Organizer of trade in the securities market: essence, types and tasks

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Trading in the securities market is relevant at the present time. Of course, it is regulated, standardized by far more than one normative act. Both national and international documents apply here. But who is the organizer of trading in the securities market? What powers are given to these persons? How do laws regulate their activities? What are the requirements for them? We will analyze these and other important questions in this material.

The essence of the concept

The organizer of trading in the securities market is a legal entity that provides a range of services that directly facilitate the conclusion of transactions between participants in such a market.

Of course, these legal entities are not of the same type. The following types of organizers of trade in the securities market are legally distinguished:

• Organizers of exchange trading (accordingly, this role will be performed directly by the exchange).
• OTC Organizers.

Defining legislation

What is said about the organizers of trade onthe securities market in the Federal Law? Regulations are found in the Federal Securities Law.

Such organizers, according to the Federal Law, are professional participants in the securities markets who provide services that directly contribute to the conclusion of civil law transactions, whose object is securities.

The greatest attention in this Federal Law is given to the description and characteristics of the stock exchange.

Requirements of law

The Federal Law "On Securities" defines the requirements for such trade organizers:

• The organizer can be both an individual and a legal entity.
• Such an organization can be created in almost any civil law form.
• The Organizer can use any technology to organize its activities.
• The Organizer can establish business cooperation not only with professional participants in the securities market, but also with other persons interested in such transactions.
• The organizer of the auction can combine this vector of activity with any other activity in the securities markets. But apart from maintaining the registry. That is, he is not forbidden to act as a broker, depository, dealer, manager of the clearing system, etc.
• There are no restrictions on the number of participants on the site.
• The minimum amount of equity for the organizer is not set by the Federal Law.
• Members of the organizer may have heterogeneous duties and rights.

Obtaining a license

As for the types of activities mentioned, they begin to be engaged only after obtaining a license. There are four types of licensing documents themselves: two - for exchange organizers, two - for over-the-counter ones.

The first group of licenses gives the right to organize trading, where the subject of the transaction are government securities. The second group of licenses gives the right to organize the sale and purchase of commercial securities.

For organizers of trading on the securities market in the Russian Federation, the period of validity of such permits is 10 years. But there is an exception. If the organizer, in addition to this, is simultaneously engaged in another type of activity, then the validity period of the license in his case is reduced to three years.

Regulations set by organizers

In the Russian Federation, the activities of trade organizers on the securities market are regulated by a special Federal Commission on Securities. It is according to its resolutions that the legal entities-organizers draw up and register lists of rules for conducting auctions. Of course, these instructions are binding in the future.

Here the organizer of trading on the stock exchange, the securities market must indicate the following:

• Lists of securities, which in his case are the objects of transactions.
• Requirements for future bidders. Rules for their activities, as well as a list of sanctions that will be applied to sellers and buyers in case of violation of the rules.
• Market pricing mechanism. A set of measures that should prevent the fact of price manipulation by participants.
• Rules and procedures for the intervention of representatives of the organizer in the auction. A list of conditions that justify such an intervention. Situations, in the event of which the trading may be stopped.
• Actions that the organizer has the right to take in case of emergency.
• Mechanisms for reconciliation of individual provisions under contracts by trading participants, arranger, clearing and depository services.
• The procedure and methods for fulfilling obligations under contracts concluded on the market accountable to the organizer.
• Rules for compensation for losses from non-fulfillment (or incomplete, improper fulfillment) of obligations by the parties to the transaction.

Requirements for a legal entity

We found that the organizer of trading in the securities market is a legal entity whose activities directly facilitate the conclusion of transactions for the purchase and sale of securities. These persons are authorized to establish rules for participants in transactions concluded in their space.

But at the same time, the legislation imposes certain requirements on the organizers themselves:

• Heads of the organizer's departments, executive directors, as well as heads of committees, employees are required to undergo mandatory certification. Only she gives them the right to organize bidding.
• None of the above personnel should be a shareholder of the company,bidding.
• None of the organizer's employees (like himself) should be employed in an organization participating in the auction in his space.

Now let's get to know specific types of organizers.

Stock Exchange

As you remember, she is called the organizer of trading in the securities market. Stock exchanges form their income by deducting a certain percentage from the amount of transactions concluded in the spaces under their jurisdiction. They are also legally allowed to collect from participants in transactions of various kinds of contributions, payments, fees, one way or another, aimed at paying for services for organizing trading.

A separate type of stock exchange profit is fines. They are charged from participants for violation of the current trading rules, the provisions of the internal exchange charter.

The main tasks of the exchange

In the list of organizers of trading on the securities market, various stock exchanges occupy the first places. At the same time, they are united by rather similar common tasks:

• Providing a platform where trading takes place.
• Determining the equilibrium value of securities.
• Accumulation of free cash and further redistribution of property rights.
• Ensuring the principle of openness in the sale and purchase of securities.
• Creating a working mechanism to quickly resolve disputes that arise on the trading floor, with the least negative consequences for participants.
• Developmentcode of ethics, a standard for good business conduct for members.

Exchange requirements

The rules of the stock exchange must comply with the following list of requirements:

• This set of rules should provide the same conditions for all bidders. Moreover, starting with the entry of applications for participation in the implementation of operations. Exchanges must ensure that this documentation is kept for three years.
• The conclusion of the entire mass of sales contracts should take place only within the trade structure of the organizer.
• The rules of trading must include a mechanism for the interaction of sellers and buyers of securities with the depositary and/or settlement system. Moreover, in this context, the organizer himself must provide a settlement system for already executed contracts. He has the right to choose: to carry out this process on his own or to involve special clearing, depository or settlement institutions in its execution.
• The Stock Exchange is legally required to disclose the necessary data on securities to direct bidders. Mechanisms and conditions for providing such information to a category of persons that do not participate in the auction should also be provided.

OTC trading

Now let's move on to over-the-counter organizers of trading in the securities market. Mostly OTC platformsare used only for making targeted transactions. Here the organizer acts as an intermediary. This state of affairs is typical for the initial sale of shares.

A less common case in practice: OTC trading is limited to transactions between one large investment institution and a few private investors. The second name of this form is an investment store.

The organizers of such OTC trades must comply with the requirements that apply to stock exchanges. Another common feature: the sources of income for OTC organizers are the same as for stock exchanges. This is a withholding of a percentage of transactions made on the trading floor, certain fixed payments, as well as fines for violating the rules established for participants.

OTC Rules

On such platforms, the sale and purchase of securities is also subject to certain rules. They are compiled directly by the organizer, based on two principles:

• Only quotes of participants are used in this trading system. In particular, each market participant undertakes to make a deal only on the conditions specified in the quote.
• The rules must contain a description of the mechanism for checking data on contracts, which is carried out through the trading system.

The activities of the organizers of trading in the securities market are regulated by certain legislative provisions. The requirements for them differ from the form of activity - in the field of exchange andover-the-counter trading. There are also general provisions that are mandatory for the entire mass of organizers.