Introduction - The Securities Commission of Armenia: Who We Are? What We Do? In a developed market economy, investing in securities is an important tool providing possibilities for investors and corporations to match their financial interests. It secures a stable flow of capital to different sectors of growing business and help investors to solve financial problems, to secure their futures, pay for homes, and send children to college etc. Investing can be a powerful tool for building ones financial future. But unlike the banking world, where deposits are relatively secure due to the prudential regulation and supervision of the Central Bank of Armenia, stocks, bonds and other securities can lose value. The loss in value can result from different reasons, such as financial results of operation of the company (the issuer of the securities) or certain market forces. However, it can also be a result of price manipulations, insider trading, providing the marketplace with misleading information and other elicit activities. That is why it is necessary to provide the mass investor with an adequate protection against abuses. The absence of guarantees should be compensated by the abundance of information necessary to help investors to make an informed investment decision and to protect the money (their savings) they invest in the securities. All investors, whether large institutions or private individuals, should have access to certain basic facts about an investment and the issuer prior to making the investment. Here lies the main responsibility of the Commission. The Commission requires public companies to disclose material financial and other information to the public, which provides all investors with possibilities to judge for themselves if a company's securities are a good investment. The Commission also oversees other key participants in the securities industry, including the stock exchange, the Central Depository of Armenia, broker-dealers, portfolio managers and investment companies. Here again, the Commission is concerned primarily with promoting disclosure of important information, preventing conflicts of interests, reducing the systemic risks, enforcing the securities laws, and protecting investors who interact with various institutions and professional of the securities market. Crucial to the regulatory effectiveness of the Commission is its supervision and enforcement authority. The Staff of the Commission inspects and oversights the issuers and securities industry members, brings administrative and civil enforcement actions against individuals and companies that violate the securities laws. Most common violations of the law today include failure by the issuers to disclose information essential to shareholders, accounting fraud and providing false or misleading information about the issuers and their securities. To fight securities violations, however, we need the help of an educated and careful investor (shareholder). The SC offers the public an educational information on its Internet website at www.sca.am. Despite the fact that the SC is the primary overseer and regulator of the Armenian securities markets, it also works closely with many other institutions, including the parliament, governmental departments and agencies, including other law enforcement agencies, the self-regulatory organizations (e.g. Armex and CDA), and various private sector organizations. The activities of the Commission are regulated by the Securities Market Regulation Law passed by the National Assembly of Armenia in 2000. The main purposes of the law can be reduced to two common-sense notions: 1) Companies publicly offering securities for investment money must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. 2) People who are in business of trading securities on their account and on account of their clients brokers, dealers must treat investors fairly and honestly, putting investors' interests first. According to the law, the Securities Commission established in August 2000 to enforce the newly-passed securities laws, to promote stability in the markets and, most importantly, to protect investors. President Robert Kocharian appointed Edward A. Mouradian, then partner at ILC a private law firm and former Deputy Minister of Finance and Economy, to serve as the first Chairman of the SEC. The Commissioners The Securities Commission has five Commissioners appointed by the President of Armenia for term of five years. The National Assembly shall approve the annual program, the budget and subsequently the annual report of the Commission for each fiscal year. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. The President also designates one of the Commissioners as Chairman, the top executive of the Commission. The Commissioners meet periodically to discuss and resolve a variety of issues the Staff brings to their attention. At these meetings the Commissioners: * interpret securities laws and regulations; These meetings are open to the public and the news media unless the discussion pertains to confidential subjects, such as whether to begin an enforcement investigation in a specific case SMRL however is the major piece of legislation, establishing the Commission, defining its discretion and powers, setting forth the basic regulation. The Law has two basic objectives: Purpose of Registration A primary means of accomplishing these goals is the disclosure of important financial and other essential information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company's securities. While the SC requires that the information provided be complete and accurate, it does not guarantee it. Investors who purchase securities and suffer losses have important recovery rights if they can prove that there was incomplete or inaccurate disclosure of important information. The Registration Process Securities offered to the public shall be registered with the Commission and accompanied by a registered prospectus. Securities publicly traded in Armenia must be registered either with the Commission or the Stack Exchange. The registration forms companies file provide essential facts while minimizing the burden and expense of complying with the law. In general, registration forms call for: * a description of the company's properties and business; Registration statements and prospectuses become public shortly after filing with the SC. If filed by Armenian domestic companies, the statements are available from the Commission for a certain fee. Registration statements are subject to examination for compliance with disclosure requirements. Not all offerings of securities must be registered with the Commission. Some exemptions from the registration requirement include: * private offerings to a limited number of persons or institutions; The law also identifies and prohibits certain types of conduct in the markets and provides the Commission with administrative and disciplinary powers over regulated entities and persons associated with them. The law also empowers the SC to require periodic reporting of information by companies with publicly traded securities. Corporate Reporting Companies with more than 5 million AMD in assets whose securities are held on record by more than 50 owners must file annual and other periodic reports, as well as current reports. Proxy Solicitations The Securities Market Regulation Act also governs the disclosure in materials used to solicit shareholders' votes in annual or extraordinary meetings held for the election of directors and the approval of other corporate action. This information, contained in proxy materials, must be filed with the Commission in advance of any solicitation to ensure compliance with the disclosure rules. Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which holders are asked to vote. Tender Offers The Securities Market Regulation Act requires disclosure of important information by anyone seeking to acquire more than 10 percent of a company's securities by direct purchase or offers to tender securities. Such an offer often is extended in an effort to gain control of the company. As with the proxy rules, this allows shareholders to make informed decisions on these critical corporate events. Further more, this helps to prevent "panicking" shareholders as it requires to acquire the securities tendered during the announced period on a "pro rata" basis and not on the "first tendered first paid" basis, thereby allowing the securities holders more time to make their decision. Insider Trading & Price Manipulation The securities laws broadly prohibit fraudulent activities of any kind in connection with the offer, purchase, or sale of securities. These provisions are the basis for many types of disciplinary actions, including actions against fraudulent insider trading and market price manipulation. Insider trading is illegal when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading. The Law also prohibits any activity resulting in false and misleading appearance of active trading in any security (Price Manipulation). Regulation of Securities Industry In General The SCA has a broad authority over all aspects of the securities industry. This includes the power to license, register, regulate, and oversee brokerage firms, exchanges and the nations depository and clearing organization the CDA as well as other securities self-regulatory organizations (SROs). Licensing & Registration of Market Participants The Act requires a variety of market participants to register with, or to be licensed by, the Commission, including exchanges, brokers and dealers, and clearing organizations. Registration and licensing for these organizations involves filing disclosure documents that are updated on a regular basis. The exchanges shall be organized as self-regulatory organization (SRO). SROs must create rules that allow for disciplining members for improper conduct and for establishing measures to ensure market integrity and investor protection. SRO proposed are subject to the SCAs review and approval. |
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