Regulatory Bylaw No. 17 (Custodian) Amended for 2025

Regulatory Bylaws of the Iraqi Securities and Exchange Commission 2022 Regulatory Bylaw No. (17) (The Amended Custodian for the Year 2025)

Based on Article 74 of Law No. (74) of 2004 and the Council of Ministers' Decision No. (50) of 2021, and in light of the recommendations of the White Paper Committee for implementing the reform program, and based on what was approved by the Board of Directors of the Iraqi Securities and Exchange Commission No. (17), the Regulatory Bylaw for the Custodian for the year 2012 is amended to become as follows:

Article (1) Definitions: Unless the context indicates otherwise, the words and phrases appearing in these Bylaws shall have the meanings assigned to them below:

Law: The Securities Markets Law No. (74) of 2004 or any law that replaces it later.

The Commission: The Iraqi Securities and Exchange Commission.

Market: The Iraq Stock Exchange, or any other securities market licensed by the Commission in accordance with the Law.

Center: The Depository Center.

Custodian: A legal entity licensed by the Iraqi Securities and Exchange Commission to conduct the custodian activity.

Custodian Activity: The activity conducted by the Custodian in accordance with the regulations of the Iraqi Securities and Exchange Commission and the provisions of the Custodian Agreement.

Custodian Agreement: The agreement between the Custodian and the Client (Investor).

Custodian Account: A customer account number issued by the Custodian after signing the Custodian Agreement with the Client (Investor).

Securities: Equity rights or debt instruments, whether local or foreign, that the Commission approves for listing, and specifically include shares, bonds, and investment units issued by investment funds.

Article (2) Licensing Conditions: To obtain a license to practice the custodian activity, the applicant must meet the following conditions:

1. The applicant must be a joint-stock company registered in accordance with the provisions of the Companies Law, or a foreign securities broker registered in its home country, provided it registers a branch in Iraq licensed by the Commission to deal in securities.

2. The license application must be restricted to the custodian activity only.

3. The applicant must establish an independent department for the Custodian to practice the custodian activity, to ensure the independence of the systems used, communication lines, and offices, thereby preventing any conflict of interest or misuse of funds.

4. The applicant must obtain approval from the Central Bank of Iraq to practice the custodian activity as an independent department within the broker.

5. The net equity of paid-up capital for the Custodian must not be less than 100% when submitting the license application.

6. The applicant must provide the necessary electronic systems, procedures, and specifications developed by the Center or the Market and approved by the Commission.

7. The persons managing and conducting the custodian duties must possess the necessary specialized technical and administrative expertise, have a good reputation, and not have been convicted of a crime involving dishonesty or embezzlement.

8. The applicant must have an internal control system that ensures the proper application of the Law, regulations, and decisions issued thereunder, and the bylaws of the Market, and must notify the Commission and the Market of any discovered violations immediately upon their occurrence.

9. The applicant must ensure the settlement of its clients' trades on a Delivery versus Payment (DVP) basis, in accordance with the approved procedures for clearing and settlement, and the settlement procedures of the Center.

10. The applicant must pay the annual license fee to the Commission and the Market in a single installment before the due date.

11. Any additional conditions or requirements approved by the Market and the Commission in accordance with the public interest and investor protection.

Article (3) Application for Licensing:

1. The license application must be submitted to the Market using the form prepared for this purpose, and the application must include the following information: a. The name of the broker, its type, its registration number in the Commercial Register, its headquarters, the number of its branches. b. The names of shareholders owning more than 5% of the broker's capital, their nationality, the nature of their activity, and the amount and percentage of ownership in the capital. c. The broker's capital and equity. d. The names of the board of directors members. e. A statement clarifying any lawsuits or legal liabilities concerning the Custodian. f. A statement clarifying the name of the Managing Director, the Internal Auditor, and the persons in charge of dealing in securities, their academic qualifications, and certificates of good conduct and behavior for each of them. g. The name of the person authorized to represent the broker before the Commission to follow up on licensing procedures, and their full address, including the email address, and sufficient details specified by the Commission regarding the brokerage company affiliated with the license applicant that will execute investor orders. h. A list including the name of at least one person from the Market as a licensed broker.

2. The license application must be signed by the Managing Director of the broker.

3. The license applicant must attach the following documents with the application: a. The names of its board of directors members, the registration certificate, and the certificate of authorization for the signatories. b. The establishment contract of the company and its internal regulations. c. The Custodian Activity Submission Agreement form, which must include at least the following information and data: • Definition of the custodian activity for securities. • Determination of all personal data related to the investor or their representative, including their address, nature of work, and the entity they work for, along with contact means. • The mechanism to be adopted to apply the "Know Your Customer" principle. • The means of transferring amounts collected on behalf of the investor. • The percentage of commissions to be borne by the investor in exchange for receiving this service. • A detailed statement of the rights and obligations mentioned above for both the investor and the Custodian. • Confirmation that the investor bears sole responsibility for all responsibilities mentioned to the Custodian regarding instructions issued by them, unless such responsibility arises from gross negligence, professional liability, or loss/damage to the investor's documents or funds. • A statement clarifying the accepted mechanism for resolving disputes with investors.

4. The Market will review the application and its attachments, and notify the license applicant's representative of any deficiencies, either by completing the application or taking any measures deemed necessary to verify the accuracy of the information and attached documents.

5. The Market will submit all application documents to the Commission for the purpose of granting or rejecting the Custodian license.

Article (4) Services and Duties:

A - Services:

1. Physical Custody: If the Custodian receives securities from the investor for custody, it must deposit them in the Depository Center before trading.
2. Electronic Custody: If the Custodian receives securities from the investor, it must deposit them with the Depository Center to be kept there or with another guarantor bank.

B - Duties: The duties of the Custodian are determined by the Custodian Activity Submission Agreement signed with the beneficiaries, and include at least:

1. Contracting with investors to provide the custodian activity.
2. Opening a Custodian Account for each investor and preparing a separate file for each of them, containing all documents, papers, and transactions related to their account.
3. Preserving securities and all associated rights, including receiving dividends, profits, subscription rights, attending general assemblies, and voting on their behalf according to their instructions.
4. Notifying investors of all decisions and procedures taken by the joint-stock companies regarding rights associated with their securities, using the agreed communication means as soon as possible, while considering the investor's interest at all times.
5. Notifying investors of all operations and transfers made to their account during the day, using the agreed notification means between them.
6. Notifying investors of a detailed monthly account statement showing all transactions in securities or transfers made to their account, along with their balance of securities and cash amounts.
7. Registering pledges on securities or freezing them based on the investor's or their representative's request.
8. Transferring securities to the broker (Seller) and accepting the transfer of securities from the broker (Buyer) by the Market on behalf of the investor in accordance with trading bylaws and clearing and settlement procedures.
9. Submitting a request to transfer ownership of securities to the Depository Center in cases exempt from trading.
10. Transferring securities from the investor's account with the Custodian to another Custodian's account upon the investor's request.
11. Any other duties that align with the provisions of the Law, regulatory bylaws, and rules.

Article (5) Obligations of the Custodian: The Custodian must:

1. Comply with the systems, regulatory bylaws, decisions, circulars, and mechanisms approved by the Market or the Commission, and implement what is stated therein.
2. Completely separate the Custodian's account from the accounts of its investors, and prepare a special and separate record for each containing all related data.
3. Maintain the confidentiality of data and information related to investors, and not disclose their names or provide any data or information about their accounts, except that the Commission or Market must be provided with details, data, and ownership of any investor upon request.
4. Keep the necessary books and records for the activity, and use computer devices and other modern technical devices according to the approved accounting standards, provided that these books and records, and backup copies of all computerized data regarding investors, are kept for a period of not less than ten years, to prevent them from being subject to any cause of damage.
5. Disclose data and financial statements to the Market and the Commission based on the Disclosure Regulatory Bylaw No. 8 of 2015, updated.
6. Subject all books, records, documents, correspondence, and contracts related to the custodian department activity to the supervision and inspection of the Market and the Commission, and obtain copies of these documents.

Article (6) Prohibitions:

1. The Custodian must not exceed any clause in the agreements concluded with others, unless it is not contrary to the provisions of the Securities Markets Law and the regulatory bylaws issued thereunder.
2. The Custodian must not disclose to any person information concerning transactions of investors or the securities they own without explicit permission from the client in a request for disclosure. This prohibition does not apply to information that must be disclosed according to this Law, and the regulatory bylaws of the Commission and the Market.
3. The Custodian must not deal with a brokerage company that owns it except after obtaining the investor's consent.

Article (7) Suspension and Cancellation of License: The Market may, by a license cancellation decision and by means available to the Market and the Commission, suspend the license granted to the Custodian to practice the activity or cancel it in any of the following cases:

1. Loss of any licensing condition stipulated in these Bylaws.
2. Serious violation of any of the duties or obligations stipulated in these Bylaws.
3. Failure to pay the annual license renewal fee.
4. Declaring the licensed company bankrupt.
5. Issuing a judicial decision to dissolve and liquidate the licensed company.

Article (8) Penalties: In the event that the Custodian commits any violation of the provisions of these regulatory bylaws, the Market or the Commission may take one of the following measures:

1. Issue a warning and compel him to remove the violation, as determined by the Market and the Commission.
2. Impose a financial fine not exceeding the maximum limit of the fine stipulated in the Law and the regulatory bylaws issued thereunder.

Article (9) General Provisions:

1. The adoption of any of the measures specified in these Bylaws does not prevent the application of the penalties and fines system in the securities sector from proceeding with civil and criminal liability according to the provisions of any other law for the parties involved.

2. The Market shall issue the necessary forms for obtaining the required information regarding the determination of the type of information deemed necessary by the Market and the Commission for the purpose of licensing, as well as when renewing the license.

Faisal Al-Haimous Chairman of the Iraqi Securities and Exchange Commission