Illegal extension of powers of National Securities and Stock Market Commission (NSSMC) contrary to the requirements of the law

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The National Securities and Stock Market Commission (hereinafter referred to as the NCSSM, the Commission) has no authority to suspend the operation of a license for the conduct of activities in the securities market in the absence of consideration of the case on an offense on the securities market, establishing the fact of the offense and adopted by an authorized person of the Commission duly executed decision on the application of sanctions.

In mid-2018, the Commission raised cases of securities market offenses in relation to many securities traders.

At the same time, the reason for the violation of cases was that, in the opinion of the Commission, such traders performed overwhelming majority of transactions in securities of issuers during the years 2017-2018, in respect of which the Commission subsequently decided on a prohibition of trading in securities and / or a prohibition on admission changes in the system of depositary records, since the circulation of securities of such issuers created a risk of violations of investor rights.

In addition to this, the acute problem was the decision of the NCSSM to suspend licenses for a certain period of time.

It should be noted that the decisions state that the suspension of the license was made within the necessity of carrying out the inspection during the proceedings on the securities market offense against the relevant traders, in accordance with clause 3 of part 1 of Article 7 of the Law of Ukraine "On Licensing Types of Economic Activities", paragraph 5 of Article 8 of the Law "On State Regulation of the Securities Market in Ukraine", and guided by sub-clause 3 of clause 4 of section 2 of the Procedure for termination and revocation of licenses for certain types of professional activity in the stock market (securities market), approved by the decision of the National Commission on Securities and Stock Market dated May 14, 2013 No. 816, registered by the Ministry of Justice of Ukraine June 01, 2013 for № 862/23394 (hereinafter - Order number 816).

Instead, the question arises whether the Commission has such a right by the current legislation of Ukraine and what judicial practice in this area has developed, according to the results of the appeal by traders?

Indeed, the requirements of sub-clause 3 of clause 4 of section 2 of the Procedure No. 816 determine the grounds for suspending the license for a certain type of professional activity, among which, in particular, there is a need for an audit during the proceedings on an offense in the securities market if the offense has led or could lead to a violation of the rights of investors.

In accordance with paragraph 7 of Part 2 of Art. 2 Law on Securities and Stock Market, investors in securities - individual and legal persons, residents and non-residents who have acquired ownership of securities in order to receive income from invested funds and / or acquire the corresponding rights granted to the owner of the valuable securities in accordance with the law.

Therefore, investors are the owners of securities. When it comes to investors, only sellers can be buyers of salespeople in sales relations. Thus, when securities traders act in the interests of investors, this means that they sell these securities on behalf of these investors, which means they save their money.

Taking the view that traders should not have fulfilled the orders of investors for the sale of securities, the Commission, on the contrary, calls for violations of investors' rights to sell their securities, without complying with their orders (orders).

In addition, the legal framework for the state regulation of the securities market and state control over the issuance and circulation of securities and their derivatives in Ukraine is determined by the Law of Ukraine "On State Regulation of the Securities Market in Ukraine".

Paragraph 2 of Part 1, Article 1 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" stipulates that state regulation of the securities market is the state's implementation of comprehensive measures to streamline, control, oversee the securities market and their derivatives, and prevent abuse and violation of this area.

According to Art. 3 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine", state regulation of the securities market is carried out in the form of adopting acts of legislation on issues of activity of securities market participants.

According to Part 3 of Art. 4 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" the licensing of professional activity in the securities market is carried out by the National Commission on Securities and Stock Market in accordance with the laws of Ukraine regulating the securities market and regulatory acts adopted in accordance with these laws. , and taking into account the requirements of Articles 13 and 19 of the Law of Ukraine "On Licensing Certain Types of Economic Activities".

Thus, the main law that establishes legal principles for the implementation of state regulation of the securities market provides that the NCSSM, within the framework of the powers granted to it, has the right to issue a warning, stop the circulation of securities for a term up to one year, the validity of licenses issued by the National Commission for Securities and Stock market, cancel the validity of such licenses; to impose administrative penalties, penalties and other sanctions for violation of the effective legislation on legal entities and their employees, up to the cancellation of licenses for professional activity in the securities market only in case of violation of the legislation on securities, regulations of the National Commission on Securities and Stock Market (Clause 5,14 of Part 1 of Article 8 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine").

Provisions of Part 1 of Art. 11 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" identified the offenses for which the National Securities and Stock Market Commission may apply financial sanctions to the relevant legal entities.

According to Part 2 of Art. 11 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine", in addition to the application of financial sanctions for offenses specified in this article, the National Securities and Stock Market Commission may suspend or revoke a license to exercise professional activity on the stock market that was issued such a professional stock market participant.

It should be noted that the requirements of Article 12 of the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" stipulate that the procedure for examining cases of offenses in the securities market and the application of sanctions.

Thus, an authorized person of the National Commission on Securities and Stock Market, which has discovered the fact that a legal entity committed an offense on the securities market, is an act that, together with written explanations of the manager, other responsible official, and documents related to such an offense within the term " Within a few working days, he submits to the authorized representative of the National Commission on Securities and Stock Market, which has the right to apply the sanction for the offense on the securities market.

Consequently, the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" does not grant the Commission the right to apply to the subject of the business a sanction in the form of a suspension of the license in connection with the suspension of proceedings in the case of an offense on the securities market for verification.

Therefore, a securities trader can not be held liable to establish the fact of a violation of the securities legislation. The circumstances of the establishment of such an offense are possible only after consideration of documents confirming the fact of the offense and the adoption of a decision on the imposition of sanctions.

In addition, neither the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" nor the provisions of Articles 13, 19 of the Law of Ukraine "On Licensing Certain Types of Economic Activities" do not contain norms that would enable the National Securities and Stock Market Commission to expand the list of grounds for suspending the licenses for the right to conduct professional activity in the stock market.

Thus, the suspension of the license is stipulated by the provisions of the Procedure for termination and revocation of a license for certain types of professional activity in the stock market (securities market), approved by the decision of the National Commission on Securities and Stock Market dated May 14, 2013, No. 816, is not appropriate. the basis for its application with respect to securities traders, after all 3, Clause 4, Section 2 of the Procedure do not comply with the Law of Ukraine "On State Regulation of the Securities Market in Ukraine" and actually broaden the statutory, list of grounds for suspending the validity of licenses for the right to conduct professional activities in the stock market, in connection with which they can not to be applied as not complying with the provisions of a legal act of higher legal force, namely, the Law of Ukraine "On State Regulation of the Securities Market in Ukraine".

Not surprisingly, such Commission decisions became the subject of a lawsuit and, according to the results of their consideration, the courts have already adopted appropriate decisions, in particular:
- Decision of the District Administrative Court of Kyiv dated 02/22/2019 in case number 640/19665/18 (code in the URE: 80313849);
- Decision of the District Administrative Court of Kyiv dated March 12, 2019 in the case No. 640/19663/18 (code in the URE: 80408743);
- The decision of the Kharkiv District Administrative Court dated March 18, 2019 in the case No. 520/10781/18 (code in the URE: 80795733);
- The decision of the Kharkiv District Administrative Court of 19.03.2019 in the case No. 520/10769/18 (code in the URE: 80795968);
- Decision of the District Administrative Court of Kyiv dated March 22, 2019 in the case No. 640/19661/18 (code in the USR: 80629391).

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