The Law of Ukraine “On Collective Investment Institutions” entered into force

08 January, 2014 Newsletters

We would like to inform that on January 1, 2014 the new legal act “On Collective Investment Institutions” (№ 5080-VI on 05.07.2012) entered into force. This law has made significant changes to the regulation of investment relations aimed to provide attraction and allocation of financial resources of investors and effective usage of collective investment institutions.

A large period of time between the signing of the law by the President of Ukraine and entry into force of its key provisionswas caused by the necessity to establish the detailed normative regulation to investment relations, which were set or changed under the new law. Thus, during this period the National Securities and Stock Market Commission of Ukraine has adopted a set of legal acts, which also came into force on 1 January 2014 and focused on the detailed description of the new law provisions.

The law introduced the following novelties:

1. The new criteria of collective investment institutions classification was established

In addition to the existing types, the legislator has adopted a new classification of collective investment institutions depending on the class of assets. Thus, in addition to the division on diversified and non-diversified, funds can also be specialized or qualifying.

Specialized collective investment institutions referred to funds of such classes:

  • money market funds;
  • governmental securities funds;
  • bond funds;
  • equity funds;
  • index funds;
  • precious metals funds.

The collective investment institution is considered as qualifying in case when it invests the assets exclusively in one of the qualifying classes and funds and does not have any requirements for the structure of assets as well.

The qualifying asset classes are:

  • combined class of securities;
  • real estate class;
  • rental assets class;
  • credit assets class;
  • stock commodity assets class;
  • other asset classes, which the National Securities and Stock Market Commission of Ukraine (hereinafter – “NSSMС”) may introduce and refer to the qualifying.

Additionally, the new law has established a prohibition on changing the type and kind of collective investment institution, the class of specialized or qualifying collective investment institution, as well as its affiliation to exchange or venture funds. Other issues concerning the change of collective investment institution type were regulated by the Decision of NSSMСon 28.08.2013 N 1599.

2. The possibility to extend the term of activity for terminable collective investment institutions was provided

According to the new law, the term of activity of terminable corporate fund can be extended under the decision of its general meeting, while the activity of mutual fund – under the decision of the body of asset management fund, which is entitled to alter its regulations.

3. The new term – “stock exchange collective investment institution” was introduced

Stock exchange collective investment institution is the specialized investment fund of “index funds” and “precious metals funds” classes. The several requirements for the issue prospectus of such institutions were established additionally:

  • securities of such institution are subject to mandatory trading on the particular stock exchange determined by the issue prospectus;
  • purchase of securities at their initial placement or sale by the issuer of earlier purchased securities, either presentation for the repurchase of securities of such an institution  can be carried out by its participants, or by investors through an underwriter of such securities, either by underwriter for its own account or for the account of its customers;
  • underwriter of securities of such institution is obliged to maintain quotes (bid and offer prices) of such securities on the particular stock exchange, determined by the issue prospectus;
  • in case of sale or repurchase of the collective investment institutions’ securities by the issuer, their payment can be carried out in the respective proportions by assets, determined by the investment declaration of such institution.

4. New requirements concerning type and form of collective investment institutions’ securities and the order of their acquisition were approved

With the entry into force of the law securities of collective investment institutions can be exclusively nominal. Shares of a corporate fund shall be simple and exist only in book-entry form. Investment certificates, according to the new law, shall be only in dematerialized form.

Asset management companies, which carry out the asset management of mutual funds, in case when their investment certificates are in documentary form, are obliged to ensure transfer of investment certificates in book-entry form within two years from the date when this law entered into force.

In addition, it is worth mentioning that henceforth founders can purchase the shares of corporate fund using only the funds. Person, who intends to purchase securities of collective investment institution, shall pay such securities no later than three working days. Moreover, the option to purchase such securities in installments was cancelled.

To perform the above provisions NSSMС has approved the order of placement, circulation and repurchase of collective investment institution securities (Decision on 30.07.2013 N 1338), as well as the order of registration of issue prospectus and repurchase of investment certificates of mutual investment fund (Decision on 20.06.2013 N 1103) and shares of corporate investment fund (Decision on 20.06.2013 N 1104).

5. The procedure of information disclosure on activities of collective investment institutions has been detailed

The law provides additional ways of disclosure of information on activities of collective investment institutions and establishes the obligation of asset management companies to have their own website and post on it the information in a volume, prescribed by the article 76 of the law.

The official information concerning registered collective investment institutions can also be obtained from the Registry of institutions on the official website of NSSMС. To perform this provision Regulations on the Unified State Register of collective investment institutions was approved (Decision of NSSMСon 18.06.2013 N 1047).

Additionally, was approved the requirements for the audit report, which is served to the National Commission on Securities and Stock Market under the disclosure of institutions’ performance information (Decision of NSSMСon 11.06.2013 N 991).

6. The list of legal acts regulating activities of corporate investment funds was changed

The new act has introduced changes of the Civil code of Ukraine and established the rule, under which activities of corporate investment funds are regulated by the legislation on collective investment institutions. Thus, with the entry into force of the Law, the Law of Ukraine “On Joint Stock Companies” is not used to regulate activities corporate investment funds, despite the fact that such funds act in the form of joint stock company.

7. The prohibition for collective investment institutions to be founders of banks or owners of banks’ substantial involvement was established

The additional requirements for the composition and structure of assets of collective investment institutions are detailed in the Decision of NCSSM on 10.09.2013 N 1753.

Kind regards,

© TOV "KM Partners", 2014

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