Uzbekistan approves procedure for circulation of foreign securities in the “regulatory sandbox”

Procedure for circulation of foreign securities approved

The National Agency for Advanced Projects approved a regulation on the procedure for circulation of foreign securities within the “regulatory sandbox” — a special legal regime on the capital market. The document was registered with the Ministry of Justice on November 11 and is available on Lex.uz, Spot.uz reported. According to Gazeta.uz, the regulation entered into force on November 12.

Which assets can be traded and where

The rules cover the circulation of assets issued abroad and recorded with the Central Securities Depository, as well as financial instruments based on them. These include shares from foreign stock indices, bonds of foreign companies and foreign states, ETFs, shares of index funds, and depositary receipts of foreign companies.

Two ways of trading

Two methods of executing transactions are provided. The first is through the Tashkent stock exchange or an online platform of an investment intermediary within Uzbekistan: in this case, the Central Depository issues instruments backed by foreign securities held in its account abroad. The number of such instruments may not exceed the volume of the underlying assets, and the depository must regularly reconcile their number with the backing and suspend new transactions in case of discrepancies. The second method is direct access to trading on foreign venues through the platform of a local intermediary, which must cooperate with a foreign investment intermediary that ensures the execution of transactions and the record-keeping of securities.

Who is allowed to conduct transactions

Only individuals and legal entities with qualified investor status are allowed to conduct transactions with foreign securities. According to Gazeta.uz, for individuals it is sufficient to meet at least one of a number of conditions: holding at least $5,000 in cash, securities, or other financial instruments; transaction experience over the past 12 months; a qualification certificate as a securities market specialist; international certificates such as CFA, CIIA, FRM; a specialized higher education, or at least two years of work in positions related to securities transactions or risk management. Compliance with the criteria is verified by the investment intermediary, and before obtaining status, an individual must pass a test on knowledge of the market and risks — remotely; those who meet the criteria by experience, education, or qualifications may be exempted from the test. Financial organizations — banks, insurance companies, investment funds, and professional market participants — are recognized as qualified investors, while other legal entities must meet requirements for net assets, staff qualifications, and transaction experience.

Registry and restrictions

Only securities included in a special registry after approval by NAPP may be put into circulation; the registry will be published on the agency's website. For inclusion, the security and its issuer must be registered in a recognized foreign jurisdiction, and the security must trade on a venue with a total capitalization of listed securities of at least $1 trillion (this refers to the capitalization of the venue, not of an individual company). The application to the agency is submitted by the initiator — an intermediary, a bank, or a foreign nominee holder; NAPP must make a decision within 10 working days, and the volume of admitted securities is coordinated with the Central Bank.

Settlements and payments

Purchasing foreign securities with borrowed funds is prohibited. Legal entities may not use conversion to acquire them, but may spend foreign currency proceeds from the export of goods and services. Intermediaries open separate foreign currency accounts with split accounting of buyers' funds at the Central Depository's agent bank; individuals may top them up with cash currency at the agent bank's branches or by transfer from their own accounts, while intermediaries are prohibited from accepting cash through their own cash desks or notaries. The agent bank must report the movement of funds to the Central Bank and NAPP and register cross-border transactions in the FERUz system no later than one business day. According to Gazeta.uz, transfers between a local broker and a foreign intermediary are not classified as foreign trade transactions, so contract registration in the 'E-contract' system is not required. Income (dividends, interest) is paid through personal foreign currency accounts at the agent bank, which can be managed via the Central Depository's mobile app; the platform must ensure withdrawals at least once a day, and the execution period for a broker's order must not exceed three banking days — with exceptions for cases of account freezing due to sanctions, actions of the client, or decisions of foreign regulators and courts. The regulation does not provide any separate tax benefits for such income.