SECURITIES MARKETS LEGISLATION ASSESSMENT PROJECT

2007 ASSESSMENT

based on legislation in force on 1 June 2007

GEORGIA

MGALOBLISHVILI, KIPIANI, DZIDZIGURI LAW FIRM 4 Tavisupleba (Freedom) Square, Tbilisi 0105 Georgia http://www.mkd-law.com

TABLE OF CONTENTS General Information ______iv Section I – Basic Information about Securities Market Related Laws and Regulations ______vii Section II – Identity of the Relevant Market Regulatory Authorities (Statutory and Non-statutory) by Activities Regulated ______xi Section A – Regulator ______1 Responsibilities of the Regulator ______1 Independence of the Regulator______1 Accountability of the Regulator ______3 Regulator’s powers and resources ______4 Clear and Equitable Procedures ______6 Professional Standards ______7 Cooperation among Regulators ______8 Section B – Self-regulation ("SROs") ______9 Performance and Functions of SROs ______9 Authorisation or delegation subject to oversight ______9 Oversight ______10 Misuse of Information and Conflict of Interests______11 Section C – Issuers and their Information-Disclosure Obligation ______12 Content of the Prospectus______12 Foreign Issuers______13 Full Disclosure______13 Liability ______14 Derogations ______15 Regulator’s Powers ______15 Other Listing Documents ______16 Ongoing Disclosure Requirements______16 Fair and Equitable Treatment of Shareholders ______18 Change in Corporate Control ______20 Section D – Collective Investment Schemes (CISs) ______21 Entry and Eligibility Criteria ______21 Supervision and Ongoing Monitoring ______22 Delegation of Functions______23

EBRD – Securities Market Legislation Assessment 2007 -- i -- Legal Form/Investors Rights ______23 Separation of Assets ______24 Disclosure ______24 Asset Valuation______26 Pricing and Redemption of Interest ______26 Section E – Market Intermediaries ______28 Authorisation and Licensing ______28 Ongoing Requirements______29 Investment Advisers ______30 Custodians ______31 Capital Adequacy Requirements ______31 Management and Supervision ______32 Customer Protection ______32 Procedures for Dealing with intermediary in Financial Difficulty ______33 Section F – Secondary Market ______35 Licensing of Exchanges and Trading Systems ______35 Ongoing supervision ______36 Transparency of Trading ______37 Detection of Unfair Practices______38 Monitoring of Large Exposures ______40 Default Procedures ______41 Section G – Clearing and Settlement ______42 Authorisation and Licensing of Securities Settlement Systems______42 Trade Confirmation and Delivery Versus Payment ______43 Transparency ______43 Central Depository______43 Oversight ______44 Derivatives ______44 Protection of customers’ securities ______45 Section H – Accounting and Auditing of Financial Reports ______46 Disclosure of Financial Results ______46 External Auditor______47 Accounting Standards ______48

EBRD – Securities Market Legislation Assessment 2007 -- ii -- Auditing Standards______50 Section I – Money Laundering ______53 Scope of the criminal offence of money laundering ______53 Customer due diligence and record-keeping ______54 Reporting of Suspicious Transactions and Compliance______55 International Cooperation ______56 Section J –Financial Instruments ______57 Variety of financial instruments traded ______57 Derivatives ______57 Cross-Border Issuance______58 Sponsor/Underwriter ______58 Concentration Rule ______58 Private Placement ______58

EBRD – Securities Market Legislation Assessment 2007 -- iii -- 2007 ASSESSMENT: GENERAL INFORMATION

In Georgia the basic legislation on the securities market is comprised by the Law on Securities Market, the Regulation of the National Securities Commission, the Ethics Code of the Georgian Stock Exchange, the Rules on Approval and Abolishing the Rules of SROs, the Regulation on Admission of Securities to the Georgian Stock Exchange Trading System and Listing, the Trading Rules at the Stock Exchange and the Operations and Procedures of the Georgian Securities Central Depository. The Georgian Law on Securities Market dated 24 December 1998 regulates relations connected with public offer and trade of securities, determines activity procedures and liability framework for stock exchanges, central depositary, other self-regulatory organizations, registrars of securities, brokerage companies, brokers as well as additional requirements for enterprises placing their securities through public offering and/or admitting them for trading on a stock exchange. The Resolution # 25 of the National Securities Commission of Georgia on Approval of Rules on Non-Stock Exchange Transactions dated 2 December 2002 determines the types of public securities transactions (such as purchase, pledge, gift, exchange, redemption etc.) and rules for their conclusion as well as specific policy and procedures of brokerage companies related to intermediation in non-stock exchange transactions over public securities admitted for trading on a stock exchange and transactions over public securities not admitted for trading on a stock exchange along with procedures of securities registrar for fixation of non-stock exchange securities. The Resolution # 6 of the National Securities Commission of Georgia on Approval of Procedure on Recognition and Abolishing the Rule of SROs dated 7 August 2000 defines that rules, charter and internal rules of SROs (the "rule") subject to the NSCG's (National Securities Commission of Georgia) approval shall not be modified or abolished without first notifying and obtaining the approval of the NSCG. Same time SROs shall seek approval of the NSCG prior to adopting any new rule. The Resolution # 66 of the National Securities Commission of Georgia on Approval of the Operations and Procedures of the Central Securities Depositary dated 27 July 2006 determines powers and authority of the Central Securities Depositary as follows: (a) registration and storage of securities; (b) depositary service in respect of securities admitted in Central Depositary; (c) clearing and settlement of securities; (d) custodian service; (e) storage of state owned securities; (f) keeping registries of securities owners; (g) keeping national data base of securities market; (h) storage of backup copies of data base and other information of registrars.

As to the acts of Georgian Stock Exchange, such as the Ethics Code of the Georgian Stock Exchange, the Regulation on Admission of Securities to the Georgian Stock Exchange Trading System and Listing and the Trading Rules at the Stock Exchange, they were to be brought in line with the Georgian Law on Securities

EBRD – Securities Market Legislation Assessment 2007 -- iv -- Market and currently access to the site of Georgian Stock Exchange is denied. The case is that amendments made to the Georgian Law on Securities Market on 28 March 2007 introduced that public securities may be traded (i) outside the stock exchange or (ii) on the stock exchange with or without participation of brokerage companies in contrast to the earlier legislation when public securities were allowed to be traded only on the stock exchange and with participation of brokerage companies. The securities market legal framework was most recently amended on March 28, 2007. The Georgian Law on Supplement made to Georgian Law on Securities Market, as dated 28 March 2007 (effective from 1 June 2007), introduces new regulation on conflict of interests. In particular, a member of the governing body of a reporting enterprise and/or shareholder holding directly or indirectly 20 % or more of the charter capital shall be deemed as interested person in case: • reporting enterprise/its affiliate (more than 50 % of which is owned by reporting enterprise) concludes a transaction; and • a member of the governing body or shareholder holding directly or indirectly 20 % or more of the charter capital/thereto related person: a. is a contracting party; b. directly/indirectly holds 20 % or more in the charter capital of a contracting party; c. is a member of the governing body of a contracting party; d. is appointed/elected as a member of the governing body upon nomination of (i) a contracting party and/or (ii) shareholder(s) holding 20 % or more in the charter capital of a contracting party; e. receives monetary or other profit (other than related to either share holding in a reporting enterprise or membership of the governing body) from the anticipated transaction. Interested person shall immediately notify in writing the Supervisory Council (controlling body of directors) as well as Shareholders' Meeting as applicable of an anticipated transaction with interested party in it along with the character and volume of such transaction. In case interested person is not aware of such fact, he/she shall comply with the above requirement immediately after learning it. Transactions with interested parties shall be approved by the Supervisory Council or Shareholders' Meeting as applicable and interested persons shall abstain from voting on the respective transactions. Reporting enterprise shall immediately notify the NSCG of approval of transactions with interested parties. Notification shall include volume and character of such transactions as well as essence thereof. Reporting enterprise shall publish the aforesaid information on its own web site/on the web site of stock exchange and/or through mass media determined by the NSCG within 5 days after sending such notification to the NSCG. Simultaneously information in respect with (i) the aforesaid transactions and (ii) the transactions between reporting enterprise and its full affiliate/100 percent shareholder shall be reflected in current and annual reports of a reporting enterprise. Person who knew or used to know and has not notified of his/her/its interest in the transaction shall recover damages inflicted to the company and return personal benefit derived from the respective transaction. Time limitation for such claim amounts to 18 months. Please note that the most recent amendments to the Georgian Law on Securities Market were made on 11 July 2007 (published after the cut-off date of this assessment). These amendments were due to liquidation of the National Security Commission of Georgia (the securities market regulator) and the State Supervisory Service of Insurance (the regulator of insurance activity) and creation of the Financial Monitoring Service of Georgia.

EBRD – Securities Market Legislation Assessment 2007 -- v -- The latter will replace both the National Security Commission of Georgia and the State Supervisory Service of Insurance which are still in process of liquidation. At this moment there are no discussion for further amendments. The securities market regulator is the Financial Monitoring Service of Georgia, which is competent in public trade of securities, insurance and pension fund There is one stock exchange in the country named Georgian Stock Exchange and an OTC Market is represented by brokerage firms. Clearing and settlement of securities is performed by the Central Depository At the end of 2006, the capitalisation of the market was 668.332 million USD while the number of listed companies was 231, with an average daily volume of 0.95 million USD.1 There are the following SROs in Georgia: JSC Georgian Stock Exchange, Central Depository and Securities’ Registrar.

1 Data from the Federation of Euro-Asian Stock Exchanges (http://www.feas.org/Member.cfm?MemberID=10)

EBRD – Securities Market Legislation Assessment 2007 -- vi -- 2007 ASSESSMENT CHECKLIST FOR SECURITIES MARKET LEGISLATION

Section I – Basic Information about Securities Market Related Laws and Regulations

Promulgating Dates of Past # Official Title of Law/Regulation (in English) Date of Promulgation Authority Amendments

27.03.2007; 1. Law of Georgia on Securities Market Parliament of Georgia 24.12.1995 28.03.2007

24.06.2005; 30.06.2005; 25.11.2005; 25.05.2006; 2. Law of Georgia on Entrepreneurs Parliament of Georgia 28.10.1995 25.07.2006; 29.12.2006; 16.03.2007; 28.03.2007; 30.03.2007

3. Law of Georgia on Auditing Activities Parliament of Georgia 27.06.1997 24.06.2005

4. Law of Georgia on Regulation of Accounting Records and Reporting Parliament of Georgia 05.02.1999 11.02.2000

More than twenty changes have been made since 2005, the last one being on 29.06.2007 5. Code of Administrative Offence Parliament of Georgia 01.08.2000 None of those are related to the securities’ market regulations.

EBRD – Securities Market Legislation Assessment 2007 -- vii -- Promulgating Dates of Past # Official Title of Law/Regulation (in English) Date of Promulgation Authority Amendments

03.06.2005; 08.07.2005; 09.11.2005; 11.04.2006; 28.04.2006; 25.05.2006; 6. Law of Georgia on Normative Acts Parliament of Georgia 29.10.1996 09.06.2006; 27.12.2006; 29.12.2006; 28.03.2007; 30.03.2007; 11.05.2007; 05.06.2007

30.06.2006; 7. Law on Support to Preventing the Legalization of Illegal Revenues Parliament of Georgia 06.06.2003 10.11.2006; 27.03.2007;

No changes or 8. Law on Public Legal Entities Parliament of Georgia 28.05.1999 amendments since 2005.

9. Regulation of the National Securities Commission of Georgia NSCG 18.12.2002

Rules for Preparation and Submission of Ongoing, Semi-annual and Annual 10. NSCG 21.01.2000 Reports by the Listed Companies

11. Rules on Approval and Abolishing the Rules of SROs NSCG 07.08.2000

Rules on the Requirements to the Initial Own Capital of the Brokerage 12. NSCG 02.11.1999 Companies

13. Rules for the Requirements to the Capital Adequacy for the Brokerage NSCG 29.03.2000

EBRD – Securities Market Legislation Assessment 2007 -- viii -- Promulgating Dates of Past # Official Title of Law/Regulation (in English) Date of Promulgation Authority Amendments Companies

14. Rules on the Accounts and Periodic Reporting by the Brokerage Companies NSCG 29.03.2000

15. Rules on Records and Accounting Files of the Brokerage Companies NSCG 29.03.2000

Rules on Determining the Sanctions for Violation of the Law on Support to 16. NSCG 10.02.2004 Preventing the Legalization of Illegal Revenues

The Rules for Execution and Submission of the Financial Reports of the Listed 17. NSCG 10.01.2005 Companies

Members Meeting of 18. Charter of the J/S Co. Georgian Stock Exchange Georgian Stock 05.01.1999 Exchange

Members Meeting of 19. Ethics Code of the Georgian Stock Exchange Georgian Stock 26.09.1999 Exchange

Members Meeting of 20. Code of Procedure for Disciplinary Violations of Georgian Stock Exchange Georgian Stock 26.09.1999 Exchange

Members Meeting of 21. Trading Rules at the Stock Exchange Georgian Stock 26.09.1999 Exchange

Members Meeting of Regulation on Admission of Securities to the Georgian Stock Exchange 22. Georgian Stock 26.09.1999 Trading System and Listing Exchange

23. Charter of the Georgian Securities Central Depository, LLC Partners’ Meeting of 01.11.1999 Georgian Securities

EBRD – Securities Market Legislation Assessment 2007 -- ix -- Promulgating Dates of Past # Official Title of Law/Regulation (in English) Date of Promulgation Authority Amendments Central Depository

Partners’ Meeting of 24. Ethics Code of the Georgian Securities Central Depository Georgian Securities 25.10.1999 Central Depository

Partners’ Meeting of Code of Procedure for Disciplinary Violations of the Georgian Securities 25. Georgian Securities 25.10.1999 Central Depository Central Depository

Partners’ Meeting of 26. Operations and Procedures of the Georgian Securities Central Depository Georgian Securities 25.10.1999 Central Depository

EBRD – Securities Market Legislation Assessment 2007 -- x -- Section II – Identity of the Relevant Market Regulatory Authorities (Statutory and Non-statutory) by Activities Regulated

Name of the Relevant Date of # Activities Regulated Legal Basis Regulator Establishment

The National Securities’ 1. Securities issuance and offering2 Commission of Georgia 18.12.2002 Law of Georgia on Securities Market (“NSCG”)

Agency for Free Trade and Competition (but in very specific cases, e.g. where the company holding dominant (monopolistic) positions is Law of Georgia on Free Trade and 2. Change of control transactions3 23.08.2005 taking over, mergers or Competition (03.06.2005) otherwise acquires any other company). In other cases, such transactions are carried out by the courts.

3. Securities markets4 NSCG 18.12.2002 Law of Georgia on Securities Market

4. Brokerage or dealing related activities5 NSCG 18.12.2002 Law of Georgia on Securities Market

NSCG (but in very specific cases – for the asset Fund (or portfolio) and asset management (including management companies 5. 18.12.2002 Law of Georgia on Securities Market investment advisers, asset managers, etc.) involved in management and investments of the private pension funds)

2 Including prospectus and disclosure requirements, share registrations, tender offers, shareholder rights, beneficial ownership reporting, etc. 3 e.g., mergers, take-overs, monopoly positions, and other transactions affecting control in a company. 4 e.g., including establishment of exchanges and trading systems, admission to listing, trading, clearing and settlement, depository, etc. 5 e.g., including licensing, conduct of business requirements, prudential requirements, etc.

EBRD – Securities Market Legislation Assessment 2007 -- xi -- Name of the Relevant Date of # Activities Regulated Legal Basis Regulator Establishment

6. Collective investment schemes

Council for Audit Activities at the Parliament of Georgia

7. Accounting and auditing standards/services (this is a regulator generally for 30.06.1995 Law of Georgia on Audit Activities the audit activities, i.e. not only within the scopes of the law “on Securities Market”)

8. Investment services providers NSCG 18.12.2002 Law of Georgia on Securities Market

Law of Georgia on Support of Money Laundering (i.e., FIU – Financial Intelligence 9. Financial Monitoring Office 16.07.2003 Preventing Legalization of Illegal Unit) Incomes

EBRD – Securities Market Legislation Assessment 2007 -- xii -- Section A – Regulator6

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments RESPONSIBILITIES OF THE REGULATOR Whether the regulator responsibilities, powers and authority are clearly defined Article 49 of the Law of Georgia on 1. 1 in the law? 9 Securities Market According to Article 49, Section 1, Sub- section (c) the regulator has right to make interpretations and recommendation on the Whether the regulator has discretion to interpret its responsibilities based on issues pertaining to the securities market. 2. 9 1 clear and transparent criteria and process so to prevent abuse of discretion? Thought, we are of the opinion that these shall not include interpretation of its own responsibilities, which are clearly identified by the above referred Article 49. INDEPENDENCE OF THE REGULATOR Five members from the governing body of the NSCG. Those five members (the Commissioners) of the NSCG are appointed by the President of Whether the term of office, the procedures for appointment and removal and Georgia for 5 years term of office, such 3. the criteria for removal of the head and members of the governing body of the 9 appointment being approved by the 2 regulator are specified under the relevant law? Parliament. The Commissioner might be re- appointed for one additional term only - Article 48, Section 2 of the law “on Securities Market” (term of office). Procedures regarding the appointment and

6 Please answer the questions of this section considering the regulator (see Section II, above) in charge for: Securities issuance and offering; Securities markets; Brokerage or dealing related activities and Collective investment schemes

EBRD – Securities Market Legislation Assessment 2007 -- 1 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments removal of the Commissioners are determined by Article 48, Sections 1 and 3 of the law “on Securities Market” (procedures of appointment and removal) Article 48, Section 3 of the law “on Securities Market”; Article 6, Section 17 of the NSCG Regulation (criteria for removal) NSCG is the main regulator of the securities market and it shall be independent in carrying out its functions and shall act only on the basis of the Constitution, as well as relevant laws and bylaws of Georgia. - Article 46, Sections 1 and 2 of the law "on Securities Whether the operational independence of the regulator is assured by the law Market". 4. from external political, commercial, or other interest interference when 9 2 exercising its respective functions and powers? As for the other regulators, most of them subordinate to the respective state bodies – e.g. State Anti-monopoly Service is subordinated to the Ministry of Economy, Industry and Trade, Council for Audit Activities is created by the Parliament of Georgia, etc. At least not clearly stated. The only “protection” is that the damages due Whether the law provides legal protection (for bona fide actions only) to the to the unlawful conduct of the 5. regulator, the head and members of the governing body and its staff against 9 Commissioners and other employees of the 2-5 lawsuits for actions taken in their functions? NSCG is reimbursed from the state budget on the basis of the court decision – Article 51, Section 7 of the law “on Securities Market”.

EBRD – Securities Market Legislation Assessment 2007 -- 2 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments ACCOUNTABILITY OF THE REGULATOR Article 46, Sections 1 and 2 of the law "on Securities Market". - NSCG shall be In the exercise of its regulatory powers, whether the regulator is required by independent in carrying out its functions and 6. the law to consult with or obtain an approval by the government, ministry or 2 9 shall act only on the basis of the Constitution, other authorities? [Please specify the cases and the authority] as well as relevant laws and bylaws of Georgia. If the answer to the above question is "yes" (if "no" in the above, please tick "no" in the following sub-questions): (1) whether the circumstances in which consultation or approval is required are clearly defined and the relevant process is sufficiently transparent? [If "yes", 7. 9 2 please briefly describe the process] (2) whether the circumstances where consultation or approval is required are

limited to policy issues and not to day-to-day technical matters? 9 NSCG is obliged to prepare and submit the annual reports on basic events occurred at the securities market of Georgia to the President Is the regulator accountable to the Parliament or another government body on 8. 9 and Parliament of Georgia, as well as to the 2 an ongoing basis? [Please explain] society (through publishing such report) – Art. 49, Sec.2 of the law “on Securities Market”. Are the regulator and the other parties to which the regulator is accountable required by the law to treat as confidential information received as part of the Article 51, Sections 2 and 3 of the law “on 9. 2 supervisory process and only to disclose information in certain defined 9 Securities Market”. circumstances? 10. Is the regulator’s receipt and use of funds subject to review or audit? 9 2 11. Does the regulator have to provide written reasons for its material decisions? 9 2 Are affected persons permitted to make representations prior to a regulator’s 12. 2 decision in appropriate cases? 9

EBRD – Securities Market Legislation Assessment 2007 -- 3 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Are all decisions taken by the regulator subject to a sufficient, independent 13. 2 review process, ultimately including judicial review? 9 REGULATOR’S POWERS AND RESOURCES The law does not clearly determine such powers of the NSCG, though in accordance with Articles 32 (“Financial reporting, Whether the regulator is empowered by the law to receive routine financial records, accounts and their inspection”) and 14. reports from regulated entities 7? If "yes", please identify from whom the 2, 10 9 52 (“Inspection”) of the law “on Securities regulator receives such routine reports. Market” the NSCG may request such reports from the respective regulated market participants. One of the main functions of the Commission Whether the regulator is empowered by the law to inspect a regulated entity is to inspect the activities of the securities 15. 8 business operation without giving prior notice? 9 market participants (Article 52, Section 1 of the law “on Securities Market”). Article 32, Section 4 of the law “on Securities Market” – all the records (documentation) of the regulated market participants (including stock exchange, brokerage company, Whether the regulator is empowered by the law to have access to books and securities registrar, central depository) are records and request data or information from regulated entities without judicial subject to periodic, grounded, special or other 16. 8 actions, even in absence of suspected misconduct, in response to (i) a particular 9 revision by the authorised representatives of inquiry? (ii) on a routine basis? [please specify] the NSCG. The revision is carried out in order to check compliance with the applicable law. The scopes of such authorities are determined in more details in the Inspection Rules adopted

7 “Regulated entity” includes authorised or licensed entities or persons

EBRD – Securities Market Legislation Assessment 2007 -- 4 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments by NSCG on 05.02.2003. Does the regulator have the investigative and enforcement power to require from any persons involved in relevant conduct of who may have information relevant to a regulatory or enforcement investigation: Article 52, Section 1 & 2 of the law “on (a) data? 9 Securities Market refer only to the participants of securities’ market. Article 52, Section 1 & 2 of the law “on (b) information? 9 Securities Market refer only to the participants of securities’ market. 17. Article 52, Section 1 & 2 of the law “on 9 (c) documents? 9 Securities Market refer only to the participants of securities’ market. Article 52, Section 1 & 2 of the law “on (d) records? 9 Securities Market refer only to the participants of securities’ market. Article 52, Section 1 & 2 of the law “on (e) statements or testimony? 9 Securities Market refer only to the participants of securities’ market. NSCG has the power to impose administrative sanctions for the following: - violation of the rules of public offering of the securities (Art. 165’4 of the Code of Whether, under the law or regulation, the regulator has the power to impose Administrative Offence of Georgia) administrative sanctions? If "yes", please briefly describe the kinds of 18. - breach of the requirements of the 9 sanctions that can be imposed. If "no", please briefly describe what the 9 securities legislation (Art. 165’5) regulator can do in case of non-compliance with laws. - violation of the licensing rules (Art. 165’6) - violation of the securities turnover rules (Art. 165’7)

EBRD – Securities Market Legislation Assessment 2007 -- 5 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments - violation of the reporting, confidentiality and other procedures (Art. 165’8) - violation of other rules for the turnover of the securities (Art. 165’9) The law “on Securities Market” - Article 31, Section 3 – for the stock exchange, central depository and Whether, under the law or regulation, the regulator has the power to order securities registrar 19. 9 9 suspension of trading in securities? - Article 7, Section 1 – for the securities issuers and brokers acting on their behalf - Article 55, Section 2 – law “on Securities Market” Whether, under the law or regulation, the regulator has the power to initiate or NSCG may refer matters for criminal 20. 9 refer matters for criminal prosecution? 9 execution – Article 52, Section 5 The law “on Securities Market” and the Whether the regulator is assured by the law and/or regulation to have sufficient NSCG Regulations provide that the source financial and other resources to properly discharge its functions? 8 If "no", for financing the NSCG is a state budget 21. 9 2 please indicate the areas of insufficiency. [Please also specify if the regulator’s The NSCG's budget for 2006 equalled to budget is taken from the state budget or from the market] GEL 444.9 thousand. (approximately EUR 192 thousand) CLEAR AND EQUITABLE PROCEDURES Whether the regulator has the power to issue legally binding rules and Article 4, Section 1, Article 14’ and Article 22. regulations? If yes, is the regulator obliged to make all rules and regulations 9 19.2 of the law of Georgia “on Normative 4 available to the public? Acts”.

8 The points of consideration in financial aspect should include: competitive salary scales, ability to hire external experts if necessary, training budget and programme, information technology equipment, and travel budget, etc.

EBRD – Securities Market Legislation Assessment 2007 -- 6 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Whether the law or regulation sets forth the general criteria for granting, Article 55.2 of the law “on Securities 23. 4 suspending or revoking licenses? 9 Market” Whether the regulator is required by the law or regulation to publicly disclose and explain its policies in important operational areas, such as through 24. . 4 interpretations of regulatory actions, settings of standards, or issuance of 9 opinions stating the reasons for regulatory actions? PROFESSIONAL STANDARDS

Whether the staff of the regulator is required by law, regulation or other, Article 51, Section 1 of the law “on Securities [please explain] to observe a "Code of Conduct" or other written 25. Market". 5 standards/guidance of the same nature in exercising their regulatory powers 9 and discharging their functions? No separate Code exists. If the answer to the above question is "yes", whether the relevant "Code of Conduct" addresses issues in the following areas:

9 (but (1) conflicts of interest? not in the Article 51 of the law “on Securities Market". Code of Conduct)

(2) dealing with information obtained in the course of the exercise of powers 9 (but not in the Article 51 of the law “on Securities Market". and discharge of duties? Code of Conduct)

26. (3) observance of confidentiality and secrecy provisions and protection of 9 (but 5 not in the Article 51 of the law “on Securities Market". personal data? Code of Conduct)

9 (but (4) ensuring procedural fairness? not in the Article 51 of the law “on Securities Market". Code of Conduct)

(5) restriction on the holding or trading of securities and requirement to 9 (but not in the Article 51 of the law “on Securities Market". disclose financial affairs or interest. Code of Conduct)

EBRD – Securities Market Legislation Assessment 2007 -- 7 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments

Whether there are legal or other sanctions against the staff of the regulator who 9 (but Article 51, Section 1 of the law “on Securities 27. not in the 5 fails to adhere to the above mentioned "Code of Conduct"? Code of Market". Conduct) COOPERATION AMONG REGULATORS As you may notice in Section II above, functions of different regulators are determined by different laws and/or bylaws. If there is more than one regulator listed in Section II above, whether the Those regulators may co-operate within the 28. division of the responsibility among regulators are clearly and objectively set 9 sphere of their competence. 1 out by law? However, the major regulator of the securities market is NSCG and its responsibilities are clearly set out in Article 49 of the law "on Securities Market". If there is more than one regulator listed in Section II, whether they are 29. No special requirements with that respect 1 required by the law to co-operate and share information with each other? 9 Whether the regulator has the authority under the law to share information with Article 51, Section 3, Sub-section (e) of the 30. 11 regulators in foreign jurisdictions? [please specify with which countries] 9 law "on Securities Market" The law does not directly provide such permission to provide assistance to foreign Whether the regulator is permitted by the law to provide assistance to 31. regulators. 13 regulators in foreign jurisdictions? [please specify with which countries] 9 However, it allows the NSCG to share the information with them.

EBRD – Securities Market Legislation Assessment 2007 -- 8 -- Section B – Self-regulation ("SROs")9

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments PERFORMANCE AND FUNCTIONS OF SROS Are there any organisations in your country, that: J/S Co. Georgian Stock Exchange. a) establish rules of eligibility that must be satisfied in order for individuals or

firms to participate in any significant securities activity? 9 Article 2 of the Bylaw of J/S Co. Georgian Stock Exchange, J/S Co. Georgian Stock Exchange. b) establish and enforce binding rules of trading or business conduct for 1. 6 individuals or firms engaging in securities activities? 9 Article 2 of the Bylaw of J/S Co. Georgian Stock Exchange, c) establish disciplinary rules and/or conduct disciplinary proceedings, which J/S Co. Georgian Stock Exchange. have the potential to impose enforceable fines, or other penalties, or to bar or

suspend a legal or natural person from participating in securities activities or 9 Article 2 of the Bylaw of J/S Co. Georgian professional activities related to securities activities? Stock Exchange, AUTHORISATION OR DELEGATION SUBJECT TO OVERSIGHT 2. Whether, as a condition of ongoing authorisation, the regulatory framework requires SROs to: 7 (1) have the necessary capacity to enforce compliance by its members and Article 41, Section 6 of the law "on

associated persons with laws, regulations and rules? 9 Securities Market" Article 41, Section 4, Sub-section (c), (2) treat all members of the SRO and applicants for membership in a fair and Clause (c.c) of the law "on Securities consistent manner? 9 Market"

9 A self-regulatory organisation (SRO) is any organisation that has been given the power or responsibility to regulate any part of the securities market of industry. The term “self-regulatory organisation” means any national securities exchange , registered securities association, or registered clearing agency, which have been granted the right to regulate themselves and enforce such regulation. This section applies to all SROs in your country – i.e. stock exchange, central depository to the extent that they fit within the SRO definition]

EBRD – Securities Market Legislation Assessment 2007 -- 9 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments 9 Article 41, Section 4, Sub-section (b), (3) develop rules that (i) are designed to set standards for its members and (ii) to (referring Clause (b.c) of the law "on Securities only to the promote investor protection? standards Market" referring only to the standards for for its its members. members) (4) submit to the regulator its rules and any amendments thereto for review Article 42 of the law "on Securities Market" and/or approval? 9 (5) co-operate with the regulator and other SROs in your jurisdiction to Article 41, Section 11 of the law "on

investigate and enforce applicable laws, regulations and rules? 9 Securities Market" (6) enforce its own rules and impose appropriate sanctions for non-compliance Article 41, Section 11 of the law "on

with its own rules? 9 Securities Market" Charter of the joint stock company (7) assure fair representation of members on its board of directors and “Georgian Stock Exchange” 9 administration of its affairs? Charter of the Georgian Securities Central Depository, LLC (8) assure that its rules do not create anti-competitive situations? 9 The law is silent in this respect OVERSIGHT The law does not envisage any special Whether the regulator is required by the law or regulation to establish a programmes. programme/procedure/process to oversee the operations of SROs (including Though, it grants to the regulator (NSCG) 3. 9 7 inspections, periodic reviews, reporting requirements, review/revocation of SRO full rights to inspect the SROs, receive rules, monitoring of continuing compliance with conditions of authorisation)? periodic reports from them and monitor their activities. In matters related to SRO responsibility, whether the regulator retains authority Article 41, Section 11 of the law "on 4. 7 to (i) inquire and (ii) intervene into matters affecting investors or the market? 9 Securities Market"

EBRD – Securities Market Legislation Assessment 2007 -- 10 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments MISUSE OF INFORMATION AND CONFLICT OF INTERESTS Does the law or regulation requires SROs to: Article 7 of the Code of Procedure for (1) ensure that potential conflicts of interest at the SRO are avoided and Disciplinary Violations of Georgian Stock resolved? 9 Exchange 5. Article 5 of the Code of Procedure for 7 Disciplinary Violations of Georgian Stock (2) address prevention of misuse of information and observance of Exchange 9 confidentiality of information? Code of Procedure for Disciplinary Violations of Georgian Securities Central Depository

EBRD – Securities Market Legislation Assessment 2007 -- 11 -- Section C – Issuers and their Information-Disclosure Obligation

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments CONTENT OF THE PROSPECTUS In a public offering of securities10, whether issuers are required to: (i) prepare a prospectus (or an information document of similar nature) 9 Article 4 of the law “on Securities’ Market” The Final Prospectus shall be delivered to the investors prior to or immediately upon 1. (ii) distribute it, and 9 start of the public offering of the shares. 14 Article 5, Section 1 of the law "on Securities Market" (iii) file the prospectus with the regulator/stock exchange for review/approval Article 4, Section 2 of the law "on Securities [Please specify] 9 Market" 2. Whether the prospectus is required to include information on: All issues included in Article 4, Section 2 of the law “on Securities Market”. (i) key financial information, including capitalisation and indebtedness of the Disclosure of respective documentation, not issuer and reason for the offer and use of proceeds and risk factors [please 9 mere information, is required only in case specify if all or just some of these issues are included] the offer of securities is caused by reorganization of issuer. Article 4, Section 2, Subsection “e”.

10 The term Public Offering of Securities refers to the issuance and/or sale of the securities to the public.

EBRD – Securities Market Legislation Assessment 2007 -- 12 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments History, development, business overview and organizational structure included in IOSCO – (ii) the company, including history and development of the company, business (not Article 4, Section 2 of the law “on Securities 9 International all issues overview, organisational structure, property, plants and equipment [please Market”. Disclosure are standards for specify if all or just some of these issues are included] included) No specific implications with regard to cross-border property, plants and equipments of the offerings and company. Initial listings by foreign Financial review and prospectus included issuers (iii) operating and financial review and prospects, including operating results, 9 (not only. liquidity and capital resources, research and development, patents and licenses. all issues [please specify if all or just some of these issues are included] are Article 4, Section 2 of the law “on Securities included) Market”. (iv) directors, senior management and employees, including compensation of All issues included in Article 4, Section 2 of directors, board practices, number of employees and share ownership [please 9 the law “on Securities Market”. specify if all or just some of these issues are included] Both issues covered by Article 4, Section 2 (v) major shareholders and related party transactions 9 of the law “on Securities Market”. (vi) the identity and holdings of persons who hold a substantial beneficial

ownership interest in the company 9 FOREIGN ISSUERS Whether a foreign issuer is required to disclose additional information in the 3. 14 prospectus? If "yes", please briefly describe 9 Whether a foreign issuer is allowed to use a prospectus which has been No, at least unclear from the law "on 4. 14 approved by a foreign regulator? If "yes", please briefly describe 9 Securities Market. FULL DISCLOSURE

Whether there are different disclosure requirements for different types of - The commercial banks shall first obtain 5. securities or according to the different circumstances in which securities are 9 expert evaluation report from the 14 offered? If "yes", please briefly describe national bank - Article 4, Section 3 of

EBRD – Securities Market Legislation Assessment 2007 -- 13 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments the law "on Securities Market" - For different types of securities or different issuers (e.g. non-resident issuers, investments funds, issuers which are not enterprises, etc.) NSCG may set different requirements for disclosure of information Article 4, Section 4 of the law "on Securities Market". Yes, prospectus requirements exist in case of public offering of securities. The securities are defined as: "turnoverable financial instruments and rights public In addition to public offering of equity, whether prospectus requirements also offering of which is possible in a form of 6. apply to other types of public offerings (e.g., debt securities, warrants, pre- 9 shares or debt securities, or which might be 14 emptive rights offering to existing shareholders, etc.)? Please specify. transformed into such, or which might be subscribed for or acquired, as well as investment agreements and other instruments and rights associated to the securities." - Article 2, Section 32 of the law "on Securities Market" Whether there are any restrictions on, or disclosure requirements with regard to, the content of information that an issuer discloses outside the prospectus during 7. 14 an offering (e.g., in advertisement, "road-show" materials or on the issuer's web- 9 site)? If the answer to the above question is "yes", whether any such restrictions or 8. requirements extend to those acting on behalf of the issuer in connection with 14 the offering (e.g., underwriters or advisors)? LIABILITY Whether the issuer is liable for the content of the prospectus? If "yes", please 9. 9 Article 4, Section 13 of the law "on 14 describe if there are any exceptions provided for under the law. Securities Market". CEO, chairman of the

EBRD – Securities Market Legislation Assessment 2007 -- 14 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments supervisory council, as well as any other person signing the prospectus, No exceptions for the issuer itself. Brokerage companies and brokers acting on behalf of the issuer; Other than the issuer, whether there are any other persons/entities that may be all the auditors or other experts (within the 10. held liable for the content of the prospectus (e.g., underwriter, auditor)? If 14 9 sphere of their competence). "yes", please describe. Article 4, Section 13 of the law "on Securities Market" DEROGATIONS Whether there are circumstances where an issuer is permitted to proceed with a 11. public offering without full disclosure of relevant information? If "yes", please 9 The law does not envisage such possibility 14 briefly describe. REGULATOR’S POWERS In case of any violations in public offering of the securities, the regulator (NSCG) may suspend or cancel the validity of the prospectus. Whether the regulator has the power to enforce prospectus and/or other listing This stops public offering of securities with documents disclosure requirements by delaying or stopping the offering or immediate effect. – Article 7, Section 2 and 12. through other regulatory actions? If "yes", please briefly describe the nature of 9, 14 9 Article 55, Section 2 of the law "on these actions (e.g., civil, administrative or criminal) and indicate whether these Securities Market" actions if taken are with immediate effect (e.g., trading halt or injunction). Violation of the rules for public offering of the securities will also result in fines in accordance with Article 165'4 of the Code of Administrative Offence of Georgia.

EBRD – Securities Market Legislation Assessment 2007 -- 15 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments OTHER LISTING DOCUMENTS Article 4 of the Regulation on Admission of Securities to the Georgian Stock Exchange Trading System and Listing Apart from the prospectus, are issuers required to prepare or distribute a) Application to the General Director 13. documents for listing purposes? (e.g., listing particulars 11 or a document of 14 9 of Georgian Stock Exchange; similar nature)? b) Attached documents as specified in appendix 1a and 1b of the Regulation. The listing documents are filed on the name of the General Director of the Stock Does the regulator have the power to enforce listing document disclosure Exchange (Securities Market) 14. 9 14 requirements by delaying or refusing a listing? Article 4 of the Regulation on Admission of Securities to the Georgian Stock Exchange Trading System and Listing. ONGOING DISCLOSURE REQUIREMENTS All accounting enterprises are obliged to prepare reports as specified in Article 11 of the law "on Securities Market" Whether open/public/listed/admitted to trading companies [please specify] are Under "accounting/reporting enterprise" is 15. required to prepare annual reports and/or periodic reports, under a certain 9 meant a legal person as incorporated under 14 timeframe? Please specify. Georgian Law on Entrepreneurs with securities placed through public offering and/or admitted for trading on a stock exchange.

11 Listing particulars: details which a company is obliged to publish about itself together with any securities it issues before it obtains a listing on a recognised stock exchange.

EBRD – Securities Market Legislation Assessment 2007 -- 16 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments However, publishing procedures not If the answer to the above question is "yes", whether the annual and the periodic specified. 16. reports are made available to the public? If yes, please explain how they are 9 14 distributed. Article 11, Section 1 of the law "on Securities Market" Article 11, Section 1 of the law "on Securities Market" All accounting enterprises are required to Whether issuers are required to file the annual and periodic reports with the prepare and submit, publish or send it to 17. 14 regulator for review/approval? 9 registered owners: a) Annual reports; b) Half-year reports; c) Current reports. The regulator is entitled, among other options, to: - Require adherence with the requirements; - Publicise information of violation of Whether the regulator has the power to enforce the disclosure requirements of 18. requirements and respective sanctions; 14 the reports? If yes, please describe the available actions. 9 - Suspend for 6 months or permanently securities transactions in violation of the law; Article 55, Section 2 of the law "on Securities Market" At least not directly indicated so in the law. However, the regulator may take specific Whether the issuer is liable for the content of the reports? If "yes", please 19. 9 measures (including imposition of 14 describe if there are any exceptions provided for under the law administrative fines) if the actions of the issuer will hinder the interests of the investors. – Article 55, Section 2 of the law

EBRD – Securities Market Legislation Assessment 2007 -- 17 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments "on Securities Market" Pursuant to paragraph 4 of Article 16 of the Georgian Law on Securities Market, while discharging his/her duties a member of the governing body may rely on opinions, reports or statements, including financial Other than the issuer, whether there are any other persons/entities which may be statements and other financial data, if 20. held liable for the content of the annual/periodic reports (e.g., auditor)? If "yes", 14 9 prepared by auditor, legal counsel, please describe. employee of the company or other person as to matter such member reasonably believes are within the person's professional or expert competence. Please see as well H 2 below. Whether issuers are subject to a general and continuing obligation to disclose Article 11, Section 4 of the law "on promptly any material information that would significantly affect the price of Securities Market" 21. 9 14 their securities? If "yes", please describe whether such requirement varies No differentiation is provided either in the according to types of issuers. law, or the respective rules. Whether there are circumstances where an issuer is permitted to derogate from 22. 14 its disclosure obligations (e.g., confidentiality)? 9 FAIR AND EQUITABLE TREATMENT OF SHAREHOLDERS Whether the relevant law or regulation stipulates the right of fair and equitable 23. Article 3.8 of the law "on Entrepreneurs" 15 treatment of shareholders? 9 Yes, the issuer is required to prepare and submit to the registered shareholders ongoing reports concerning any material Whether issuers are required to disclose information to shareholders in order to information. - Article 11, Sections 1 and 4 24. help them make voting decisions? If "yes", please briefly describe the types of 9 of the law "on Securities Market" 15 voting decisions that would trigger such disclosure requirement. However, submission of such information is required post factum. If the act of the company requires prior decision of the

EBRD – Securities Market Legislation Assessment 2007 -- 18 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments shareholders, then such information (for the permission from the shareholders) shall be presented to the meeting of the shareholders in accordance with the law "on Entrepreneurs". Whether investors have the right to petition the regulator? If "yes", please 25. Unclear – the law is silent about this 15 indicate the grounds based upon which a petition can be made. 9 The shareholder (group of the shareholders) Whether minority shareholders have the right to appoint an auditor to re- holding at least 5% of the shares of the examine the books and accounts of the company? If yes, please specify the company may request such examination in 26. 15 minority shareholding percentage requirement and other specific conditions and 9 case of doubts that certain violations exist whether the shareholder or the company must pay for this audit with respect to it. Article 53.3.2 of the law "on Entrepreneurs" Whether shareholders of a company have the right to start derivative suit (i.e., in the name of the company) against the directors of the company? If "yes", please There is no specific percentage requirement. 27. 9 15 indicate the shareholding percentage requirement, if any, for exercising such Article 53.5 of the law “on Entrepreneurs’. right. The shareholder (group of the shareholders) Whether shareholders of a company have the right to request an extraordinary holding at least 5% of the shares of the 28. general meeting of shareholders to be held? If "yes", please indicate the 9 company may request such meeting. 15 shareholding percentage requirement, if any, for exercising such right. Article 53.3.3 of the law "on Entrepreneurs" Whether beneficial shareholders are required to publicly disclose their 29. ownership and identity in specific circumstances? If yes, please specify the 9 15 circumstances and the disclosure procedures Whether the shareholders who are required to disclose their identity and ownership position due to their shareholding percentage have an on-going 30. At least not directly indicated in the law. 15 obligation to report changes in their shareholding? If "yes", please indicate how 9 significant the change has to be to trigger such reporting obligation.

EBRD – Securities Market Legislation Assessment 2007 -- 19 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments CHANGE IN CORPORATE CONTROL Where the offeror intends to acquire more Does the relevant law or regulation provide for the circumstances in which a then 5 % of the shares 31. mandatory tender offer must be made? If "yes", please describe the 9 15 circumstances. Article 15, Section 1 of the law "on Securities Market" Rules for Preparation and Submission of Ongoing Reports by the Listed Companies. Besides, the persons who have obtained control (5% or more) over the company, Whether public/open/listed/admitted to trading companies are required to shall inform about this fact the regulator, the 32. disclose adequate information in connection with a change in corporate control 9 issuer and the stock exchange. – Article 14, 15 (e.g., take-over etc.) to enable minority shareholders to assess the offer? Section 1 of the law "Securities Market". Further, in case of tender offer the offeror shall make public announcement of such offer. – Article 15, Sections 1 and 2 of the law "on Securities Market" Does the regulatory framework provide minority shareholders with the At least not directly indicated by the 33. opportunity to vote eventual manoeuvres (e.g., poison pills) made up by the 15 9 relevant laws. management to resist the tender offer? In connection with a proposed transaction involving the company, whether the At least not directly indicated by the 34. directors or other members of senior management of a company are required to 15 9 relevant laws. disclose compensation or personal benefits that they may receive? Does the regulatory framework provide minority shareholders with the concrete Article 3.8 of the law "on Entrepreneurs"; 35. opportunity to sell their shares to the bidder at the same conditions as the 9 15 controlling shareholder? Article 52 of the law "on Entrepreneurs"

EBRD – Securities Market Legislation Assessment 2007 -- 20 -- Section D – Collective Investment Schemes (CISs)12

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Does you country have a specific legislation on collective investment schemes? 1. Please specify is the regulation is specifically on CIS or instead on other 9 investment funds (e.g., privatisation funds)] ENTRY AND ELIGIBILITY CRITERIA Whether there are specific standards or requirements set forth in the relevant law or regulation for eligibility13 to: 2. (i) promote and sell a CIS? 17 (ii) operate a CIS? Whether the eligibility standards or requirements for licensing or registration of operators of CIS include the following factors: (1) fitness and propriety of operator (including persons who hold a material

interest in the operator)? (2) honesty and integrity? 3. (3) competence to carry out the functions and duties of a scheme operator (i.e., 17

human and technical resources)? (4) financial capacity? (5) capacity to discharge operator-specific powers and duties? (6) adequacy of internal management procedures? Whether, in assessing eligibility to market or operate a CIS, it is required by 4. the law or regulation to assess the qualifications of key individuals employed 17 by the CIS operator or manager?

12 CIS includes open-end funds that redeem their shares or units (whether on a continuous basis or periodically), closed-end funds whose shares or units are traded in securities markets, unit investment trusts, contractual models and the European UCITS model. For purposes of this assessment checklist, CIS excludes schemes investing in property/real estate, mortgages or venture capital. 13 The term “eligibility” is intended to include authorisation, licensing, registration or other preconditions to operating or marketing a CIS.

EBRD – Securities Market Legislation Assessment 2007 -- 21 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments If the answer to the above question is "yes", whether the following factors are considered: (1) educational requirements? (2) fitness and propriety? 5. 17 (3) honesty and integrity? (4) past experience in marketing or operating of CIS? (5) continual professional training? Whether CIS operators are required to make public disclosure of the 6. information listed in the preceding questions? Please briefly describe what is 17 the disclosure procedure Whether there are sanctions against unlicensed operation of a CIS? If "yes", 7. 17 please briefly describe. SUPERVISION AND ONGOING MONITORING Whether CIS operators are subject to a general and continuing obligation to 8. report to the regulator or to investors any information regarding material 17 changes in its management or organisation? If the answer to the above question is "yes", whether the regulator's approval of 9. 17 these changes is required? Whether there are provisions to prohibit, restrict or disclose conduct likely to 10. give rise to conflicts of interests between a CIS and its operators or their 17 associates or related parties? If "yes", please briefly describe. Whether there are regulatory means14 available to minimise conflict of interest 11. situations to ensure that any conflicts if they arise do not adversely affect the 17 interests of investors? If "yes", please describe.

14 Possible means include direct prohibition of particular transactions under the law, use of a code of conduct, review and/or approval of certain transactions and activities by the regulatory authority, disclosure by the operator, prior approval or ratification of certain transactions by the investors, record keeping by the operator, limitation of the activities of the operator and independent review by a third party, etc.

EBRD – Securities Market Legislation Assessment 2007 -- 22 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Whether there is an ongoing monitoring of the conduct of CIS operators throughout the life of a CIS (including compliance with licensing or 12. 17 registration requirements)? If "yes", please briefly describe the monitoring method(s) adopted. Whether the regulator has the power under the law to take actions in the event 13. of suspected or actual breaches or default by CIS operators? If "yes", please 17 briefly describe what actions the regulator can take. DELEGATION OF FUNCTIONS Whether CIS operators are permitted to delegate their functions to other 14. 17 persons? If the delegation by CIS operators of their functions is permissible: (1) whether the regulatory system require the CIS operator to (i) monitor the

activity and (ii) evaluate the performance of the delegate? (2) whether the delegating operator is required to disclose to investors the

15. delegation arrangements and the identity of the delegate? 17 (3) whether the delegating operator will be held responsible for actions or

omissions of the delegate as though they were done as its own? (4) whether the CIS operator can terminate the delegation and make alternative

arrangements for the performance of the delegated function, where available? LEGAL FORM/INVESTORS RIGHTS

16. Whether there are requirements as to the legal form and structure of a CIS? 18 Whether the rights of investors to a CIS, the ways to exercise them and the 17. 18 risks associated with the investment are required to be disclosed to investors? Does the regulatory framework provide that where changes are made to 18. investor rights that do not require prior approval from investors, notice is given 18 to (i) investors and to (ii) the regulator before the changes take effect?

EBRD – Securities Market Legislation Assessment 2007 -- 23 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments SEPARATION OF ASSETS Whether the operator of a CIS is required to separate and segregate CIS assets 19. 18 from the assets of managers, its related entities and other schemes? Whether there are qualification requirements for the entities holding CIS 20. 18 assets? If "yes", please briefly describe. If CIS assets are required to be held in safekeeping on behalf of the investors 21. by a third party, whether it is required that the third party be independent of the 18 CIS operator? If "yes", please briefly describe such independence requirement. If the custodian and investment functions may be performed by the same legal 22. entity or related entities, whether there are special legal or regulatory 18 safeguards with respect to the CIS assets? If "yes", please briefly describe. Whether CIS operators are required to maintain a register of holders of shares 23. 18 or units in the scheme? Whether CIS operators are required to keep all books and records in relation to 24. 18 transactions involving CIS assets and all transactions in CIS shares or units? 25. Whether there are auditing requirements in relation to CIS assets? 18 If the answer to the above question is "yes", whether the auditors are required 26. 18 to report to the regulator any irregularities or non-compliance? DISCLOSURE In making a public offering of a CIS, whether the CIS operator is required to (i) issue an offering document (e.g., a prospectus)? 27. (ii) deliver it to investors? 19 (iii) deposit it to the regulator and obtain its prior approval? 28. Whether CIS offering document is required to include the following information: (1) the date of the issue of the offering document? 19 (2) information concerning the legal constitution of the CIS?

EBRD – Securities Market Legislation Assessment 2007 -- 24 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments (3) the rights of investors in the CIS? (4) any pending material legal proceedings involving the CIS? (5) procedures for purchase, redemption, and pricing of units? (6) relevant, audited financial information concerning the CIS? (7) information on the custodian? (8) the investment policy of the CIS (i.e., indicating the markets and

instruments in which investments are made)? (9) information on the risks involved in achieving the investment objectives? (10) the appointment of any external administrators or investment managers or

advisers who have a significant and independent role in relation to the CIS? (11) fees and charges in relation to the CIS? (12) the regulatory authority, auditors and other independent third parties and

their responsibilities in relation to the CIS? (13) description of the methodology of asset valuation? Whether CIS operators are subject to a general disclosure obligation to allow 29. 19 investors to evaluate the suitability of the CIS for them? Whether the regulator has the power under the law to take actions in the event that the issuing documentation is inaccurate, misleading or false or fails to 30. 19 satisfy the filing/approval requirements? If "yes", please list all regulatory actions available. Whether the offering document is required to be kept up-to-date to take 31. 19 account of any material changes affecting the CIS? Whether prior notification is required to be given to the regulator regarding 32. changes to information in an offering document? If "yes", please indicate 19 whether the regulator's approval is required. Whether CIS operators are required to submit to the regulator a report setting 33. forth the activities in respect of a CIS on a periodic basis (please specify the 19 report’s periodic basis: annual, semi-annual, quarterly)?

EBRD – Securities Market Legislation Assessment 2007 -- 25 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments If the answer to the above question is "yes": (1) whether the law or regulation require a timely distribution of the report? 34. (2) whether the regulatory framework requires that the accounts of a CIS be 19 prepared in accordance with high quality, internationally acceptable accounting standards? ASSET VALUATION Whether CIS operators are required to have the CIS net asset value (NAV)15 35. 20 calculated on a regular basis? If "yes", please indicate the frequency. Whether the valuation of the CIS assets is required to be checked by 36. 20 independent auditors? Whether there are specific regulatory requirements in respect of fair valuation 37. 20 of assets where market prices are not available? PRICING AND REDEMPTION OF INTEREST Whether the operator of a CIS is required to disclose or publish the price of the 38. 20 CIS unit on a regular basis? Whether CIS operators are subject to an on-going obligation to disclose, in a timely fashion by way of notices or announcements, information which is 39. 19 material to the value of a CIS or otherwise significant to holders of interests in a CIS? Whether there is a maximum time period for making payment of redemption 40. 20 proceeds? Please specify Whether there are rules governing the fees or charges payable by investors on 41. 20 the purchase or redemption of shares or units of a CIS?

15 The calculation of the net asset value (NAV) of a CIS is extremely important, as the NAV reflects the price which an investor pays when investing in a CIS (subject to any additional up-front charges) and the price an investor will receive (subject to any additional exit charges) should a holding be liquidated.

EBRD – Securities Market Legislation Assessment 2007 -- 26 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Whether there are rules or mechanisms in place to address errors in respect of 42. 20 the price of the CIS units or the value of CIS assets? Whether suspension or deferral of routine valuation and pricing and regular 43. redemption of shares or units of a CIS is permissible under certain 20 circumstances? If "yes", please briefly the circumstances. Whether the regulator has the power to demand, delay or stop the deferral or 44. 20 suspension of redemption rights?

EBRD – Securities Market Legislation Assessment 2007 -- 27 -- Section E – Market Intermediaries

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments AUTHORISATION AND LICENSING Whether licensing is required to conduct business as: 16 1. (i) Market intermediaries ? 9 Article 20 of the law "on Securities Market" 21 (ii) Investment Advisers17? 9 No license/authorization requirement exists. Whether the relevant law or regulations establish minimum standards or 2. Article 24 of the law "on Securities Market" 21 criteria that all applicants for licensing must meet before a license is granted? 9 Whether the circumstances in which a license application may be refused are 3. 21 clearly set forth in the law or regulation? If "yes", please briefly describe. 9 If the answer to the above question is "yes", whether these requirements include: The Regulator may set a minimum amount (1) an assessment of whether the applicant has the appropriate financial for the own initial capital and lent resources resources (e.g., minimum initial capital) to carry on the proposed business? If 9 for the intermediaries – Article 24, Sections "yes", please specify 1 and 3 of the law "on Securities Market" (2) an assessment of whether the applicant has adequate operational systems 4. and controls for the businesses it proposes to carry on, such as proper books 9 and records, internal controls, risk management, and supervisory systems? 21 (3) an assessment of whether the applicant has senior management and Article 24, Section 1, Sub-section (c) of the directors with the knowledge, skills and experience necessary to perform their 9 law "on Securities Market" proposed roles? (4) an assessment of whether the applicant has a proven track record/past

conduct? 9

16 “Market intermediaries” include those who are in the business of managing individual portfolios, executing orders and dealing in, or distributing, securities. 17 “Investment advisers” for the purpose of this assessment are those engaged in the business of advising others regarding the value of securities or the advisability of investing in, purchasing or selling securities. They offer only advisory services without offering other investment services.

EBRD – Securities Market Legislation Assessment 2007 -- 28 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments ONGOING REQUIREMENTS In the event that a market intermediary fails to meet ongoing requirements, whether the regulator has the power to: (1) suspend the intermediary's license? 9 (2) revoke the intermediary's license? 9 Article 31 of the law "on Securities Market" (3) impose conditions or restrictions on the intermediary's business Article 31 of the law "on Securities Market" 5. operations? 9 21 (4) take effective steps to seek the removal of persons employed at the

intermediary which have committed securities violations? 9 Appoint the administrator of the business of (5) impose other sanctions? If "yes", please specify. 9 the brokerage company - Article 31 of the law "on Securities Market" 6. Whether intermediaries are required to immediately report to the regulator on the occurrence of the following events: 21 Article 33, Section 9, Sub-section (b) of the (1) significant change in the ownership of the firm? 9 law "on Securities Market" Article 33, Section 9, Sub-section (c) of the (2) change in the senior management or directors of the firm? 9 law "on Securities Market" (3) change in the information delivered during the licensing process or a

material change in the intermediary's circumstances? 9

EBRD – Securities Market Legislation Assessment 2007 -- 29 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Intermediaries are required to report to the regulator (no later than 7 days) on the occurrence of other events, such as: (a) opening/closing of branches; (b) change of brokerage company's (4) other specific events? If "yes", please specify. 9 name; (c) grounds for dismissal of each broker. Article 33, Section 7, Sub-sections "a", "c" and "d" of the law "on Securities Market" Whether the following information about intermediaries is required to be made publicly available: At least not directly indicated in the law. (1) the existence of a license, its category and status? 9 Though, this information must be submitted 7. to the regulator. 21 At least not directly indicated in the law. (2) the scope of its permitted activities, the names of its senior management Though, this information must be submitted and other individuals authorised to act in the name of the intermediary? 9 to the regulator. INVESTMENT ADVISERS18 Does the regulatory framework on investment adviser include detailed requirements setting out the disclosures to be made by the adviser to potential clients, including: (i) descriptions of the adviser’s educational qualifications, 8. The law is silent on Investment Advisers. 21 (ii) investment strategies, (iii) fee structure and other client charges, (iv) 9 potential conflicts of interest, and (v) past investment performance? [please specify for each of the items]

18 See footnote 17, above.

EBRD – Securities Market Legislation Assessment 2007 -- 30 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments CUSTODIANS19 In case of custodians, does regulation provides for the protection of client 9. assets, including segregation and periodic or risk-based inspections (either by 9 21 the regulator or an independent third party)? CAPITAL ADEQUACY REQUIREMENTS The Regulator sets minimum amount for the own initial capital and lent resources for the Whether intermediaries are required to calculate and maintain a minimum 10. intermediaries 22 amount of capital on an on-going basis? If "yes", please briefly describe. 9 Article 24, Sections 1 and 2 of the law "on Securities Market" The amount of the minimum required capital varies according to the types of Does the regulatory framework provide for different minimum capital activities carried out 11. 9 22 requirement for intermediaries depending on the risks undertaken? Article 3 of the Rules on the Requirements to the Initial Own Capital of the Brokerage Companies Article 6 of the Rules on Accounts and Whether intermediaries are required to provide audited financial statements 12. Periodic Financial Reporting by the 23 or other audited reports to the regulator? 9 Brokerage Companies Whether the regulatory framework require intermediary to have specific Article 3, Section 6 of the Rules for the 13. liquidity and solvency requirements (e.g., enough capital to run the business 9 Requirements to the Capital Adequacy for 22 for three months)? the Brokerage Companies Whether an intermediary is required to give notice to the regulator if its Article 16 of the Rules on Accounts and 14. 22 capital falls below the minimum requirements? 9 Periodic Financial Reporting by the

19 For the purpose of this assessment, custodians are c those professionals who do not deal, but are permitted to have custody of client assets (i.e., to hold securities on behalf of clients).

EBRD – Securities Market Legislation Assessment 2007 -- 31 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Brokerage Companies Whether there are regulatory measures that the regulator can take in the event The license might be suspended or 15. that a market intermediary's capital falls below a required minimum? If 9 revoked – Article 31, Section 1 of the law 22 "yes", please list them. "on Securities Market" Whether capital adequacy requirements take into consideration trading book20 16. 22 positions? 9 MANAGEMENT AND SUPERVISION Whether market intermediaries are required to establish and maintain: Market Intermediary shall hold in written and maintain a reasonable policy in order to (1) appropriate standards of conduct to ensure that the firm complies with all avoid violation of law and rules. applicable laws and regulations? Please describe 9 17. Article 33, Section 11 of the law “on 23 Securities Market” Article 1, Section 1 of the Rules on Records (2) appropriate systems of risk management and internal controls? Please and Accounting Files of the Brokerage describe 9 Companies CUSTOMER PROTECTION Whether a market intermediary is required to “know its customer” before 18. 23 providing specific advice to a customer? 9 Whether market intermediaries are subject to a general duty to put the Article 33, Section 4 of the law “on 19. 23 interests of a client ahead of its own interests? 9 Securities Market” Whether market intermediaries are required to disclose to the clients where Article 33, Section 5 of the law “on 20. 23 there is a potential for conflicts of interest? 9 Securities Market”

20 The trading book of an institution shall consist of all positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book (Art.111 of EC Directive 2006/49).

EBRD – Securities Market Legislation Assessment 2007 -- 32 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Whether market intermediaries are required to treat all clients equally in case Article 33, Section 5 of the law “on 21. 23 where conflicts of interest arise between several of the firm's clients? 9 Securities Market” Whether market intermediaries are required to enter into written contracts Article 33, Section 4 of the law “on 22. 23 with all clients? 9 Securities Market” Whether market intermediaries are required to provide clients with: Article 3, Section 3 of the Rules on Records and Accounting Files of the Brokerage (1) transaction reports and/or confirmations? [Please specify the frequency] 9 Companies 23. 23 Frequency not specified Article 3 of the Rules on Records and (2) account statements? [Please specify the frequency] 9 Accounting Files of the Brokerage Companies; PROCEDURES FOR DEALING WITH INTERMEDIARY IN FINANCIAL DIFFICULTY

Whether the regulator has a contingency plan or other measures to deal with Suspension or revocation of the licenses – the financial difficulty (i.e., a situation which could potentially lead to Article 31 of the law “on Securities Market” 24. insolvency) of a market intermediary, including a combination of activities to 9 24 restrain conduct, to ensure assets are properly managed and to provide Also administrative fines – Article 165’7 of information to the market as necessary? the Code of Administrative Offences Article 49, Section 1 of the law “on 25. Whether there is an investor compensation fund/scheme21 in place? 24 9 Securities Market”

Does the regulatory framework provide for early warning systems or other Article 16 of the Rules on Accounts and mechanisms (e.g., a specified threshold below which a market intermediary is Periodic Financial Reporting by the Brokerage Companies A market 26. considered in financial difficulty and the regulator's action is required) to give 9 24 the regulator notice of financial difficulty by a market intermediary and time intermediary is obliged to submit a to address the problem and to take corrective actions? confidential notification to the commission at the same day when its capital falls below

21 The investor compensation fund (or scheme) is a fund set up usually with contributions of market intermediaries (or the state) aiming to compensate investors in case of an intermediary insolvency. It is not a banking deposit insurance scheme.

EBRD – Securities Market Legislation Assessment 2007 -- 33 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments the capital adequacy requirement minimum. Notification shall include the measures already taken to recover the situation. Article 16, Section 2 of the Rules on Accounts and Periodic Financial Reporting – a market intermediary shall notify the commission within 24 hours if its capital is or becoming less than 110% of the capital adequacy requirement. In the event of financial difficulty of a market intermediary, whether the regulator has the power to: Article 31, Section 4 of the law “on (1) restrict activities by the intermediary? 9 Securities Market” (2) require the intermediary to take specific actions (e.g., moving clients

accounts to another intermediary)? 9 24 27. (3) freeze or seize assets held by the intermediary or by a third party on

behalf of the intermediary? 9 Article 31, Section 4 of the law “on (4) appoint a monitor, receiver, or other administrator? 9 Securities Market” (5) require that the relevant information is disclosed to the market? 9 At least not directly indicated in the law

EBRD – Securities Market Legislation Assessment 2007 -- 34 -- Section F – Secondary Market

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments LICENSING OF EXCHANGES AND TRADING SYSTEMS Whether prior authorisation or licensing [please specify] is required in respect of: The same license as for the one of market (1) a securities exchange? [please specify is this authorisation/licensing is intermediary. 1. different from the one of market intermediary] 9 25 Art. 20 of law “on Securities Market” (2) a trading system 22 ? [please specify is this authorisation/licensing is

different from the one of market intermediary] 9 2. In connection with an application by an exchange or trading system for authorisation or licensing, whether the regulatory framework requires: 25 (1) evidence of the operational or other competency or fitness of the system Article 27 of the law “on Securities Market” operator as a secondary market ? 9 (2) the operator of the system assuming risks23 to comply with prudential and other requirements designed to reduce the risk of non-completion of transactions (e.g., mandatory margin assessment and collection, capital or 9 financial resources, member contributions, compensation scheme, credit or position limits)? (3) the regulator to be informed of the types of securities to be traded? 9 Article 4 of the law “on Securities Market” (4) the regulator to give approval of the rules [and any amendments thereof]

governing the admission of securities to be traded? 9

22 A trading system means essentially any organization, association, person, group of persons, or system that constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange. The main difference between a trading system and the stock exchange is that the former does not set rules governing the conduct of subscribers other than the conduct of such subscribers' trading on such organization, association, person, group of persons, or system; or discipline subscribers other than by exclusion from trading (for a different definition under EU law, see Art. 4, item 14 and 15 of Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments – so-called MiFID). 23 I.e., principal risk, settlement risk, guarantee risk and performance risk.

EBRD – Securities Market Legislation Assessment 2007 -- 35 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments (5) all persons with direct access to the system to be authorised or licensed? The members of the stock exchange having [please specify if the same rules apply to the trading system and stock 9 direct access to the system are the licensed exchange] brokerage companies. Article 4.2 of the Charter of JSC Georgian (6) the same financial capacity, integrity, or performance criteria as those for Stock Exchange. market intermediary must be met by persons with direct access to the system 9 or exchange? Article 34 of the law “on Securities’ Market”. (7) clearly disclosed standards or procedures governing trade execution (e.g., requirements with respect to precedence of client orders, prohibitions on 9 front-running24 or trading ahead of customers, etc)? If "yes", please describe. ONGOING SUPERVISION Whether the regulatory framework requires the regulator to have Article 52 of the law “on Securities’ 3. arrangements in place for continuous monitoring, surveillance and 26 9 Market” supervision of the trading system and the conduct of its participants? The sanctions may include: (a) reprimand; (b) fine; Whether the regulatory framework provides the system operator, the regulator (c) suspension of all or part of the rights or others have the power to suspend or halt trading, set margins, set position of the member of the stock exchange or 4. 25 limits or otherwise intervene in case unusual or potentially improper trading 9 broker; occurs? If "yes", please briefly describe. (d) limitation of activities; (e) re-certification; (f) imposing compensations for one or several parties;

24 The illegal practice of taking a position based on information not publicly available regarding an imminent transaction, possibly ahead of a customer order. (e.g., a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares).

EBRD – Securities Market Legislation Assessment 2007 -- 36 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments (g) expelling from the membership of the exchange. Article 20 of the Code of Procedure for Disciplinary Violations of Georgian Stock Exchange. Whether the regulatory framework requires the regulator to have a procedure Article 52 of the law “on Securities’ 5. in place to assess the continuing compliance of the trading system or 26 9 Market” exchange with the initial authorisation requirements? If the regulator determines that the exchange or trading system is unable to comply with the conditions of its initial authorisation, does the regulatory framework provide the regulator with the power to: (i) re-examine the exchange or trading system conditions of 6. authorisations/licensing and impose a range of actions, such as restrictions or 9 Article 31 of the law “on Securities Market” 26 conditions on the market operator? (ii) withdraw the exchange or trading system’s authorization? 9 Article 31 of the law “on Securities Market” TRANSPARENCY OF TRADING Whether the regulatory framework includes 27 The Stock Exchange shall publicly declare (i) requirements or arrangements for providing (a) pre-trade (i.e., posting bids total daily turnover, prices and other and offers) and (b) post-trade (i.e., last sale price and volume of transactions) information related to the sold securities. – information to market users? If "yes", please indicate the frequency and 9 Article 36, Section 4 of the law “on timing of reports and what is reported. 7. Securities Market” The Stock Exchange shall publicly declare total daily turnover, prices and other (ii) Requirements or arrangements that information on completed transactions information related to the sold securities. – be provided on an equitable basis to all participants? 9 Article 36, Section 4 of the law “on Securities Market”

EBRD – Securities Market Legislation Assessment 2007 -- 37 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Does the regulatory framework allow the exchange or trading system’s 8. operator to permit derogation from the objective of real-time transparency25? 9 If yes, are conditions clearly defined? DETECTION OF UNFAIR PRACTICES Whether there is legislation prohibiting the following conduct in respect of securities admitted to trading on authorised exchanges and regulated 9. 28 trading systems: Article 8 of the Ethics Code of Georgian (1) market or price manipulation? 9 Stock Exchange Article 8 of the Ethics Code of Georgian (2) misleading information? 9 Stock Exchange Article 8 of the Ethics Code of Georgian (3) insider trading? 9 Stock Exchange (4) front-running26? 9 (5) excessive leverage in the system (e.g., trading on margin27)? 9

25 The degree of transparency of a market can be measured as a deviation from a real-time standard. However, there is no single standard of “timeliness.” Most exchanges and regulatory systems provide for a certain degree of deviation from a real-time standard, such as, permitting some degree of opaqueness of quote information for block transactions, adopting different definitions of “real-time,” adopting a “promptness” standard that varies from several minutes to a longer time, allowing exceptions to real-time based on the size of the trade, type of trade (dealer mediated rather than auction market) or type of dealer. Indeed, each type of market microstructure delivers market fairness, efficiency and transparency in slightly different ways. 26 See footnote 25. 27 This practice is about trading with borrowed money, which can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.

EBRD – Securities Market Legislation Assessment 2007 -- 38 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Article 8 of the Ethics Code of Georgian Stock Exchange, in particular: - Offer of low-value securities to the client; - Carrying out excessive market transactions to the account of client on (6) other fraudulent or deceptive conduct and market abuses? 9 which the commissions of the client are accumulated; - Opening fictitious accounts for transactions for transactions that would be prohibited on other accounts; - Carrying out transactions on the client’s account without its consent etc. Does the regulatory framework provide the regulator with the power to 10. supervise and inspect (i) securities position limits, (ii) quotation display rules, 9 28 (iii) order handling rules, (iv) settlement price rules or market halts? 11. In case of detection of trading violations, whether the following actions can be taken by the relevant authority: 28 Article 20 of the Code of Procedure for (1) liquidation of positions? 9 Disciplinary Violations of Georgian Stock Exchange. Article 20 of the Code of Procedure for (2) suspension of trading? 9 Disciplinary Violations of Georgian Stock Exchange. Article 20 of the Code of Procedure for (3) fines? 9 Disciplinary Violations of Georgian Stock Exchange. Article 20 of the Code of Procedure for (4) revocation or suspension of membership or access authorisation? 9 Disciplinary Violations of Georgian Stock Exchange.

EBRD – Securities Market Legislation Assessment 2007 -- 39 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Article 20 of the Code of Procedure for Disciplinary Violations of Georgian Stock Exchange. (5) other sanctions [please explain]? 9 a) Reprimand; b) Request for re-certification; Compensation to one or more parties. (6) required arbitration or mediation? 9 At lease not directly indicated so MONITORING OF LARGE EXPOSURES Whether the relevant regulatory framework requires the clearing firm, the market, and/or the regulator to monitor trading in order to identify large 12. exposures28? If "yes", please briefly describe (i) how the law defines “large 9 29 exposure” and (ii) the monitoring functions conducted (e.g., reporting requirement, inspections etc.) Whether the regulator or the market has the power to compel customers or 13. market members carrying or controlling large positions to reduce their 9 29 exposures or to post increased margin? In case a market member does not make relevant required information needed to evaluate an exposure available to the market authority, whether 14. 29 the following action can be taken by the relevant market authority: (1) impose limitations on future trading? 9 (2) require liquidation of positions? 9 (3) increase margin requirements? 9 (4) revoke trading privileges? 9

28 The terms “large exposure” refers to open positions or credit exposures that are sufficiently large to expose a risk to the market or to a clearing firm.

EBRD – Securities Market Legislation Assessment 2007 -- 40 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments (5) suspend from trading? 9 (6) require to increase capital of the market member? 9 DEFAULT PROCEDURES In emergency cases the General Director Whether the market is required to have contingency plans or emergency and Supervisory Council have right to 15. 29 procedures in dealing with a market disruption or system failure? 9 suspend trade – Article 11 of the Trading Rules of the Georgia Stock Exchange Whether the regulatory framework requires markets and/or the clearing and settlement system(s) promptly to isolate the problem of a firm in financial 16. At least not clearly indicated so. 29 difficulty by addressing its open positions or otherwise protect customer 9 funds and assets from an intermediary’s default under national law? Whether the regulatory framework requires intermediaries to separate and 17. 29 segregate customers’ assets from other funds and assets? 9 If yes, in the event of intermediary’s insolvency, does the framework enable 18. 29 customer’s positions to be moved by a receiver to a solvent intermediary? 9

EBRD – Securities Market Legislation Assessment 2007 -- 41 -- Section G – Clearing and Settlement

Relevant provision number/citation CPSS / Yes No # Issue of law/regulation; IOSCO (9) (9) Remarks/Other Comments Relevance AUTHORISATION AND LICENSING OF SECURITIES SETTLEMENT SYSTEMS Clearing and settlement is carried out by the Central Depository – Article 2, Section 50 Whether the clearing and settlement systems are subject to direct supervision of the law “on Securities Market” 1. 9 18 either by the regulator or the relevant market authority? Supervision is carried out by the regulator (NSCG) – Article 43 of the law “on Securities Market” 2. If the regulator has oversight responsibility regarding the clearing and settlement system, whether the regulator has the power to: 30 The standards are listed in Article 28 of the law “on Securities Market” and include such criteria as legal-organisational form, (1) license clearing and settlement systems? 9 requirements to the management, requirements to the charter and rules, etc Article 28, Section 2 of the law “on Securities Market” (2) issue rules mandating specific standards for clearing and settlement Article 49 of the law “on Securities

systems? 9 Markets” The rules and procedures of the clearing and (3) approve changes to a clearing and settlement system’s rules and settlement organization are approved by the procedures? 9 respective bodies of this organization. Article 49 of the law “on Securities (4) conduct surveillance of the operations of clearing and settlement systems? 9 Markets”. Article 49 of the law “on Securities Markets”. (5) inspect, audit or require a third party inspection or audit of clearing and

settlement systems? 9 The inspections are carried out at the discretion of the regulator – Inspection Rules.

EBRD – Securities Market Legislation Assessment 2007 -- 42 -- Relevant provision number/citation CPSS / Yes No # Issue of law/regulation; IOSCO (9) (9) Remarks/Other Comments Relevance Article 32, Section 2 of the law “on (6) require the clearing organization to file reports? 9 Securities Markets”. (7) bring regulatory actions against a clearing and settlement systems for Articles 49 and 52 of the law “on Securities violations of the securities laws and regulations or for failure to enforce its 9 Markets”. own rules? TRADE CONFIRMATION AND DELIVERY VERSUS PAYMENT Whether the regulatory framework requires that confirmation of trades Operations and Procedures of the Georgian 3. 2 between direct market participants occur no later than trade date (T+0)? 9 Securities Central Depository Whether the regulatory framework requires that trades be settled within three 4. 3 days from the trade date (T+3)? 9 Does the technical, legal and contractual framework ensure that delivery of Operations and Procedures of the Georgian 5. securities takes place if, and only if, payment is received? (i.e., DVP - 3 9 Securities Central Depository delivery versus payment)? TRANSPARENCY Do entities that provide the clearing, settlement and custodial infrastructure of Paragraph "c" of Article 54 of the Georgian securities markets make clear disclosures to market participants about their Law on Securities Market in connection 6. 17 rules, regulations, relevant laws, governance procedures, risks, steps taken to 9 with subparagraph "d" of paragraph 3 of mitigate risks, and the rights and obligations of participants? Article 28 of the same law. CENTRAL DEPOSITORY29 Securities are issued on a dematerialized Are securities issued on a dematerialised basis (i.e., electronic issue opposed 7. basis. All securities issued on a materialized 6 to the issuance as a physical certificate)? 9 basis shall be dematerialized.

29 There are several different ways for owners to hold securities. In some jurisdictions, physical securities circulate and beneficial owners may keep securities in their possession, although owners typically employ a custodian to hold them to reduce risks and safekeeping costs. The costs and risks associated with owning and trading securities may be reduced considerably through immobilisation of physical securities, which involves concentrating the location of physical securities in a depository. The immobilisation or dematerialisation of securities and their transfer by book entry within a CSD significantly reduces the total costs associated with securities settlements and custody.

EBRD – Securities Market Legislation Assessment 2007 -- 43 -- Relevant provision number/citation CPSS / Yes No # Issue of law/regulation; IOSCO (9) (9) Remarks/Other Comments Relevance Article 10, Section 1 of the law “on Securities Market” 8. Does the transfer of securities require any form of physical delivery? 9 6 Centralized securities depository-Georgian Does a central securities depository (CSD) exist? If NO, please briefly Securities Central Depository exists. 9. 9 6 describe the settlement system. Registration of the shares is also handled by the independent share registrars. If the answer to the above question is “yes”, does an entry in the CSD result automatically in the transfer of the legal title to the securities in the official 10. Article 38 of the law ‘on Securities Market’ 6 register of the issuer? If NO, please specify which rights are given by the 9 entry Are securities immobilised or dematerialised and transferred by book entry in 11. Article 38 of the law ‘on Securities Market’ 6 a CSD? 9 OVERSIGHT Is the clearing and settlement systems required to: Article 32, Section 2 of the law “on a) file periodic reports to the regulator? 12. 9 Securities Market”, frequency not indicated. 30 b) submit to periodic and/or special audits and inspections? 9 DERIVATIVES Whether derivative securities clear and settle on a different system through a 13. 30 specialised trading and/or clearing system? 9 If the answer to the above question is "yes", whether the legislative 14. 30 framework addresses the treatment of derivatives risks?

EBRD – Securities Market Legislation Assessment 2007 -- 44 -- Relevant provision number/citation CPSS / Yes No # Issue of law/regulation; IOSCO (9) (9) Remarks/Other Comments Relevance PROTECTION OF CUSTOMERS’ SECURITIES Does the legal or regulatory framework provide any arrangements to protect customers’ securities from theft, loss or misuse and to ensure that they will 15. 12 not become subject to claims of the custodian’s creditors (e.g., segregation of 9 assets insurance, compensation schemes)? Are the entities holding securities in custody subject to mandatory internal or 16. external audit, or both, to determine if there are sufficient securities to satisfy 9 At least not specified by law. 12 customer claims?

EBRD – Securities Market Legislation Assessment 2007 -- 45 -- Section H – Accounting and Auditing of Financial Reports

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments DISCLOSURE OF FINANCIAL RESULTS The listed companies must submit to the regulator, publish OR deliver to the registered shareholders the annual, semi- Whether issuers are required to publish financial and other information at 1. 9 annual and on-going reports. – Article 11 of 14 regular intervals (i.e. annual and periodic financial reports, please specify)? the law “on Securities Market” So there is no obligation, though they may publish annual reports. 2. If the answer to the above question is "yes", 14 Pursuant to paragraph 9 of Article 11 of the Georgian Law on Securities Market persons authorised to represent the company and the majority of members of the supervisory council (body controlling directors), if any, are responsible for the accuracy and completeness of the contents of the reports. (1) Whether the issuer or other persons (depending on the circumstances, they Same time paragraph 4 of Article 16 of the Georgian Law on Securities Market might be the underwriter, sponsor, advisor, etc.) is legally responsible for the 9 contents of these reports? provides for that while discharging his/her duties a member of the governing body may rely on opinions, reports or statements, including financial statements and other financial data, if prepared by auditor, legal counsel, employee of the company or other person as to matter such member reasonably believes are within the person's professional or expert competence.

EBRD – Securities Market Legislation Assessment 2007 -- 46 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments (2) Whether companies are required to file these reports with the regulator for Article 11 of the law “on Securities Market review/approval? 9 The Rules for Preparation and Submission (3) Whether the regulator has the power to take action for incomplete or of the Annual Reports by the Listed misleading information in these reports? 9 Companies. EXTERNAL AUDITOR The Rules for Preparation and Submission Whether the relevant law or regulation requires that annual financial 3. of the Annual Reports by the Listed 16 statements published by issuers should be audited by external auditors? 9 Companies. Does the regulatory framework require that an issuer’s governance body independent in both fact and appearance of the management of the company 4. 16 (e.g., shareholders or a statutory or corporate audit oversight body) oversee 9 the process of selection and appointment of the external auditor? Whether the regulatory framework requires issuer to change the external 5. auditor after a certain number of years (i.e., rotation)? If yes, please specify 9 At least not specifically indicated in law. 16 the rotation period Whether issuers are required to provide audited financial statements in public 6. Article 4 of the law ‘on Securities’ Market’ 16 offering prospectuses? 9 7. Whether the required audited financial statements include the elements listed below: 16 The Rules for Preparation and Submission of the Annual Reports by the Listed Companies. (1) a balance sheet or statement of financial position? 9 The Rules for Execution and Submission of the Financial Reports of the Listed Companies

EBRD – Securities Market Legislation Assessment 2007 -- 47 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments The Rules for Preparation and Submission of the Annual Reports by the Listed Companies. (2) a statement of the results of operations? 9 The Rules for Execution and Submission of the Financial Reports of the Listed Companies The Rules for Preparation and Submission of the Annual Reports by the Listed Companies. (3) a statement of cash flow? 9 The Rules for Execution and Submission of the Financial Reports of the Listed Companies The Rules for Execution and Submission of (4) a statement of changes in ownership equity or comparable information the Financial Reports of the Listed included elsewhere in the audited financial statement or footnotes? 9 Companies ACCOUNTING STANDARDS Article 4 Section 5 of the law “on Securities Market” Are financial statements required in public offering and publicly available Financial Monitoring Service is entitled to 8. annual reports required to be prepared and presented in accordance with a 9 determine by its rules the form and content 16 comprehensive body of accounting standards? of financial accounting as well as the accounting principles and standards that shall be used in this process. Article 9 of the Law of Georgia on Regulation of Accounting Records and If the answer to question above is “yes”, are these accounting standards of a Standards 9. 9 16 high and internationally acceptable quality? Commission of Accounting Standards is created at Parliament of Georgia that insures the compliance with international accounting

EBRD – Securities Market Legislation Assessment 2007 -- 48 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments standards. The commission also insures the international standards are translated into Georgian and periodically updated. Ministry of Finances of Georgia is Whether an organisation responsible for the establishment and timely responsible for establishment and timely 10. interpretation of accounting standards is set out by the relevant law or 9 interpretation of accounting standards. 16 regulation? If "yes", please state the name of the body and its composition Article 5 of the law “on Regulation of Accounting Records and Standards” If the answer to the above question is "yes", whether the standard setting 11. body is subject to regulatory oversight? If "yes", please indicate who the 9 16 supervisory authority is. Whether the accounting standards used in preparing financial statements and financial reporting address the general topics listed below: (1) presentation of financial information? 9 IAS 1: Presentation of Financial Statements (2) consolidation of financial information? 9 IAS 27: Consolidated Financial Statements (3) business combinations? 9 IAS 16: Property, Plant and Equipment and (4) tangible and intangible assets (including impairment of assets)? 9 IAS 38: Intangible Assets 12. (5) leases? 9 IAS 17: Leases 16 (6) income taxes? 9 IAS 12: Income Taxes (7) employee benefits (e.g., pension, stock compensation, etc.) 9 IAS 19: Employee Benefits (8) provisions and contingencies? 9 (9) financial instruments (including derivative financial instruments)? 9 (10) securitisation? 9

EBRD – Securities Market Legislation Assessment 2007 -- 49 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Whether the accounting standards used in preparing financial statements and financial reporting address the following areas of particular interest to investors: (1) earnings per share? 9 IAS 33: Earnings Per Share (2) interim financial reporting? 9 IAS 34: Interim Financial Reporting 13. 16 (3) information about business segments? 9 IAS 14: Segment Reporting (4) related party transactions? 9 IAS 24: Related Party Disclosures IAS 17: Leases and IAS 40: Investment (5) leases? 9 Property AUDITING STANDARDS Are audited financial statements included in public offering and publicly 14. available annual reports, required to be audited in accordance with a 9 Paragraph "a" of Article 9 of the Law on comprehensive body of auditing standards? Auditing Activities. Article 2, Section 5 of the Resolution # 5 of the NSCG on Approval of Rules on Accounts and Periodic Financial Reporting of Brokerage Companies. International Auditing Standards are recognized as national standards by the 16 Board for Audit Activities. 15. Are these auditing standards of a high and internationally acceptable quality? 9 According to subparagraph "b" of paragraph 2 of Article 4 of Georgian Law on Securities Market, the prospectus shall include financial statements for the last two fiscal years certified by an independent auditor and similar data about any legal person in which the issuer owns more than 50%. Publicly available annual reports are not

EBRD – Securities Market Legislation Assessment 2007 -- 50 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments required to be audited. Does the regulatory framework provide for an organization responsible for Board of Audit Activities – Article 8 of the 16. 16 the establishment and timely interpretation of auditing standards? 9 law “on Auditing Activities” Do auditing standards expressly require the auditor to: Article 19 and 20 of the law “on Auditing (1) use due professional care in the performance of the audit? 9 Activities” Article 19 and 20 of the law “on Auditing (2) adequately plan and supervise the audit? 17. 9 Activities” 16 Article 19 and 20 of the law “on Auditing (3) obtain an understanding of the internal control system of the entity? 9 Activities” (4) obtain sufficient evidence to determine whether the financial statements Article 19 and 20 of the law “on Auditing

are free of material misstatements? 9 Activities” Whether an auditor report is required to disclose: Article 20 of the law “on Auditing (1) any exceptions to the application of accounting principles used? 9 Activities” 18. Article 20 of the law “on Auditing 16 (2) any material uncertainties in the financial statements? 9 Activities” Article 20 of the law “on Auditing (3) any going-concern issues? 9 Activities” Auditor shall be independent from the issuer and third parties, including the state bodies. Whether the regulatory framework requires auditors to be independent from Auditor shall also be independent from 19. 16 the issuer? If "yes", please define “independence” 9 owners and managers of the auditing entity. Article 17 of the law “on Auditing Activities” Whether auditors are required to be licensed or approved and to satisfy Articles 10 and 11 of the law “on Auditing 20. 16 specific education criteria and other qualifications in order to practice? 9 Activities” 21. Whether auditors are subject to continuing professional education 9 16

EBRD – Securities Market Legislation Assessment 2007 -- 51 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments requirements after they are licensed or approved to practice? Does the regulatory framework provide for a mechanism for enforcing Article 25 of the law “on Auditing 22. compliance with accounting standards such as requiring restatements of 16 9 Activities” financial statements that deviate from accepted standards?

EBRD – Securities Market Legislation Assessment 2007 -- 52 -- Section I – Money Laundering

Relevant provision number/citation Yes No FATF # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments SCOPE OF THE CRIMINAL OFFENCE OF MONEY LAUNDERING Law of Georgia “on Support to Preventing the Legalisation of Illegal Revenues” – adopted on 06.06.2003 Indirect reference to money laundering is made in the Criminal Code of Georgia, Article 194 – Legalization of unlawful (illegal) revenues (adopted on 22.07.1999), Whether there is legislation in place to address the issues of money which includes legalization of unlawful laundering (ML)? If "yes", please identify the name of such legislation and (illegal) money, as well as other property. 1. 9 1 when it was adopted The said Article 194 provides: [if a special law exists, please include details of the law in Section I, above] “Legalisation of illegal revenues, i.e. legalisation of money or other property, as well as concealing the sources, location, allocation, turnover, real owner or possessor and/or ownership rights on illegal revenues, shall be punished by fine or imprisonment from two up to four years”. 2. Whether the following conventions have been signed and ratified (please specify in your comments): 1 and 35 Ratified on May 28, 1997 (i) 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Resolution of Parliament of Georgia on

Psychotropic Substances (the Vienna Convention)? 9 Ratification of UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, dated 28 May 1997.

EBRD – Securities Market Legislation Assessment 2007 -- 53 -- Relevant provision number/citation Yes No FATF # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments Resolution of Parliament of Georgia on (ii) 2000 UN Convention against Transnational Organized Crime (the Ratification of UN Convention against

Palermo Convention)? 9 Transnational Organized Crime, dated 7 June 2006. (iii) 2003 UN Convention against Corruption? 9 Not ratified. Articles 40 and 52 of Criminal Code of Georgia Confiscation of property is one of the variety of punishments envisaged by the Does the law provide for the confiscation of property (including funds and Criminal Code of Georgia. Any property securities) that has been laundered or which constitutes (i) proceeds from; (ii) used for carrying out a criminal conduct as 3. instrumentalities used in; and (iii) instrumentalities intended for use in the 9 well as property obtained by such conduct 3 commission of any ML, financing of terrorism (FT) or other predicate may be subject to confiscation. offences, and property of corresponding value. Pursuant to Article 52, Section 3 of the Criminal Code of Georgia, the property subject to confiscation shall mean any and all things as well as non-material goods and legal documents granting title on property. CUSTOMER DUE DILIGENCE AND RECORD-KEEPING Does the regulatory framework require that financial institutions obtain senior 4. management approval before establishing business relationships with 9 6 politically exposed persons? Does the regulatory framework require financial institutions to maintain all necessary records on transactions, both domestic and international, for at least 5. At least not directly prescribed by law. 10 five years following completion of the transaction regardless of whether the 9 account or business relationship is ongoing or has been terminated?

Are financial institutions required to undertake customer due diligence Pursuant to paragraph 5 of Article 6 of the 6. 5 measures including identifying and verifying the identity of their customers? 9 Georgian Law on Preventing the Legalization of Illicit Income financial

EBRD – Securities Market Legislation Assessment 2007 -- 54 -- Relevant provision number/citation Yes No FATF # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments institutions are required to identify and verify the identity of their customers. Paragraph 2 of Article 211 of the Georgian Law on Activities of Commercial Banks. 9 Paragraph 7 of Article 6 of the Georgian Does the regulatory framework prohibit from opening/maintaining (i) (with the Law on Preventing the Legalization of Illicit 7. anonymous accounts, (ii) accounts in fictitious names, (iii) numbered exclusion Income. 5 of bearer accounts and (iv) non registered (i.e., bearer) securities? securities The regulatory framework prohibit from ) opening/maintaining (i) anonymous accounts, (ii) accounts in fictitious names and (iii) numbered accounts. REPORTING OF SUSPICIOUS TRANSACTIONS AND COMPLIANCE Paragraph 1 of Article 9 of the Georgian Law on Preventing the Legalization of Illicit Income in connection with paragraph 1 of Article 5 of the same law. "Suspicious transaction" is defined as a transaction (regardless of the amount and type thereof) in respect of which reasonable Does the regulatory framework require financial institutions to report to the suspicion exists to believe that: relevant authority suspicious transactions (i.e., when it suspects or has 8. (a) it has been concluded or performed 13 reasonable grounds to suspect that funds are the proceeds of a criminal 9 to finance legalization of illicit activity or terrorism financing), regardless of the amount of the transaction? income or terrorism; (b) any participant of the transaction (i) is put on the list of terrorists/persons supporting terrorism and/or (ii) may be connected with them; or (c) legal/actual address or residence of any participant of the transaction is located in non cooperation zone or

EBRD – Securities Market Legislation Assessment 2007 -- 55 -- Relevant provision number/citation Yes No FATF # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments its money transfer takes place from/to such zone. Does the regulatory framework require market intermediaries to have in place Paragraph 2 of Article 8 of the Georgian 9. policies and procedures designed to minimise the risk of using an 9 Law on Preventing the Legalization of Illicit 8 intermediary's business as a vehicle for money laundering? Income. INTERNATIONAL COOPERATION Does the regulatory framework allow the relevant authority to cooperate with foreign authorities for AML purposes (e.g., search and seizure of information, 10. At least not directly prescribed by law. 36-38 taking of evidence or statements from persons, providing originals or copies 9 of relevant documents and records)?

EBRD – Securities Market Legislation Assessment 2007 -- 56 -- Section J –Financial Instruments

Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments VARIETY OF FINANCIAL INSTRUMENTS TRADED The only reference to financial instruments is given in the definition of “the Does the regulatory framework provide for a definition of financial Securities” – “shall mean turnoverable 1. instruments/securities or similar? 9 financial instruments and other rights...” [Please provide the definition in your answer] Respectively, all aspects related to the financial instruments shall be subject to general regulations applicable to securities. Does the regulatory framework provide comprehensive regulation for listing and trading of: The Regulation on Admission of Securities to the Georgian Stock Exchange Trading (i) commercial bonds 9 System and Listing and the Trading Rules at the Stock Exchange. 2. 25 (ii) government bonds 9 Law on State Bonds (iii) municipal bonds 9 (iv) derivatives 9 Law on Banking Activities Whether there is a specific regulation applicable to the issuance of financial 3. 14, 25 instruments to the benefit of employees as an employee share purchase plan? 9 DERIVATIVES

Does the regulatory framework clearly provide that derivative contracts are Paragraph 1 of Article 951 of the Civil Code 4. 30 14, 25 enforceable without exceptions? 9 of Georgia (unenforceability of gaming

30 In some jurisdictions, the enforceability of derivatives is limited due to a concurring provision addressing unenforceability of gaming bets. In some other countries enforceability of derivatives is limited only to licensed financial institutions.

EBRD – Securities Market Legislation Assessment 2007 -- 57 -- Relevant provision number/citation Yes No IOSCO # Issue of law/regulation; (9) (9) Relevance Remarks/Other Comments bets). If a market for derivatives exists, does the regulatory framework require 5. disclosure of the terms of the contracts traded, the mechanisms of trading and 9 14 the risks? CROSS-BORDER ISSUANCE Though not directly determined, foreign Does the regulatory framework provide for any limits/restrictions to the issuers are allowed to issue and sell 6. issuance and the selling of financial instruments by a foreign issuer in your 9 financial instruments only through 14-16 market? Please describe purchasing depositary receipts. Resolution of NSCG Does the regulatory framework provide for any limits/restrictions to the 7. issuance and the selling of financial instruments by a national issuer in a 9 14-16 foreign market? Please describe SPONSOR/UNDERWRITER In the case of Initial Public Offering, whether the issuer is required to have a 8. 14 sponsor or an underwriter? 9 CONCENTRATION RULE Paragraph 1 of Article 18 of the Georgian Law on Securities Market and paragraph 1 Does your regulatory framework require that all relevant transactions be 9. of Article 3 of the Resolution # 25 of the 14 conducted on a stock exchange? 9 NSCG on Approval of Rules on Non-Stock Exchange Transactions. PRIVATE PLACEMENT Whether there is a specific regulation for private placement of financial 10. Not specifically defined by law. 14 instruments? Please define private placement. 9

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This Assessment does not constitute legal advice. Readers are advised to seek appropriate legal advice before entering into any transaction, making any determination or taking any action related to matters discussed herein. The contents of this Assessment are copyrighted. For further information or eventual comments please contact Gian Piero Cigna at [email protected]

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