Corporate governance

On March 21, 2014 the Board of Directors of the Bank of Russia approved the Corporate Governance Code (hereinafter referred as the “Corporate Governance Code” or the “Code”). Provisions of the Code are based on the internationally recognised principles of corporate governance developed by the Organisation for Economic Co-operation and Development and recommended for use by Joint Stock Companies, the securities of which are admitted to trading.

1. On observance of principles of corporate governance and recommendations of the Corporate Governance Code by the Exchange.

To the extent of observance of principles of corporate governance stipulated in the Corporate Governance Code Supervisory Board declares as follows:

1.1. In accordance with the principles of corporate governance stipulated in the Corporate Governance Code the Exchange shall ensure fair and equitable treatment of its shareholders exercising their rights.

The Exchange shall provide its shareholders, including minority and non-resident shareholders, an opportunity to enforce their rights related to participation in management of the Exchange as well as ensure fair and equitable treatment of its shareholders holding the shares of one class (type).

The shareholders shall have a real opportunity to participate in management of the Exchange by making the decisions as regards the issues pertaining to the competence of the General Shareholder Meeting of the Exchange on the General Shareholder Meetings.

Shareholders of the Exchange are provided with a favourable opportunity to participate in the General Shareholder Meeting in person or by proxy as well as an equal right to express their opinion on the items of the agenda and to ask questions.

Shareholders shall have equal and fair opportunity to participate in profits of the Exchange by receiving dividends. Dividend Policy of the Exchange approved by the Supervisory Board in 2013 stipulates the following fundamental principles of determining the dividend amount:

  • annual determination of capital adequacy for the current year and forecasting capital requirements for the next two years;
  • shareholders and investors appeal of the Exchange due to quite high, stable and predictable income level from investment into capital of the Exchange;
  • dividend level paid by comparable Russian companies.

Within the period stipulated in the FZ (Federal Law) On Joint Stock Companies dividends shall be payable to the persons holding the shares or the persons exercising the rights attached to those shares in accordance with the federal laws as at the close of business on the date when there are determined the persons entitled to receive the dividends in accordance with the decision on payment thereof.

Shareholders entitled to get acquainted with the list of the persons entitled to participate in the General Shareholder Meeting shall be so entitled starting from the date of announcement of the General Shareholder Meeting till the closing time of physical General Shareholder Meeting, an if the meeting is held by virtue of absentee voting — till the termination date of acceptance the voting ballots.

Procedure for announcement of the General Shareholder Meeting of the Exchange and submission of materials enables the shareholders to duly prepare to participation therein.

The General Shareholder Meeting shall be announced not later than 30 days prior to the date of holding thereof (except when the FZ On Joint Stock Companies stipulates the longer period). The announcement shall be published on the Exchange web-site on the information and telecommunications network Internet.

Starting from 2013 the Exchange introduced into practice provision of the shareholders with an opportunity to get acquainted with the information subject to submission when preparing to hold the General Shareholder Meeting by electronic means of communication — to publish all the materials on the Exchange web-site on the information and telecommunications network Internet including in English. Moreover, when preparing to hold the General Shareholder Meeting the Exchange generally publish on its web-site a model form of Power of Attorney which can be used by the shareholder to issue to its representative the Power of Attorney with the right to vote on the General Shareholder Meeting.

An Independent Registrar shall maintain the Register of Registered Securities of the Exchange and functions as a Counting Board that ensures reliable and efficient method of recording the share rights. Shareholder(s) of the Exchange holding the legally determined number of voting shares shall be provided with an opportunity to bring a question for consideration of the General Shareholder Meeting, to nominate the candidates to be elected to the correspondent authorities of the Exchange as well as to call for a General Shareholder Meeting without submission of an Extract from the Shareholders Register, and if the share rights are asserted to a securities account submission of Statement thereof shall be sufficient evidence for exercising of such rights.

In case of consideration of the issues related to election of the Supervisory Board members, the Board Chairman, Revision Committee members on the General Shareholder Meeting as well as the issue on approval of the Auditor such meetings shall be held with participation of the nominees to the correspondent authority of the Exchange.

Physically held General Shareholder Meetings shall be attended by the Board Chairman and the Board members of the Exchange and the Annual General Shareholder Meetings shall be also attended by the Supervisory Board members, Revision Committee Chairman, the Auditor’s representative which can be asked by the shareholders.

Each shareholder of the Exchange shall be provided with an opportunity to freely exercise its voting right by sending the filled in ballot or, in case of physically held General Shareholder Meeting, by direct voting by ballot on the meeting.

In the Articles of Association of the Exchange there are no restrictions or conditions related to sale of the shareholders’ shares to the third parties that provide the shareholders with an opportunity to freely and easily alienate their shares.

1.2. Corporate Secretary positions of which is inaugurated by the Exchange in 2011 shall be responsible for efficient interaction with shareholders, coordination of the Exchange activities as regards protection of shareholders’ rights and interests and assistance in efficient functioning of the Supervisory Board.

In accordance with the Regulation on Corporate Secretary of the Exchange the Corporate Secretary’s main functions shall be in particular: participation in improvement of the system and practice of corporate governance of the Exchange, participation in arrangement and holding of General Shareholder Meetings and Meetings of the Supervisory Board of the Exchange, participation in prevention of corporate conflicts as well as implementation of the procedures stipulated in the laws and internal documents ensuring exercise of the shareholders’ rights and legal interests.

To ensure the Corporate Secretary’s independence of executive authorities of the Exchange the Articles of Association and the Regulation on the Corporate Secretary provide for the Corporate Secretary’s accountability to the Supervisory Board of the Exchange. Issue as regards appointment to the Corporate Secretary’s position and dismissal therefrom, remuneration and bonus payment as well as goal-setting shall pertain to the competence of the Supervisory Board of the Exchange.

1.3. Strategic management of the Exchange activity and efficient control over activity of the Board and the Board Chairman carried out by the Supervisory Board and accountability of the Supervisory Board to the General Shareholder meeting of the Exchange.

In accordance with the Articles of Association of the Exchange the Supervisory Board shall be accountable to the General Shareholder Meeting, authorised to determine priority business areas of the Exchange, to approve the strategy and control over implementation thereof, to approve budget of the Exchange as well as to control financial and economic indicators of the Exchange.

Supervisory Board shall elect the Board members, determine term of their office and make the decision as regards earlier termination of office (inter alia due to improper fulfilment of their obligations), besides, it shall control activity of executive authorities of the Exchange, regularly review Reports of the Board Chairman and the Board members as regards activity thereof and on performance of the Exchange as well as make decisions following the results of such review.

In accordance with the Articles of Association the competence of the Supervisory Board shall include a number of issues relating to exchange activities in particular approval of the Exchange internal documents pertaining to the competence of the Supervisory Board in accordance with the law On Organised Trading including approval of the Rules of the Organised Trading; documents determining the procedure for arrangement and carrying out of internal control and measures aimed at mitigating of risks of the trades organiser; document determining the measures to be taken in emergency situations aimed at provision of continuity of operations as regards the organised trading. Supervisory Board shall also approve cost of the services as regards the organised trading, Regulations on Users Committees (including council of the exchanging market sections), determine number of members of such Committees and elect members thereof.

Number of members of the Supervisory Board shall ensure the most efficient and professional exercise of the functions assigned thereon including for the purposes of making detached judgements and decisions serving the interests of the Exchange and shareholders thereof. Moreover in 2014 there was carried out evaluation of compliance of nominees to the Supervisory Board with criteria of independence as well as analysis of compliance of elected members of the Supervisory Board with criteria of independence. As at December 31, 2014 the Supervisory Board consisted of four of fifteen elected Independent Directors that was sufficient to comply with the listing rules set up by Closed joint-stock company MICEX Stock Exchange to the extent of the minimum number of independent directors composing the Supervisory Board of the company required to keep shares of the Exchange in the top quotation list of Closed joint-stock company MICEX Stock Exchange.

All the members of the Supervisory Board shall have the knowledge, skills and experience required for making the decisions pertaining to the competence of the Supervisory Board and necessary for effective exercising of functions of the Supervisory Board, besides members of the Supervisory Board shall comply with the requirements stipulated by the laws of the Russian Federation and applicable Regulations in the sphere of financial markets. Appointment and Incentives Committee shall determine the requirements applicable to professional skills which members of the Supervisory Board shall comply with and from time to time analyse compliance of skill of those members of the Supervisory Board.

Members of the Supervisory Board shall actively participate in the meetings of the Supervisory Board as well as in activity of Committees thereof. In accordance with the Regulation on the Supervisory Board meetings of the Supervisory Board shall be held as necessary but at least every six weeks. Meetings of the Supervisory Board shall be held regularly by personal attendance or by virtue of absentee voting depending on importance of the considered issues. Regulation on the Supervisory Board in details regulates the procedure for arrangement and holding the meetings ensuring sufficient awareness of members of the Supervisory Board when preparing to the meetings and efficient activity of the Supervisory Board.

In the beginning of 2014 the evaluation of performance of the Supervisory Board, committees and members thereof was carried out following the results of which members of the Supervisory Board in general positively estimated quality of business relations between the Board, the Board Chairman and management team as well as arrangement of mutual relations between the Boar and the shareholders. Members of the Supervisory Board also made the suggestions related to supplementary work on creation of strategy and development of the risk management system, greater extent of interaction between Directors and the management team outside the meetings, determination of objectives and improvement of the procedures for evaluation, training of Directors as well as improvement of interaction between Chairmen of the Committees and the Supervisory Board, made comments as regards period for submission, scope and contents of materials, scope of the procedures for adaptation and inauguration of Directors.

Following the results of evaluation the Supervisory Board approved the schedule of measures aimed at development of corporate governance and activity of the Supervisory Board as well as other participants of the corporate governance system.

In 2013 on the Extraordinary General Shareholder Meeting it was decided to reduce the number of members of the Supervisory Board from 19 to 15 members in order to increase efficiency of performance thereof.

For preliminary consideration of the most important issues related to activity of the Exchange at the Supervisory Board there are established special committees including the Auditing Committee and Appointment and Incentives Committee.

One of the main goals of the Auditing Committee is assistance in efficient performance of the Supervisory Board to the extent of control of business and financial performance of the Exchange.

Appointment and Incentives Committee is established to assist in formation at the Exchange of efficient and transparent remuneration policy with respect to the Supervisory Board members, members of the executive authorities and other key executive officers.

Taking into consideration range of activity of the Exchange and risk level the Supervisory Board also established the following committees:

  • Strategic Planning Committee;
  • Risk Management Committee;
  • Committee on Budgets;
  • Technical Policy Committee.

More detailed information on the Supervisory Board and Committees thereof is available in the correspondent section of the Annual Report.

1.4. Level of remuneration paid by the Exchange to the Supervisory Board members and executive authorities shall be sufficient for attraction, motivation and retention of the employees having the required competence and skills.

Amount of remuneration of the Supervisory Board members shall be determined by the General Shareholder Meeting in accordance with the procedure and in the amount stipulated in the Regulation on Remuneration and Compensation for Expenses incurred by the Members of the Supervisory Board of the Exchange.

Due to the change in the rouble exchange rates against foreign currencies and rising inflation, the issue on change of the approach to and the level of remuneration paid by the Exchange to the Supervisory Board members shall be brought for consideration of the 2015 General Shareholder Meeting in order to provide ample opportunities for attraction, motivation and retention of the employees having the required competence and skills.

Essence of contracts concluded with executive management of the Exchange including with respect to the amount, conditions and procedure for payment of the remuneration shall be determined by the Supervisory Board taking into consideration recommendations of the Appointment and Incentives Committee of the Supervisory Board. Amount of remuneration of the executive management depends on key performance indicators (goals) of the Exchange in general as well as on, as well as on personal key performance indicators of the executive management member and its personal contribution to achievement of the results. The Exchange also applies the practice of deferred payment of a portion of short-term premiums of the executive authorities for up to two years.

Annually the Board members of the Exchange shall plan the key performance indicators related to implementation of the strategy to be considered by the Appointment and incentives Committee of the Supervisory Board and approved by the Supervisory Board of the Exchange.

1.5. At the Exchange there is implemented and functions the risk management system related to carrying out of the Exchange activity as the trade organiser, and there are established Internal Control and Internal Audit Services accountable to the Supervisory Board.

Supervisory Board of the Exchange shall determine the principles and approaches to arrangement of the risk management system and internal control, in particular appoint and dismiss the Head of Internal Control Service, approve the internal documents setting up the procedure for arrangement and internal control, approve the risk management policy.

In order to ensure independence of the Internal Control Service from the executive authorities functional and administrative accountability of the Head thereof shall be delimited. Functionally Head of Internal Audit Service shall be accountable to the Supervisory Board and administratively — directly to the Board Chairman.

Authorities of the Internal Audit Service of the Exchange shall include, among others, independent assessment of corporate governance of the Exchange.

1.6. Activity of the Exchange shall be transparent for the shareholders, investors and other related parties.

The Exchange shall disclose complete and authentic information in accordance with the laws of the Russian Federation and internal documents including on financial status thereof, economic parameters, ownership and management structure in order to provide the shareholders with an opportunity to make informed judgments and transparency of performance of the Exchange.

The Exchange shall comply with the current laws with respect to disclosure in full and aspire to provide complete and up-to-date information in excess of the legal requirements to increase awareness of the related parties of the Exchange, ownership and management structure and financial performance thereof.

In 2013 the Supervisory Board of the Exchange approved the Regulation on Information Policy setting up the main principles of the Exchange information policy, list of the information and documents subject to disclosure as well as the procedure for provision of the shareholders and investors with the information and documents.

Shareholders of the Exchange shall have equal opportunities for access to the information.

Shareholders of the Exchange shall have an opportunity to obtain complete and authentic information including the information on financial status thereof, performance, management and shareholders thereof.

The Exchange shall maintain confidentiality as well as protection and control over using of the information classified as trade secret and using of insider information.

1.7. Provision of the Board and the Board Chairman with an opportunity to reasonably, honestly administer the day-to-day operations of the Exchange for the benefit thereof as well as accountability of these authorities to the Supervisory Board and the shareholders.

In accordance with the FZ On Joint Stock Companies and Articles of Association of the Exchange the executive authorities (the Board and the Board Chairman) shall administer the day-to-day operations of the Exchange.

In the Board there are no persons convicted for commission of economic offences or crimes against the public order, interests of public services and self-governing authorities, no persons undergone administrative punishment for offences in the sphere of entrepreneurship and finance, taxes and levies and securities market.

In accordance with the Articles of Association determination of the number of the Board members, election of the Board members, determination of term of their office; approval of the terms and conditions of Employment Agreement with the Board Chairman and the Board members inter alia setting up the amount of remuneration, premiums and other incentives; approval of principles and parameters of long-term remunerations program for the management team, determination of number, structure and amount of salary and premiums for employees of the Internal Audit Service shall pertain to the competence of the Supervisory Board.

In addition to approval of major transactions and transactions with related parties the Supervisory Board, in accordance with the Articles of Association, shall decide whether to approve the transactions amount of which exceeds 300 million roubles (excluding exchange transactions relating to business profile of the Exchange and the transactions related placement of temporarily disposable monetary resources).

1.8. Liability of each member of the Supervisory Board and the Board for consequences of the decisions made; prevention of conflict of interests; protection of the information classified as trade secret of the Exchange

When exercising their rights and fulfilling their obligations members of the Supervisory Board and the Board shall act for the benefit of the Exchange and exercise their rights and fulfil their obligations reasonably and in good faith.

Members of the Supervisory Board and the Board shall:

  • in order to prevent conflict of interests when carrying out activity of the Exchange shall refrain from:

performance of actions and/or making the transactions with competitive entities which they are directly or indirectly interested in and which, if made, may inflict substantial damage to the Exchange and/or clients thereof;

acquisition of shares (portions thereof) competitive legal entities;

participation in management and holding other offices in competitive legal entities;

  • in order to protect the information classified as trade secret:

shall not either disclose or use for personal use or for the benefit of the third persons the information come to their notice classified as trade secret of the Exchange listed in the internal documents of the Exchange as well as other information access to which is limited in accordance with the internal documents;

  • shall not carry out any activity in the competitive entities without consent of the Exchange;
  • without consent of the Exchange shall not submit to mass media any materials related to activity of the exchange including the ones related to professional activity on exchanging markets neither under its name nor under a pseudonym;
  • shall not use the insider information that comes to their notice for personal advantage.

In order to prevent conflict of interests the Articles of Association and internal documents of the Exchange provide for special provisions, in particular, the Articles of Association of the Exchange pertains determination of methods for prevention of conflicts of interests between the Board members and the Supervisory Board members and decision making in case of conflicts of interests to the competence of the Supervisory Board. Besides Provisions on the Supervisory Board and the Board of the Exchange vest in each member of the Supervisory Board and/or the Board member an obligation to refrain from the acts which result or may result in the conflict between its own interests and interests of the Exchange and in case of such conflict — to disclose the information thereon and to take measures aimed at maintenance of the correspondent procedure or making transactions with related parties.

1.9. Efficient control over business and financial performance of the Exchange in order to protect the shareholders’ rights and legal interests.

In order to control business and financial performance of the Exchange there is established a special authority — Revision Committee to be elected by the General Shareholder Meeting. Activity of the Revision Committee shall be governed by the Articles of Association and the Regulation on the Revision Committee approved by the General Shareholder Meeting. Revision Committee shall be accountable to the General Shareholder Meeting and shall act irrespective of other management authorities of the Exchange.

In order to ensure maximum objectivity and authenticity of the Accounting (Financial) Statement the Exchange shall involve independent Auditor in annual verification and confirmation of Annual Financial Statement. Auditor shall be nominated by the Auditing Committee of the Supervisory Board and approved by the General Shareholder Meeting — for more details see the correspondent section of the Annual Report.

1.10. Recording of the related parties’ rights stipulated in the current laws of the Russian Federation, promotion of active cooperation between the Exchange and the related parties in order to maintain stability and develop financial market of the Russian Federation.

The Exchange regards as the main parties interested in its performance market participants, employees, shareholders, the Bank of Russia and other control and supervision authorities, contractors and other institutions affected by activity of the Exchange.

Management of the Exchange shall act in such a manner as to maximally promote interest of the employees in efficient performance of the Exchange. Relations between the Exchange and its employees shall be governed by the current laws of the Russian Federation and Employment Agreements. Executive authorities of the Exchange shall ensure equal rights and opportunities to be employed irrespective of race, nationality, language, origin, wealth and job status, place of residence, religious orientation, beliefs or participation in public associations. In their turn employees of the Exchange shall responsibly and proactively fulfil their duties.

The Exchange shall interact with market participants through the user committees and the Exchange Council which participate in discussion of significant changes in settlement of trade and tariffs for the Exchange services as well as overall strategic development of the scope and quality of the Exchange services.

The Exchange closely interacts with the Bank of Russia in the sphere of norm setting and formation of better practices of exchange activities.

The Exchange aspires to establish mutually favourable relations with its contractors based on development of long-term and steady relations and timely payment under the contracts.

Thus in spite of relatively recent adoption of the Corporate Governance Code the Exchange complies with fundamental principles and recommendations thereof.

After adoption of the Code the Exchange analysed compliance if internal documents thereof and the procedures stipulated therein with the principles and requirements of the Code. In the course of analysis there was also verified compliance with the corporate governance requirements stipulated by the Listing Rules of Closed joint-stock company “MICEX Stock Exchange” including to the extent of independence of the Directors, the Corporate Secretary and Head of the Internal Audit Service, procedure for establishment of committees of the Supervisory Board, etc. When analysing compliance with the corporate governance principles stipulated in the Code the Exchange was guided by the general corporate governance principles stipulated in the Code.

Following the analysis results there were made major efforts aimed at bringing of the internal documents of the Exchange and the procedures stipulated therein in compliance with the principles and requirements of the Code, in particular, there were approved the revised Regulations on the Internal Audit Service, on the Corporate Secretary, on the Auditing Committee and on the Appointment and Incentives Committee of the Supervisory Board. The latter was renamed from Humane Resource and Incentives Committee (for more details see clause 2 of this section).

Alongside with that in the end of the reporting year there is a range of incompliance as regards of which there are suggested the following remedies:

1. Noncompliance of the number of members of the Auditing Committee and the Appointment and Incentives Committee of the Supervisory Board:

The Auditing Committee is only composed of 3 Independent Directors and 6 members, the Appointment and Incentives Committee is composed of 1 Independent Director and 7 members. The Chairman does not comply with the criteria of independence, moreover, among the members there is a person not being the Director. There are no objective reasons of non-compliance with the requirements.

To bring the number of members of the Auditing Committee and the Appointment and Incentives Committee in compliance with the requirements the shareholders shall nominate sufficient number of independent candidates having the skills and experience required to qualitatively exercise functions of members of the correspondent committees.

Besides, it is supposed that the Chairmen of all the Committees established at the Supervisory Board shall elect the Independent Directors.

2. In the Articles of Association or other document of the Exchange there is not stipulated the requirement as regards disclosure of the information on the date of listing the persons entitled to participate in the Shareholder Meeting at least 7 days prior to such date.

Alongside with that the above requirement is not formalised it is actually met by the Exchange.

The correspondent requirement is included into the draft Articles of Association and Regulation on the Procedure for Preparation, Conveying and Holding of the General Shareholder Meeting of the Exchange brought for approval on the Annual General Shareholder Meeting in 2015.

3. Number of Independent Directors composing the Supervisory Board as at December 31, 2014 is 4 of 15 members of the Supervisory Board — does not comply with recommendations of the Code as regards number of the Independent Directors in accordance with which it shall be equal to at least 1/3 of the elected members of the Supervisory Board.

In addition the Supervisory Board Chairman is the Director not complying with formal criteria of independence, however, experience and prestige of the Chairman-in-Office, A.L. Kudrin, enables the Supervisory Board not to review this decision.

In order to bring the Supervisory Board in compliance with recommendations of the Code as regards the number of Independent Directors the shareholders shall nominate sufficient number of independent candidates having the required skills, experience and unblemished reputation to work as the Supervisory Board members.

Furthermore, in order to bring the Supervisory Board in compliance with recommendations of the Code, the Supervisory Board approved new Provisions on the Supervisory Board Commission on Nomination and Remuneration at its meeting on 23 September 2014 (Minutes No 5 dated 25 September 2014). Below are some functions of the Commission that are stipulated in the Provisions:

  • Organise preliminary discussion of nominees to the Supervisory Board of the Exchange by shareholders, among other collect shareholders’ opinions on nominee compliance with independency criteria;
  • Develop and communicate to shareholders voting recommendations on nominee election to the Supervisory Board of the Exchange;
  • Set selection criteria for nominees to the Supervisory Board of the Exchange and interact with both major and minority shareholders to choose those nominees to the Supervisory Board of the Exchange who fully meet the purpose and objectives of the Exchange.

The above-mentioned functions were designed to provide additional undertakings for the Exchange to interact with its shareholders while appointing the Supervisory Board.

To perform the above-mentioned functions, the Nomination and Remuneration Commission reviewed the existing list of the Supervisory Board members and candidates, and drafted recommendations for shareholders to nominate appropriate candidates and voted for them at the 2015 AGM. Information on such candidates and a pertinent letter from the Chairman of the Board were published on the Exchange’s website. So, shareholders of the Exchange were offered an opportunity to follow recommendations of the Nomination and Remuneration Commission when nominating candidates for the Supervisory Board to be elected at the 2015 AGM.

Taking into consideration recommendation of the Code as regards election of an Independent Director the Supervisory Board Chairman or choosing the senior Independent Director from amongst the elected Independent Directors, it was suggested to the Independent Directors of the Exchange to elect the senior Independent Director from amongst their number.

It is also worth noting that in 2015 the Supervisory Board brought for consideration of the General Shareholder Meeting the revised Articles of Association and other internal documents governing activity of management of the Exchange taking into consideration the key recommendations of the Code.

2. Material aspects of model and practice of corporate governance at the Exchange.

In 2012 the Supervisory Board of the Exchange approved Fundamental Principles of Corporate Governance in Moscow Exchange Group aimed at creation of efficient system of interaction between participants of corporate relations as well as the system for making management decisions ensuring efficient functioning of not only Exchange but also the companies included into Moscow Exchange Group in the long run. The main principles of corporate governance of Moscow Exchange Group include:

  • principle of working in the best interests of users of the services rendered by the companies included into Moscow Exchange Group;
  • principle of equal access to the services rendered by the companies included into Moscow Exchange Group;
  • principle of protection and respect of rights and interests of all the shareholders of the companies included into Moscow Exchange Group;
  • principle of efficient management of the shares (portions thereof) of the companies included into Moscow Exchange Group;
  • principle of transparency and objective of disclosure of the information on activity of Moscow Exchange Group;
  • principle of efficient dividend policy;
  • principle of efficient human resource policy;
  • principle of social and corporate liability.

Being guided by the Corporate Governance Code and Fundamental Principles of Corporate Governance the Exchange aspires to constantly develop and improve its corporate governance.

In the reporting year of 2014 the General Shareholder Meeting approved the revised Articles of Association, Regulations on the Supervisory Board and On Remuneration and Compensation for Expenses incurred by the Members of the Supervisory Board, Regulation on the Board and On the Revision Committee. Principles and norms of the Corporate Governance Code were embodied in the above documents.

Articles of Association of the Exchange was supplemented by the new provisions associated with amendment of the FZ On Joint Stock Companies in particular the ones regarding restructuring of the user committees, exclusion of the section governing the President’s activity and redistribution of authorities of the Supervisory Board and executive authorities. Articles of Association of the Exchange was amended to the extent that the Supervisory Board was granted the right to issue instructions when voting on the issues pertaining to the competence of the General Shareholder Meeting of NSD and NCC Clearing Bank as well as on approval of the list of the Exchange nominees to the Supervisory Board and the Revision Committee of the said companies. Competence of the Supervisory Board is supplemented by the rights:

  • to determine the list of priority projects controlled by the Supervisory Board and control implementation thereof;
  • to approve risk management policy and for the purposes of control over proper operational risk management to review the Reports on Continuity of Operations as well as to assess efficiency of operational risk management system;
  • to make decisions on a number of issues related to improvement of the corporate governance system of the Exchange inter alia to compliance of the nominees and members of the Supervisory Board with criteria of independence, to appointment and dismissal of the Corporate Secretary of the Exchange etc.

During the reporting year the Regulation of the Supervisory Board of the Exchange was twice supplemented with the norms determining criteria of independence of the Directors: in February for the purposes of nomination to the Supervisory Board — with the key criteria of independence stipulated in the Code and in June — with the criteria stipulated in the Listing Rules of Closed joint-stock company MICEX Stock Exchange. There was stipulated the right of the Supervisory Board in some cases to recognise independency of a certain member of the Supervisory Board despite of availability of formal interrelationship criteria. Such cases shall be of exceptional character and availability of interrelationship shall not affect capability of the Supervisory Board member to make independent, objective and faithful judgments. Revised Regulation on the Supervisory Board was supplemented by the number of clarifications which shall be provided for in the internal documents of the Joint Stock Company by the Corporate Governance Code, in particular there is stipulated the duty and procedure for the Independent Director’s notification of occurrence of the circumstances as a result of which the Independent Director ceases to be independent. Such notice shall be sent to the Chairman of the Supervisory Board within the reasonable period after occurrence of such circumstances comes to the Director’s notice specifying description of the circumstance resulted in loss of independence. Regulation on the Supervisory Board was also supplemented with the duty of the Supervisory Board members to refrain from taking any gifts or using other benefits offered by the parties interested in decision making. Functions of the Supervisory Board Chairman were clarified by organisational issues related to provision of the Supervisory Board members with the necessary materials as well as initiative when formulating draft decisions.

Revised Regulation on Remuneration of the Supervisory Board members was supplemented with the procedure for calculation of remuneration in case of obtaining or loss of independence by the Supervisory Board member (Director) since the date of election thereof to the Supervisory Board till the date of termination of its authorities proceeding from the principle of proportionality to duration of the correspondent status of the Supervisory Board member. Besides in the Regulation there was stipulated the list of particular expenses subject to compensation, inter alia there was enlarged the range of events expenses for participation in which shall be compensated for as well as there was stipulated an opportunity to compensate the Supervisory Board members for the expenses related to training and upgrading.

In order to comply with the corporate governance requirements stipulated in the Listing Rules of Closed joint-stock company MICEX Stock Exchange the Supervisory Board approved the following revised internal documents:

Regulation on the Auditing Committee of the Supervisory Board which:

  • clarifies the functions of control over Financial Statements, risk management system and internal control system,
  • stipulates the principle of independence and objectiveness of internal and external audit,
  • controls the system of notification of potential unfair acts and infringements in activity of the Exchange.

Regulation on Appointment and Incentives Committee supplemented by such functions as:

  • development and review of remuneration policy of the Supervisory Board and executive authorities,
  • assessment of performance of the executive authorities following the results of the year in accordance with the remuneration policy,
  • development of the terms and conditions of earlier termination of agreements with executive authorities,
  • development of recommendations on the Corporate Secretary’s remuneration and premium.

Regulation on the Corporate Secretary which:

  • intensifies the Corporate Secretary’s independence from executive authorities, in particular functions of appointment, functional accountability and remuneration of the Corporate Secretary are vested in the Supervisory Board,
  • functions of the Corporate Secretary are supplemented by participation in prevention of corporate conflicts, ensuring of implementation of the procedures aimed at exercising of the shareholders’ right and legal interests and control over exercising thereof as well as participation in improvement of the system and practice of corporate governance;
  • includes provisions on the Corporate Secretary’s liability.

Regulation on the Internal Audit Service which stipulates:

  • functions of assessment of corporate governance,
  • functional accountability of the Head of Internal Audit Service to the Supervisory Board;
  • requirement as regards availability of the internal audit policy determining the goals, tasks and authorities of the Internal Audit System.

3. Assessment methodology of compliance with the principles of corporate governance stipulated in the Corporate Governance Code.

Assessment of compliance with the principles of corporate governance was carried out by the Auditing Committee of the Supervisory Board of the Exchange by analysis and comparison of the Articles of Association, internal documents of the Exchange as well as available information with the principles and recommendations of the Code. Following a review of the analysis findings at a meeting of the Auditing Committee, the Chairman of the Commission reported to the Supervisory Board on the on-going status of arrangements undertaken to bring the Exchange in compliance with the principles and recommendations of the Code.

4. Key reasons, factors and (or) circumstances due to which the Exchange fails to comply with the principles of corporate governance stipulated in the Corporate Governance Code or complies therewith not to the fullest extent.

The main reason for non-compliance with the principles of corporate governance to the fullest extent is the short term elapsed from adoption of the Corporate Governance Code, which hindered implementation of all recommendations of the Сode.

It is also worth noting that number of members of all the committees of the Supervisory Board is determined on the basis of results of election of the Supervisory Board on the Annual General Shareholder Meeting in 2014. Thereat candidates to the Supervisory Board were nominated by the shareholders prior to entering of the Corporate Governance Code into force and publication thereof.

5. Planned (expected) acts and initiatives of the Exchange aimed at improvement of corporate governance model and practice.

In the end of the reporting period there was started preparation of a range of significant changes in the Articles of Association and internal documents of the Exchange subject to on the Annual General Shareholder Meeting in 2015. Those changes are aimed at harmonisation of norms with recommendations of the Corporate Governance Code and increase of investment attractiveness of the Exchange.

In particular there are revised:

  • Articles of Association;
  • Regulation on the Procedure for Trading, Conveying and Holding of the General Shareholder Meeting;
  • Regulation on the Supervisory Board.

When nominating the candidates to the new Supervisory Board shareholders shall take into consideration necessity of involvement of Independent Directors to comply with the Listing Rules and recommendations of the Corporate Governance Code including with respect to establishment of the committees in particular the Auditing Committee and the Appointment and Incentives Committee.

Following the results of election of the Supervisory Board on the Annual general Shareholder Meeting in 2015 there shall be established committees of the Supervisory Board thereat number of members thereof shall be reduced.

Report on Moscow Exchange Compliance with the Principles and Recommendations of the Corporate Governance Code

Serial No.

Corporate governance principle (principles) or key criterion (recommendation)

Summary of the matter of non-compliance with the principle or the key criterion

Explanation of the main reasons, factors and circumstances due to which the principle or the key criterion is not complied with or not complied with in full, description of alternative mechanisms and corporate governance tools used

1

2

3

4

I. The Shareholders’ Rights and Equitable Treatment of the Shareholders When They Exercise Their Rights

1.1.

The company shall ensure equitable and fair treatment of all shareholders when they exercise their right to participate in the company’s governance. The corporate governance system and practices shall guarantee equal conditions for all shareholders owning the same category (type) shares, including minority shareholders and foreign shareholders, and the company’s equitable treatment of them.

1.1.1.

The company has approved the internal document determining the main procedures for preparing, calling and holding a general meeting of shareholders complying with the Corporate Governance Code recommendations, including the company’s obligation:

to inform the shareholders of holding the general meeting of shareholders and provide access to the materials, including post a notification and materials on the company’s website in the Internet no later than 30 days before the date of its holding (unless the larger term is not stipulated by the legislation of the Russian Federation);

to disclose the information on the date of drawing up the list of persons having the right to participate in the general meeting of shareholders no later than 7 days before its maturing;

to provide additional information and materials on all the agenda items to the general meeting of shareholders in accordance with the Corporate Governance Code recommendations (hereinafter also — “the Code”).

Partially complied with.

The Regulation on the Procedure for Preparing, Calling and Holding the General Meeting of Shareholders does not stipulate the Exchange’s obligations:

to post the materials on the website in the Internet no later than 30 days before the date of holding the general meeting of shareholders;

to disclose the information on the date of drawing up the list of persons having the right to participate in the general meeting of shareholders no later than 7 days before its maturing;

to provide additional information and materials on all the agenda items to the general meeting of shareholders in accordance with the Code recommendations.

The main reason for the Exchange’s not full compliance with the stated principles is the short term passed after the Code’s adoption which did not allow implementing all its recommendations.

Herewith, it should be noted that the Exchange posts the materials on its website in the Internet no later than 20 days before the date of holding the general meeting of shareholders. The Exchange strives to post the materials at least 30 days prior the meeting.

It stands to mention that the Exchange drafted new Provisions on the procedure for preparing, revoking and conducting an AGM and a new version of the Articles of Associations, to the approved at the 2015 AGM. The new documents set out that the AGM record date must be announced at least 7 days before, and that additional information and materials may be submitted for the AGM.

Besides, the Exchange actually discloses the information on the date of drawing up the list of persons having the right to participate in the general meeting of shareholders no later than 7 days before its maturing.

1.1.2.

The company has committed itself to provide the shareholders with the opportunity to put questions on the company’s activity to the management and controlling bodies’ members, the Audit Committee members, the Chief Accountant, the company’s auditors, as well as the candidates to the management and control bodies while preparing and holding the general meeting of shareholders. The stated obligations are stipulated in the company’s Articles of Association or internal documents.

Partially complied with.

The Regulation on the Procedure for Preparing, Calling and Holding the General Meeting of Shareholders does not stipulate an obligation to provide an opportunity to shareholders to ask members of the management and control bodies, members of the Audit Commission of the Supervisory Board, Chief Accountant, auditors and candidates for management and control bodies, on the Exchange’s activity.

The main reason for the Exchange’s not full compliance with the stated principles is the short term passed after the Code’s adoption which did not allow implementing all its recommendations.

Herewith, the Regulation on the Procedure for Preparing, Calling and Holding the General Meeting of Shareholders stipulates the Exchange’s obligation to invite the Exchange’s management and control bodies members, as well as the candidates to the Exchange’s management and control bodies to the general meetings of shareholders, and the shareholders are given the opportunity to put questions to the stated persons. For the same purpose the members of the Audit Committee of the Supervisory Board, the Chief Accountant and the auditor are actually invited to the general meetings of shareholders.

It stands to note that new Provisions on the procedure for preparing, revoking and conducting an AGM to be approved at the 2015 AGM, set out that members of the Audit Commission of the Supervisory Board, chief accountant and auditor may be invited to the AGM.

1.1.3.

The company has committed itself to adhere to the principle of prohibition of actions resulting in artificial corporate control redistribution (for example, voting with “quasi-treasury” shares, making decision on dividends payout on preferred shares under the conditions of financial limitations, making decision on non-distribution of dividends on preferred shares determined in the company’s Articles of Association when sufficient sources for their distribution are available). The stated obligations are stipulated in the company’s Articles of Association or internal documents.

Complied with in part.

These responsibilities are not stated directly in the Articles of Association and Exchange’s by-laws.

The main reason for the Exchange’s not full compliance with the stated principle is the short term passed after the Code’s adoption which did not allow implementing all its recommendations.

Herewith, it should be noted that the Exchange actually complies with this principle — in 2014 the Exchange did not take actions which could result in artificial corporate control redistribution.

Voting with “quasi-treasury” shares is not effected; the Exchange did not place the preferred shares. The Exchange’s Articles of Associations set out that decisions on the Exchange’s stocks held by companies wholly owned by the Exchange are made as decided by the Supervisory Board. In 2014, the Supervisory Board decided to refrain from voting with such shares.

1.1.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

The following other key principles are complied with in full:

  • to ensure equitable treatment of all shareholders, including foreign ones, the Exchange provides information on the meeting holding not only in Russian but also in the foreign language which is commonly used on the financial market;
  • the Articles of Association sets out an increased term for shareholders to make proposals to the agenda items of the annual general meeting, i.e. 60 days after the end of the calendar year (in comparison to the legislation);
  • the Articles of Association includes the provision on the obligatory forwarding the ballot papers for voting to the shareholders and on the shareholders’ right to participate in the general meeting by filling in and forwarding the ballot papers to the company.

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1.2

The shareholders shall be provided with the equitable and fair opportunity to participate in the company’s profits through dividends distribution.

1.2.1.

The company has approved the internal document determining the company’s dividend policy complying with the Corporate Governance Code recommendations and establishing, inter alia:

the procedure of determination of the net profit part (for companies drawing consolidated financial statements — the minimal part (share) of consolidated net profit), forwarded for dividends payout, the conditions under which dividends are declared;

the minimal amount of dividends on the company’s shares of different categories (types);

the obligation to disclose the document determining the company’s dividend policy on the company’s website in the Internet.

Partially complied with.

The Exchange’s dividend policy does not stipulate:

the obligation to disclose the document determining the company’s dividend policy on the Exchange’s website in the Internet.

The main reason for the Exchange’s failure to fully comply with the stated principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

Herewith, the Exchange’s dividend policy approved on February 1, 2013 by the Supervisory Board (Minutes No. 25) stipulates the following main principles for the dividend amount determination:

  • annual determination of the capital’s sufficiency for the current year and predicting demand for the capital for the next two years;
  • the Exchange’s attractiveness for the shareholders and investors owing to rather high, stable and predictable level of monetary income from the investment in the Exchange’s capital;
  • the level of dividends distributed by the Russian companies comparable to the Exchange.

The stated policy also determined the minimal amount of dividends for 2012-2014, in particular, the Exchange’s dividends for 2014 are not less than 50% (in percentage of the net profit).

In addition, the Exchange has created Dividends and Dividend History section on its website to publish, inter alia, the following information: dividend history for several years, dividend rights, procedure for establishing the dividend size, paying them and determining persons eligible for them.

1.2.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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II. The Company’s Board of Directors

2.1

The Board of Directors determines main strategic guidelines of the company’s activity for a long-term perspective, the key indicators of the company’s activity, exercises the company’s strategic management, determines main principles of and approaches to the organisation of the company’s risk management and internal control system, exercises control over the activity of the company’s executive bodies, determines the company’s policy on the Board of Directors and executive bodies members’ remuneration, as well as performs other key functions.

2.1.1.

The company has established the Board of Directors which:

determines main strategic guidelines of the company’s activity for a long-term perspective, the key indicators of the company’s activity;

controls the activity of the company’s executive bodies;

determines main principles of and approaches to the organisation of the company’s risk management and internal control;

determines the company’s policy on remuneration of the members of the Board of Directors, executive bodies and other key administrative officers of the company.

Partially complied with.

The Supervisory Board’s competence does not stipulate that the Board:

determines key indicators of the company’s activity.

The main reason for the Exchange’s not full compliance with these corporate governance principles is the short term passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

It stands to note that a new version of the Articles of Associations to be approved at the 2015 AGM provides for a power of the Supervisory Board to set KPIs.

2.1.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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-

2.2.

The Board of Directors shall be the efficient and professional the company’s management body capable of passing objective independent judgments and resolutions meeting the interests of the company and its shareholders. The Board of Directors Chairman shall contribute to the most effective performance of the functions assigned to the Board of Directors. The Board of Directors’ meetings, their preparation and participation of the Board of Directors members therein shall ensure the Board of Directors’ efficient activity.

2.2.1.

The Board of Directors Chairman shall be an independent director; or a senior independent director shall be determined among the elected Independent Directors who coordinates the work of Independent Directors and exercises cooperation with the Board of Directors Chairman.

Not complied with.

The main reason for the Exchange’s failure to fully comply with these corporate governance principles is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

The Supervisory Board Chairman is A.L. Kudrin — the director who does not comply with the formal independence criteria, however, his experience and authority allow the Supervisory Board not to revise this decision.

The Supervisory Board has also worked over and discussed the issue on the senior independent director determination coordinating the work of independent directors and effecting interrelation with the Board of Directors Chairman, and on the discussion results one of the directors was offered to perform these functions informally, and in case the experience is successful, this decision will be officially adopted by the Supervisory Board, and necessary amendments will be introduced to the company’s internal documents.

2.2.2.

The company’s internal documents establish the procedure of preparing and holding the Board of Directors meetings, providing the Board of Directors members with the opportunity to prepare duly for their holding, and stipulating, in particular:

the terms of the Board of Directors members’ notification on the upcoming meeting;

the terms of forwarding the documents (ballot papers) for voting and receipt of the filled in documents (ballot papers) when holding the meetings in absentia;

the opportunity of forwarding and consideration of the written opinions on the agenda items for the Board of Directors members absent at the meeting in praesentia;

the opportunity of discussion and voting by means of conference call and videoconference.

Partially complied with.

The Regulation on the Supervisory Board does not provide for the opportunity to discuss issues and vote at the meetings by means of conference call and videoconference.

Such opportunity is not provided for by the Exchange’s internal documents for the purpose of encouraging the Supervisory Board members for personal and direct participation in the Exchange’s activity.

2.2.3.

The most important issues shall be resolved at the Board of Directors meetings held in praesentia. The list of such issues complies with the Corporate Governance Code recommendations.

Partially complied with.

Decisions on some items were made at meeting in absentia of the Supervisory Board.

The main reason for the Exchange’s failure to fully comply with these corporate governance principles is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

Herewith, when determining the form of the meeting the Supervisory Board Chairman takes into account the importance of the issues and attempts to ensure the consideration of the issues stated in Clause 168 of Part Б of the Code at the meetings in praesentia.

2.2.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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2.3.

The Board of Directors shall include the sufficient number of independent directors.

2.3.1.

The independent directors shall constitute not less than one third of the elected Board of Directors members.

Not complied with.

As of December 31, 2014 the Supervisory Board consisted of 4 independent directors of 15 elected ones.

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

In addition, number of independent directors in the Supervisory Board was sufficient in accordance with the Provisions on the Supervisory Board and MICEX SR Listing Rules with regard to compliance with the requirement on the minimum number of independent directors in the Board to maintain Exchange’s shares in the Level 1 List of MICEX SE.

Besides, it should be taken into account that the Supervisory Board was formed on the results of the Board’s election at the annual meeting of the Exchange’s shareholders in 2014, and the shareholders nominated the candidates for election before the publication of the Code and its entering into force.

It stands to note that new Provisions on the Supervisory Board to be approved at the 2015 AGM include direct standard for the board membership of at least 1/3 independent directors of the total number of members elected.

2.3.2.

The independent directors shall fully comply with the criteria of independence recommended by the Corporate Governance Code.

Fully complied with.

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2.3.3.

The Board of Directors (the Nominating (Staff, Appointments) Committee) shall carry out the assessment of the Board of Directors candidates’ compliance with the independence criteria.

Fully complied with.

— 

2.3.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

— 

— 

2.4.

The Board of Directors shall establish committees for provisional consideration of the most important issues of the company’s activity.

2.4.1.

The Board of Directors has established the Audit Committee consisting of independent directors; its functions are stated in the internal documents and comply with the Corporate Governance Code recommendations.

Partially complied with.

½ of the Audit Committee of the Supervisory Board does not have the independent director’s status (3 of 6 members).

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

Besides, the Committee’s composition was formed on the results of the Supervisory Board election at the annual meeting of the Exchange’s shareholders in 2014. Herewith, the shareholders nominated the candidates for election before the publication of the Code and its entering into force.

Herewith, it should be taken into account that the Audit Committee of the Supervisory Board is headed by the independent director.

2.4.2.

The Board of Directors has established the Remuneration Committee (may be combined with the Nominating (Staff, Appointments) Committee)) consisting of independent directors; its functions comply with the Corporate Governance Code recommendations.

Partially complied with.

The Appointments and Remuneration Committee of the Supervisory Board includes only 1 independent director out of 7. The Committee Chairman does not comply with the independence criteria, besides, the Committee includes the member who is not the director.

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

The Committee’s composition was formed on the results of the Supervisory Board election at the annual meeting of the Exchange’s shareholders in 2014. Herewith, the shareholders nominated the candidates for election before the publication of the Code and its entering into force.

2.4.3.

The Board of Directors has established the Nominating (Staff, Appointments) Committee) (may be combined with the Remuneration Committee), the most of it members are independent directors, its functions comply with the Corporate Governance Code recommendations.

Partially complied with.

The Appointments and Remuneration Committee of the Supervisory Board includes only 1 independent director out of 7. The Committee Chairman does not comply with the independence criteria, besides, the Committee includes the member who is not the director.

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

The Committee’s composition was formed on the results of the Supervisory Board election at the annual meeting of the Exchange’s shareholders in 2014. Herewith, the shareholders nominated the candidates for election before the publication of the Code and its entering into force.

2.4.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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2.5.

The Board of Directors shall ensure the quality assessment of work of the Board of Directors, its committees and members of the Board of Directors.

2.5.1.

The quality assessment of the Board of Directors’ work shall be carried out on a regular basis, at least annually, herewith at least once in three years such assessment shall be carried out with the involvement of external organisation (consultant).

Fully complied with.

-

2.5.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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III. The Company’s Corporate Secretary

3.1

Effective current interrelation with the shareholders, coordination of the company’s activity on protection of the shareholders’ rights and interests, support of the effective work of the Board of Directors are ensured by the Corporate Secretary (special structural unit headed by the Corporate Secretary).

3.1.1.

The Corporate Secretary shall be accountable to the Board of Directors, appointed and designated on the resolution or the consent of the Board of Directors.

Fully complied with.

-

3.1.2.

The company has established the internal document determining the Corporate Secretary’s rights and obligations (Regulation on the Corporate Secretary), the content of which complies with the Corporate Governance Code recommendations.

Fully complied with.

-

3.1.3.

The Corporate Secretary holds a position which cannot be combined with the performance of other functions in the company. The Corporate Secretary is assigned with functions in accordance with the Corporate Governance Code recommendations. The Corporate Secretary disposes sufficient resources to perform its functions.

Partially complied with.

The Corporate Secretary holds the position combined with the performance of other functions in the Exchange.

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

3.1.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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IV. The Remuneration System of the Members of the Board of Directors, Executive Bodies and Other Key Administrative Officers of the Company

4.1.

The level of remuneration paid by the company shall be sufficient to attract, motivate and keep the persons possessing competence and qualification necessary for the company. Payment of remuneration to the members of the Board of Directors, executive bodies and other key administrative officers of the company shall be made in accordance with the remuneration policy adopted in the company.

4.1.1.

All the payments, benefits and bonuses provided to the members the Board of Directors, executive bodies and other key administrative officers of the company are regulated in the company.

Partially complied with.

The Exchange’s by-laws for payments, benefits and perquisites do not include the category of key managers.

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

Herewith, payments, benefits and bonuses provided to key administrative officers are actually stipulated by the Exchange’s internal documents, because they cover, inter alia, members of the executive bodies, besides, pursuant to the Regulation on the Appointments and Remuneration Committee of the Supervisory Board this Committee is assigned with the correspondent obligation.

Key executive officers include directors of three major business divisions directly influencing on the financial and operational performance of the company. According to the Provisions on the Nomination and Remuneration Commission of the Supervisory Board, the Commission provides recommendations and opinions on the annual bonus size to be paid to the key executive officers of the Exchange, to the chief executive officer.

4.1.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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4.2.

The system of the Board of Directors members’ remuneration shall ensure bringing together the directors’ financial interests and the shareholders’ long-term financial interests.

4.2.1.

The company shall not apply other forms of monetary remuneration of the Board of Directors members apart from the fixed annual remuneration.

Fully complied with.

The Exchange additionally applies the fixed benefits for fulfilment of the functions of the Supervisory Board Chairman, the Supervisory Board Deputy Chairman and the Chairmen of the Supervisory Board Committees.

4.2.2.

The Board of Directors members shall not be given the opportunity to participate in stock options plans; and the right to dispose of the company’s shares held by them shall not be determined by achievement of certain activity indicators.

Fully complied with.

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4.2.3.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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4.3.

The remuneration system of executive bodies and other key administrative officers of the company shall provide for the remuneration’s dependence on the results of the company’s work and their personal contribution to achievement of this result.

4.3.1.

The company has implemented the program of the long-term motivation of executive bodies members and other key administrative officers of the company.

Fully complied with.

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4.3.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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V. Risk Management and Internal Control System

5.1.

An efficiently functioning risk management and internal control system aimed at ensuring reasonable confidence in achievement of the goals set before the company shall be established in the company.

5.1.1.

The Board of Directors has determined the principles of and approaches to the organisation of the risk management and internal control system.

Fully complied with.

5.1.2.

A separate structural unit on risk management and internal control has been established in the company.

Fully complied with.

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5.1.3.

The company has developed and implemented an anti-corruption policy determining the arrangements aimed at establishing the elements of the corporate culture, organisational structure, rules and procedures ensuring prevention of corruption.

Partially complied with.

The anti-corruption policy does not determine the arrangements aimed at establishing the organisational structure.

The main reason the Exchange is not fully in compliance with this corporate governance principle is the Exchange’s strong organisational structure to prevent corruption, and there is no need to set measures to create an organisational structure.

5.1.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

5.2.

For systematic independent assessment of reliability and efficiency of the risk management and internal control system and corporate government practices the company shall organise the internal audit performance.

5.2.1.

A separate structural unit has been established in the company performing the functions of internal audit under the control of the company’s Board of Directors. The stated unit’s functions comply with the Corporate Governance Code recommendations; such functions include, in particular:

estimation of the internal control system efficiency;

estimation of the risk management system efficiency;

the corporate governance estimation (in case the Corporate Government Committee is absent).

Fully complied with.

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5.2.2.

The Internal Audit Unit Head shall be accountable to the company’s Board of Directors, appointed and designated on the company’s Board of Directors resolution.

Fully complied with.

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5.2.3.

The company has approved the internal audit policy (Regulation on the Internal Audit), determining the internal audit’s aims, goals and functions.

Fully complied with.

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5.2.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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VI. Disclosure of Information on the Company, the Company’s Information Policy

6.1.

The company and its activity shall be transparent for the shareholders, investors and other persons concerned.

6.1.1.

The company has approved the internal document determining the company’s information policy complying with the Corporate Governance Code recommendations. The company’s information policy includes the following ways of interrelation with the investors and other persons concerned:

arrangement of a special page of the company’s website in the Internet with answers to frequently asked questions of the shareholders and investors, regularly updatable calendar of the company’s corporate events, as well as other information useful for the shareholders and investors;

holding meetings of executive bodies members and other key administrative officers of the company with analysts on a regular basis;

holding regular presentations (including in the forms of teleconferences, webcasts) and meetings with the participation of the management bodies members and other key administrative officers of the company, including ancillary publications of the company’s accounting (financial) reports or connected with main investment projects and plans of the company’s strategic development.

Partially complied with.

The Information Policy does not include the following ways of interrelation with the investors and other persons concerned:

posting in the Internet answers to frequently asked questions of the shareholders and investors, regularly updatable calendar of the company’s corporate events, as well as other information useful for the shareholders and investors;

holding regular meetings of executive bodies members and other key administrative officers of the company with analysts;

holding regular presentations and meetings with the participation of the management bodies members and other key administrative officers of the company, including ancillary publications of the Exchange’s accounting (financial) reports or connected with main investment projects and plans of the Exchange’s strategic development.

The main reason for the Exchange’s failure to fully comply with this corporate governance principle is the short period of time passed after the Code’s adoption, which did not allow for implementation of all its recommendations.

Actually, the Exchange employs all recommendations contained in the Code.

Besides, the Regulation on the Exchange’s Information Policy was adopted before the Corporate Governance Code’s entering into force on March 29, 2013.

Herewith, it is planned to adopt in 2015 a new version of the Regulation on Moscow Exchange OJSC Information Policy taking into account the Corporate Governance Code recommendations.

6.1.2.

The company’s implementation of the information policy shall be carried out by the company’s executive bodies. The control over due information disclosure and compliance with the information policy is exercised by the Board of Directors.

Fully complied with.

6.1.3.

The company has established the procedures ensuring coordination of work of all the company’s services and structural units connected with information disclosure or the activity of which may lead to the necessity of information disclosure.

Fully complied with.

6.1.4.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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6.2.

The company shall timely disclose full, up-to-date and reliable information on the company to ensure the capability of making reasonable decisions by the company’s shareholders and investors.

6.2.1.

Given there is a significant share of foreign investors in the capital, along with the information disclosure in Russian, the company shall ensure the disclosure of the most significant information on the company (including notifications of holding the general meetings of shareholders, the company’s annual report) in the foreign language which is commonly used on the financial market.

Fully complied with.

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6.2.2.

The company shall ensure the disclosure of information not only about itself, but also about the legal entities controlled by it, having the substantial significance for it.

Partially complied with.

The Exchange partially discloses information on LLC MICEX-Finance which is of significant importance to the Exchange — within the reports and significant facts of the Exchange.

The main reason for not full compliance with this principle is that the Exchange and LLC MICEX-Finance do not have the obligation by law to disclose the information. However, a new version of the Provision on the information policy of the Exchange will be adopted as recommended in the Code.

6.2.3.

The company shall disclose the annual and the interim (semi-annual) consolidated or individual financial reports drawn up in accordance with the International Financial Reporting Standards (IFRS). Annual consolidated or individual financial statements shall be disclosed together with the audit report, and the interim (semi-annual) consolidated or individual financial statements — together with the report on the review audit results or the audit report.

Partially complied with.

Interim (semi-annual) consolidated statements of the Exchange are not reviewed.

According to the law, any interim (semi-annual) consolidated financial statements under IFRS are not required to be reviewed. Thus, the Exchange’s Interim (semi-annual) consolidated statements are not reviewed.

However, the Exchange is considering the possibility of such reviews in future.

6.2.4.

The company has disclosed the special memorandum containing the plans of the entity controlling the company in relation to the company. The stated memorandum has been drawn up in accordance with the Corporate Governance Code recommendations.

The Exchange does not have the controlling person.

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6.2.5.

The company ensures the disclosure of detailed information about personal data of the Board of Directors members, including the information if they are independent directors, as well as immediate disclosure of information on the Board of Directors member’s loss of the independent director status.

Fully complied with.

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6.2.6.

The company shall disclose the information on the capital structure in accordance with the Corporate Governance Code recommendations.

Partially complied with.

The Exchange does not disclose:

the statements of the company’s executive bodies on the absence on the Exchange of information on the existence of ownership percentage of shares exceeding five per cent, apart from the disclosed one;

information on the possibility to obtain or obtaining by certain shareholders the amount of control not comparable to their participation in the Authorised capital, including on the basis of shareholders’ agreements or due to availability of ordinary and preferred shares with different nominal value.

The main reason for not full compliance with this corporate governance principle is that the Exchange does not have the obligation by law to disclose such information, as well as the short term passed after the Code’s adoption which did not allow implementing and/or adapting its recommendations.

However, a new version of the Provision on the information policy of the Exchange will be adopted as recommended in the Code.

6.2.7.

The company’s annual report contains additional information recommended by the Corporate Governance Code:

summary of the most significant transactions, including interrelated transactions entered into by the company and legal entities controlled by it for the last year;

annual report on the Board of Directors work
(including the Board of Directors’ committees) containing, inter alia, the information on the number of meetings in praesentia (absentia), on participation of each of the Board of Directors members in the
meetings, description of the most significant questions and the most complex issues considered at the meetings of the Board of Directors and its committees, main recommendations given to the Board of Directors by the committees;

information on direct or deemed interest in the company’s shares of the members of the Board of Directors and executive bodies of the company;

information if the members of the Board of Directors and executive bodies have the competitive interests (including connected with participation of the stated persons in the management bodies of the company’s competitors);

description of the remuneration system of the Board of Directors members, including the amount of individual remuneration at year-end on each member of the Board of Directors (with a breakdown into basic, additional remuneration for chairmanship in the Board of Directors, for chairmanship (membership) in the committees attached to the Board of Directors, commitment to the long-term incentive program, commitment of each member of the Board of Directors to the stock options plan, if any), reimbursement of expenses connected with the Board of Directors membership, as well as the company’s expenses on the directors’ liabilities insurance as the management bodies members;

information on the annual cumulative remuneration:

a) on the group of not less than five most high-paid members of executive bodies and other key administrative officers of the company with a breakdown by each remuneration type;

b) on all the members of executive bodies and other key administrative officers of the company to which the company’s remuneration policy applies, with a breakdown by each remuneration type;

information on annual remuneration of the sole executive body which it received or shall receive from the company (legal entity from the group of organisations whereof the company is the part) with a breakdown by each remuneration type, both for its fulfilment of the sole executive body’s obligations and on other grounds.

Partially complied with.

The Exchange does not disclose in the annual report:

Information on annual remuneration:

  • for a group of at least five most highly paid members of the management bodies and other key managers, by remuneration type;
  • for all members of management bodies and other key managers whose activity is regulated by Exchange’s policy on remuneration, by remuneration type;
  • information on CEO’s remuneration for the year which was or is due to be paid by the Exchange for performing as the sole executive body and due to other reasons, by remuneration type.

The main reason for not full compliance with this corporate governance principle is the short term passed after the Code’s adoption which did not allow implementing and/or adapting its recommendations.

6.2.8.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code relating to the stated principle (principles) of the corporate governance.

— 

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6.3.

The company’s provision of the information and documents on the shareholders’ requests shall be effected in accordance with the principles of fairness and lack of onerousness.

6.3.1.

In accordance with the company’s information policy, the shareholders with equal number of voting shares are provided with equal access to the company’s information and documents.

Fully complied with.

-

6.3.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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VII. Significant Corporate Actions

7.1.

Actions which influence significantly or may influence the structure of the company’s joint-stock capital and financial standing and, consequently, the shareholders’ position (hereinafter — significant corporate actions) shall be executed under fair conditions ensuring observance of rights and interests of the shareholders, as well as other parties concerned.

7.1.1.

The company’s Articles of Association determine the list (criteria) of transactions or other actions being significant corporate actions, the consideration/preliminary consideration of which is referred to the competence of the company’s Board of Directors, including:

the company’s reorganisation, acquisition of 30 and more per cent of the company’s voting shares (takeover), increase or decrease of the company’s authorised capital, listing and delisting of the company’s shares;

transactions on sales of equities (shares) of the legal entities under the control of the company having significant importance to it, as a result of which the company loses control over such legal entities;

transactions, including interrelated transactions with legal entities’ property the cost of which exceeds the amount stated in the company’s Articles of Association or which is of significant importance for the company’s business activity;

organisation of a legal entity under the company’s control having the significant importance to the company’s activity;

the company’s carve-out of treasury and “quasi-treasury” shares;

Partially complied with.

A number of these items are referred to the AGM, not the Supervisory Board.

The main reason for this provision being not met in full is that a number of these items refer to the AGM, not Supervisory Board pursuant to the Federal law “On joint stock companies” and the Exchange’s Articles of Association. However, decisions for such items are made as recommended by the Supervisory Board.

In addition, decisions on the following items are referred to the Supervisory Board according to the Exchange’s Articles of Association:

•listing the shares of the Exchange and (or) issue-grade securities of the Exchange convertible into the shares of the Exchange;

•approving of deals which sum exceeds 300 000 000 (three hundred million) roubles, except for the on-exchange trades related to the Company’s business activity in accordance with the Articles of Association and the trades on placing temporarily available funds;

•taking decisions on the Company’s participation and on termination of the Company’s participation in other companies (except for the organisations stated in Subclause 18, Clause 1, Article 48 of Federal law On Joint Stock Companies), including but not limited to the following decisions:

•on establishing and liquidating another company by the Company;

•on joining or withdrawing from an existing company;

•on changing the number of shares or nominal value of stakes (including by through purchase or sale) in companies at which the Company is either a shareholder or a participant;

•deciding on the following items referred to the general meeting of companies for which the Company is the only participant: exercising rights represented by stocks and disposing stocks issued by the Exchange.

Within the framework of the above-mentioned competence, the Supervisory Board considers items related to quasi-treasury stocks of the Exchange:

•Determining how the Exchange (its representatives) votes on items referred to the AGM of the National Settlement Depository and the following major items referred to the AGM of the NCC Clearing Bank;

•Approving candidates nominated by the Exchange for electing to the supervisory board and revisions commission of the National Settlement Depository and e NCC Clearing Bank.

The National Settlement Depository and NCC Clearing Bank are significant to the Exchange.

7.1.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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7.2.

The company shall ensure such procedure of significant corporate actions execution which allows the shareholders’ timely receipt of full information on such actions, provides them with the capability to influence the execution of such actions and guarantees observance and the reasonable protection level of their rights when executing such actions.

7.2.1.

The company’s internal documents have established the principle of ensuring equal conditions for all the company’s shareholders when executing significant corporate actions involving the shareholders’ rights and legal interests, as well as have stipulated additional arrangements protecting rights and legal interests of the company’s shareholders provided for by the Corporate Governance Code, including:

engagement of an independent appraiser having an untarnished reputation recognised on the market and appraisal experience in the corresponding sphere or the provision of the grounds not to engage an independent appraiser when appraising the property disposed of or acquired in a large transaction or a related party transaction;

appraisal of the company’s shares during their acquisition and redemption by the independent appraiser having an untarnished reputation recognised on the market and appraisal experience in the corresponding sphere with regard to the shares’ volume-weighted average price for a reasonable period, notwithstanding the effect connected with the company’s entering into the relevant transaction (without regard to the share’s price change in connection with dissemination of information on the company’s entering into the relevant transaction), as well as notwithstanding the discount for carve-out of minority stake shares;

extension of the list of the grounds whereon the company’s Board of Directors members and other persons stipulated by the legislation shall be recognised as related parties in the company’s transactions for the purpose of the related parties’ actual relatedness evaluation.

Partially complied with.

The Exchange’s internal documents do not stipulate the following additional arrangements protecting the shareholders’ rights and legal interests:

engagement of an independent appraiser having an untarnished reputation recognised on the market and appraisal experience in the corresponding sphere or the provision of the grounds not to engage an independent appraiser when appraising the property disposed of or acquired in a large transaction or a related party transaction;

appraisal of the company’s shares during their redemption by the independent appraiser having an untarnished reputation recognised on the market and appraisal experience in the corresponding sphere with regard to the shares’ volume-weighted average price for a reasonable period, notwithstanding the effect connected with the Exchange’s entering into the relevant transaction, as well as notwithstanding the discount for carve-out of minority stake shares;

extension of the list of the grounds whereon the Supervisory Board members and other persons stipulated by the legislation shall be recognised as related parties to the Exchange’s transactions for the purpose of the related parties’ actual relatedness evaluation.

The main reason for not full compliance with this corporate governance principle is that the Exchange does not have the obligation by law to establish such additional arrangements, as well as the short term passed after the Code’s adoption which did not allow implementing and/or adapting its recommendations

When approving transactions, the Supervisory Board make a specific decision on the price of assets being the subject of the transaction (sold or bought) based on the asset’s market price. An independent appraiser must be invited as required by law.

7.2.2.

Other key, according to the company, criteria (recommendations) of the Corporate Governance Code related to the stated corporate governance principle (principles).

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