General (contents and form of security agreements, changes in secured debt):

Enforcement if the pledgor disposes of the secured property (sells it, grants a subsequent pledge):

Although certain fragmentary regulation of clearing existed in Russia, including references to clearing in the Russian Tax Code, the Law on the Central Bank of Russia and the Securities Market Law, it would be fair to say that before the introduction of the Clearing Law, clearing activities were never subject to specific comprehensive statutory regulation in Russia.

The Clearing Law has been prepared as a major follow-up on the "Strategy for the Development of the Russian Financial Markets until 2020" adopted by the Russian Government in December 2008. The main idea and goal of the Clearing Law is further development of a competitive risk management system for Russian market players.

The Clearing Law defines "clearing" as "determination of due obligations arising out of agreements, including through the netting of such obligations, and preparation of documents (information) for the termination or performance of such obligations" and "clearing activities", as "the rendering of clearing services in accordance with clearing rules adopted by a clearing organisation and registered in accordance with the established procedure with the federal state regulator in the securities market sphere."

The Clearing Law also introduces such terms as the "clearing participant" (being the recipient of clearing services from a clearing organisation under a clearing services agreement), "netting" (full or partial termination of obligations admitted to clearing by way of a set-off or otherwise in accordance with the clearing rules), and "central counterparty" (a legal entity which complies with the respective requirements of the Clearing Law and is a party to all the agreements included in the clearing pool).

In accordance with the Clearing Law, only a Russian commercial legal entity may perform the functions of a clearing organisation and a central counterparty. The Clearing Law lists a number of requirements for qualification as a clearing organisation. Such requirements include, among others:

A clearing organisation is prohibited from:

Clearing activities are subject to licensing requirements in the Russian Federation. Registration of clearing organisations and issue/ revocation of relevant licenses shall be effected by the Federal Service for Financial Markets of the Russian Federation (the FSFM).

Clearing organisations are also required to make proper disclosure of their activities in accordance with the Clearing Law (in particular, a clearing organisation is required to disclose its clearing rules, foundation documents and annual reports, including audit reports in relation to its financial statements).

The Clearing Law provides for a number of risk management tools for ensuring effective operation of the clearing system. In particular, one of the innovations under the Clearing Law is the concept of clearing security used to secure the obligations of clearing participants. Clearing security may be individual (securing the respective obligations of specific clearing participants) and/or collective (securing the obligations of any clearing participant through the establishment by a clearing organisation of a special security (guarantee) fund). Clearing security may include money (rubles or foreign currencies), securities and other property listed in respective statutory regulations, save for pledged property.

In connection with the enactment of the Clearing Law, the Amending Law introduced respective amendments to a number of laws, including the Securities Market Law, the Law on Banks and Banking, the Bankruptcy Law, the Credit Organisations Bankruptcy Law and certain others.

One of the major Russian legislative innovations introduced by the Clearing Law and the Amending Law is the concept of netting. Russian law was generally not familiar with the concept of netting before the introduction of the laws mentioned above. As a result, Russian courts considered netting as a form of set-off (being the closest Russian law equivalent), which was definitely a problem in the context of insolvency of Russian entities. This is because Russian insolvency laws generally prohibited set-off in the course of insolvency proceedings, and granted the liquidator rights to repudiate certain transactions with a performance date not yet due (transactions unprofitable for the insolvent party).

In accordance with the Amending Law, close-out netting arrangements will be recognised in relation to repo transactions, derivative instruments or other transactions dealing with securities or foreign currencies and entered into between eligible counterparties under eligible documentation.

The amended Bankruptcy Law provides that obligations of parties under multiple transactions governed by a single master agreement may be terminated and that a single cash payment obligation (except any potentially applicable fines/penalties and lost profits) may be payable pursuant to the master agreement by one party to the other. To be eligible for such netting, the respective transactions need to be entered into prior to:

In accordance with the amendments to the Bankruptcy Law, the list of eligible counterparties includes:

At least one of the parties to the respective derivative transaction should be an entity listed in (i)-(v) above.

Eligible documentation includes cross-border (international) documentation, and Russian standard documentation.

Cross-border (international) documentation may be used if one of the counterparties is a foreign entity. It includes master agreements developed by international organisations included in the list to be approved by the FSFM (it is understood that such list might include, among others, the International Swap Dealers Association, Inc.). Russian standard documentation includes domestic master agreements which are to conform to certain "model provisions" developed by Russian self-regulating organisations (SROs) (it is understood that such documentation might include, among others, that recently developed under the auspices of ARB and NAUFOR). Such "model provisions" and any amendments are also be approved by the FSFM.

Furthermore, in case of OTC transactions, in order for the netting arrangements to be enforceable, the Amending Law also requires inclusion of each respective agreement in the register kept by a stock exchange or by an SRO, which, in turn, is required to report to the FSFM.

The Clearing Law will enter into force on 1 January 2012 and the Amending Law entered into force on 11 February 2011 (save for a few provisions that will enter into force on different dates: in particular, the rules allowing close-out netting will enter into force on 11 August 2011).