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Stock Market: RFCA sums up Results
Chingiz Kanapyanov, deputy chairman of the Agency of the Republic of Kazakhstan for the regulation of the Almaty Regional Financial Centre (RFCA), answers questions from our magazine.
Mr Kanapyanov, what was 2007 like for the RFCA? What has the agency achieved so far?
On the whole, 2007 was a year of developing the stock market, and from that point of view, it was successful. We set up a national ratings agency, an educational centre, the RFCA Academy, and RFCA Media Holding. We also set up public information and education centres and a unified transfer and agency network on the basis of Kazpochta.
Last year a decision was taken on the capitalisation of the Kazakhstan Stock Exchange (KASE) and on its initial public offering (IPO) of shares. We also worked hard to attract new issuing agencies, investors and professional participants to the market. At present 50 broker and dealer companies have joined the RFCA. Twenty of them have been registered by the RFCA's authority and licensed under the Financial Monitoring Agency, including five with foreign involvement. At the same time the RFCA Agency has accredited 30 organisations, including six with foreign involvement. Some new foreign brokers and dealers have joined in – Deutsche Bank Securities, ABN AMRO Securities, etc. Thus, major world players have now joined the RFCA. We can say that the very concept of RFCA has become recognisable and understandable, both in Kazakhstan and abroad. World financial centres and stock exchanges – such as LSE, MICEX, NYSE Euronext, Tokyo and Hong Kong stock exchanges – have shown interest in it, to some extent.
At the end of 2007, the RFCA had 27 companies listed on its separate trading floor. Of course, this is not exactly what we expected, but you need to take account of two factors: first, a decision was taken to unify the RFCA's separate trading floor and KASE in the second half of the year, and second, the well-known adverse events both on world markets and in the Kazakh financial sector. All of that has made the players, banks and issuing agencies change their plans. A number of companies have decided not to seek listings on the Kazakh Stock Exchange, in the hope that market conditions will improve. An important role here was played by the introduction of new listing regulations for a joint trading floor.
How is the integration of the KASE and the RFCA's separate trading floors proceeding?
As you well know there are two trading floors, the main one and the RFCA's separate trading floor. Practice shows that this is not the best option: liquidity gets diluted, and investors and issuing agents get disorientated.
In this connection a strategic decision was taken to create a unified trading floor on the KASE. New listing regulations will come into force on 1st of June, KASE and the special trading floor will be united, and the special trading floor's privileges will be transferred to the rest of the Kazakh stock market. The KASE shares will be listed on the stock market as part of capitalization.
At the same time, the agency will hold on to 25% of shares and the rest will be offered both to Kazakh and foreign investors, but no more than 5% to any one party. This is a forced and, most likely, temporary measure aimed at maintaining the balance of interests of all sides, including professional players (banks, broker-dealer firms, and pension and investment funds).
The new regulatory framework which has been drafted for the unified trading floor with the involvement of experts from Singapore and London is at its final stage of approval by the Almaty Financial Centre and the Kazakh Stock Exchange.
In keeping with them, there will be three KASE trading floors: one for blue chips, another one for mid-caps and the third for start-ups. The last floor is our know-how. In that sector, the reporting requirements in terms of net income are not that stringent and therefore a company that has been set up virtually from scratch can immediately be listed on the stock market. This trading floor will mainly be aimed at small-scale and medium-scale business, a segment which until recently was virtually not represented on the market.
What is the situation like on the domestic stock market? What are the main problems?
The main problem is a relatively low liquidity level. The market lacks new issuers and new financial instruments. As regards the latter, we have now been actively working on the offering of financial instruments such as securitised debt obligations, securities, REITand on financial instruments that comply with Islamic law.
At the end of last year financial offerings included Sberbank shares and index funds of 60 Russian companies. We are hoping to bring in IPOs from Ukraine and China.
By listing Samruk's assets on the KASE, we will be able to increase liquidity. That was initially scheduled for December 2007, but due to various reasons it had to be delayed till the 2nd - 3rd quarter of this year. The companies are working on the form and mechanism of placing bonds and are finalizing its strategy. On top of that, a government decision has been taken to offer 24 state companies, which are still part of the committee for state property, on the market. This will be one of the last stages of privatisation.
We are working on ways of offering IPOs to the public. Most likely we will set up the investment fund, which will invest in blue chips and the fund will then be offered to the public. Certain restrictions will have to be imposed (as regards the investment amount) for bonds not to end up in one pair of hands. The fund itself should buy back the shares from the public.
Why did you set up institutions such as a national ratings agency and a specialised financial court? How is it going to affect the RFCA?
The national ratings agency is an important part of the domestic stock market because it assesses the credit rating of small and medium-sized companies.
From the economic point of view it has not always been effective, considering the scale of their business and the involvement of international rating agencies, such as Fitch, Moodys and S&P – the Big Troika. On top of that the agencies do not have offices in Kazakhstan, which means that their analytical reports are not always timely and precise as their experts lack information on the market situation. This is precisely why we set up the national ratings agency. We have used the experience of the Rating Agency Malaysia, RAM. The latter was set up in 1998. Having used the methodology of one of the main participants in the Big Troika, in three to four years RAM turned into the main rating agency in the Asia-Pacific region. We followed its suit. We are finalising the work on the methodology, hiring people and addressing other logistical issues. As a whole the ratings business is rather profitable, therefore as soon as the agency finds its feet, we will be able to move out and offer it either to a strategic investor or a Kazakh company.
At this stage our task is to provide domestic companies with the ratings that will be understood by a layman. The agency's job is also to make the Kazakh economy more transparent and competitive. Apart from the credit ratings it will also provide corporate governance ratings. We are closely working with the Kazakh association of independent directors on this issue. 
As regards, the specialised financial court in Almaty, it was set up on 17th August 2006. This institution is rather unique not just for the Kazakh court system but for the rest of the CIS as well. It has the status of a regional court, which looks at civil and legal disputes only as a court of first instance. Relevant sections of the Supreme Court of the Republic of Kazakhstan would deal with appeals and oversight.
The financial court was set up with a view to simplifying legal proceedings for the RFCA players. There is no language barrier as business is conducted in Kazakh, Russian and English. The court mainly deals with financial and tax disputes, civil cases, arising as a result of broker or dealer activities. The court can also deal with labour and land disputes and disputes over contractual commitments. The main thing is for one of the parties in the dispute to be represented by a RFCA participant.
Thus the rating agency and the specialised financial court would offer a considerable advantage by creating favourable and attractive conditions for the RFCA participants.
What is the short and medium-term outlook for the RFCA?
Among major tasks that need to be addressed in the near future is the adoption of the new listing regulations and commercialisation of the stock exchange. We are actively involved in drafting a new tax code and finalising the work on the law on joint-stock companies and the bankruptcy law.
Under the development strategy, the RFCA should become an international financial hub. We are planning to set up 3-4 regional offices by the end of this year. They will be in Novosibirsk, Western China, Moscow and either Kiev or Tashkent, thus signifying an expansion of the RFCA’s area of activity. All in all, it would cover Central Asia, the Caspian region, the CIS and Western China. Due to various reasons, including political considerations, many of the companies from this larger RFCA area might not want to seek listings on the London or Moscow Stock Exchanges. For them the KASE is a serious alternative. That applies to those who are not there just for prestige but simply want to make money. We have 5-6 Ukrainian companies which are waiting for the approval of our new listing regulations.  
In the next 5-10 years we are hoping to become one of a dozen major financial centres of Asia, with capitalisation increasing from the current level of $65.7bn to $300bn.

Table of contents
Stock Market: RFCAsums up Results  Chingiz Kanapyanov 
Stock Indices: Fighting All Winds  Tatyana Kudryavtseva 
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3

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