traces of crime were disclosed, a number of interesting details emerged. Firstly, it appeared, that the Bank of New York (BoNY) had in fact seized Russian ADR market, and that situation represented high risks to Russian market participants. Under international regulations the bank acts solely as a depositary and a nominal holder of those certificates, whereas, in accordance with Russian laws, it acts also as an owner thereof. That circumstance allowed the former BoNY vice president Natalya Kagalovskya’’s attorneys to demand seizure of the BoNY-deposited ADRs, issued on Russian companies shares, in security of her $270 million claim against the bank. The Bank of New York carried out 47 ADR placement programs for Russian companies. Lukoil, Gazprom, RAO Unified Energy Systems (UES) of Russia , Mosenergo, Rostelekom, Tatneft, Surgutneftegaz have ADRs issued on their shares.