Moscow
Exchange Group

PART 2. LISTING RULES – INTERNATIONAL BEST PRACTICE

An initial public offering (IPO) is a process consisting of several stages that includes the listing of securities. Listing is an integral aspect of a share placement or public offering on a securities exchange. A securities placement can be executed: 1) within regular organised trades carried out in accordance with established rules and admission procedures for those wishing to participate in tenders to execute sale and purchase agreements (including stock trading); 2) outside of organised trades.

The main role of the exchange is predetermining the price of securities for the financial market based on liquidity and clearly defined trading regulations. The advantage of organised trades is that they significantly enhance the investment potential of an issuer. In accordance with best international practice, exchange provides broad access to a wide-range of investors, including but not limited to institutional investors, who are authorised to invest in financial instruments, which meet rigorously defined requirements.

In addition, the use of the exchange as a platform to trade securities provides an opportunity to create additional1. The exchange is required to control transactions performed via organised trades and ensure they are executed in accordance with federal laws and corresponding Bank of Russia regulations 2, inter alia to uncover, prevent and eliminate the unlawful use of insider information and/or market manipulation. Together with the abovementioned factors, this provides a guarantee to the issuer and its investors that transactions in the securities are executed on terms which, for the most part, fairly reflect market conditions.

Once an issuer"s securities are publicly placed to trade on the exchange, the issuer becomes subject to additional obligations, including information disclosure and, in certain circumstances, the establishment of corporate governance structures. Imposing such requirements on the issuer is one of the positive aspects of placing securities on the exchange because more stringent requirements result in better quality securities, which has a favourable outcome on their market value.

1. How to gain admission to the exchange?

Admission to the exchange can be gained through a stock listing. A securities placement, executed in accordance with relevant legislation, is the inclusion of shares by a stock exchange to a securities list for admission to organised trades entering into sale and purchase agreements and, amongst other things, the placement of securities in a quotation list of the exchange3. However, the listing rules of Closed joint-stock company "MICEX Stock Exchange" (hereinafter referred to as the "Listing Rules") defines the list of securities admitted to trading (hereinafter referred to as the "List") as the total amount of securities admitted to organised trades during a public trading and placement.

2. When should a listing be considered?

The answer to that question depends on the aims of the issuer. As the definition of the List suggests, a listing of securities can be performed either in the course of a placement of shares, when the securities are purchased by the founding owners via stock trading, or in the course of a public trading of securities.

3. Listing procedures

The process of listing securities requires several steps. When preparing for an IPO an issuer and/or its legal and financial advisors can preliminary communicate with the exchange in relation to compliance with the listing requirements and the drafting of documents. Filing an application for the inclusion of securities to the List is the starting point to launch an official listing. The set of documents listed in Appendix 1 of this part of the Guide should be attached with the application. As a matter of practice, preparation of the documents is encompassed within the scope of services provided by the legal and financial advisors. These advisors directly liaise with the exchange and negotiate approval of the draft documents, which allows the issuer to focus on other important issues including the preparation of the offering and further trading of the securities.

In order to be included in the List, the securities should comply with the Listing Rules. The exchange makes a decision on whether or not to include the securities to the List based on compliance with its Listing Rules.

4. Listing levels

Major global stock exchanges classify quotation lists based on the level of compliance of the issuer and its securities with a defined set of requirements, which enables investors to assess the quality of the securities. The Listing Rules take into account existing experience of international securities trading and assigns securities to different listing categories (including for the purpose of an IPO).

All securities which have undergone the listing procedures should be included in the List, which consists of three separate levels (the first, second and third). The purpose of such classification is to create a hierarchy of securities for listing. The admission of securities to a particular level of the List opens access to a specific pool of investors. A higher listing level opens up access to a wider pool of investors eligible to purchase the securities, as the listing requirements imposed on the issuer and its securities are more stringent. A third level (basic) listing provides an opportunity to engage in the financial market and raise additional funding for:

• Startups and emerging companies not yet ready to comply with the relatively stringent requirements for an inclusion to the higher levels of the List;
• Mature companies which for whatever reasons are unwilling to comply with the requirements for inclusion to the first and second level quotation lists.

Chapter 1. Securities Included in Quotation Lists Cater to Different Types of Investors

In order to provide additional protection to investments there are special restrictions and limitations set out for institutional investors. Generally, restrictions and limitations are connected with the listing level of a particular security and the eligibility of investors to participate in the placement (as initial purchasers).

1. Foreign investors

The activities of foreign investors on the securities market are regulated in accordance with the legislation of the country in which they are domiciled. The basic restrictions and limitations placed on foreign investors (including subsidiaries4) by Russian legislation relate to situations where they acquire stakes in legal entities which are deemed to be of strategic importance to the Russian Federation, this includes entities associated with national defence and state security 5.

For instance, there are restrictions and limitations in place for foreign investors holding equity in insurance companies. Certain types of insurance cover cannot be issued by insurance companies where the share of ownership by a foreign investor exceeds a certain threshold (49% or 51%). In order to comply with this requirement, an increase in the authorised capital using the funds of foreign investors is permitted subject to prior approval by the insurance supervisory body 6.

Foreign investors may not acquire an equity stake in a mass media company which has primary coverage either in more than half of the total constituent entities of the Russian Federation or over a territory that contains more than half of the resident population of Russia 7.

The Bank of Russia is entitled to block increases in the authorised capital of banking institutions if the source of the funds is non-residents 8, and it may dispose of shares beneficially owned by non-residents in the event that they exceed the quota for foreign participation in the Russian banking system 9.

Aside from the exceptions above, foreign investors may hold majority stakes in Russian companies without any limitations.

2. Russian investors

The most stringent requirements are imposed on pension funds and the Deposit Insurance Agency (regarding the placement of temporary surplus funds), which is due to the specific origin of these funds. In order to raise such funds an issuer should ensure inclusion of its shares in listing Level 1.

Lower requirements are imposed on investment funds (including hedge funds, direct and multi-asset investment funds) and equity funds which have the right to acquire shares of Russian issuers.

As to the National Wealth Fund (which is allocated funds from the federal budget controlled by the Ministry of Finance of the Russian Federation) the only alternative to acquisition of issuers" shares on trades is its acquisition in connection with implementation of a stand-alone infrastructure project by an issuer.

Chapter 2. Requirements for Admission and Maintenance of Securities on List

Requirements for the admission of securities to the List can be divided into general (shall be complied with regardless of the listing category) and additional (necessary only for admission to Levels 1 and 2 of the List).

Compliance with these rules is sufficient for securities to be included on Level 3 of the List, i.e. to a non-quotation part of the List. To be eligible for inclusion to Levels 1 and 2 of the List the securities and issuer must meet the following requirements:

• Free Float (FF): a minimum fraction of the issuer"s share capital which are or which will be traded publicly;
• Market value of FF: minimum market value of shares which are or which will be traded publicly;
• Corporate governance: ensuring the internal structure and functionality of managerial bodies of an issuer are in compliance with the requirements stipulated by the Listing Rules. Provisions for the formation of the prerequisites of the issuer"s corporate governance are defined in Section 4 part 2 of the Guide.

Chapter 3. Requirements for Maintaining Shares in the List

The Listing Rules have provisions for monitoring and controlling that issuers and their securities included in the List are in compliance with the requirements. The exchange controls compliance issues through the inclusion of a provision in the Listing Rules hat require an issuer to assume responsibility for providing public information disclosure during the entire duration a security is on the List and to alert the exchange of relevant information on events that could influence the financial stability of the issuer or the quality of its securities (see Appendix 2 of the present section of the Guide).

Chapter 4. Obligation to Disclose Information

In the course of an IPO and subsequent trading of shares on the exchange an issuer must provide access to information about itself, its business and any earlier placements of securities as well as information related to insider information to all interested parties. In addition, for the duration the securities are on the List the issuer must provide the exchange with information about special corporate events.

1. Forms of information disclosure

The issuer must disclose information in the format of existing documents or correspondence specially prepared for disclosure purposes.

For the disclosure of information in accordance with general market rules information is disclosed as follows:

• On the website of an authorised information agency 38;
• On the news feed of an authorised information agency.

For the disclosure of information of issuers whose securities are already included in the List in addition to the above the following information is to be disclosed also :

• On the issuer"s own website (the URL must include the issuer"s name);
• Notify the exchange about the publication of relevant information on the issuers in news feeds and content of such information through information agency in which the issuer connected to the service of notification of the trading organizer. The exact period for the disclosure of information depends on its character and is set by Bank of Russia regulations.

2. Level of information disclosure

3. Special corporate events

4. Monitoring of disclosure of information by issuers conducted by the exchange

The exchange regularly monitors information disclosure by issuers with securities included in the List. If the exchange detects non-compliance with information disclosure, it will determine whether or not action needs to be taken against the issuer.

5. Non-compliance with information disclosure

The exchange has the right to adopt one of the following decisions:

• Limit the number of permitted trading regimes;
• Downgrade the listing level;
• Exclude the securities from the List.

In addition, the exchange has the right to inform the Bank of Russia in the event of non-compliance. At the instigation of the Bank of Russia, the issuer can be fined, and company officials held liable for non-compliance can be disqualified (prohibited from holding positions in the executive body of the legal entity, including the board of directors (supervisory board), and engaging in entrepreneurial activity in the management of the legal entity).

Control over compliance in relation to insider information legislation is exercised by the Bank of Russia (authorised to detect such breaches of legislation), which adopted measures to eliminate mentioned breaches, and prosecute issuers guilty of respective breaches. To carry out these functions the Bank of Russia can request relevant information and documents, carry out inspections, issue instructions to rectify such violations and exercises other powers.

In its turn, the exchange, as an organiser of trading, exercises control over transactions with financial instruments, foreign currencies and (or) products in organised trades, and has the right to issue a written request to the issuer for a list of insiders.

6. Information disclosure by the exchange

When shares are admitted to trading, the exchange discloses the following information on its website:

• The dates when trading is commenced and suspended;
• Non-compliance with Listing Rules (disclosure of numerical values of the quantitative indicators 43);
• The return on equity of an issuer"s shares, according to data from reports prepared in accordance with IFRS, and dividend yields on shares, calculated over the preceding three years 44;
• Inclusion/exclusion of securities in/from the List, or a change in the listing category;
• Suspension/resumption of trading;
• Permitted settlement codes and trading regimes;
• The number of independent directors on the issuer"s board of directors etc.

7. Additional insider information legislation requirements

In addition to the disclosure of insider information, from the moment an issuer files an application with the exchange for the admission of securities to organised trades it shall:

• Develop internal regulations on insider dealing, defining access to insider information and protecting its confidentiality;
• Approve a personal list of insider information based on the list set by Bank of Russia regulations;
• Create a structural subdivision or appoint an executive officer responsible for compliance with insider legislation;
• Maintain a list of insiders (persons who have access to the insider information of the issuer);
• Provide required information at the request of the exchange or the Bank of Russia.

Chapter 5. Changing the Listing Category and Delisting

1. Increasing the listing level

The inclusion of securities to Levels 2 and 3 of the List leaves open the possibility of increasing the listing level. Such procedures can only be initiated by the issuer of the securities. In this respect, an increase in the listing level is initiated on the basis of a separate decision by the exchange. If the issuer is planning to increase the listing level it should file an application to the exchange, specifying the section of the List in which the securities are to be transferred. The application should be accompanied by the documents listed in Appendix 1 45 of the present section of the Guide. Upon receipt of the issuer"s application and all necessary documentation, the Listing department of the exchange provides an expert opinion containing reasons for changing the listing level. Therefore, companies which were not ready to comply with the listing requirements at the time of the initial listing can after consolidation of its positions on the market and completion of the necessary corporate procedures gain admission to a relevant listing level.

2. Decreasing the listing level

Decreasing the listing level can be performed voluntarily or at the initiative of the exchange. A voluntary decrease in the listing level can also be initiated by the issuer, in particular, if at a specific period of time the issuer is unable to meet the requirements necessary for maintaining the securities in Level 1 or 2 of the List. Such preventive measures will cause less reputational harm to investor confidence in the stock than in a situation where the downgrade in the listing category is instigated at the initiative of the exchange. In such an event, the procedures as well as the documentation provided to the exchange are similar to those provided to increase the listing level of a security.

An involuntary decrease in the listing level of a security is possible when the exchange detects any violations of the Listing Rules that could result in exclusion of that security from that Level of listing.

3. Delisting

Similar to the change in the listing category, the exclusion of securities from the List (i.e. delisting) can be initiated either by the exchange or the issuer of the securities.
Delisting at the initiative of the exchange occurs in the event of breaches to the Listing Rules:

• An event constituting absolute grounds for the Delisting of securities (for example, termination of the issuer"s operations or cancellation of state registration of the securities);
• An event in which the exchange has the right to initiate Delisting (for example, if the issuer is incapable or unwilling to remedy a violation within a set period established by the exchange).

In addition, the exchange has the right to exclude securities from the List without citing any reason, based solely on the expert opinion of the Listing Department or on the recommendation of the Stock Market Committee.
The procedure for delisting securities at the issuer"s discretion requires approval to delist at a general shareholders meeting. The exchange begins the delisting procedure immediately upon receipt of the Application and relevant documentation confirming the decision by an authorised body of the issuer. Following the submission of the application, the exchange makes a decision on whether to proceed with the delisting.

Appendix 1.

List of documents / information for submission to the exchange for inclusion to the List/ changing the listing level

Appendix 2.

List of documents / information for submission to the exchange to maintain securities in the List

1. Market making consists of measures aimed at supporting prices, demand and supply, and (or) trading volume of securities via financial instruments which are applied by a participant appointed as a market maker (Article 2 of Federal Law No. 325-FZ dated 21 November 2011 "On Organised Trades").
2. Federal Law No. 251-FZ dated 23 July 2013 granted the Bank of Russia authority to regulate, control and supervise the financial markets. Hence, the state regulator controls compliance in accordance with the legislation of the Russian Federation on securities along with Moscow Exchange once a stock-exchange listing is executed. This two-tier control provides an additional guarantee for the interests of investors.
3. Article 2 of Federal Law No. 39-FZ dated 22 April 1996 "On Securities Market".
4. For more details on control criteria please see respective regulations.
5. In accordance with article 2 of Federal Law No. 57-FZ dated 29 April 2008 "On Procedures for Foreign Investments in Companies of Strategic Importance for National Defence and State Security", foreign investors (group of persons) shall obtain prior approval from the Government Commission on Control over Foreign Investments in the Russian Federation for transactions (including sale and purchase transactions) resulting in the acquisition of control (directly or indirectly) over 25% (or more) of the voting shares of a company of strategic importance. This Law sets out other limitations applicable to transactions with shares of companies of strategic importance (for more details see Article 7).
6. For more details see Federal law No. 4015-1 dated 27 November 1992 "On Organisation of Insurance Business in the Russian Federation". The share (quota) of foreign equity in the authorised capital of insurance companies is calculated by the insurance supervisory body on an annual basis, as of 1 January, in accordance with the procedure based on the authorised capital of insurance companies, as of 1 January of the current year.
7. For more details see Federal law No. 2124-1 dated 27 December 1991 "On Mass Media".
8. For more details on "non-residents" see Federal law No. 173-FZ dated 10 December 2003 "On Foreign Currency Regulation and Foreign Currency Control".
9. For more details see Federal law No. 395-1 dated 2 December 1990 "On Banks and Banking Activities".
10. State Corporation is assigned to ensure payouts for deposits placed by persons in banks in the Russian Federation. The activities of the entity are regulated by Federal law No.177-FZ dated 23 December 2003 "On Insurance of Household Deposits in Banks of the Russian Federation".
11. Resolution No. 1080 of the Government of the Russian Federation dated 21 December 2011 "On Investing Temporary Idle Monetary Resources of the State Corporation, State Company".
12. Requirements of other rating agencies are consistent with these requirements. For more details, see "Regulation on investment of temporary surplus funds of the State Corporation Deposit Insurance Agency", approved by Minutes No. 5 dated 30.09.2014 (as varied by Minutes No. 17 dated 14.12.2015)
13. Investment funds are established in the form of joint-stock and unit investment funds and act in accordance with Federal law No. 156-FZ dated 29 November 2001 "On Investment Funds".
14. Depending on the type of fund there are limitations concerning acquisitions of only fully paid shares. For example, such shares can be acquired only by blend funds, equity funds and bond funds.
15. For more see Order of the Federal Financial Markets Service of the Russian Federation No. 10-79/pz-n dated 28 December 2010 "On Approval of Regulation on Composition and Structure of Assets of Joint-stock Investment Funds and Assets of Unit Investment Funds".
16. For more see Order of the Federal Financial Markets Service of the Russian Federation No. 10-79/pz-n dated 28 December 2010 "On Approval of Regulation on Composition and Structure of Assets of Joint-stock Investment Funds and Assets of Unit Investment Funds".
17. Depending on the type of fund there are limitations concerning the acquisition of only fully paid shares. For example, such shares can be acquired only by blend funds, equity funds and bond funds.
18. The activity of non-state pension funds is regulated by Federal law No. 75-FZ dated 7 May 1998 "On Non-State Pension funds".
19. Funds to ensure financial solvency of non-state pension funds under obligations to insured persons.
20. Funds to ensure financial solvency of non-state pension funds under obligations to members of non-state pension funds.
21. Federal law No. 360-FZ dated 30 November 2011 (as amended on 28 December 2013) "On Procedure of Financing of Payments from Pension Funds".
22. Order of the Ministry of Finance of the Russian Federation No. 100n dated 2 July 2012 "On Adopting the Procedure for Insurers to Place Insurance Reserves", Order of the Ministry of Finance of the Russian Federation No. 101n dated 2 July 2012 "On Approval of Requirements for the Composition and Structure of Assets Accepted to Cover the Insurer"s Own Funds".
23. Insurance reserves are formed primarily by means of an insurance premium paid to an insurer and reflect an amount of obligations of an insurer which are not fulfilled at the moment under insurance agreements concluded with an insurant.
24. Own funds include authorised capital, reserve funds, additional capital and retained earnings.
25. For more details, see Bank of Russia Ordinance No. 3444-U dated 16.11.2014 "On the Procedure for Investing Insurance Reserve Funds and the List of Assets Permitted for Investing", and Bank of Russia Ordinance No. 3445-U dated 16.11.2014 "On the Procedure for Investing Own Assets (Capital) of the Insurance Agent and the List of Assets Permitted for Insurance"
26. For more see Regulation of the Government of the Russian Federation No. 18 dated 19 January 2008 "On the Procedure of Managing Assets of the National Welfare Fund".
27. Article 3 of Federal law No 39-FZ dated 22 April 1996 "On Securities Market".
28. If securities are used as surety for obligation of a client towards a broker.
29. If securities are used as surety for obligation of a client towards a broker.
30. Federal law No. 160-FZ dated 9 July 1999 "On Foreign Investments in the Russian Federation" and Federal law No.57-FZ dated 29 April 2008 "On Procedures for Foreign Investments in Companies of Strategic Importance for National Defence and Security".
31. With a few exceptions stipulated by Federal law No. 160-FZ dated 9 July 1999 "On Foreign Investments in the Russian Federation".
32. With a few exceptions stipulated by Federal law No. 160-FZ dated 9 July 1999 "On Foreign Investments in the Russian Federation".
33. Depends on the type of investor and regulation of activity in accordance with legislation of the country of incorporation. For more on Russian limitations concerning investment see Federal law No. 160-FZ dated 9 July 1999 "On Foreign Investments in the Russian Federation" and Federal law No.57-FZ dated 29 April 2008 "On Procedures for Foreign Investments in Companies of Strategic Importance for National Defence and Security".
34. With a few exceptions stipulated by Federal law No. 160-FZ dated 9 July 1999 "On Foreign Investments in the Russian Federation".
35. With a few exceptions stipulated by Federal law No. 160-FZ dated 9 July 1999 "On Foreign Investments in the Russian Federation".
36. For admission of circulating shares to Level 1 and 2 of the List. However, shares may be included in the List without abidance by this index if this requirement is expected to be met after completion of a planned placement or planned trading of such shares.
37. F = (0,25789 – 0,00263 ? cap) ? 100%, where cap is an issuer"s market value in bln RUB
38. АК&М (www.disclosure.ru), AZIPI (e-disclosure.azipi.ru), Interfax (www.e-disclosure.ru), Prime-TASS (disclosure.prime-tass.ru), Skrin (disclosure.skrin.ru).
39. Only for inclusion in quotation lists.
40. Securities of which are admitted to organised trades by way of inclusion in a quotation list, are obliged to prepare consolidated financial statements in accordance with IFRS.
41. Material facts – information about the issuer which could influence the value of securities, including corporate actions and decisions, transactions of an issuer, its affiliates, parent companies and principals as well as actions performed in relation to securities.
42. Squeeze out – a compulsory acquisition of the stakes of minority shareholders stipulated by legislation on joint-stock companies which enables a major shareholder to complete consolidation via a voluntary or mandatory offer.
43. From the date of inclusion in Level 1 or 2 of the listing.
44. From the date of inclusion in Level 1 or 2 of the listing.
45. It should be noted that while applying for a change in the listing level, the documents which were provided earlier could be omitted, except in cases where such documents were amended.
46. Articles 75 and Article 49 clause 4.1 of Federal law No. 208-FZ dated 26 December 1995 "On Joint-Stock Companies" stipulates a special procedure for making a decision on Delisting securities by the general meeting of shareholders.
47. The listing agreement shall not be submitted if there is an effective agreement for the provision of listing services which has been concluded earlier.
48. If shares of the issuer are included in Level 1 or Level 2 the documents specified in item 2 of the table shall be provided only in respect of securities, for which maximum corporate governance requirements are established.
49. If shares of the issuer are included in Level 1 or Level 2 the documents specified in item 2 of the table shall be provided only in respect of securities, for which maximum corporate governance requirements are established.
    > In case of any changes in general information about the issuer (the questionnaire may be provided in respect to any issue of the issuer"s securities);
    > In case of any changes in information relating to the issue of securities (the questionnaire shall be provided in respect to the affected issue of securities).
50. Shall be provided by the issuer on the basis of the result of the placement of securities included in the List, for determining the trading commencement date during trading.
51. In accordance with Regulation of the Bank of Russia No. 451-P dated December 25, 2014 "On additional restrictions on investing pension savings placed with a non-governmental pension fund implementing obligatory pension insurance, additional requirements to credit institutions with which servicemen pension and housing savings are placed, and additional requirements management companies must comply with during the term of pension savings trust management agreement"