The RFCA infrastructure

The Stock Exchange  

Within the frames of improvement of the stock market infrastructure, the Agency of the Republic of Kazakhstan on Regulation of Activities of the RFCA takes measures for commercialization of the Kazakhstan Stock Exchange. It will help optimize the stock exchange operations.

In addition, specific measures were taken to improve the legal framework of the financial market. In particular, the listing requirements of the stock exchange were amended.  The main innovation was the requirement to the number of free-float shares. It ensures the sufficient volume of the free float in the market and promotes to the increase in liquidity of the Kazakhstani stock market. 

Besides, the laws regulating the RFCA and securities market were amended:

1. The regulations specifying operations of the stock exchange as a non-profit organization were excluded;

2. The scope of activities of RFCA participants at other sock exchanges was enlarged;

3. Other professional participants were provided with the opportunity to operate at the Special Trading Floor of the RFCA. 

At the same time, the Business Plan on Basic Directions of Development of the Stock Exchange as the Leading Regional Financial Market for 2008-2010 was elaborated.  

Key events were as follows:

- Merger of the KASE trading floors and RFCA STF (2008);

- Introduction of the clearing and netting system when trading at the stock exchange;

- Consideration of the possibility of transfer from the T+0 payment pattern to the T+3 when trading shares;

- Increase in the number of financial instruments by introducing derivatives and in the result of new companies’ launch;

- Improvement of the stock exchange transparency;

- Aggressive marketing actions targeted to attract new issuers to the securities market.

These actions and some others should improve significantly the liquidity level of the stock exchange market and create favorable conditions for operations of foreign investors at this market.

At the same time, operation activities are being improved and new automatic trading systems are being implemented. It is supposed to work out together with JSC Kazakhtelecom the standard Internet platform for electronic trading. 

Clearing and Settlement System

In Kazakhstan JSC Central Securities Depositary performs settlements for transactions. Settlements are made by using the sequential method, i.e. securities and money are transferred in full.

For the purposes of improvement of the settlement system, the Agency plans to initiate the process of capitalization and automation of the activities of JSC Central Securities Depositary. It will allow for reduction of transaction costs and operating risks when making netting and clearing operations.

In the short term the Corporate Governance Code will be worked out and approved. The company Thomas Murray will conduct the audit. In order to bring the activities of the Central Depositary in compliance with international standards, it is planned to introduce net settlements and to establish the system of management of trading participants. It is also planned to purchase the clearing system. Besides, the measures to raise the capitalization level and to fix competitive tariffs will be taken.

Thus, for the purposes of optimization and improvement of functioning of the clearing and settlement system in connection with securities transactions, it is required to establish the clearing house. The securities clearing is a centralized system of settlements for transactions with securities.

Clearing provides for a complex of procedures aimed at settlement of mutual claims and liabilities of the securities purchaser and seller. The purpose of the clearing is to reduce the number of payments and deliveries of securities under transactions. Following the results of clearing, payment documents are drawn up. They are sent to the settlement system and the system ensuring the securities delivery for execution.

In order to implement the Strategic Plan for 2009-2011 of the Agency of the Republic of Kazakhstan on Regulation of Activities of the Regional Financial Center of Almaty, it is expected to establish and develop the clearing house. Capitalization of such a clearing house should be USD10mln. by 2011. It will help to reach its breakeven in the same year.

The Commodities Exchange

The effective commodity exchange, being included in market reform processes, is able to ensure the reliable basis and pricing mechanism for the state at the commodities market. Besides, commodities exchanges are encouraged to improve transparency, financial opportunities and efficiency of the market. The market pricing mechanism provides for democracy in pricing, gives market participants the information on commodity prices and reduces the number of intermediaries. All this promotes to elimination of shadow economy.

According to the information of the Statistics Agency of the Republic of Kazakhstan, at present there are 9 commodities exchanges in Kazakhstan. They are located in the cities of Almaty and Astana and in Pavlodar, Aktyubinsk, West-Kazakhstan, Zhambyl, Karaganda, Kyzylorda and Akmolinsk Regions. However, activities of existing trading floors are scattered and regional in scope. In fact, commodity exchanges are just information intermediaries between the seller and purchaser. Transactions are usually made outside the commodity exchanges.

Within the frames of implementation of the Strategic Plan for 2009-2011 of the Agency of the Republic of Kazakhstan on Regulation of Activities of the Regional Financial Center of Almaty, it is expected to establish the commodities exchange on the RFCA basis in compliance with international standards. At the initial stage the new commodities exchange is encouraged to arrange the system of grain trading in Kazakhstan. The grain market is very prospective for the modern Kazakhstani economy. Today Kazakhstan is one of the largest grain producers and exporters in the world. Thus, in 2007 the production volume was over 20mln. tons of grain of which 8.6mln. tons of grain and flour in grain equivalent was exported. The commodities exchange will allow for the analysis of the situation in regional grain markets, ensure the guaranteed sale at fixed prices inside the country and awareness of grain market participants to improve their literacy in the field of trading.

It is no coincidence that the RFCA has been chosen as the place for the new commodity exchange. The RFCA activities are aimed at:

- development of the Kazakhstani stock exchange;

- development and introduction of new financial instruments including derivatives (for commodities);

- attraction of domestic and foreign market participants;

- improvement of state regulation of the securities market;

- creation of the favorable investment image of Kazakhstan as a whole. Establishment of the commodities exchange on the basis of the RFCA will promote to development of derivative financial instruments. It will allow for perfection of forward contracts. It is important for preliminary financing of products manufacturing as well as for execution of future transactions.

In the medium run it is expected that the result of commodity exchange development will be favorable. It will allow:

- to find the necessary balance between the market and necessity of the state regulation of the economy that is especially important under market conditions;

- to create the conditions for the mechanism of commodities sale and transparent pricing;

- to forecast key macroeconomic indicators on the basis of their monitoring;

- to enforce transparency of the trading activity of key players, to control monopolists, to improve tax administration.

Thus, the following measures are planned to be taken within the fames of establishment of the commodities exchange:

By 2009:

- Arrangement of the system of warehouses and elevators, organization of the laboratory activity;

- Establishment of the logistics complex and software and hardware complexes;

- Establishment of the information and analytical centers.

By 2010:

- Establishment of trading floors and branches of broker companies in regions;

- Establishment of the clearing house.