Iraqi Securities and Exchange Commission Regulatory Bylaw No. 17 (2022) on Safekeeping

Iraqi Securities and Exchange Commission Regulatory Bylaws for 2022 Regulatory Bylaw No. (17) on Safekeeping

Based on Legislative Decree No. (74) of 2004 and 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 Iraqi Securities and Exchange Commission Board, the Regulatory Bylaw for Safekeeping No. (17) of 2012 is amended to read as follows:

Article (1) Definitions:
The words and phrases used in these bylaws shall have the meanings assigned to them below, unless the context indicates otherwise:

The Law: Securities Markets Law No. (74) of 2004 or any law replacing it subsequently.
The Commission: The Iraqi Securities and Exchange Commission.
The Market: The Iraq Stock Exchange, or any securities trading market licensed by the Commission in accordance with the Law.
The Center: The Depository Center.
Safekeeping Institution: The legal entity that practices the activity of safekeeping for securities.
Securities: Ownership rights or debt instruments, whether local or foreign, which the Commission agrees to approve. Securities specifically include shares and bonds, investment units issued by investment funds, and financial derivatives, including convertible shares and bonds, put option contracts, call option contracts, spot settlement contracts, and forward settlement contracts.

Article (2) Licensing Conditions:
The following conditions are required to obtain a license to practice the safekeeping activity:

1. The application must be submitted by an Iraqi sponsor - a joint stock company registered in accordance with the provisions of the currently effective Companies Law, or a non-Iraqi sponsor - a foreign joint stock company registered in accordance with the laws of its home country, provided that it registers a branch in Iraq.
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2. The company's license application must be limited to the activity of safekeeping for securities.

3. The license applicant - the Safekeeping Institution - must establish an independent department to practice the safekeeping activity, to ensure the independence of the systems used and the communication lines specific to conducting the activity, thereby preventing any conflict of interest or misuse of funds.

4. Evidence of approval from the Central Bank of Iraq to practice the safekeeping activity as an independent department within the sponsor.

5. The net equity of the Safekeeping Institution must not be less than 100% of the paid-up capital at the time of submitting the license application.

6. Provision of the necessary electronic systems to execute this activity, in accordance with the conditions and specifications set by the Center or the Market, and approved by the Commission.

(1) Non-licensed companies were permitted to apply to obtain a license to practice this activity / pursuant to the Economic Council Decision No. (S.L 283) dated 2022/5/10.

7. Provision of the necessary specialized technical and administrative expertise among the personnel managing and conducting safekeeping tasks, and they must be of good reputation. It is required that none of them have been convicted of a crime involving moral turpitude or breach of trust.

8. Provision of an internal control system that ensures the proper application of the Law, regulations, and decisions issued thereunder, and the bylaws in force at the Market, and notifying the Commission and the Market of any detected violations immediately upon their occurrence.

9. Ensuring the settlement of financial obligations for its clients on a Delivery versus Payment (DVP) basis, in accordance with the approved procedures for clearing and settlement, and within a timeframe not exceeding the final settlement deadline according to the Center's procedures.

10. Payment of the license fee once and the annual subscription to the Commission and the Market.

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

Article (3) License Application:

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 sponsor, its type, registration number in the Companies Register, date, main office address, and number of branches. b. Names of shareholders owning more than 5% of the sponsor's capital, their nationality, nature of their activity, ownership amount in the capital, and their percentage.
   c. The sponsor's capital and equity.
   d. Names of board members. e. A statement clarifying any legal obligations or liabilities related to the Safekeeping Institution. f. A statement clarifying the name of the Managing Director, Internal Auditor, and personnel responsible for providing the safekeeping activity for securities, their academic qualifications, and certificates of good conduct and secrecy, with a job description for each. g. The name of the person authorized to represent the sponsor before the Commission to follow up on licensing procedures, and their full address, including email address.

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

3. The license applicant is committed to attaching the following documents with the application:
   a. Registration certificate and a certificate listing board members and those authorized to sign on their behalf. b. The company's establishment contract and its internal regulations.
   c. A model agreement for providing the safekeeping activity for securities, which must include at least the following information and data:

   • Definition of the safekeeping activity for securities.
   • Identification of all personal data related to the investor or their representative, address, nature of work, employer, and contact means.
   • Identification of the mechanism to be adopted to apply the "Know Your Customer" (KYC) principle.
   • Identification of the means of transferring collected amounts to the investor's benefit.
   • Identification of the percentage of fees borne by the investor in exchange for receiving this service.
   • A detailed statement of the rights and obligations incumbent on both the investor and the Safekeeping Institution.
   • Confirmation that the investor bears sole responsibility for all liabilities arising from instructions issued to the Safekeeping Institution, unless such liability results from non-commercial damages, professional liability, or negligence/loss/damage to investors' documents or funds.
   • A statement clarifying the proposed mechanism for resolving disputes with investors.

4. The Market shall review the application and its attachments, and notify the representative of the license applicant either that the application is complete or that there are deficiencies, and may take any measures deemed necessary to verify the accuracy of the information in the application and attached documents.

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

Article (4) Duties of the Safekeeping Institution:
The duties of the Safekeeping Institution are defined in the agreement for providing the safekeeping activity for securities concluded with service beneficiaries, which include at least the following:

1. Contracting with investors to provide safekeeping activity.
2. Opening a securities account for each investor and preparing a separate file for each containing all documents and transactions conducted on their account.
3. Safeguarding securities and exercising associated rights, including collecting interest and dividends, subscription rights, attending general assembly meetings, and voting on behalf of the investor based on their instructions.
4. Notifying the investor of all decisions and procedures taken by joint stock companies related to rights associated with their securities, using the agreed communication method as soon as possible, while considering the investor's interest.
5. Notifying the investor of all operations and transfers conducted on their account during a working day, according to the agreed notification method between them.
6. Notifying the investor of a detailed monthly account statement showing all trades and transfers conducted in their account, along with their current balance of securities or cash amounts.
7. Registering pledges on securities or freezing them at the request of the investor or their representative.
8. Transferring securities to the broker (seller) and accepting the transfer of securities from the broker (buyer) through the Market on behalf of the investor, in accordance with trading regulations and clearing and settlement procedures.
9. Submitting a request to transfer ownership of securities to the Depository Center in exceptional cases exempt from trading.
10. Transferring securities from the investor's account held with them to an account with another Safekeeping Institution at the investor's request.
11. Any other duties consistent with the provisions of the governing legislation under the Law, Regulatory Bylaws, and Rules.

Article (5) Obligations of the Safekeeping Institution:
The Safekeeping Institution is obligated to:

1. Comply with the regulations, regulatory bylaws, decisions, and circulars approved by the Market or the Commission, and implement what is stated therein.

2. Completely separate the Safekeeping Institution's accounts from the accounts of its investors, and prepare a special and separate register for each containing all related data.

3. Preserve the confidentiality of investors' data and information, 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. Maintain the necessary books and records to conduct the activity, and use computers and other modern technical devices, in accordance with accepted accounting standards. These books and records, and backup copies of all data available on the company's computers, must be retained for a period of no less than ten years, to protect investor data from any cause of damage.

5. Disclose data and financial statements based on the Regulatory Bylaw on Timely Disclosure No. 8 of 2015 (updated) to the Market and the Commission.

6. Subject all books, records, publications, documents, correspondence, and contracts related to the safekeeping department activity to the audit and inspection of the Market and the Commission, and obtain copies of these documents.

Article (6) Safekeeping Institution Services:
The types of services provided by the Safekeeping Institution include:

1. Physical Safekeeping: If the Safekeeping Institution receives securities from the investor for safekeeping with it, it must deposit them in the Depository Center before trading.

2. Nominal Safekeeping: If the Safekeeping Institution receives securities documented with the approval of the Depository Center to keep them with it or with another guarantor bank.

Article (7) Prohibitions

1. The Safekeeping Institution is prohibited from exceeding any clause in agreements concluded with third parties, unless it contradicts the provisions of the Securities Markets Law and the Regulatory Bylaws issued thereunder.

2. The Safekeeping Institution shall not disclose to any person information related to investors' transactions or securities owned by them without written permission from the client each time disclosure of information is requested. This prohibition does not apply to information that must be disclosed pursuant to this Law and the Regulatory Bylaws of the Commission and Market.

3. The Safekeeping Institution that owns a brokerage company shall not deal with it without obtaining the investor's consent.

4. The Safekeeping Institution is prohibited from being a clearing broker for securities trading activity.
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Article (8) Suspension and Cancellation of License:
The Market may suspend the Safekeeping Institution from conducting the activity or cancel the license granted to it, with the Commission's approval, in any of the cases mentioned below, and the cancellation decision shall be published through the means available at the Market and the Commission.

1. Loss of any of the licensing conditions stipulated in these bylaws.

2. Serious violation of any of the duties or obligations stated in these bylaws.
   (1) The clearing broker was permitted to practice this activity / pursuant to the Economic Council Decision No. (S.L 283) dated 2022/5/10.

3. Failure to pay the annual subscription for license renewal.

4. Issuance of a final judicial ruling ordering the bankruptcy of the licensed company as a guarantor bank.

5. Dissolution of the licensed company and its liquidation.

Article (9) Penalties:
The Market or the Commission may take one of the following measures if the Safekeeping Institution commits any violation of the provisions of these Regulatory Bylaws:

1. Issuing a warning and obliging it to remove the violation determined by the Market and the Commission.
2. Imposing a financial fine not exceeding the maximum limit of the fine stipulated in the Law and the Regulatory Bylaws issued thereunder.

Article (10) General Provisions:

1. Taking any of the measures specified in the Penalties and Fines system against participants in the securities sector shall not prevent civil and criminal liability in accordance with the provisions of any other law.

2. The Market shall issue the necessary forms to obtain the information required pursuant to the provisions of these bylaws, as well as determine the type of information deemed necessary upon license renewal.