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