LAW OF THE AZERBAIJAN REPUBLIC

of May 15, 2015 No. 1284-IVQ

About the security market

This Law according to Items 11 and 15 of part I of article 94 of the Constitution of the Azerbaijan Republic establishes legal and economic bases of release, state registration, the mass offer of investment securities in the Azerbaijan Republic, depositary and post-trade systems, turnover of securities and derivative financial instruments, the principles and rules of the organization, management and liquidation of persons having the license in the security market and the central depositary, the relations in the sphere of protection of the rights of investors, and also regulation and supervision in the security market.

Chapter 1. General provisions

Article 1. Basic concepts

1.0. The basic concepts used in this Law express the following values:

1.0.1. person on concern - person determined as that by the Civil Code of the Azerbaijan Republic;

1.0.2. underwriting - investment service in the mass offer and securities placement for benefit of the issuer or the third parties;

1.0.3. the beneficial owner - physical person or legal entity which eventually acquires economic or any other benefit from the transactions connected with money or other property including this owner of the legal entity for benefit of whom transactions, or physical person which exercises control over the client are made and (or) on behalf of which financial transactions or other transactions, or the physical person exercising control over the legal entity are made;

1.0.4. the custody account is the account opened for the client in the central depositary based on the address of the member of the central depositary and reflecting records concerning the rights to securities of the client;

1.0.5. the issuer - the legal entity, the state (by means of the state body authorized on it in the appropriate order) or municipality, performing issue of investment securities according to the procedure, established by Chapter 2 of this Law. The issuer is not owner of the securities issued by him;

1.0.6. listing of stock exchange - the list of the securities accepted on the biddings on the stock exchange based on the requirements established by internal regulations of stock exchange;

1.0.7. the institutional investor - investment companies, investment funds and their managing directors, persons whose main activities is investment into securities, credit institutions, insurers, the pension funds and their managing directors, other regulated financial institutions, dealers of goods and their derivative tools, international financial institutions, the states, Central Banks;

1.0.8. investment consultation - the consultation provided to clients in connection with acquisition, realization, subscription, replacement, the redemption, storage and underwriting of securities or derivative financial instruments or implementation of the related rights. Such consultation is not considered investment if it is published in media, it is provided in non-paid procedure within the professional activity other than activities of investment company, or belongs to especially legal aspects of the matters;

1.0.9. the investment research is the research intended for the public, recommending or offering direct or indirect way investment strategy to one or several investment securities, derivative financial instruments or their issuers including the current or future value of these securities;

1.0.10. the investor - the buyer of securities or derivative financial instruments or person offering them acquisition;

1.0.11. the security market - set of the legal and economic relations between subjects on implementation of issue, release, turnover, repayment, ownership, storage, compensation, encumbrance by obligations, regulation of securities and implementation of other transactions on securities;

1.0.12. the cash account on transactions with securities - the account reflecting cash remaining balance on transactions with securities;

1.0.13. management of the security account - the auxiliary activities performed by investment company on protection and preserving assets of the client;

1.0.14. branch of investment company - separate division of investment company, not being the legal entity, located out of the location investment the companies, capable to perform everything or part of the investment services permited investment company;

1.0.15. representative office of investment company - separate division of investment company, not being the legal entity, located out of the location of investment company which activities are limited to representation and protection of their interests;

1.0.16. No. 145-VQD is excluded according to the Law of the Azerbaijan Republic of 04.03.2016

1.0.17. the financial analyst - person preparing investment research;

1.0.18. the market maker - the legal entity who is regularly performing on own account in the security market purchase and sale of securities or derivative financial instruments at the prices established by it within the prices approved with stock exchange;

1.0.19. the prevailing share - immediate or indirect possession of shares, constituting 10 or more percent from the authorized capital of joint-stock investment fund or the managing director or allowing to influence significantly decision making by the legal entity which participant he is based on the agreement;

1.0.20. the client - the physical person or legal entity which signed the contract for receipt of services in securities or derivative financial instruments;

1.0.21. netting - transformation of the requirements and obligations following from the applications for transfer sent by members of clearing to other members or received from them;

1.0.22. supervision body behind the financial markets - the structure created by supervision body behind the financial markets for the purpose of implementation of regulation and control in the financial markets;

1.0.23. portfolio management - the main investment service in management of investment company in the directions set by private investors of the investment portfolio consisting of one or several securities or derivative financial instruments, and also money;

1.0.24. the repurchase agreement - the transaction of purchase (sale) of the investment security with the obligation of the return sale (purchase) on in advance determined conditions;

1.0.25. the controlled market - organized and managed by stock exchange, reflecting interests of purchase and sale of the third parties with issued in trade according to internal regulations of stock exchange of securities and derivative financial instruments;

1.0.26. single information resource - open for the public and the automated system created by supervision body behind the financial markets in which data which disclosure is provided by Chapter 9 of this Law are published;

1.0.27. the requirement of civil faultlessness - for the owner of the prevailing share if he is legal entity, the head of its executive body - lack of criminal record for the committed intentional crime; for members of the supervisory board and executive body of investment company, stock exchange, clearing organization and central depositary, for the liquidator - lack of criminal record, lack of the fact of criminal prosecution for heavy and especially serious crimes against property and in the sphere of economic activity, lack of prohibition by a court decision on occupation of the corresponding position or occupation professional activity;

1.0.28. delivery against payment - the principle expressing the agreement on ensuring delivery of securities with the seller to the buyer or his representative in exchange for complete cost repayment of securities;

1.0.29. calculations - execution of cross liabilities of the parties on security transactions or derivative financial instruments.

Article 2. Legislation on the security market

2.1. The security market of the Azerbaijan Republic is regulated by the Constitution of the Azerbaijan Republic, the Civil Code of the Azerbaijan Republic, this Law and other regulations of normative nature, supervision body behind the financial markets of the Azerbaijan Republic, and also international treaties which participant is the Azerbaijan Republic.

2.2. If the international treaty in which the Azerbaijan Republic participates establishes other rules, than those which contain in this Law then are applied rules of the international treaty.

2.3. The relations in the sphere of the security market in the Alyatsky free economic zone are governed according to requirements of the Law of the Azerbaijan Republic "About the Alyatsky free economic zone".

2.4. This Law does not extend to securities, the stipulated in Clause 1078-2.2-1 Civil code of the Azerbaijan Republic.

Chapter 2. Issue and mass offer of investment securities

Article 3. Issue of investment securities

3.1. Issue of investment securities represents set, the stipulated in Article 3.5 presents of the Law.

3.2. Investment securities securities are placed releases, in each release of the right, confirmed by investment securities, shall be identical. Release of investment securities represents set of the investment securities of the issuer relating to one type, having identical number of state registration and identical nominal value.

3.3. Nominal value of the shares emitted by joint-stock company shall be identical.

3.4. The nominal of shares shall be expressed only in national currency. The nominal of bonds is expressed in national or foreign currency.

3.5. Issue of investment securities consists of the following stages:

3.5.1. decision making about release by the issuer of investment securities;

3.5.2. creation by the issuer of the prospectus of the issue of investment securities or in cases, the stipulated in Clause 5.5 presents of the Law, information memorandum (for in large quantities the offered investment securities);

3.5.3. state registration of release of investment securities, and also approval of the prospectus of the issue or information memorandum by supervision body behind the financial markets;

3.5.4. disclosure of the data containing in the prospectus of the issue or the information memorandum of investment securities (for in large quantities the offered investment securities);

3.5.5. placement or release in trade on the controlled markets of investment securities;

3.5.6. submission of the report of supervision body behind the financial markets about results of issue of investment securities;

3.5.7. disclosure of information containing in the report on results of issue of investment securities (in case of the mass offer of investment securities).

3.6. Issue and turnover state and municipal securities is carried out according to the procedure established by relevant organ of the executive authority.

3.7. By reorganization of legal entities the procedure for issue and converting of investment securities is established by supervision body behind the financial markets.

3.8. Requirements to the maximum amount of bond issue of the issuer are established by supervision body behind the financial markets.

Article 4. Decision on release of investment securities

4.1. The decision on share issue is made by general meeting of shareholders of joint-stock company.

4.2. The decision on bond issue is made by the body determined by the charter of the issuer.

4.3. The following data shall be reflected in the decision on release of investment securities:

4.3.1. complete name, location of the issuer;

4.3.2. place and decision date;

4.3.3. type, form and nominal value of the emitted investment securities;

4.3.4. quantity and total amount of the emitted investment securities;

4.3.5. features of the rights affirmed by investment securities on this release;

4.3.6. the underwriter (in case of the mass offer of investment securities) and conditions (except as specified, specified in article 8.17 of this Law);

4.3.7. procedure for placement of investment securities;

4.3.8. start dates and completion of subscriber subscription or procedure for establishment of these dates;

4.3.9. the name of body of the issuer who made the decision;

4.3.10. name, the surname certified by seal the signature of the head of body of the issuer who made the decision.

Article 5. Prospectus of the issue and information memorandum of investment securities

5.1. The mass offer of investment securities is followed by the prospectus of the issue. For release in trade on the controlled market of investment securities the issuer or person offering investment securities shall constitute the prospectus of the issue.

5.2. Shall be reflected in the prospectus of the issue financial position of the issuer and the rights affirmed by the emitted investment securities. The text of the prospectus of the issue shall be accurate and accurate.

5.3. Requirements to the prospectus of the issue are established by supervision body behind the financial markets.

5.4. Persons who are taking part in creation of the prospectus of the issue shall include in the prospectus of the issue the statement for its preparation based on established facts with indication of name and the address of stay.

5.5. In the following cases instead of the prospectus of the issue the information memorandum is constituted:

5.5.1. if investment securities, including the rights to investment securities of this type, are offered shareholders or unitholders of the acquainted legal entity and are placed among them;

5.5.2. if the rights to investment securities, including to investment securities of this type are offered shareholders or shareholders of the allocated legal entity or distributed between them;

5.5.3. if the cost of release of investment securities less sum, determined by supervision body behind the financial markets;

5.5.4. if aggregate nominal value of the investment securities issued by the issuer within one calendar year exceeds the sum determined by supervision body behind the financial markets;

5.5.5. in case of introduction of the offer addressed to institutional investors.

5.6. The issuer is exempted from creation of the prospectus of the issue in the following cases:

5.6.1. in case of issue of investment securities by the state or municipality, the organizations which member is the Azerbaijan Republic, or the Central Bank the Azerbaijanian of the Republic;

5.6.2. in case of issue of the investment securities provided with the state guarantee;

5.6.3. if the cost of the investment securities offered each of investors exceeds the sum determined by supervision body behind the financial markets;

5.6.4. in case of share issue, issued in one type with the shares which are not demanding from shareholders of payments, and existing instead of dividend payout;

5.6.5. if the shares issued in the controlled market within one calendar year are offered in mass procedure by the part constituting less than ten percent of the authorized capital of the issuer;

5.6.6. when converting investment securities;

5.6.7. if the mass offer of securities is not provided.

5.7. The following persons bear responsibility for the data included in the prospectus of the issue:

5.7.1. the issuers and members approving and signing its prospectus of the issue - according to all data;

5.7.2. personally and according to the investment securities offered in mass procedure;

5.7.3. obespechitel (in the presence) - personally or on the providing provided to them;

5.7.4. the underwriter - according to obligations and the offered investment securities.

5.8. The information memorandum approves the supervision body behind the financial markets determined by Article of the 6th of this Law, and according to the procedure, stipulated in Clause the 7th this Law.

5.9. Requirements to the information memorandum are determined by supervision body behind the financial markets.

5.10. If the issuer within one year makes the decision on release of several investment securities (except for shares), the basic prospectus of the issue can be constituted.

5.11. Requirements to the basic prospectus of the issue and its appendices are established by supervision body behind the financial markets.

5.12. Approves the basic prospectus of the issue and reveals supervision body behind the financial markets  according to the procedure, established by Articles of the 6th and 7th of this Law.

5.13. The changes made by the issuer to the basic prospectus of the issue for each release according to article 10 of this Law are represented to supervision body behind the financial markets and release according to the article 6th of this Law undergoes state registration.

5.14. The provisions of this Law concerning the prospectus of the issue extend to the basic avenue.

5.15. If within one year from approval date of the prospectus of the issue or the information memorandum investment securities are not issued in trade in the controlled market or their mass offer is not performed the prospectus of the issue or the information memorandum are recognized invalid. In case of introduction of amendments and changes according to article 10 of this Law in connection with updating of the data containing in the prospectus of the issue or the information memorandum, the prospectus of the issue or the information memorandum become effective again.

5.16. When familiarizing the semi-annual and quarter financial reporting in the prospectus of the issue or the information memorandum they are subject to updating on effective period of the prospectus of the issue or information memorandum.

Article 6. State registration of release of investment securities and approval of the prospectus of the issue

6.1. Release of investment securities registers supervision body behind the financial markets.

6.2. In case of the mass offer of investment securities their prospectus of the issue is approved by supervision body behind the financial markets.

6.3. For state registration of release of investment securities the issuer shall submit to supervision body behind the financial markets the following documents:

6.3.1. registration application of investment securities;

6.3.2. decision on release of investment securities;

6.3.3. copies of the certificate on state registration as the legal entity and the charter of the issuer or certified of notarial procedure or according to the procedure, stipulated in Clause by the 9th the Law of the Azerbaijan Republic "About administrative production";

6.3.4. the prospectus of the issue (if registration of release of investment securities is followed by registration of the prospectus of the issue);

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