Why Become a Qualified Investor

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

A wide field for investment is available to them, but it can be mine.

How a qualified investor differs from an unqualified one

A qualified investor is a special category of financial market participants who have proven their knowledge and experience. This legal status is given to financial companies, government agencies and some people. With it, they can invest in any investment instruments, as they understand what they are doing, and therefore are themselves responsible for risky ventures.

By default, an investor is considered unqualified. It can only be invested by the Federal Law of June 11, 2021 No. 192-FZ "On Amendments to Certain Legislative Acts of the Russian Federation" in relatively reliable and simple securities:

• shares of Russian companies that have been admitted to trading on stock exchanges;
• government bonds of Russia and other countries of the Eurasian Economic Union, member states of the European Union, Ireland and Great Britain;
• corporate bonds of firms with high investment ratings from the same countries;
• shares of open-ended, exchange-traded and closed-end investment funds.

In 2020, about 4.5 million new investors came to Russian stock exchanges, the Central Bank calculated. This is half of all investors in Russia. Here the regulator's leadership decided that non-professionals need to be even more protected from complex and risky tools.

Therefore, from October 1, 2021, there will be two types of non-professional investors in Russia: “unqualified especially protected” and “unqualified idle”. The former will be able to invest only in instruments from the list above. The latter will have to undergo special testing, the standards of which are still being developed. The reward is permission to invest in risky, but potentially more profitable instruments, namely: futures, shares of foreign companies outside the S&P 500 index and bonds of other countries.

Why do you need the status of a qualified investor

Private investors receive this status Federal Law No. 39-FZ of April 22, 1996 (as amended on June 11, 2021) "On the Securities Market" for the sake of money: the investments available to them can bring more profit than the securities of large companies. On the other hand, qualified investors understand and accept that they are at high risk and may be left without investment at all.

The specific set of securities depends on the broker, but, as a rule, these are:

• Shares and bonds of foreign companies that are not included in the S&P 500 stock index and are traded on foreign exchanges: American, British, German, Hong Kong and others.
• Foreign derivatives: futures, options and forwards on stocks, bonds, currencies and indices.
• ETFs on foreign exchanges from any management company.
• (borrowing in foreign currency) of firms and states that are traded both on stock exchanges and on the over-the-counter market.
• Shares of investment, venture and hedge funds.

What it takes to become a qualified investor

To obtain 1. Federal Law No. 39-FZ of April 22, 1996 (as amended on June 11, 2021) "On the Securities Market"

2. Ordinance of the Bank of Russia dated April 29, 2015 No. 3629-U “On the recognition of persons as qualified investors and the procedure for maintaining the register of persons recognized as qualified investors” this status, legal entities must work with financial markets or have capital of 200 million rubles or more. Most often, the qualified ones include investment and pension funds, insurance companies, banks, international financial organizations and some Russian departments.

An individual recognizes the Ordinance of the Bank of Russia dated April 29, 2015 No. No. 3629-U "On the recognition of persons as qualified investors and the procedure for maintaining the register of persons recognized as qualified investors" by a qualified investor, brokers or commercial banks. They evaluate a person according to the list of requirements, which is described in the law. It is enough for an investor to meet one of the criteria.

Have the required amount of money

The investor must confirm that he has at least 6 million rubles invested in certain assets:

• any currency on accounts with Russian and foreign banks;
• precious metals on unallocated metal accounts;
• shares, bonds and units of investment funds, including those transferred to trust management;
• futures, options and other derivatives market instruments.

Securities from foreign brokers, real estate, cars, as well as money on credit cards and accounts of legal entities are not taken into account.

Trade a lot in the financial market

Securities and derivatives transactions in the last four quarters are counted. An investor must trade for at least six million rubles, close at least 40 transactions and conduct them at least once a month.

Get an economic education, a certificate or certificate

If an investor has received a higher education in economics, then such a person is immediately ready to be recognized as qualified. The law does not define specific training programs, so brokers decide for themselves what to consider as a suitable specialty. But it is important that the university also has the right to certify professionals in the securities market. Now only four institutions can do this: the MFC Training Center, the Samara University of Economics, the Ural Institute of the Stock Market and the Russian University of Economics.

Another option is to study yourself, pass exams and get a certificate of a financial market specialist, auditor or insurance actuary (expert in financial security and risk) or a certificate of Chartered Financial Analyst (CFA), Certified International Investment Analyst (CIIA) or Financial Risk Manager (FRM) …

Work in a financial institution

Only work that is directly related to financial markets is considered: you need to make transactions with securities or derivatives, manage risks, engage in analytics, or at least prepare recommendations for traders.

If the organization itself is considered a qualified investor, then two years of work experience is enough for a person. If not, then three years are needed.

How to properly register the status of a qualified investor

There is no unified state register of qualified investors in Russia. Each broker or management company maintains its own Bank of Russia Ordinance No. 3629-U dated April 29, 2015 "On recognizing persons as qualified investors and the procedure for maintaining the register of persons recognized as qualified investors" go through the entire procedure again.

This is partly why there are many offers on the Internet to obtain the status of a qualified investor for a low price: using fake certificates of income, trading volume or work experience. Better not to agree to this, because the Central Bank periodically checks the registers of companies.

If a fake is discovered, then the investor, at best, will immediately be blocked with all the assets. At worst, you can get sued for document forgery and fraud.

Each company has its own rules for conducting legal procedures, sometimes more stringent than required by law. Therefore, specific actions may differ, but the general essence is as follows.

Prepare documents

The company will ask for confirmation that the investor is eligible for qualified status. It makes sense to collect supporting documents in advance:

• Bank statements and management company reports to confirm that there are six million.
• Statement on transactions for four quarters from the broker - show the turnover and the number of transactions.
• Diploma, high school diploma or certificate - to confirm education.
• A copy of a work book or contract - to certify work experience.

Then you need to come to the office of a bank or broker, sign an application and submit the necessary documents. Sometimes they can be sent by e-mail or registered mail. It is better to check the formalities with the specific organization.

Fill out an application

The application form also varies, but at least includes personal data and supporting documents. Frequent items besides them:

• Instruments for which the status is issued. The investor can choose whether he wants to become qualified for securities, futures and options, or both.
• Accepting increased risks. A person will be able to invest in instruments on which it is real to lose all capital.
• Refusal to pay Federal Law No. 46-FZ of March 5, 1999 "On the Protection of the Rights and Legal Interests of Investors in the Securities Market" from the compensation fund. It is a state-owned enterprise that helps investors and shareholders in bankrupt companies - but only individuals.

Send documents to broker

The managers on the side of the broker or bank will do the rest themselves: they will check the documents and the application, request additional information and add the investor's data to their list of qualified ones.

It is important to consider here that you will have to go through identification: either at the company's office with a passport, or using an electronic signature.

What is worth remembering

1. A qualified investor is a category of financial market participants who have confirmed their knowledge and experience. This is the legal status that people and some organizations get.
2. An unqualified investor can invest in a limited list of assets, a qualified investor in everything.
3. The tools available to qualified investors can both bring high returns and destroy all capital.
4. Qualified investors can be people with financial education, suitable work experience, a large volume of transactions on the market, or capital from 6 million rubles.
5. The status of a qualified investor is assigned by banks and brokers themselves, so the procedure and requirements are different for everyone.