WFE Interviews Azamat Joldasbekov, CEO, KASE
FOCUS: Could you give us a bit of background about your exchange?
Kazakhstan Stock Exchange (formerly the Kazakh Interbank Currency and Stock Exchange) was founded on November 17, 1993. The main reason for creating KASE was to facilitate the introduction of the Kazakhstan’s national currency Tenge (KZT), and so the need for a solid mechanism to establish the market exchange rate of the newly introduced currency.
This month Kazakhstan Stock Exchange (KASE) is celebrating its 20th anniversary. Throughout 20-years of its history KASE evolved into the only licensed and regulated stock exchange in Kazakhstan with the following markets: foreign currency market, government securities market, market of shares and corporate bonds, bills and derivatives market.
As of November 01, 2013 the total trading volume of KASE was 164.2 bn USD, out of which the corporate securities represent only 1.6 %. Therefore, KASE still remains mainly a currency exchange with the aim to increase its shares and corporate bonds markets.Current market capitalization of the shares and corporate bonds markets is 31.8 bn USD and 35.3 bn USD respectively.
KASE is a commercial joint-stock company with 56 shareholders. The National Bank of the Republic of Kazakhstan is the largest shareholders with 50.1 %. Other shareholders include banks, brokerage firms, asset management companies, pension funds and other professional financial institutions, as well as individuals. KASE in turn is a shareholder of the Kazakhstani Central Securities Depository (38.7 %) and Kyrgyz Stock Exchange (10.6 %), and together with IRBIS Financial Markets Information Agency LLP (100 %), IT company eTrade.kz LLP (100 %) and back-up center maintenance company RTRS LLP (50 %) represents a KASE Group.
FOCUS: How active are foreign investors in your exchange? How accessible is your market?
IT connectivity, access/restrictions for foreign investors; the breakdown of the investors, breakdown of companies listed by sector (financial, industrial and other services.)
Some large foreign banks already established their offices in Almaty and are members of KASE (CITIBANK, HSBC, JP Morgan, RBS, Sberbank, and other). There are no limitations on currency exchange or repatriation of capital. The tax regime is rather liberal and attractive to foreign investors. In 2013 the share of foreign investors in the corporate securities market was around 13.6 %.
Moreover, KASE is at the final stage of introducing remote access to foreign financial market participants and Direct Market Access opportunity to allow clients of KASE members to access KASE trading system directly. In the nearest future KASE plans to enhance its settlement system and introduce an improved robust and reliable risk management mechanisms.
At the same time, a stock market in any emerging economy should comply with certain requirements to become more attractive for foreign investors. Major requirements include, but are not limited to market volumes, liquidity and number of traded instruments, free of high costs and unnecessary red tape/administrative barriers access to the market, transparent and understandable rules, reliable technical and efficient organizational infrastructure. The market should provide protection of the investors’ rights and ensure robust market surveillance and transparency for both investors and issuers. KASE has been improving in all of these areas and continue focusing on them for further development of regulations and infrastructure of Kazakhstani capital market, which has a significant growth potential.
KASE is keen on bringing more attractive financial instruments to the market through individual collaboration with each potential issuer attractive for large-scale investors. National bond market in 1998-2000 was launched the same way, through interpersonal communication, persuasion and explanation of benefits. KASE understands the importance of IPO road-shows and international information campaigns and is keen on working in close contact with international players interested in investing in Kazakhstani securities.
Implementation of the “People’s IPO” on KASE is very important and if all the companies projected for IPO in the framework of this program will go public on KASE, our market capitalization and trading volumes will grow significantly, thus attracting both local and foreign investors. Currently, KASE’s listed companies primarily represent the energy, finance, telecommunication and raw materials sectors of the economy.
Further attraction of foreign investors to Kazakhstani capital market and increasing the volume of foreign investments in Kazakhstani securities is one of the priority public policy objectives aimed at development of the financial sector. Thus, in the framework of improving financial market infrastructure, NBRK focuses its efforts on implementing measures aimed at ensuring investors’ confidence in the capital market of Kazakhstan. In addition to earlier mentioned endeavors, NBRK is introducing regulatory changes aimed at increasing market transparency and preventing market manipulation. Adequate information, solid rules and robust market surveillance, will enable KASE to continue delivering sufficient services to the market bringing it to full compliance with best international practice and attracting more foreign investors.
FOCUS: What new project/product are you currently working on?
Much emphasis is made on attracting new quality issuers to the market, which will in turn bring new investors and enhance liquidity. We will approach companies individually and during the IPO acquisition campaigns in the regions of Kazakhstan, raising awareness of the local companies about attracting capital for further growth on the stock market. Currently, we came up with the proposal to the regulator to introduce changes to our listing requirements for different listing categories making them in compliance with the best international practice.
As already mentioned earlier, KASE is keen to attract more investors, including both local and foreign investors. As the investor base in Kazakhstan is highly institutionalized, we are working on a number of measures to bring more retail investors to the market. One of the measure’s is recently introduced “People’s IPO” program designed to attract Kazakhstani citizens to the capital market, others include, but are not limited to information awareness campaigns for retail investors.
In addition, KASE is working on raising visibility of the Kazakhstani financial market among foreign investors. This year KASE has become a full member of WFE. KASE is also a member of the International Association of Exchanges of the Commonwealth of Independent States and the Federation of Euro-Asian Stock Exchanges, as well as affiliate member at the South-Asian Federation of Exchanges. In addition, KASE is a member of the Software & Information Industry Association's Financial Information Services Division and continues working actively on establishment of bilateral and multilateral relations with the foreign exchanges, international association and financial institutions.
KASE regularly upgrades existing trading and post-trading systems aimed at creation of technical framework for introduction of new instruments and ensuring easy and efficient access to the market. KASE is committed to development of our market’s IT-infrastructure both in a short-term and in a long-term prospective to ensure compliance with local and international investors’ requirements.
KASE also worked on further development of the securities market settlement scheme, as well as derivatives market that was launched in 2010. KASE conducted targeted regulatory and marketing activities, discussing these projects with the regulator and market participants, making presentations and offering educational seminars.
FOCUS: What are the challenges you see in your market today and in the future?
The main challenge is to relaunch the market. In order to do so it is necessary to prepare and implement a new strategy for the exchange’s operation and development. The key points of the future strategy are clear now – to focus on new IPOs and bring more investors to the market, to optimize the listing procedures to the needs of issuers and investors, overall increase of friendliness and ease of the exchange’s services for its customers.
These are the main points of the so-called binary concept of the stock market, which implies a market in which regulation and rules are differentiated depending on the type of investor. The new strategy will also need to focus on the new in Kazakhstan institute of investment banks which should develop in the foreseeable future.
For Kazakhstan, a country with dominant natural resources industry, capital market can serve as a tool for economic diversification, wealth distribution, spread of ownership, corporate governance enhancement, as well as establishing strong transparency provision mechanisms. KASE alongside with the regulator focuses its efforts on increasing trustworthiness of the capital market which requires further development of clear and understandable rules, safe and sustainable infrastructure and transparent market practices in order to increase attractiveness of Kazakhstani capital market and ensure investor protection.
One of the major government measures aimed at development of the capital market is the announced and launched in November 2012 a three-year “People’s IPO” program, i.e. placement of state-owned companies’ shares on domestic stock market for purchase by the Kazakhstani population. Among companies considered for IPOs are national conglomerates with a proven track record of progress and stability. These companies belong to the state-owned “Sovereign Wealth Fund “Samruk-Kazyna”. Through IPOs the Sovereign Wealth Fund is planning to privatize approximately 5-15% of these companies. KASE being one of its major participants prioritized its medium and long-term projects to ensure successful implementation of these IPOs on Kazakhstani stock market.
In addition to already announced by the Kazakhstani government listings of the SOEs, KASE is keen on attracting new listings and ensuring a substantial IPO pipeline. Generally, the exchange is aimed at facilitating successful implementation of the government strategy aimed at ensuring sustainable and balanced growth of the economy through diversification and enhancement of its competitiveness, creating favorable investment environment, increasing investments to the economy through the capital market, and successful entry of Kazakhstani "blue chips" to the national stock market.
We do not expect any miracles: the restart of the market will take at least two to three years according the optimistic estimates. But the restart is necessary and a lot of hard work for it is even more necessary.
FOCUS: How do you assess your exchange`s position at a time of increased globalization?
Kazakhstan’s securities market is considered one of the most developed markets in the CIS in terms of regulation and infrastructure. It ranks second after Russia by trade turnover and is ahead of Ukraine by both trading volume and capitalization. There are, however, certain weaknesses that hinder faster development of the market, including low liquidity and lack of financial instruments. Thus, Kazakhstan’s securities market can be considered to be at the early stages of its development, which means that the potential for growth is rather high.