All of the above had previously been regulated, to some extent, by the Civil Code of the Republic of Azerbaijan and the regulations of the State Securities Committee of the Republic of Azerbaijan ("SCS”).

The continuing economic development and improvement of the body of law necessitated, among other things, elaboration of the rules of issuance of securities, strengthening of the requirements for the establishment of licensed persons and issuance of licences to such persons and improvement of the

reporting requirements, which served as grounds for the enactment of the Securities Market Law.

Information Memorandum and Basic Emission Prospectus

The Securities Market Law also introduces concepts which were unknown under the Civil Code and the regulations of the SCS. Among these are the information memorandum (substitute for prospectus in specified cases) and the basic emission prospectus.

An issuer of securities can draft an information memorandum instead of a prospectus when:

• securities are offered to and placed among the shareholders of merged entities;

• securities are offered to and placed among the shareholders of divided entities;

• the value of securities to be issued is below the value determined by the SCS;

• the total nominal value of securities issued by an issuer within one calendar year does not exceed the value established by the SCS; and

• an offer is made to institutional investors.

In addition to the above, the following grounds, among others, exempt an issuer from drafting a prospectus:

• issuance of securities by the state or municipality, international organisations of which the Republic of Azerbaijan is a member or the Central Bank of the Republic of Azerbaijan;

• issuance of securities guaranteed by the state;

• conversion of securities;

• public offer of securities which constitute less than 10 percent of an issuer's charter capital within one calendar year; and

• issuance of securities which serve as a substitute for the payment of dividends and which do not require any payments from shareholders.

A basic emission prospectus is drafted when several issuances of securities (except for shares) are contemplated within one calendar year.

The provisions of the Securities Market Law applicable to a prospectus also apply to the basic emission prospectus.

Market Participants

The Securities Market Law further introduces new market participants and abolishes the institutions of brokers and dealers.

Previously, broker and dealer activities, asset management, clearing, depository, registration of securities owners and stock exchanges were considered the  types of professional activities in the securities market, and the legal entities involved in these activities were the professional participants of the securities

market. Under the Securities Market Law, brokers and dealers have been substituted by investment agencies.

The Securities Market Law establishes investment agencies, stock exchanges, clearing agencies, depository of investment funds and central depository agency as the professional participants of the securities market (licensed persons except for the central depository agency). Licensed persons are to be

established in the form of a joint stock company, and hold a valid licence to conduct operations with securities and derivatives. The only person which is allowed to conduct operations with securities and derivatives without a licence is the Central Bank of the Republic of Azerbaijan.

Investment Agency

An investment agency is a legal entity established in the form of a joint stock company to conduct major (management of individual investors' portfolios, advising on investment, placement and underwriting of securities without undertaking any obligations, placement and underwriting of securities with

undertaking obligations) and supplementary (management of clients' securities accounts, issuance of credits to clients for concluding contracts in connection with securities and derivatives) investment operations.

Stock Exchange

Previously, the organisational form of a stock exchange was exclusively limited to a closed joint stock company. Under the Securities Market Law, the stock exchange can be established as a joint stock company, i.e., an open or closed joint stock company.

Further, the Civil Code required the stock exchange to have its own internal regulations, even though it did not specify them. Under the Securities Market Law, the stock exchange must, inter alia, have the following internal regulations: trading regulations of securities and derivatives; terms and procedures

of trading, trading halt and exclusion from trading of securities and derivatives; listing and delisting requirements; rules of entering into deeds and their termination at the stock exchange; rules of price determination of securities and derivatives at the stock exchange; rules of trading days and trading hours at the stock exchange; etc.

The stock exchange must have at least three members holding valid licences. Previously, the members of the stock exchange were brokers and dealers, which have been substituted by investment agencies under the Securities Market Law. All existing stock exchanges must adjust their organisational forms and activities in accordance with the requirements of the Securities Market Law before January 1, 2016.

Clearing Agency

A clearing agency must be established in the form of a joint stock company and must possess a valid licence. It must have at least three members. The members of the clearing agency are investment agencies and banks.

Central Depository Agency

The central depository (National Depository Centre) is a non-commercial entity established by the SCS. The main obligations of the central depository include, but are not limited to, the maintenance and registration (recordation) of securities, recordation of accounts of security holders, registration of security holders, and registration of any encumbrance of securities.

Licences

The Securities Market Law toughens the requirements for obtaining a licence to act as a professional participant of the securities market by establishing a two-step procedure for licence issuance: preliminary consideration of an application before an entity is registered, and final consideration after registration. Henceforth, unlike before, the issuance of a licence takes quite a long time, around six or seven months.

Another innovation introduced by the Securities Market Law is the elimination of the five-year term of licences. Now, licences are issued for an indefinite term.

Previously, under the Civil Code, only stock exchanges were entitled to issue common shares. Now, the Securities Market Law recognises the rights of investment agencies and clearing agencies to issue these as well.