CHADBOURNE PARKE LLP - ebrd.com · Law of the Republic of Kazakhstan No.474-II on State Regulation...

ALMATY - 5930.08

SECURITIES MARKETS LEGISLATION ASSESSMENT PROJECT

2007 ASSESSMENT

based on legislation in force on 1 June 2007

KAZAKHSTAN

CHADBOURNE & PARKE LLP Level 4, 43 Dostyk Avenue, Almaty 050010

Kazakhstan www.chadbourne.com

http://www.chadbourne.com/

EBRD – Securities Market Legislation Assessment 2007

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TABLE OF CONTENTS Executive Summary _______________________________________________________________________________________________________ iv

Section I – Basic Information about Securities Market Related Laws and Regulations _________________________________________________ vi

Section II – Identity of the Relevant Market Regulatory Authorities (Statutory and Non-statutory) by Activities Regulated ____________________ xi

Section A – Regulator ______________________________________________________________________________________________________ 1 Responsibilities of the Regulator _________________________________________________________________________________________________________________ 1 Independence of the Regulator___________________________________________________________________________________________________________________ 2 Accountability of the Regulator __________________________________________________________________________________________________________________ 3 Regulator’s powers and resources ________________________________________________________________________________________________________________ 7 Clear and Equitable Procedures ________________________________________________________________________________________________________________ 11 Professional Standards _______________________________________________________________________________________________________________________ 12 Cooperation among Regulators _________________________________________________________________________________________________________________ 14

Section B – Self-regulation ("SROs") ________________________________________________________________________________________ 17 Performance and Functions of SROs _____________________________________________________________________________________________________________ 17 Authorisation or delegation subject to oversight ____________________________________________________________________________________________________ 19 Oversight __________________________________________________________________________________________________________________________________ 22 Misuse of Information and Conflict of Interests_____________________________________________________________________________________________________ 23

Section C – Issuers and their Information-Disclosure Obligation __________________________________________________________________24 Content of the Prospectus______________________________________________________________________________________________________________________ 24 Foreign Issuers______________________________________________________________________________________________________________________________ 30 Full Disclosure______________________________________________________________________________________________________________________________ 31 Liability ___________________________________________________________________________________________________________________________________ 33 Derogations ________________________________________________________________________________________________________________________________ 34 Regulator’s Powers __________________________________________________________________________________________________________________________ 34 Other Listing Documents ______________________________________________________________________________________________________________________ 35 Ongoing Disclosure Requirements_______________________________________________________________________________________________________________ 36 Fair and Equitable Treatment of Shareholders _____________________________________________________________________________________________________ 39 Change in Corporate Control __________________________________________________________________________________________________________________ 42

Section D – Collective Investment Schemes (CISs) ______________________________________________________________________________43 Entry and Eligibility Criteria ___________________________________________________________________________________________________________________ 44


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Supervision and Ongoing Monitoring ____________________________________________________________________________________________________________ 51 Delegation of Functions _______________________________________________________________________________________________________________________ 53 Legal Form/Investors Rights ___________________________________________________________________________________________________________________ 55 Separation of Assets __________________________________________________________________________________________________________________________ 56 Disclosure _________________________________________________________________________________________________________________________________ 59 Asset Valuation______________________________________________________________________________________________________________________________ 65 Pricing and Redemption of Interest ______________________________________________________________________________________________________________ 67

Section E – Market Intermediaries ___________________________________________________________________________________________ 71 Authorisation and Licensing ___________________________________________________________________________________________________________________ 71 Ongoing Requirements________________________________________________________________________________________________________________________ 74 Investment Advisers __________________________________________________________________________________________________________________________ 78 Custodians _________________________________________________________________________________________________________________________________ 78 Capital Adequacy Requirements ________________________________________________________________________________________________________________ 79 Management and Supervision __________________________________________________________________________________________________________________ 82 Customer Protection _________________________________________________________________________________________________________________________ 82 Procedures for Dealing with intermediary in Financial Difficulty ______________________________________________________________________________________ 85

Section F – Secondary Market ______________________________________________________________________________________________88 Licensing of Exchanges and Trading Systems ______________________________________________________________________________________________________ 88 Ongoing supervision _________________________________________________________________________________________________________________________ 92 Transparency of Trading ______________________________________________________________________________________________________________________ 95 Detection of Unfair Practices___________________________________________________________________________________________________________________ 96 Monitoring of Large Exposures _________________________________________________________________________________________________________________ 99 Default Procedures _________________________________________________________________________________________________________________________ 100

Section G – Clearing and Settlement ________________________________________________________________________________________ 103 Authorisation and Licensing of Securities Settlement Systems_________________________________________________________________________________________ 103 Trade Confirmation and Delivery Versus Payment _________________________________________________________________________________________________ 105 Transparency ______________________________________________________________________________________________________________________________ 107 Central Depository__________________________________________________________________________________________________________________________ 108 Oversight _________________________________________________________________________________________________________________________________ 110 Derivatives ________________________________________________________________________________________________________________________________ 110 Protection of customers’ securities _____________________________________________________________________________________________________________ 111

Section H – Accounting and Auditing of Financial Reports ______________________________________________________________________113


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Disclosure of Financial Results ________________________________________________________________________________________________________________ 113 External Auditor____________________________________________________________________________________________________________________________ 114 Accounting Standards _______________________________________________________________________________________________________________________ 115 Auditing Standards__________________________________________________________________________________________________________________________ 117

Section I – Money Laundering _____________________________________________________________________________________________120 Scope of the criminal offence of money laundering _________________________________________________________________________________________________ 120 Customer due diligence and record-keeping ______________________________________________________________________________________________________ 121 Reporting of Suspicious Transactions and Compliance______________________________________________________________________________________________ 122 International Cooperation ____________________________________________________________________________________________________________________ 123

Section J –Financial Instruments ___________________________________________________________________________________________ 124 Variety of financial instruments traded __________________________________________________________________________________________________________ 124 Derivatives ________________________________________________________________________________________________________________________________ 126 Cross-Border Issuance_______________________________________________________________________________________________________________________ 128 Sponsor/Underwriter ________________________________________________________________________________________________________________________ 129 Concentration Rule _________________________________________________________________________________________________________________________ 129 Private Placement __________________________________________________________________________________________________________________________ 129


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2007 ASSESSMENT: EXECUTIVE SUMMARY

In Kazakhstan the basic legislation on the securities market is comprised of the Law of the Republic of Kazakhstan No. 461-II On Securities Market dated 2 July 2003, the Law of the Republic of Kazakhstan No. 576-II On Investment Funds dated 7 July 2004, the Law of the Republic of Kazakhstan No. 415-II On Joint-Stock Companies and various acts of the subordinate legislation issued by the regulator. The securities market legal framework was most recently amended on 7 July 2007. These amendments dealt with the establishment and development of regulation for the Regional Financial Center of Almaty (RFCA) and with the corporate organization of trade arrangers (e.g., the stock exchange). The RFCA was created in February 2006 as part of an initiative by the Government of Kazakhstan to create a financial market operating to internationally recognised standards of market regulation and best practices. It is a separate part of the stock exchange of Kazakhstan with simplified access for non-residents. The RFCA is managed and supervised by the Agency of the Republic of Kazakhstan for regulation of the activity of the RFCA (“the Agency”). The Agency is a state body and reports directly to the President of the Republic of Kazakhstan. Its Chairman is appointed by the President of the Republic of Kazakhstan. Disputes between members of RFCA are solved either through the specialized financial court of RFCA or court of arbitration. The International Consulting Council is a consultative body created within the Agency. It will participate in the elaboration of the strategy and will provide recommendations regarding activity of the Agency. The primary legislation issued for the creation of the RFCA is composed of: 1. Decree of the President on the creation of the Agency on Regulation of the activities of the RFCA, dated February 1, 2006 (№ 55); 2. Law of the RFCA, signed by the President on 5 June 2006; 3. Law on amendments to some legislative acts of regarding the creation of the RFCA, signed by the President on 5 June 2006; 4. Decree of the President on the formation of the specialized financial law court in the city of Almaty, dated August 17, 2006 (№ 158); 5. Decree of the President on the Agency of the Republic of Kazakhstan concerning the regulation of the activity of the RFCA, dated August 28, 2006 (№ 166). The Agency was created in February 2006. The role, objective and tasks of the RFCA and of its bodies - i.e., the Agency, the International Council and special financial court - were then further defined by the Law of the RFCA in June 2006. The law defines the participants in the RFCA (Art. 11) as those being registered with the Agency and having obtained a broker license from the Agency of the Republic of Kazakhstan for the Regulation and Supervision of Financial Markets and Financial Organizations. A simplified visa regime applies to foreigners arriving in Kazakhstan to work with the RFCA. Participants in the RFCA can conclude transactions in foreign currency and in Russian or English languages. The specialized financial law court has been created (i.e. the building has been allotted, the Chairman of the court appointed, while the judges are in the process of being appointed). The court has the same rank as an oblast or district court. On the information available, no cases have yet been heard by the court. Article 28(3) of the Civil Procedure Code has been amended to include the competence of the specialized financial law court for disputes among participants in the RFCA. The activities of the RFCA are aimed at developing the region’s securities market and ensuring its integration with international capital markets, attracting international investment into the economy of Kazakhstan and facilitating the investment of Kazakhstani capital in foreign securities markets. The RFCA provides a special legal regime for market participants and the RFCA’s special trading floor provides tax benefits and economic incentives to both Kazakhstani and foreign RFCA participants.


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We are not aware of any current discussions concerning further amendments to or reform of the securities market legislation. However, this area of legislation is constantly developing and is frequently amended, both at the level of subordinate legislation and that of substantive laws. The securities market regulator is the Agency for Regulation and Control over the Financial Market and Financial Entities, which is responsible for regulation and supervision of the activity of banks and entities performing certain types of banking transactions, insurance companies, securities market entities and accumulation pension funds. There is only one Kazakhstan stock exchange. The Kazakhstan Stock Exchange was established in November 1993 by the National Bank of Kazakhstan and 23 commercial banks as a currency exchange for the development of the domestic currency market following the introduction of the national currency “tenge”. In April 1996 the exchange was renamed the “Kazakhstan Stock Exchange” and in November 1996 it obtained a license for trading securities. The Exchange now trades the following financial instruments: the foreign currency market, the government securities market, non-governmental securities market (shares, bonds, GDRs), securities issued by international finance organisations and foreign state securities, REPO instruments market, term contracts, promissory notes. In 1998 the Kazakhstan stock exchange launched a "direct transactions" system, which is similar to the over-the-counter market. In 2006, the value of transactions on the stock exchange was US $164,344.6 million, including equity of US $4,026.6 million (comprising 69 listed entities with issued shares and 78 bond issues). Clearing and settlement of securities is performed by special divisions of the stock exchange or broker and dealer companies. There is one SRO that we are aware of, the Kazakhstan stock exchange. There is also a Financial Institutions Association which mission is assisting in development of the securities market and development of the legislation regulating the activity of financial organisations. There are 54 companies which hold licenses for management of investment portfolio.


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2007 ASSESSMENT CHECKLIST FOR SECURITIES MARKET LEGISLATION Section I – Basic Information about Securities Market Related Laws and Regulations

# Official Title of Law/Regulation (in English) Promulgating Authority Date of Promulgation Dates of Past

Amendments 1. Civil Code of the Republic of Kazakhstan (General Part) Supreme Council December 27, 2004. July 21, 2007

2. Civil Code of the Republic of Kazakhstan (Special Part) Parliament July 1, 1999 June 19, 2007

3. Code of the Republic of Kazakhstan No.155-II on Administration Violations (the "Administrative Violations Code") Parliament January 30, 2001 July 27, 1007

4. Criminal Code of the Republic of Kazakhstan No.167-I Parliament July 16, 1997 May 22, 2007

5. Law of the Republic of Kazakhstan No.234-III on Accounting and Financial Statements Parliament February 28, 2007

6. Law of the Republic of Kazakhstan No.474-II on State Regulation and Supervision of Financial Market and Financial Entities Parliament July 4, 2003 February 19, 2007

7. Law of the Republic of Kazakhstan No. 461-II on Securities Market Parliament July 2, 2003 July 21, 2007

8. Law of the Republic of Kazakhstan No. 415-II on Joint-Stock Companies Parliament May 13, 2003 May 15, 2007

9. Law of the Republic of Kazakhstan No. 304-I on Auditing Activity Parliament November 20, 1998 February 12, 2007

10. Law of the Republic of Kazakhstan No.2200 on Licensing (old law)

Law of the Republic of Kazakhstan No.214-III on Licensing (becomes effective on 8 August 2007)

Parliament April 17, 1995

January 11, 2007 January 12, 2007

11. Law of the Republic of Kazakhstan On Investment Funds No. 576-II Parliament July 7, 2004 February 28, 2007

12. Regulation on the Ministry of Finance of the Republic of Kazakhstan approved by the Government Decree No.1119 Government October 28, 2004 July 24, 2007

13. Regulation on the Agency of the Republic of Kazakhstan for Regulation and Supervision of Financial Markets and Financial Organizations (the "FSA")

approved by the Edict of the President of the Republic of Kazakhstan No.1270 President December 31, 2003 May 8, 2007


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Amendments

14. Resolution of the Board of the FSA No. 129 on Establishment of Requirements

to Existence of Risk Management Systems for Professional Participants in Securities Market

FSA April 30, 2007

15. Rules for Licensing of the Activities in the Securities Market of the Republic of Kazakhstan approved by the Resolution No.373 of the Board of the FSA FSA December 27, 2004 March 30, 2007

16.

Rules for Notification on the Issuance of Depositary Receipts or Other Securities the Underlying Assets of Which are the Securities Issued by the

Residents of the Republic of Kazakhstan, Submission of Reports on the Results of Placement of Derivative Securities, Issuing Permits for Issuing

Derivative Securities in Accordance with the Legislation of Foreign States or Placement of Derivative Securities in the Territory of a Foreign State approved

by the Resolution No.75 of the Board of the FSA

FSA March 30, 2007

17. Resolution No.73 of the Board of the FSA concerning Requirements to Issuers

and their Securities Admitted to Circulation on the Stock Exchange and to Certain Categories of the Stock Exchange's Lists

FSA March 30, 2007

18. Rules for Application of Limited Measures to Participants of Securities Market approved by the Resolution No.68 of the Board of FSA FSA March 30, 2007

19. Instructions on Regulatory Values and Techniques for the Computation of

Prudential Standards for Organizations Engaged in Investment Management of Pension Assets approved by the Resolution No.223 of the Board of the FSA

FSA October 27, 2006 February 23, 2007

20.

Rules for Submission of Reports on Implementation of Prudential Standards by Organizations Carrying out Broker and Dealing Activity with the Right to Maintain Clients' Accounts as Nominal Holders and to Carry Out Certain

Types of Bank Transactions approved by the Resolution No.142 of the of the Board of the FSA

FSA June 17, 2006 April 15, 2006

21. Rules for Submission of Reports on Implementation of Prudential Standards by the Banks of the Second Tier approved by the Resolution No.136 of the Board

of the FSA FSA June 17, 2006 May 28, 2007

22. Rules for Assessment of Prudential Standards for Organizations Combining Types of Professional Activities in Securities Markets approved by the

FSA June 17, 2006 April 30, 2007


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Amendments Resolution No.132 of the Board of the FSA

23. Rules for Carrying out Activities of the Central Depository approved by the Resolution No.128 of the Board of the FSA FSA May 27, 2006

24. Resolution No.75 of the Board of the FSA on Approval of the Form of the Report on Results of Placement of Shares of the Unit Investment Fund FSA March 25, 2006 December 11, 2006

25.

Rules for Registration of Transactions with Securities by Professional Participants of Securities Market Providing Services of Nominal Holding,

Formalization of Transactions and Issue of Account Statements and Disclosure of Information by Nominal Holders approved by the Resolution No. 61 of the

Board of the FSA

FSA February 25, 2006 May 28, 1007

26. Resolution No.360 of the Board of FSA concerning Requirements to the Foreign Legal Entities which Can be Members of the Stock Exchange FSA September 30, 2005

27. Rules for Carrying out Brokerage and Dealership Activities at the Security

Market of the Republic of Kazakhstan approved by the Resolution No.317 of the Board of FSA

FSA August 27, 2005 April 30, 2007

28. Rules for Issuing Permits for Issuance or Placement of Securities of the

Residents of the Republic of Kazakhstan in the Territory of a Foreign State approved by the Resolution No.270 of the Board of the FSA

FSA July 30, 2005

29. Rules for State Registration of Issuances of Authorized Shares, Approval of Reports on Results of Placement of Shares and Annulment of Issuances of

Shares approved by the Resolution No.268 of the Board of the FSA FSA July 30, 2005 May 28, 2007

30. Rules for Recognition of Securities Transactions as Concluded for the Purpose of Price Manipulation approved by the Resolution No.110 of the Board of the

FSA FSA March 26, 2005 August 27, 2005

31. Rules for Submission of Reports by the Managers of Investment Portfolios approved by the Resolution No.328 of the Board of the FSA FSA November 27, 2004 August 27, 2005

32. Resolution of the Board of the FSA No.264 on Establishment of the Prudential Standard for the Entities Carrying out Brokerage and Dealership Activities in

the Securities Market and Approval of Rules for Calculation of Prudential Standard for the Entities Carrying out Brokerage and Dealership Activities in

FSA September 25, 2004 February 23, 2007


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Amendments the Securities Market

33. Rules for Accounting and Determination of the Value of Assets, Net Assets of

an Investment Fund, Basic Value of Units of a Unit Investment Fund and Redemption Price of the Shares of a Stock Investment Fund approved by the

Resolution No.259 of the Board of the FSA

FSA August 21, 2004

34. Rules for Investment of Assets of Investment Fund out of the Republic of Kazakhstan approved by the Resolution No.258 of the Board of the FSA FSA August 21, 2004

35. Rules for Submission of Reports by the Central Depository approved by the Resolution No.252 of the Board of the FSA FSA August 21, 2004

36. Rules for Issuing the Consent for Appointment (Election) of Executive

Officers of Financial Entities approved by the Resolution No.157 of the Board of the FSA

FSA June 12, 2004 April 30, 2007

37. Rules for Submission of Reports by Custodian approved by the Resolution No.155 of the Board of the FSA FSA June 12, 2004 November 26, 2005

38. Resolution No.152 of the Board of the FSA on Requirements to Organizational Structure of the Trade Arranger and Approval of the Rules for the Operation of

the Department of the Trade Arranger which Monitors the Transactions Concluded in the Trading System of the Trade Arranger

FSA June 12, 2004

39. Rules for Registration of the Issuance of Non-State Bonds, Cancellation of the Bonds Issuance and Consideration of Reports on Results of Bonds Placement and Retirement approved by the Resolution of the Board of the FSA No. 269

FSA July 30, 2005 May 28, 2007

40. Rules for Assigning the Status of a Self-Regulated Organization to a Legal

Entity and Revocation of this Status approved by the Resolution No.418 of the Board of the National Bank of the Republic of Kazakhstan

National Bank December 2, 2003 November 26, 2005

41. Rules for Maintenance of the State Register of Securities approved by the Resolution No.382 of the Board of the National Bank of the Republic of

Kazakhstan National Bank October 27, 2003 May 28, 2007

42. Resolution of the Board of the National Bank of the Republic of Kazakhstan

No.379 concerning Combining of Different Types of Professional Activities in the Securities Market

National Bank October 27, 2003 June 25, 2007


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Amendments

43. Rules for Performance of Custodial Activities in the Securities Market

approved by the Resolution No.142 of the Board of the National Bank of the Republic of Kazakhstan

National Bank April 21, 2003 April 15, 2004

44. Resolution of the Board of the National Bank of the Republic of Kazakhstan No.139 concerning Approval of the Form of the Model Custodial Agreements National Bank April 21, 2003 May 28, 2007

45. Rules for Performance of Activities Associated with the Management of

Investment Portfolio approved by the Resolution No.137 of the Board of the National Bank of the Republic of Kazakhstan

National Bank April 21, 2003 March 30, 2007

46. Rules for Submission of Reports by the Entities Possessing Licenses for

Carrying out Brokerage and Dealership Activities in the Securities Market of the Republic of Kazakhstan approved by the Resolution No.486 of the Board

of the National Bank of the Republic of Kazakhstan

National Bank December 18, 2002 March 30, 2007

47. Business Standards for Professional Participants and Qualified Specialists of

the Securities Market of the Republic of Kazakhstan approved by the Decision of the Expert Council on Securities Market Issues at the National Bank of the

Republic of Kazakhstan

National Bank September 24, 2002

48. Resolution of the Board of the National Bank of the Republic of Kazakhstan

No.130 concerning the Order of Presentation of Weekly and Monthly Reports by Professional Participants of the Securities Market

National Bank April 13, 2002 December 27, 2004

49. Rules for Carrying out Activities by Securities Trade Arrangers approved by

the Resolution No.19 of the National Commission of the Republic of Kazakhstan on Securities

National Commission on Securities December 23, 1998 January 11, 2001

50. Resolution of the Board of the National Commission of the Republic of Kazakhstan on Securities No.162 on Reporting of Banks-Custodians

National Commission on Securities October 7, 1998 December 21, 1998


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Section II – Identity of the Relevant Market Regulatory Authorities (Statutory and Non-statutory) by Activities Regulated

# Activities Regulated Name of the Relevant Regulator

Date of Establishment Legal Basis

1. Securities issuance and offering1

Agency for Regulation and Supervision over Financial

Market and Financial Organisations ("FSA")

1 January 2004

State authority directly responsible and reporting to the President of the

Republic of Kazakhstan Regulations of the Agency of the

Republic of Kazakhstan for Regulation and Supervision of Financial Market

and Financial Organisations approved by the Edict of the President of the Republic of Kazakhstan No. 1270

dated 31 December 2003

2. Change of control transactions2

Committee for Protection of Competition under the

Ministry of Industry and Trade of the Republic of Kazakhstan

26 November 2004(in its current form)

A division of the Ministry of Industry and Trade of the Republic of

Kazakhstan Regulations of the Committee for Protection of Competition of the

Ministry of Industry and Trade of the Republic of Kazakhstan approved by

Decree of the Government of the Republic of Kazakhstan No. 1237

dated 26 November 2004

3. Securities markets3 FSA 1 January 2004

Regulations of the Agency of the Republic of Kazakhstan for Regulation

and Supervision of Financial Market and Financial Organisations approved

by the Edict of the President of the 1 Including prospectus and disclosure requirements, share registrations, tender offers, shareholder rights, beneficial ownership reporting, etc. 2 e.g., mergers, take-overs, monopoly positions, and other transactions affecting control in a company. 3 e.g., including establishment of exchanges and trading systems, admission to listing, trading, clearing and settlement, depository, etc.


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Republic of Kazakhstan No. 1270 dated 31 December 2003

4. Brokerage or dealing related activities4 FSA 1 January 2004



by the Edict of the President of the Republic of Kazakhstan No. 1270


5. Fund (or portfolio) and asset management (including investment advisers, asset managers, etc.) FSA 1 January 2004





6. Collective investment schemes FSA 1 January 2004





4 e.g., including licensing, conduct of business requirements, prudential requirements, etc.


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Ministry of Finance of the Republic of Kazakhstan 28 October 2004

Central Executive Body of the Republic of Kazakhstan. The current

Regulations on the Ministry of Finance of the Republic of Kazakhstan

approved by Decree of the Government of the Republic of Kazakhstan No.

1119 dated 28 October 2004 On some issues of the Ministry of Finance of the

Republic of Kazakhstan

Qualification Commission for auditors 1998

The Qualification Commission is made up of representatives of professional

organisations. Regulations of the Qualification Commission for Attestation of

Auditors approved by the Republican Conference of Auditors Chamber in

1998 Rules for Formation and Activity of the

Qualification Commission for Attestation of Candidates to Auditors

of the Republic of Kazakhstan approved by the Order No. 227 of the

Acting Minister of Finance of the Republic of Kazakhstan dated 28 June

2006 Article 14 of the Law of the republic of

Kazakhstan 304-I on Audit Activity, dated 20 November 1998

7. Accounting and auditing standards/services

FSA 1 January 2004


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8. Investment services providers N/A

9. Money Laundering (i.e., FIU – Financial Intelligence Unit)

There is no single body. However, a number of

governmental bodies monitor financial transactions, e.g. the Customs Committee and Tax Committees of the Ministry of Finance, the National Bank,

etc.


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Section A – Regulator5

# Issue Yes ( )

No ( )

Relevant provision number/citation of law/regulation;

Remarks/Other Comments

IOSCO Relevance

RESPONSIBILITIES OF THE REGULATOR

1. Whether the regulator responsibilities, powers and authority are clearly defined in the law?

The primary responsibilities, powers and authority of the FSA are set out in the Regulations of the FSA adopted by the Edict of the President of the Republic of Kazakhstan No. 1270 dated 31 December 2003. More detailed descriptions are to be found in the subordinate legislation issued by the FSA itself. In addition, the laws of the RK such as the Law on Securities Market, Law on Investment Funds, Law on State Regulation and Supervision of Financial Market and Financial Entities provide for additional specific powers and authority of the FSA.

1

2. Whether the regulator has discretion to interpret its responsibilities based on clear and transparent criteria and process so to prevent abuse of discretion?

In accordance with the Law of the Republic of Kazakhstan On Normative Legal Acts No. 213-I dated 24 March 1998, the official interpretation of subordinate legislation is made by the authority that issued the applicable act of subordinate legislation. There are no clear criteria provided in the

1

5 Please answer the questions of this section considering the regulator (see Section II, above) in charge for: Securities issuance and offering; Securities markets; Brokerage or dealing related activities and Collective investment schemes


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# Issue Yes ( )

No ( )



IOSCO Relevance

law.

INDEPENDENCE OF THE REGULATOR

3. Whether the term of office, the procedures for appointment and removal and the criteria for removal of the head and members of the governing body of the regulator are specified under the relevant law?

Article 17 of the FSA Regulations provides that the supreme body of the FSA is the Board. The Board consists of the Chairman of the FSA, the officers of the FSA, one representative of the President, one representative of the National Bank, and two representatives of the Government. The representatives of the President, the Government, the National Bank and the FSA are appointed and removed by the President, the Government, the National Bank and the Chairman of the FSA respectively. Pursuant to Article 19 of the FSA Regulations, the Chairman of the FSA is appointed and removed by the President. Criteria for removal of the Chairman of the FSA and other members of the Board are not specified in the law.

2

4. Whether the operational independence of the regulator is assured by the law from external political, commercial, or other interest interference when exercising its respective functions and powers?

Article 15.1 of the Law on Regulation and Supervision of Financial Market and Financial Entities provides that the regulator is independent to the extent of the powers provided to it by law. Other state authorities may not interfere with the activity of the regulator relating to

2


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# Issue Yes ( )

No ( )



IOSCO Relevance

the exercise of its powers, except for in certain cases which are set out in the law, e.g. the prosecutor's office. Pursuant to Article 4.4. of the Law on the Prosecutor's Office, the prosecutor's office may query any legal acts (including of the FSA) which contradict Kazakhstan law. Pursuant to Article 5.2 the prosecutor's office can, on the basis of applications by interested persons, review any application of Kazakhstan law. In addition, state officials cannot be members of political parties, nor may they engage in entrepreneurial activity.

5. Whether the law provides legal protection (for bona fide actions only) to the regulator, the head and members of the governing body and its staff against lawsuits for actions taken in their functions?

The law does not regulate this issue directly. In most cases, the actions of the employees of a state authority will be viewed as the actions of that authority. If the state authority has to pay any damages it has a right of recourse against the individual employee. However, pursuant to Article 161 of the Labour Code, the liability of the state employee will occur only in the event of "guilty and illegal actions".

2-5

ACCOUNTABILITY OF THE REGULATOR

6. In the exercise of its regulatory powers, whether the regulator is required by the law to consult with or obtain an approval by the government, ministry or other authorities? [Please specify the cases and the authority]

2


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# Issue Yes ( )

No ( )



IOSCO Relevance

If the answer to the above question is "yes" (if "no" in the above, please tick "no" in the following sub-questions): (1) whether the circumstances in which consultation or approval is required are clearly defined and the relevant process is sufficiently transparent? [If "yes", please briefly describe the process]

7.

(2) whether the circumstances where consultation or approval is required are limited to policy issues and not to day-to-day technical matters?

2

8. Is the regulator accountable to the Parliament or another government body on an ongoing basis? [Please explain]

The FSA must provide annual reports for the approval of the President. The FSA must provide reports concerning the financial affairs of the FSA to the National Bank in accordance with the procedure established by the National Bank. (Regulations of the FSA)

2

9.

Are the regulator and the other parties to which the regulator is accountable required by the law to treat as confidential information received as part of the supervisory process and only to disclose information in certain defined circumstances?

Article 43.1 of the RK Law on Securities Market No. 461-II dated 2 July 2003 (the “Securities Market Law”) provides that commercial and office secrets in the securities market may not be disclosed except when required by law. Article 107 of the Securities Market Law provides that the authority may not disclose any data received by it from issuers, licensees in the securities market or SROs, except when required by law. Article 158 of the Code of Administrative Violations provides that a breach of the obligation not to disclose commercial or banking secrets by any person who received any such information in the course of their

2


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# Issue Yes ( )

No ( )



IOSCO Relevance

employment is penalized with a fine of up to 50 monthly calculation indices (approximately US$450). Article 200 of the Criminal Code also penalizes illegal disclosure of commercial secrets by any person who received such information in the course of their employment, if such disclosure was made for improper reasons and caused damage.

10. Is the regulator’s receipt and use of funds subject to review or audit?

Pursuant to Article 4 of the FSA Regulations, the total amount of funds to be allocated to the FSA must first be approved by the Board of the National Bank, based on information provided by the FSA Chairman. The FSA must submit to the National Bank reports and documents relating to the funding of FSA's operations, in accordance with the procedure and on the dates determined by the National Bank (Article 29 of the FSA Regulations).

2

11. Does the regulator have to provide written reasons for its material decisions?

In most instances, yes. The regulator must provide reasons for refusing to grant a license or to register an issuance, and it can suspend or revoke a license only in certain cases provided by the law (Article 13.1 of the Securities Market Law, Article 25 of the Rules for State Registration of the Issue of Authorised Shares, Approval of the Shares Placement Report and Cancellation of the Share Issue, Article 19.4 of the Law on

2


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# Issue Yes ( )

No ( )



IOSCO Relevance

Licensing, Article 51 of the Securities Market Law). In addition, under Article 10 of the Law On the Procedure of Consideration of Applications of Individuals and Legal Entities, responses to applications must by substantiated and must set forth the reasons for the decision.

12. Are affected persons permitted to make representations prior to a regulator’s decision in appropriate cases?

In most cases the affected persons will provide to the regulator all documents required by the law and after the regulator issues its decision it can appeal the decision of the regulator in court. There is no specific mention in the law of a right to appeal, however Article 24.3 of the Civil Procedure Code states that the decisions of state authorities generally can be appealed. There is a special procedure for any decisions taken by the regulator based on its audits/reviews of a market entity. The regulator will issue an act of audit and the market entity will have the right to present its objections against the findings or conclusions set forth in the act of audit before any decision is taken by the regulator. (Article 109.3 of the Securities Market Law)

2

13. Are all decisions taken by the regulator subject to a sufficient, independent review process, ultimately including judicial review?

All decisions of the regulator may be appealed in courts of Kazakhstan. (Article 24.3 of the Civil Procedure Code)

2


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# Issue Yes ( )

No ( )



IOSCO Relevance

REGULATOR’S POWERS AND RESOURCES

14. Whether the regulator is empowered by the law to receive routine financial reports from regulated entities 6? If "yes", please identify from whom the regulator receives such routine reports.

Generally, all professional participants in the securities market (i.e. brokers, dealers, registrars, investment portfolio managers, custodians, transfer-agents, stock exchanges and central depository) must provide various regular reports to the regulator. The type, form and frequency of the reports are established by the resolutions of the regulator for each category of professional activity in the securities market. Examples include the following resolutions: Resolution of the Board of the FSA No. 155 dated 12 June 2004 On Approval of Rules for Submission of Reports By Custodians, Resolution of the Board of the FSA No. 252 dated 21 August 2004 On Approval of the Rules for Submission of Reports by the Central Depository, Resolution of the Board of the National Bank No. 486 dated 18 December 2002 On Approval of the Rules for Submission of Reports by the Brokers’ and Dealer’s Entities in Securities Market, Resolution of the Board of the FSA No. 328 dated 27 November 2004 On Approval of the Rules for Submission of Reports by Investment Portfolio Managers, Resolution

2, 10

6 “Regulated entity” includes authorised or licensed entities or persons


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# Issue Yes ( )

No ( )



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of the Board of the National Bank No. 130 dated 13 April 2002 On the Procedure for Submission of Weekly and Monthly Reports by Professional Participants of Securities Market [applies to brokers and dealers], etc. In addition, pursuant to Article 49 of the Securities Market Law, licensees (i.e. the professional participants described above) must provide evidence of their compliance with prudential norms and other criteria of financial stability to the regulator in accordance with the procedure and on the dates established by the regulator.

15. Whether the regulator is empowered by the law to inspect a regulated entity business operation without giving prior notice?

Article 13.1.3 of the Law on Regulation and Supervision of Financial Market and Financial Entities provides that the regulator may give advance written notice of any audit (or control review). The notice must include a list of documents which must be provided to the review group by the first date of the review. A review can also be conducted without prior notice.

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16.

Whether the regulator is empowered by the law to have access to books and records and request data or information from regulated entities without judicial actions, even in absence of suspected misconduct, in response to (i) a particular inquiry? (ii) on a routine basis? [please specify]

Article 108 of the Securities Law provides that the regulator has the right to carry out control reviews of the activities of the issuers and licensees in specific cases (e.g. on the application of investors, holders of securities or any inconsistency in information provided to the regulator) and

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on its own initiative (but only once per year). Article 109.2 of the Securities Market Law provides that during the audit the regulator has the right to review all documents relating to the activity of the securities market entity.

Does the regulator have the investigative and enforcement power to require from any persons involved in relevant conduct of who may have information relevant to a regulatory or enforcement investigation:

(a) data? (b) information? (c) documents? (d) records? 17.

(e) statements or testimony?

Article 109.2 of the Securities Market Law provides that during a control review the regulator has the right to review all documents relating to the activity of the relevant securities market entity and to question employees in order to receive verbal and written explanations concerning the issues raised during the control review. Article 43.3.6 of the Securities Market Law provides that commercial secrets in the securities market must be disclosed to the regulator if required.

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18.

Whether, under the law or regulation, the regulator has the power to impose administrative sanctions? If "yes", please briefly describe the kinds of sanctions that can be imposed. If "no", please briefly describe what the regulator can do in case of non-compliance with laws.

Article 573 of the Code of Administrative Violations provides that the Chairman of the FSA and deputies have the right to review certain cases of administrative violations in the securities market and to impose administrative fines.

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19. Whether, under the law or regulation, the regulator has the power to order suspension of trading in securities?

Article 3.2.7 of the Securities Market Law provides that the regulator has the right to suspend and to resume the placement (i.e.

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initial sale by the issuer itself) of non-state securities and derivatives. Article 3.2.22-1 provides that the regulator shall determine terms and conditions on which trading on the stock exchange is suspended and resumed, and the procedures to be followed in each case. Article 29 provides that the regulator has the right to suspend circulation of securities.

20. Whether, under the law or regulation, the regulator has the power to initiate or refer matters for criminal prosecution?

The regulator cannot institute a criminal procedure. However, it can submit the relevant information to the prosecutor's office. (Article 45 of the Law on Prosecutor's Office and Article 83 of Kazakhstan Constitution provide that the prosecutor's office may commence criminal proceedings. Article 4 of the Law on Prosecutor's Office provides that the prosecutor’s office must conduct its investigations following an application or receipt of information, irrespective of whether a state authority or a private person provided the information.)

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21. Whether the regulator is assured by the law and/or regulation to have sufficient financial and other resources to properly discharge its functions?7 If "no", please indicate the areas of insufficiency. [Please also specify if the regulator’s

Pursuant to the FSA Regulations, the FSA’s budget is funded from moneys allocated to the National Bank.

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7 The points of consideration in financial aspect should include: competitive salary scales, ability to hire external experts if necessary, training budget and programme, information technology equipment, and travel budget, etc.


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budget is taken from the state budget or from the market] The total amount of the FSA's financing is approved by the Board of the National Bank based on the information provided by the Chairman of the FSA. (Article 4 of the FSA Regulations)

CLEAR AND EQUITABLE PROCEDURES

22. Whether the regulator has the power to issue legally binding rules and regulations? If yes, is the regulator obliged to make all rules and regulations available to the public?

Article 9-1 of the FSA Regulations provides that the FSA has the right to issue legal acts concerning matters within its competence. Such legal acts must be published in the official publication of the FSA, the "Financial Bulletin".

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23. Whether the law or regulation sets forth the general criteria for granting, suspending or revoking licenses?

Article 15-20 of the Law on Licensing No. 2200 dated 17 April 1995 (the "Licensing Law") and Articles 50 and 51 of the Securities Market Law sets out the general criteria for granting, suspending or revoking licenses. NB: On 8 August 2007 a new Law on Licensing will take effect. The provisions concerning granting, suspending or revocation of licenses are similar in the new and old law and are set out in the new law in Articles 42-49.

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24.

Whether the regulator is required by the law or regulation to publicly disclose and explain its policies in important operational areas, such as through interpretations of regulatory actions, settings of standards, or issuance of opinions stating the reasons for regulatory actions?

No specific requirement is established by Kazakhstan law. 4


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PROFESSIONAL STANDARDS

25.

Whether the staff of the regulator is required by law, regulation or other, [please explain] to observe a "Code of Conduct" or other written standards/guidance of the same nature in exercising their regulatory powers and discharging their functions?

Edict No. 1567 of the President dated 3 May 2005 approved a Code of Honour of State Employees of the Republic of Kazakhstan which applies to all state employees, including FSA personnel.

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If the answer to the above question is "yes", whether the relevant "Code of Conduct" addresses issues in the following areas:

(1) conflicts of interest?

Article 1.9 of the Code provides that state employees must not interfere with entrepreneurial activity or favour the interests of individual business entities. Article 9.1.12 of the Law on State Service provides that state employees must immediately inform their supervisor if their private interests conflict with their duties.

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(2) dealing with information obtained in the course of the exercise of powers and discharge of duties?

Article 1.10 of the Code provides that state employees must not use information obtained in the course of their employment for improper or any other purposes.

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(3) observance of confidentiality and secrecy provisions and protection of personal data?

Article 107 of the Securities Market Law provides that in order to ensure the proper and timely performance of its functions, the regulator can receive information relating to its competence from the issuers, licensees and SROs including information that constitutes a commercial or service secret. The data so received cannot be disclosed except for the cases provided by the laws of Kazakhstan. Article 9.1.9 of the RK Law on State Service No. 453-I dated 23 July 1999 provides that state employees must maintain the confidentiality of commercial and service secrets, including within the time period established by law after they cease to be employed by the state, and shall give an undertaking in writing to that effect.

(4) ensuring procedural fairness?

Article 9.1.3 of the Law on State Service provides that state employees must ensure the observance and protection of the rights, liberties and lawful interests of citizens and legal entities.


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(5) restriction on the holding or trading of securities and requirement to disclose financial affairs or interest.

Article 9.1.12 of the Law on State Service provides that state employees must immediately inform their supervisor if their private interests conflict with their employment duties. Article 10.1.3 of the RK Law on State Service prohibits state employees from engaging in entrepreneurial activity. Entrepreneurial activity is broadly defined under Kazakhstan law as activities of individuals and legal entities aimed at earning income, etc.

27. Whether there are legal or other sanctions against the staff of the regulator who fails to adhere to the above mentioned "Code of Conduct"?

The Code of Honour provides that a state employee can be held liable for violations of the Code in accordance with Kazakhstan law. Article 28 of the Law on State Service provides for disciplinary sanctions to be taken against state employees. The Administrative and Criminal Codes provide sanctions for a number of violations committed by state employees, e.g. illegal interference with entrepreneurial activity, illegal conduct of audits or control reviews, breach of confidentiality, abuse of power, etc.

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COOPERATION AMONG REGULATORS

28. If there is more than one regulator listed in Section II above, whether the division of the responsibility among regulators are clearly and objectively set Oversight of accounting and auditing

activity is performed by the Ministry of 1


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out by law? Finance, whereas all other activity in the securities market is monitored by the FSA. Article 7.1. of the Law On State Regulation and Supervision of Financial Market and Financial Entities No. 474-II (dated 4 July 2004) provides that the regulation and supervision of financial market and financial entities must be performed by an authorised body as determined by the President of the Republic of Kazakhstan.

29. If there is more than one regulator listed in Section II, whether they are required by the law to co-operate and share information with each other?

Article 15.2 of the Law On Regulation and Supervision of Financial Market and Financial Entities provides that the regulator shall coordinate its activity with other state authorities within their competence provided by Kazakhstan law.

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30. Whether the regulator has the authority under the law to share information with regulators in foreign jurisdictions? [please specify with which countries]

Article 3.2.22 of the Securities Market Law provides that the regulator shall cooperate with foreign authorities for regulation of the securities market in order to coordinate measures for regulation of securities markets and prevent violations in securities markets. Article 15.3 of the Law on Regulation and Supervision of Financial Market and Financial Entities provides that the regulator shall cooperate with the state authorities of other states in regulating and supervising financial markets and financial entities and can exchange information with them as is

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required to perform their supervisory functions. The only Memorandum of Understanding signed by the FSA with a foreign regulator of which we are aware is with the National Bank of the Kyrgyz Republic. A draft agreement which provides for exchange of information between the regulators of signatory states is currently under discussion (Article 7.1 of the draft Agreement on the Basis of Investment Activity in the Territory of the Member-States of the Agreement on the Formation of a Single Economic Zone) between the proposed signatories, being Kazakhstan, Belarus, Russia and Ukraine. There is also an Agreement on Exchange of Information Between the Authorised Bodies for Regulation of the Securities Markets of the Member States of EurAsEC (Eurasian Economic Community) which came into force on 23 December 2003. The agreement was entered into by the Committee on Securities of Belarus, the National Bank of Kazakhstan, the State Commission on the Securities Market of the Kyrgyz Republic, the Federal Commission on Securities of the Russian Federation, and the Agency on Securities and Foreign Investment of the Tajik Republic. Article 2.5 of the Agreement provides that the parties shall give to each other any information in their


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possession which they consider to be useful to any other party, without a specific request being necessary.

31. Whether the regulator is permitted by the law to provide assistance to regulators in foreign jurisdictions? [please specify with which countries] See answer 30 above 13

Section B – Self-regulation ("SROs")8

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PERFORMANCE AND FUNCTIONS OF SROS

Are there any organisations in your country, that: 1.

a) establish rules of eligibility that must be satisfied in order for individuals or firms to participate in any significant securities activity?

Article 94.1.4 of the Securities Market Law provides that the internal documents of an SRO must include the rules for acceptance for membership of the SRO. However, there is no requirement for a securities market participant to be a member of an SRO (except for the stock exchange). We are not aware of any SROs other than the stock exchange.

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8 A self-regulatory organisation (SRO) is any organisation that has been given the power or responsibility to regulate any part of the securities market of industry. The term

“self-regulatory organisation” means any national securities exchange , registered securities association, or registered clearing agency, which have been granted the right to regulate themselves and enforce such regulation. This section applies to all SROs in your country – i.e. stock exchange, central depository to the extent that they fit within the SRO definition]


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b) establish and enforce binding rules of trading or business conduct for individuals or firms engaging in securities activities?

Article 1 of the Securities Market Law defines SROs as legal entities established by professional participants of the securities market, in the form of an association or union, for the purpose of establishing unified rules and standards for their activity in the securities market. Article 91 of the Securities Market Law provides that the primary objectives of the SROs include establishment of unified conditions for professional activity in securities market. Article 94.1.1 of the Securities Market Law provides that internal documents of SROs must set out the rules and standards for the operations of the SRO’s members. The functions of SROs include control over the operations of its members in securities market and imposition of the sanctions established by the SRO’s internal documents on those members who violate Kazakhstan law and the internal rules of that SRO (Article 93.1.7 of the Securities Market Law).


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c) establish disciplinary rules and/or conduct disciplinary proceedings, which have the potential to impose enforceable fines, or other penalties, or to bar or suspend a legal or natural person from participating in securities activities or professional activities related to securities activities?

As mentioned above, Article 93.1.7 provides that an SRO can establish sanctions in its internal rules, although what those sanctions may consist of is not defined in the law. SROs cannot suspend legal or natural persons from securities activities, but must inform the regulator of any sanctions which they impose on a member. Pursuant to Article 93.1.6-1, an SRO can petition the regulator to suspend or revoke the license of one of its members.

AUTHORISATION OR DELEGATION SUBJECT TO OVERSIGHT

Whether, as a condition of ongoing authorisation, the regulatory framework requires SROs to:

(1) have the necessary capacity to enforce compliance by its members and associated persons with laws, regulations and rules?

The law allows SROs to impose sanctions on members, but there are no regulations which would indicate how they would do so.

2.

(2) treat all members of the SRO and applicants for membership in a fair and consistent manner?

Article 91 of the Securities Market Law provides that one of the objectives of SROs is the creation of equal conditions for performance of professional activity. Article 93.1.4 of the Securities Market Law provides that the functions of an SRO include establishment of unified rules and standards of professional activity of the members of an SRO.

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(3) develop rules that (i) are designed to set standards for its members and (ii) to promote investor protection?

Article 93.1.1 of the Securities Market Law provides that the functions of an SRO include making submission to the regulator concerning draft legal acts, procedures for the conduct of professional activity in the securities market. Article 93.1.4 provides that SROs shall establish unified rules and standards for the professional activity of their members. Article 100.1 of the Securities Market Law provides that an SRO must protect the rights and interests of the clients of its members by reviewing their applications and imposing sanctions on members if warranted based on the result of such review.

(4) submit to the regulator its rules and any amendments thereto for review and/or approval?

Article 94.2. of the Securities Market Law provides that the internal documents of an SRO shall be developed by the Board of the Members of the SRO and approved by the general meeting of the members of the SRO. The internal document becomes binding upon the members of the SRO from the date established by the SRO’s general meeting of the members.


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(5) co-operate with the regulator and other SROs in your jurisdiction to investigate and enforce applicable laws, regulations and rules?

An SRO should control the operations of its members and can ask the regulator to suspend or revoke the licenses of those members who violated Kazakhstan laws, regulations, etc. Article 97 of the Securities Market Law provides that an SRO must inform the regulator about any violations of Kazakhstan law or of the internal regulations of the SRO by its members and about any sanctions imposed on them. The SROs are not directly required to cooperate with each other. However, Article 45.3 provides that entities which perform the same type of activity or activities which overlap with each other shall form only one SRO to coordinate their operations. Article 107 of the Securities Market Law gives the regulator the right to request and the SRO an obligation to provide any information which it is within the competence of the regulator to request, including commercial or state secrets. In addition, Article 109.1 of the Securities Market Law provides that the regulator is entitled to apply to SROs in order to involve the employees of the SROs in control reviews/audits conducted by the regulator.


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(6) enforce its own rules and impose appropriate sanctions for non-compliance with its own rules?

Article 93.1.7 provides that the functions of SROs include control over the activity of members in the securities market and imposition of sanctions established by its internal documents.

(7) assure fair representation of members on its board of directors and administration of its affairs?

Kazakhstan law does not specifically require such representation. The Law on Non-profit Organisations, which governs SROs, provides that the supreme body of the association or union shall be the general meeting or conference of members. The administration of the SROs affairs shall be carried out by an executive body and the competence of this body and its reporting to the general meeting shall be established by the foundation documents of the SRO which must be approved by the general meeting.

(8) assure that its rules do not create anti-competitive situations? The Committee for Protection of Competition deals with all matters relating to anti-competitive behaviour.

OVERSIGHT

3. Whether the regulator is required by the law or regulation to establish a programme/procedure/process to oversee the operations of SROs (including inspections, periodic reviews, reporting requirements, review/revocation of SRO rules, monitoring of continuing compliance with conditions of authorisation)?

The FSA Regulations provide that the FSA shall supervise and control the activities of SROs (Article 15.33). Article 112 of the Securities Market Law provides that the regulator can exercise control over SROs and for this purpose can request that they provide information about

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their activities or the operations of members and to give orders to the SROs and request that the SRO provide reports on compliance with such orders.

4. In matters related to SRO responsibility, whether the regulator retains authority to (i) inquire and (ii) intervene into matters affecting investors or the market?

The regulator has the right to control the activities of SROs and their members. The regulator’s primary objective is to ensure an adequate level of protection of investors by taking appropriate measures. (Article 112 of the Law on Securities Market)

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MISUSE OF INFORMATION AND CONFLICT OF INTERESTS

Does the law or regulation requires SROs to: (1) ensure that potential conflicts of interest at the SRO are avoided and resolved?

5. (2) address prevention of misuse of information and observance of confidentiality of information?

Kazakhstan law does not directly require SROs to prevent the misuse of information. However, Kazakhstan law provides such requirements at a general level applicable to all entities. Article 43.1 of the Securities Market Law provides that any data constituting a commercial or service secret in the securities market must not be disclosed, except in the cases provided in Articles 43.2 and 43.3.

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Section C – Issuers and their Information-Disclosure Obligation

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CONTENT OF THE PROSPECTUS

In a public offering of securities9, whether issuers are required to: 1.

(i) prepare a prospectus (or an information document of similar nature)

The issuance of shares or bonds must be registered. In order to obtain the registration of the issuance of shares or bonds a prospectus must be prepared and submitted to the regulator. In addition, in order to list the shares and bonds, an issuance document (prospectus) must be submitted to the stock exchange. (Article 1 of the Rules for State Registration of the Issue of Authorised Shares, Approval of the Shares Placement Reports and Share Issue Cancellation, Article 12 of the Law on Securities Market, Article 22 of the Listing Rules of the Kazakhstan Stock Exchange)

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9 The term Public Offering of Securities refers to the issuance and/or sale of the securities to the public.


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(ii) distribute it, and

Pursuant to Article 21 of the Securities Market Law, the issuer, underwriter or underwriting consortium must give a copy of the registered prospectus to the investor on its request. The issuer, underwriter or underwriting consortium can charge an investor for copies of the prospectus. The investor can apply to the regulator in order to confirm that the copy of the prospectus received from the issuer, underwriter or underwriting consortium is the same as the prospectus filed with the regulator. The regulator discloses information contained in the prospectus on the official website of the regulator. In addition, interested parties can ask the regulator to provide the information contained in the prospectus.


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(iii) file the prospectus with the regulator/stock exchange for review/approval [Please specify]

In order to procure state registration of the share issue, the issuer must submit a prospectus (among other documents) to the regulator. (Article 1 of the Rules for State Registration of the Issue of Authorised Shares, Approval of the Report on the Results of their Placement and Cancellation of the Issue of Shares approved by the Decree of the Board of the FSA No. 268 dated 30 July 2005) Kazakhstan law does not clearly specify whether the documents are submitted for review or for approval. Articles 3 and 4 of the above-mentioned Rules provide that the FSA will review the documents submitted to it and if the documents submitted comply with the requirements of the applicable legislation, the FSA shall issue the certificate of state registration of the issuance and return to the issuer one copy of the prospectus with a note that the prospectus has been registered by the FSA. In order to be listed on the stock exchange, the initiator of a listing also must submit to the stock exchange an issuance document (i.e. a prospectus). (Article 22, Chapter 1, Section 4 of the Listing Rules of the Kazakhstan Stock Exchange)


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Whether the prospectus is required to include information on: 2.

(i) key financial information, including capitalisation and indebtedness of the issuer and reason for the offer and use of proceeds and risk factors [please specify if all or just some of these issues are included]

(with one

exception)

Pursuant to Article 9.1.6 of the Securities Market Law and the Rules for State Registration of the Issuance of Authorised Shares, Approval of the Report on the Results of Share Placement and Cancellation of the Issuance of Shares, a prospectus must include information concerning the issuer's accounts payable and receivable which constitute 5% or more of the book value of its assets, and the dates for payment of such accounts; any factors which affect the activity of the issuer (e.g. share of import in raw materials, litigation, administrative sanctions), detailed analysis of risks including the risks affecting the share price on the stock exchange and in the over-the-counter market, etc. Issuers of shares are not required to specify in the prospectus how the funds raised by the offering will be utilised.

IOSCO – International Disclosure

standards for cross-border offerings and

Initial listings by

foreign issuers


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(ii) the company, including history and development of the company, business overview, organisational structure, property, plants and equipment [please specify if all or just some of these issues are included]

Pursuant to Article 9.1.1 of the Securities Market Law and the Rules for State Registration of the Issuance of Authorised Shares, Approval of the Report on the Results of Share Placement and Cancellation of the Issuance of Shares, a prospectus must include information about the issuer. Such information must include information concerning registration and re-registrations of the issuer, any reorganisations, its location and bank details etc. The prospectus must also include a description of the types of activities carried out by the issuer, information about its licences and patents, production sales, analysis of fluctuations in sales, actions of the issuer to promote its products, description of the corporate structure of the issuer (including the names of the officers and the positions held by the officers for the last 3 years), changes to the board of directors in the last two years (and specifying the reasons for the change/s), and a description of the assets of the issuer including their book value.


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(iii) operating and financial review and prospects, including operating results, liquidity and capital resources, research and development, patents and licenses. [please specify if all or just some of these issues are included]

The prospectus must include information about licences and patents of the issuer, production sales, analysis of changes in production sales, information about the customers and suppliers constituting 5% or more of the total value of goods sold or purchased by the issuer, factors which impact the operations of the issuer, investments of the issuer. (Article 9.1.1 of the Securities Market Law and the Rules for State Registration of the Issuance of Authorised Shares, Approval of the Report on the Results of Share Placement and Cancellation of the Issuance of Shares)

(iv) directors, senior management and employees, including compensation of directors, board practices, number of employees and share ownership [please specify if all or just some of these issues are included]

The prospectus must include information about the directors of the issuer and the executive body (i.e. the General Director and the members of the management board), the total number of employees, the number of employees who own shares of the issuer, and the total amount of remuneration paid to the members of the board of directors and the members of the executive body. (Article 9.1.1 of the Securities Market Law and the Rules for State Registration of the Issuance of Authorised Shares, Approval of the Report on the Results of Share Placement and Cancellation of the Issuance of Shares)


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(v) major shareholders and related party transactions

The prospectus must include information concerning any related party transactions, and about shareholders who hold 10% or more of the issued and outstanding shares in the company. (Annex 1 to the Rules for State Registration of the Issuance of Authorised Shares, Approval of the Report on the Results of Share Placement and Cancellation of the Issuance of Shares)

(vi) the identity and holdings of persons who hold a substantial beneficial ownership interest in the company

FOREIGN ISSUERS

3. Whether a foreign issuer is required to disclose additional information in the prospectus? If "yes", please briefly describe

Kazakhstan law established different forms of bonds prospectuses for residents and non-residents of Kazakhstan. However, there is only one form of prospectus for shares. (The form is provided in Annex 1 to the Rules for State Registration of Issue of Authorised Shares, Approval of the Shares Placement Results and Shares Issue Cancellation)

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4. Whether a foreign issuer is allowed to use a prospectus which has been approved by a foreign regulator? If "yes", please briefly describe

There is no prohibition, however nor is there any regulation on this issue. Article 4.1.2 of the Securities Market Law provides that the Kazakhstan securities market includes only those issued securities of non-residents of Kazakhstan which have been registered by the authorised body of Kazakhstan, or which have been admitted

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for trading on the Kazakhstan stock exchange. There is only one set of rules for registration of the issuance of shares by the Kazakhstan regulator. These rules include a model prospectus and consequently this model should be complied with by residents and non-residents. As for the securities admitted to the stock exchange, Annex 4 to the Listing Rules of the Kazakhstan Stock Exchange describes the scope of information which must be disclosed in the “issuance document” and/or the investment declaration. Article 1 of Annex 4 provides that such information should as far as possible be disclosed in the prospectus, and if any such information for any reason cannot be disclosed in the prospectus, it should be included in the investment memorandum. There is therefore no prohibition on preparing a prospectus in accordance with the requirements of a foreign regulator and, for use in Kazakhstan, compensating for any information missing from the prospectus by including it in the investment memorandum.

FULL DISCLOSURE

5. Whether there are different disclosure requirements for different types of securities or according to the different circumstances in which securities are offered? If "yes", please briefly describe

The general content requirements of securities prospectuses are set out in Article 9 of the Securities Market Law. However, there are slightly different

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requirements for disclosure of information in the case shares and bonds, in addition GDRs can be issued on the basis of a prospectus prepared in accordance with the requirements of the relevant stock exchange. The Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Share Issues approved by Resolution No. 268 of the Board of the FSA (dated 30 July 2005) and the Rules for State Registration of the Issuance of Non-State Bonds, Cancellation of the Bonds Issuance and Consideration of Reports on the Bonds Placement and Retirement approved by FSA Decree No. 269 (dated 30 July 2005) set out slightly different requirements for each type of prospectus.

6. In addition to public offering of equity, whether prospectus requirements also apply to other types of public offerings (e.g., debt securities, warrants, pre-emptive rights offering to existing shareholders, etc.)? Please specify.

The prospectus applies to the issuance of shares, not only to the public offering of shares. Bond issue prospectuses are regulated separately. Please see answer 5 above.

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7. Whether there are any restrictions on, or disclosure requirements with regard to, the content of information that an issuer discloses outside the prospectus during an offering (e.g., in advertisement, "road-show" materials or on the issuer's web-site)?

Article 101 of the Securities Market Law provides that during a public placement of securities the issuer must disclose the following information to all interested persons: (i) that which is contained in the prospectus; (ii) that which is contained in the issuer’s internal document establishing the procedure and conditions for auctions or

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subscription for securities; (iii) that which is contained in the reports provided to the regulator in accordance with Kazakhstan law; (iv) any other information which must be disclosed under Kazakhstan law or the rules of the stock exchange.

8. If the answer to the above question is "yes", whether any such restrictions or requirements extend to those acting on behalf of the issuer in connection with the offering (e.g., underwriters or advisors)?

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LIABILITY

9. Whether the issuer is liable for the content of the prospectus? If "yes", please describe if there are any exceptions provided for under the law.

Pursuant to Kazakhstan law, a breach of an obligation to disclose information, including the information to be included in a prospectus, subjects the officers of an issuer to a fine of approximately US $354-1780 (Article 200 of Administrative Violations Code).. The directors and other relevant officers of the issuer can be held criminally liable in certain circumstances if they knowingly approved a prospectus containing misleading information (Article 202 of the Criminal Code). Pursuant to Article 27.3 of the Securities Market Law, if the information contained in the documents submitted for the registration of the issuance of shares (including the prospectus) was not accurate, a court may find that the issuance was invalid.

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Following invalidation, the regulator must cancel the issuance.

10. Other than the issuer, whether there are any other persons/entities that may be held liable for the content of the prospectus (e.g., underwriter, auditor)? If "yes", please describe.

Article 2.2 of the Listing Rules of the Kazakhstan Stock Exchange provide that the "initiator" of the listing bears liability for the information provided to the stock exchange, which may be an underwriter. However, the primary obligation to prepare prospectus lies on the issuer.

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DEROGATIONS

11. Whether there are circumstances where an issuer is permitted to proceed with a public offering without full disclosure of relevant information? If "yes", please briefly describe.

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REGULATOR’S POWERS

12.

Whether the regulator has the power to enforce prospectus and/or other listing documents disclosure requirements by delaying or stopping the offering or through other regulatory actions? If "yes", please briefly describe the nature of these actions (e.g., civil, administrative or criminal) and indicate whether these actions if taken are with immediate effect (e.g., trading halt or injunction).

Pursuant to Article 25.1 of the Securities Market Law, the regulator can suspend the placement if: (i) the issuer fails to provide a report on the placement of shares; (ii) in the process of reviewing the placement report, the regulator finds inconsistencies between the information in the report and the information contained in the documents submitted for the registration of the share issuance; (iii) there is a violation of the applicable conditions for issuance and placement of shares; or (iv) there is untimely performance or non-performance of obligations relating to payments on

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securities. The share issuance can be invalidated by a court if: (i) the issuer violated the laws of the Republic of Kazakhstan; (ii) inaccurate information was included in the documents, on the basis of which the issuer was registered; (iii) inaccurate information is included in the documents submitted for the registration of the share issuance of shares.

OTHER LISTING DOCUMENTS

13. Apart from the prospectus, are issuers required to prepare or distribute documents for listing purposes? (e.g., listing particulars 10 or a document of similar nature)?

Article 22 of the Listing Rules of the Kazakhstan Stock Exchange provides that the initiator must provide a copy of the issuance document (i.e. the prospectus) and the investment memorandum as well as a number of other documents for listing purposes. The other documents which must be provided include a copy of the registration certificate of the issuer, a copy of the current charter of the issuer, copies of all current licenses held by the issuer, a copy of the securities registration certificate or a similar document, financial statements for the preceding year and each quarter of the current year, copies of the resolutions of the supreme body of the issuer for the past year, a notarised specimen of the signature of the

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10 Listing particulars: details which a company is obliged to publish about itself together with any securities it issues before it obtains a listing on a recognised stock exchange.


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issuer's senior manager and any deputies, the chief accountant and any other persons authorised to work with the Kazakhstan stock exchange, information concerning the registrar of the issuer, the application of any member of the Kazakhstan Stock exchange to be the market-maker of the shares and any other documents which can be required for a qualified and well-informed conclusion by the Listing Committee.

14. Does the regulator have the power to enforce listing document disclosure requirements by delaying or refusing a listing?

The regulator only sets requirements for companies which may list in a particular category. It is the stock exchange which will delay or refuse the listing if not all of the required documents are provided to it.

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ONGOING DISCLOSURE REQUIREMENTS

15. Whether open/public/listed/admitted to trading companies [please specify] are required to prepare annual reports and/or periodic reports, under a certain timeframe? Please specify.

Pursuant to Article 76.4 of the Law on Joint Stock Companies, all joint stock companies must publish in the mass media their annual balance sheet, a report on changes in capital, a cash flow statement and an income and expense statement. In addition, the listing rules of the stock exchange include requirements to provide annual and quarterly reports concerning the activity of the listing company and updated information concerning the shares, shareholders, general meeting of shareholders and their decisions, changes to the corporate bodies, any claims filed

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against the issuer, any performance of obligations of more that 10% or more of the total value of the issuer's assets, major transactions, etc. Article 102 of the Securities Market Law provides that while any securities of an issuer are in circulation (i.e. issued and outstanding) the issuer must disclose to the regulator and holders of securities certain information concerning changes in its operations that affect the interests of securities holders.

16. If the answer to the above question is "yes", whether the annual and the periodic reports are made available to the public? If yes, please explain how they are distributed.

The reports are published in the mass media and disclosed on the website of the stock exchange (see answer 15 above)

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17. Whether issuers are required to file the annual and periodic reports with the regulator for review/approval? 14

18. Whether the regulator has the power to enforce the disclosure requirements of the reports? If yes, please describe the available actions.

The regulator has generally formulated powers to enforce the disclosure of reports set out in Articles 3-1 (actions of limited influence) and Article 29 (suspension of the circulation of securities) of the Securities Market Law. In addition, Article 199 of the Code of Administrative Violations allows administrative fines to be imposed on key managers of an issuer for publication of incomplete information or for a failure to publish the required information by the issuers. Article 49.1.3 of the Civil Code

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provides that numerous or gross violations of Kazakhstan law by a legal entity can be grounds for its mandatory liquidation by a court.

19. Whether the issuer is liable for the content of the reports? If "yes", please describe if there are any exceptions provided for under the law

There is no specific liability provided in the law. However, the Code of Administrative Violations stipulates a fine on legal entities for knowingly providing inaccurate financial statements.

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20. Other than the issuer, whether there are any other persons/entities which may be held liable for the content of the annual/periodic reports (e.g., auditor)? If "yes", please describe.

There is no specific regulation of this issue under Kazakhstan law. 14

21. Whether issuers are subject to a general and continuing obligation to disclose promptly any material information that would significantly affect the price of their securities? If "yes", please describe whether such requirement varies according to types of issuers.

Article 102 of the Securities Market Law provides that while any securities of an issuer are in circulation (i.e. issued and outstanding) the issuer must disclose to the regulator and to holders of securities certain information concerning changes to its operations that affect the interests of the holders of securities. These changes are not defined in the Law and are subject to interpretation. However, material information can be disclosed in several ways. For example, the loss or award of an important contract will be disclosed in the financial statements which must be approved by the general meeting of shareholders; the collapse of a plant would most likely fall within the requirement to disclose changes affecting

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the rights of the shareholders; and the resignation of members of the Board of Directors will be reported to the shareholders because they must elect new members.

22. Whether there are circumstances where an issuer is permitted to derogate from its disclosure obligations (e.g., confidentiality)?

However, Kazakhstan law contains a list of information about issuers that may not be classified as either a commercial or service secret and must be disclosed.

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FAIR AND EQUITABLE TREATMENT OF SHAREHOLDERS

23. Whether the relevant law or regulation stipulates the right of fair and equitable treatment of shareholders?

Article 12.4 of the Law on Joint Stock Companies provides that the shares of the same type provide for each shareholder the same scope of rights.

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24. Whether issuers are required to disclose information to shareholders in order to help them make voting decisions? If "yes", please briefly describe the types of voting decisions that would trigger such disclosure requirement.

Article 41.3.6 of the Law on Joint Stock Companies provides that any notice concerning convocation of the general meeting of shareholders should include the procedure for reviewing materials pertinent to the agenda of the general meeting.

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25. Whether investors have the right to petition the regulator? If "yes", please indicate the grounds based upon which a petition can be made.

Article 108 of the Securities Market Law provides that applications by investors constitute one of the grounds for a control review/audit by the regulator. The regulator may refuse to consider an investor’s application only in either of two cases set out in the Law on Procedures for Consideration of Applications of Individuals and Legal Entities (anonymous applications

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and applications made without basis).

26. Whether minority shareholders have the right to appoint an auditor to re-examine the books and accounts of the company? If yes, please specify the minority shareholding percentage requirement and other specific conditions and whether the shareholder or the company must pay for this audit

The auditor of a joint-stock company is selected by simple majority vote at the general meeting of shareholders. However, pursuant to Article 78 of the Law on Joint Stock Companies, a “major shareholder” (defined as a person holding 10% or more of the voting shares) can request at its own expense an audit of the company. In this case the major shareholder (the holder(s) of 10% or more of shares) selects the auditing firm and the company must provide all documents requested by that audit firm. The company cannot refuse such a request. Hence a minority shareholder who nonetheless holds 10% or more of voting shares can appoint an auditor.

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27. Whether shareholders of a company have the right to start derivative suit (i.e., in the name of the company) against the directors of the company? If "yes", please indicate the shareholding percentage requirement, if any, for exercising such right.

Pursuant to Article 63 of the Law on Joint Stock Companies the officers of the company are liable to the company and to shareholders for any damage caused by their actions (or failures to act). The company can file a claim against the officers based on the resolution of the general meeting of shareholders.

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28. Whether shareholders of a company have the right to request an extraordinary general meeting of shareholders to be held? If "yes", please indicate the shareholding percentage requirement, if any, for exercising such right.

Pursuant to Article 37 of the Law on Joint Stock Companies, the shareholders who individually or collectively own 10% or more of the voting shares can require the convocation of a general meeting.

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29. Whether beneficial shareholders are required to publicly disclose their ownership and identity in specific circumstances? If yes, please specify the circumstances and the disclosure procedures

However, the shares in the nominal holding have the right to vote only if the central depository is aware of the identity of the owner of the shares. A prospectus must disclose the names and other details of the "shareholders" who own 10% or more of shares. It is not clear whether a nominal holder could be specified in this case.

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30. Whether the shareholders who are required to disclose their identity and ownership position due to their shareholding percentage have an on-going obligation to report changes in their shareholding? If "yes", please indicate how significant the change has to be to trigger such reporting obligation.

Generally, major shareholders are not required to disclose changes in their shareholding. However, Article 15 of the Law on Joint Stock Companies provides that the shareholders must within 10 days inform the registrar and nominal holder of any changes in the information required for maintaining the system of records. Article 102 of the Securities Market Law requires that the issuer disclose to the regulator and the holders of securities any changes in the shareholders holding 10% or more of the voting shares. In addition, an entity that, together with its affiliates, has acquired in the over-the-counter market 30% or more of the voting shares must then publish an offer to acquire all of the other shares from shareholders.

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CHANGE IN CORPORATE CONTROL

31. Does the relevant law or regulation provide for the circumstances in which a mandatory tender offer must be made? If "yes", please describe the circumstances.

Article 22 of the Securities Market Law provides that the issuer (or underwriter or underwriting consortium) has the right to place securities in the over-the-counter market by way of an auction or subscription. Placement of securities through a stock exchange or quotation entity11 must be done in accordance with the internal rules of arranger (e.g. stock exchange).

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32. Whether public/open/listed/admitted to trading companies are required to disclose adequate information in connection with a change in corporate control (e.g., take-over etc.) to enable minority shareholders to assess the offer?

An entity that, together with its affiliates has acquired in the over-the-counter market 30% or more of the voting shares, must publish a proposal to all other shareholders to purchase their shares. Pursuant to Article 102 of the Securities Market Law, while any securities of the issuer are issued and outstanding, the issuer must inform the regulator and holders of securities about changes in shareholders who own 10% or more of the voting shares (interests) of the issuer.

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33. Does the regulatory framework provide minority shareholders with the opportunity to vote eventual manoeuvres (e.g., poison pills) made up by the management to resist the tender offer?

Kazakhstan law does not envisage such a situation arising. 15

11 Quotation entities in the over-the-counter market are legal entities which provide organisational and technical support for trading of securities by way of operating and maintaining a system of exchanging quotations between its clients.


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34. In connection with a proposed transaction involving the company, whether the directors or other members of senior management of a company are required to disclose compensation or personal benefits that they may receive?

Such transactions fall within the definition of the interested-party transactions which a require a specific procedure for approval.

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35. Does the regulatory framework provide minority shareholders with the concrete opportunity to sell their shares to the bidder at the same conditions as the controlling shareholder?

An entity that, together with its affiliates, has acquired in the over-the-counter market 30% or more of the voting shares, must then publish a proposal to all other shareholders to sell their shares to such entity. (Article 25 of the Securities Market Law) The price for the shares is determined taking into account the prices for the same shares at the stock exchange and the amount of the net worth, development prospects and other relevant factors. The price may be different to what is paid for the controlling block of shares.

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Section D – Collective Investment Schemes (CISs)12

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1. Does you country have a specific legislation on collective investment schemes? Please specify is the regulation is specifically on CIS or instead on other Kazakhstan has a Law on Investment Funds

and a number of acts of subordinate

12 CIS includes open-end funds that redeem their shares or units (whether on a continuous basis or periodically), closed-end funds whose shares or units are traded in securities markets, unit investment trusts, contractual models and the European UCITS model. For purposes of this assessment checklist, CIS excludes schemes investing in property/real estate, mortgages or venture capital.


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investment funds (e.g., privatisation funds)] legislation concerning the activity and reporting of the managers of investment portfolios.

ENTRY AND ELIGIBILITY CRITERIA

Whether there are specific standards or requirements set forth in the relevant law or regulation for eligibility13 to: 2.

(i) promote and sell a CIS?

The management company must obtain a license for its activity and the issuance of the shares or units of an investment fund must be registered. In addition, Article 48 of the Securities Market Law states that any licensee in the securities market must have (i) a business plan disclosing the objectives of the licensee, its primary business and market sector, the types of services it offers, its marketing plan, any risks relating to the professional activity of the licensee and the means to reduce them, financial prospects, and an employment plan; (ii) hardware and software and other equipment required to operate in securities market in accordance with the applicable legal act of the regulator, (iii) organisational structure complying with the requirements established by the Securities Market Law and other legal acts of the regulator, and (iv) regulations of the internal audit service.

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13 The term “eligibility” is intended to include authorisation, licensing, registration or other preconditions to operating or marketing a CIS.


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(ii) operate a CIS? Please see answer 2(i) above.

Whether the eligibility standards or requirements for licensing or registration of operators of CIS include the following factors: 3.

(1) fitness and propriety of operator (including persons who hold a material interest in the operator)?

In addition to the requirements listed above, in order to obtain a license, an applicant must submit to the regulator a number of documents, including: (i) an application, (ii) a copy of the applicant’s state registration certificate; (iii) a copy of its statistical card; (iv) a notarised copy of the charter; (v) a list of all branch offices which will be involved in securities market activities and copies of the regulations of such branches; (vi) information about shareholders; (vii) balance sheet, income and loss statement, cash flow statement, report on changes in the net worth; (viii) documents required by Kazakhstan law for approval of senior managers; (ix) a list of employees; (x) departmental regulations; (xi) the rules of the internal audit service; (xii) the rules of the investment committee, and a list of members; (xiii) document confirming the availability of software and equipment required for the activity in the securities market Article 1 of the Rules for Licensing the Activity in Securities Market.

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(2) honesty and integrity?

The documents which a legal entity must provide in order to obtain a license include details concerning senior managers and a list of employees showing their names and titles. The Decree of the FSA No. 157 (dated 12 June 2004) On Approval of the Rules for Giving Consent to Appointment (or Election) of the Key Managers of Financial Organisations establishes a list of documents which must be provided and forms which must be completed for each candidate. Such forms and documents include reference letters; a document issued by the appropriate state authority confirming that the individual has not been found guilty of serious criminal economic violations; information about any non-performance of obligations; whether the person has been a manager of an organisation which became bankrupt or had a license revoked, etc.


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(3) competence to carry out the functions and duties of a scheme operator (i.e., human and technical resources)?

Article 48.1.2 of the Securities Market Law provides that the applicant for the licence in securities market (including the management company of a fund) must have the software and technical means and other equipment which are required to perform its activity in the securities market in accordance with the Instruction to Software and Technical Means Required to Carry Out Activity in Securities Market approved by Resolution No. 132 of the Board of FSA. Article 54 of the Securities Market Law provides for the requirements to the key managers of a licensee (including the management company) and such requirements include the higher education, and previous experience.

(4) financial capacity? Article 46 of the Securities Market Law provides that the minimum charter capital of a licensee shall be from time to time established by the regulator.

(5) capacity to discharge operator-specific powers and duties?

As discussed above the technical means of the management company must comply with those established by the Board of the FSA and the key managers must meet certain requirements.


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(6) adequacy of internal management procedures?

Article 48.5 of the Securities Market Law provides that one of qualification criteria for a securities market license is an organisational structure which complies with the requirements established by the Securities Market Law and the legal acts of the regulator. The licensees must have a board of directors, and executive body and the internal audit service. In addition, the licensees must have internal documents which at least establish general rules for carrying out its operations, rights and obligations of the licensee and its clients and their liability.

4. Whether, in assessing eligibility to market or operate a CIS, it is required by the law or regulation to assess the qualifications of key individuals employed by the CIS operator or manager?

Article 54 of the Securities Market Law provides for the requirements to the key managers of a licensee (including the management company) and such requirements include the higher education, and previous experience.

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If the answer to the above question is "yes", whether the following factors are considered:

(1) educational requirements?

Mangers of securities market licensees must have a tertiary level education (Article 54.1 of the Law on Securities Market). In order to be approved by the regulator for a senior management position, a person must provide information about his or her educational background and any academic research or achievements.

5.

(2) fitness and propriety?

In order to be approved for a senior management position, a person must pass an examination set by the regulator and submit reference letters. In addition, that person must not have been the manager of any financial entity for at least one year prior to that entity’s license being revoked, or for one year prior to the entity being wound up or dissolved by the regulator, and so on. Any prior approvals of the person for a senior management position in a financial entity must not have been revoked. The applicable person must have experience in the financial services market.

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(3) honesty and integrity?

As part of the documentation provided for approval of senior managers, information about a person’s reputation must be provided, including any criminal record, failure to perform obligations, affiliation to the applicant, fact of suspension or removal from employment due to violations of law, fact of being involved in any litigation as a senior manager of any financial entity, and so on. Please see answer 3(2) above.

(4) past experience in marketing or operating of CIS?

There is no specific requirement of past experience, however the law requires between 1 and 3 years of experience in the financial services sector, depending on the level of officer.

(5) continual professional training?

6. Whether CIS operators are required to make public disclosure of the information listed in the preceding questions? Please briefly describe what is the disclosure procedure

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7. Whether there are sanctions against unlicensed operation of a CIS? If "yes", please briefly describe.

Article 4 of the Law on Regulation and Supervision of Financial Market and Financial Entities provides that any unlicensed professional activity in the securities market is prohibited. Any transactions relating to provision of financial services concluded without a license is invalid. Article 143 of the Administrative Violations Code provides that engagement in

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prohibited (but not criminal) activity subjects the relevant entities to a fine ranging from 20 to 120 monthly calculation indices (approximately US $176 to US $1,054). Article 190 of the Criminal Code provides for criminal sanctions for illegal entrepreneurial activity, including operations without a license, if it caused significant damage. Article 49.2.4 of the Civil Code provides that a legal entity can be liquidated by a court decision if it engages in any activity without a required permit or license.

SUPERVISION AND ONGOING MONITORING

8. Whether CIS operators are subject to a general and continuing obligation to report to the regulator or to investors any information regarding material changes in its management or organisation?

Pursuant to Article 104 of the securities Market Law, licensees must inform the regulator of any changes to the documents previously provided for the purposes of obtaining a license. In addition, newly appointed senior managers must be approved by the regulator.

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9. If the answer to the above question is "yes", whether the regulator's approval of these changes is required?

Senior managers must be approved by the regulator. There is no specific requirement for approval of changes to the organisational structure, however, it must comply with the requirements of the Securities Market Law and other legal acts of the regulator.

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10. Whether there are provisions to prohibit, restrict or disclose conduct likely to give rise to conflicts of interests between a CIS and its operators or their associates or related parties? If "yes", please briefly describe.

Article 41 of the Law on Investment Funds lists prohibited actions for the operator. Such actions include use of assets of an investment fund to secure the operator's own obligations or the obligations of any third parties not related to the operation of the investment fund, the sale or transfer of its own assets into the pool of the investment fund, purchasing assets of the investment fund under its operation, purchasing assets of one investment fund operated by it at the expense of the assets of the other investment fund operated by it, purchasing assets of the operator's affiliates at the expense of the investment fund, selling assets of the investment fund to the affiliates of the operator, etc.

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11. Whether there are regulatory means14 available to minimise conflict of interest situations to ensure that any conflicts if they arise do not adversely affect the interests of investors? If "yes", please describe.

A custodian controls transactions with the assets of an investment fund and blocks any instructions from the operator if such transactions do not comply with the law, investment declaration or other rules of the fund, and reports to the regulator any violations or breaches discovered by the custodian. (Articles 44. 1 and 44.2 of the Law on Investment Funds)

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14 Possible means include direct prohibition of particular transactions under the law, use of a code of conduct, review and/or approval of certain transactions and activities by the regulatory authority, disclosure by the operator, prior approval or ratification of certain transactions by the investors, record keeping by the operator, limitation of the activities of the operator and independent review by a third party, etc.


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12. Whether there is an ongoing monitoring of the conduct of CIS operators throughout the life of a CIS (including compliance with licensing or registration requirements)? If "yes", please briefly describe the monitoring method(s) adopted.

The operators must provide a number of quarterly reports to the regulator (Articles 2 and 3 of the Rules for Submission of Reports by the Operator of Investment Portfolio)

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13. Whether the regulator has the power under the law to take actions in the event of suspected or actual breaches or default by CIS operators? If "yes", please briefly describe what actions the regulator can take.

The regulator has the right to conduct a review/audit of the operator, and in the event of actual breaches the regulator can take certain measures or suspend the license. (Articles 51 and 111 of the Securities Market Law).

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DELEGATION OF FUNCTIONS

14. Whether CIS operators are permitted to delegate their functions to other persons?

This issue is not clearly regulated by Kazakhstan law. However, a stock fund (see answer 16 below) should enter into a trust management agreement with a management company, which will be governed by the general provisions of the Civil Code. A unit fund (see answer 16 below) will also have an agreement with a management company which will be regulated by the Civil Code, and must include terms and conditions for termination of the trust management agreement and/or the fund, terms and conditions for the transfer of assets in trust management of another company, etc. Pursuant to Article 886.2.5 of the Civil Code, the trust management agreement must specify a person who shall receive the assets in the

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case of termination of the trust management agreement. Article 889 of the Civil Code provides that the trust manager shall manage the trust property itself. The trust manager can delegate to other entities certain actions required to manage the trust property if authorized to do so by the trust management deed or forced to do so by circumstances in order to protect the interests of the beneficiary and is unable to request instructions from the founder of trust. In this case the trust manager is responsible for actions of the relevant entity. The trust manager must inform the trust founder of any delegation of duties as soon as possible.

If the delegation by CIS operators of their functions is permissible: (1) whether the regulatory system require the CIS operator to (i) monitor the activity and (ii) evaluate the performance of the delegate?

Please see answer 14 above. Monitoring is permissible but evaluation is not.

(2) whether the delegating operator is required to disclose to investors the delegation arrangements and the identity of the delegate?

Please see answer 14 above. Only investors can authorise or terminate a delegation of functions, unless otherwise provided in the trust management agreement.

(3) whether the delegating operator will be held responsible for actions or omissions of the delegate as though they were done as its own? Please see answer 14 above.

15.

(4) whether the CIS operator can terminate the delegation and make alternative arrangements for the performance of the delegated function, where available?

Please see answer 14 above. Only investors can authorise or terminate a delegation of functions, unless otherwise provided in the trust management agreement.

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LEGAL FORM/INVESTORS RIGHTS

16. Whether there are requirements as to the legal form and structure of a CIS?

Article 4.1 of the Law on Investment Funds provides that the following funds are permitted in Kazakhstan: (i) a stock fund which is formed as a joint-stock company, (ii) a real property fund, also formed as a joint stock company, (iii) unit investment funds which are not legal entities.

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17. Whether the rights of investors to a CIS, the ways to exercise them and the risks associated with the investment are required to be disclosed to investors?

Article 46 of the Law on Investment Funds provides that a stock fund or the managers of the fund must provide the following documents and information to the holders of share or units and investors: (i) the charter, investment declaration, prospectus of shares or units or the rules of the investment fund (which must include the rights and obligations of the holders), information concerning the composition and value of assets of the investment fund, net assets of the investment fund, the most recent calculation of price per share, extracts from the audit reports of the manager and the custodian, information about the future and actual remuneration and expenses of the stock fund, the manager, the custodian and other entities supporting the existence of the fund, information about any sanctions imposed on the manager and custodian, and so on.

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18. Does the regulatory framework provide that where changes are made to investor rights that do not require prior approval from investors, notice is given to (i) investors and to (ii) the regulator before the changes take effect?

It appears that no such rights are specifically provided in respect of the stock funds and real property funds. However, both funds are established in the form of joint stock companies. Pursuant to Article 79.1 of the Law on Joint Stock Companies, the company must provide to its shareholders information that may impact upon their interests, including any decisions made by the general meeting of shareholders and the board of directors. Article 28 of the Law on Investment Funds provides that amendments to the rules of a unit investment fund must be approved by the regulator.

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SEPARATION OF ASSETS

19. Whether the operator of a CIS is required to separate and segregate CIS assets from the assets of managers, its related entities and other schemes?

The management company and the custodian shall account separately for each investment fund for which they act (Article 1 of the Rules for Accounting and Determining the Value of Assets of an Investment Fund, Net Assets, Value of a Unit and Share Buy-Out Price approved by the Resolution of the FSA No. 259 dated 21 August 2004). Article 43 of the Law on Investment Funds provides that the assets of an investment fund must be recorded and kept by the custodian separately from its own assets and

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from the assets of its other clients. Article 45.5 of the Securities Market Law provides that money and securities of the clients of licensees (i.e. brokers, dealers, managers of investment portfolios, custodians, etc.) must be accounted for by the licensees separately from their own assets and will not be included in the licensee’s bankruptcy estate.

20. Whether there are qualification requirements for the entities holding CIS assets? If "yes", please briefly describe.

The assets must be held by a licensed custodian. Licenses may be issued only if the entity meets certain criteria. The criteria will include those described in answer 3 of Section D above, as well as specific prudential standards.

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21. If CIS assets are required to be held in safekeeping on behalf of the investors by a third party, whether it is required that the third party be independent of the CIS operator? If "yes", please briefly describe such independence requirement.

Article 9.3 of the Law on Investment Funds provides that the management company, the custodian and the registrar of a stock investment fund must not be affiliated, except for in the case of risk investment funds. Article 17.3 of the Law on Investment Funds provides that the management company, the custodian and the registrar may not hold units in those unit funds to which they provide services, except for risk investment funds. In addition, the Resolution of the Board of the National Bank No. 379 dated 27 October 2003 On Combination of Professional Activities in Securities Market does not

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allow the combining of custodial activity with the management of investment portfolios.

22. If the custodian and investment functions may be performed by the same legal entity or related entities, whether there are special legal or regulatory safeguards with respect to the CIS assets? If "yes", please briefly describe.

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23. Whether CIS operators are required to maintain a register of holders of shares or units in the scheme?

The register of share or unit holders must be maintained by an independent registrar. (Article 19 of the law on Joint-Stock Companies and Article 21.3 of the Law on Investment Funds)

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24. Whether CIS operators are required to keep all books and records in relation to transactions involving CIS assets and all transactions in CIS shares or units?

Article 42.1 of the Law on Investment Funds provides that the management company must estimate the value, keep records of all cash flow, keep records of the composition and cost of assets of an investment fund and the cost of units upon their placement or buy-out.

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25. Whether there are auditing requirements in relation to CIS assets?

Professional participants in the securities market must be joint-stock companies. The annual financial reports of all joint stock companies must be audited. Specific requirements for audits of a management company and custodian are established by Article 7 of the Law on Investment Funds, which provides that audit reports must include information on the results of the audit of accounting and reporting in respect of the assets of an investment fund, transactions with such

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assets, and etc.

26. If the answer to the above question is "yes", whether the auditors are required to report to the regulator any irregularities or non-compliance?

Pursuant to Article 21.1.8 of the Law on Auditing Activity, audit firms must inform the regulator and the audited entities of all violations of Kazakhstan law identified during the audit.

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DISCLOSURE

In making a public offering of a CIS, whether the CIS operator is required to 27.

(i) issue an offering document (e.g., a prospectus)?

In order to register the issuance of shares of a stock or immovable property investment fund a prospectus must be prepared and must include an investment declaration, i.e., a document which lists the objects of investment, objectives, strategies, conditions and restrictions of investment, as well as conditions for hedging and diversification of the fund's assets. A prospectus is not required for investment funds issuing units. Such funds only submit to the regulator for registration their application, the resolution on establishment, rules of the fund, copies of agreements with the custodian and the registrar and internal documents of the management company regulating its activity. (Article 20.1 of the Law on Investment Funds)

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(ii) deliver it to investors?

Article 46.1.1 of the Law on Investment Funds provides that a stock investment fund or a management company, or their representatives where the shares or units are sold, must provide to potential investors a charter, an investment declaration, a shares prospectus, the rules of the investment fund, etc.

(iii) deposit it to the regulator and obtain its prior approval?

In order for the issuance of shares to be registered, a prospectus must be submitted to the regulator. (Article 1 of the Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Shares Issues approved by Resolution No. 268 of the Board of the FSA dated 30 July 2005.)

Whether CIS offering document is required to include the following information:

(1) the date of the issue of the offering document?

(2) information concerning the legal constitution of the CIS?

Annex 1 to the Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Shares Issues approved by Resolution No. 268 of the Board of the FSA dated 30 July 2005.

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(3) the rights of investors in the CIS?

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(4) any pending material legal proceedings involving the CIS?

Annex 1 to the Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Shares Issues approved by Resolution No. 268 of the Board of the FSA dated 30 July 2005.

(5) procedures for purchase, redemption, and pricing of units?

The prospectus must include a list of intermediaries for purchase and redemption of the shares and the conditions and procedure for submission and performance of applications for redemption of shares. The pricing of shares on redemption is determined in accordance with a methodology approved by the shareholders of a stock fund. Pricing of units on redemption is determined by the applicable regulations and is subject to a discount depending upon the rules of the fund. (Annex 1 to the Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Shares Issues approved by Resolution No. 268 of the Board of the FSA dated 30 July 2005.)

(6) relevant, audited financial information concerning the CIS?

Article 1.5 of the Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Shares Issues approved by Resolution No. 268 of the Board of the FSA dated 30 July 2005.


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(7) information on the custodian?

(8) the investment policy of the CIS (i.e., indicating the markets and instruments in which investments are made)?

This information should be provided in the investment declaration which should form an integral part of the prospectus. (Article 11.4 of the Law on Investment Funds))

(9) information on the risks involved in achieving the investment objectives?

These matters may be disclosed as part of the general requirement that the prospectus include the risk factors for the operation of a joint stock company. (Annex 1 to the Rules for State Registration of the Issue of Authorised Shares, Approval of Share Placement Reports and Cancellation of Shares Issues approved by Resolution No. 268 of the Board of the FSA dated 30 July 2005)

(10) the appointment of any external administrators or investment managers or advisers who have a significant and independent role in relation to the CIS?

This information does not need to be included in the prospectus, but the draft agreements with the management company, custodian and registrar must be provided to the regulator together with the prospectus. (Article 11.2 of the Law on Investment Funds)

(11) fees and charges in relation to the CIS?

The categories of expenses, maximum amounts allowable and the means of calculating those expenses for each of the corporate bodies of a stock fund must be provided in the charter. The charter must be provided to the regulator for the registration of the issuance of shares. (Article 10 of the Law on Investment Funds)


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(12) the regulatory authority, auditors and other independent third parties and their responsibilities in relation to the CIS?

(13) description of the methodology of asset valuation?

Asset valuation methodology is found in the Rules for Recording and Determining the Value of Assets of the Investment Fund, Net Assets of the Investment Fund, Calculated Value of a Unit and Redemption Price of a Share of an Investment Fund approved by the Resolution of the Board of FSA No. 259 dated 21 August 2004. As an item of legislation, this is a public document and accordingly does not need to be included in the offering document.

29. Whether CIS operators are subject to a general disclosure obligation to allow investors to evaluate the suitability of the CIS for them?

Chapter 7 of the Law on Investment Funds is entitled “Disclosure of Information concerning the Investment Fund” and describes the scope of information which must be disclosed by the management company or by the stock funds themselves.

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30. Whether the regulator has the power under the law to take actions in the event that the issuing documentation is inaccurate, misleading or false or fails to satisfy the filing/approval requirements? If "yes", please list all regulatory actions available.

The regulator has the right to refuse to register a securities issuance, suspend the placement of securities and apply to a court requesting recognition of the securities issuance as invalid. (Articles 10, 25 and 27 of the Securities Market Law)

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31. Whether the offering document is required to be kept up-to-date to take account of any material changes affecting the CIS?

Article 9.1.4 of the Law on Securities Market provides that the issuers must provide to the regulator any amendments to the prospectus in the event of changes, as provided by Kazakhstan law.

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In addition, Article 46.1.1 of the Law on Investment Funds provides that a stock fund or operator must provide to potential investors and holders of shares and units, among other documents, the charter, the investment declaration, the share prospectus or the rules of the investment fund "which contain all amendments thereto".

32. Whether prior notification is required to be given to the regulator regarding changes to information in an offering document? If "yes", please indicate whether the regulator's approval is required.

Amendments to the prospectus concerning the issuer and its activities, major shareholders, bodies and key managers of the issuer, number of shares and registrar must be filed with and all amendments to the investment declaration must be approved by the regulator. (Article 9.4 of the law on Securities Market and Article 39.3 of the Law on Investment Funds) In addition, in the case of unit funds (which have no prospectus) any amendments to the rules of the investment fund must be approved by the regulator. (Article 28.3 of the Law on Investment Funds)

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33. Whether CIS operators are required to submit to the regulator a report setting forth the activities in respect of a CIS on a periodic basis (please specify the report’s periodic basis: annual, semi-annual, quarterly)?

The managers of investment portfolios must submit to the regulator a number of reports on a quarterly basis (Rules for Submission of Reports by the managers of Investment Portfolio approved by Resolution of the FSA No. 328 dated 27 November 2004).

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If the answer to the above question is "yes":

(1) whether the law or regulation require a timely distribution of the report?

Article 3 of the above-mentioned rules provides that a manager of an investment portfolio must submit its reports in electronic form every quarter not later than 6.00 pm Astana time of the 5th day of the month following the reporting quarter. 34.

(2) whether the regulatory framework requires that the accounts of a CIS be prepared in accordance with high quality, internationally acceptable accounting standards?

Joint stock companies, i.e. the managers of investment portfolios, are required to maintain their accounts in accordance with IFRS. (Articles 2 and 16 of the Law on Accounting and Financial Statements)

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ASSET VALUATION

35. Whether CIS operators are required to have the CIS net asset value (NAV)15 calculated on a regular basis? If "yes", please indicate the frequency.

Article 42.1.4 of the Law on Investment Funds provides that a management company must regularly, not less than once per month, inform the stock investment fund or the holders of units in the unit fund of the composition and value of net assets of the investment fund and the calculated value of a unit.

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36. Whether the valuation of the CIS assets is required to be checked by independent auditors?

Article 7.1. of the Law on Investment Funds provides that the annual audits of the management company must include information concerning the results of audit

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15 The calculation of the net asset value (NAV) of a CIS is extremely important, as the NAV reflects the price which an investor pays when investing in a CIS (subject to any additional up-front charges) and the price an investor will receive (subject to any additional exit charges) should a holding be liquidated.


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of: (i) accounting and reporting in respect of the assets of an investment fund and transactions therewith; (ii) composition of assets of an investment fund; (iii) procedure for estimation of the value of assets of an investment fund and assessment of the value of a unit, placement price and redemption priced of the units, etc. The procedure for valuation of assets is established by the law and the auditors check if the law was complied with. See answer 37(iii) below.

37. Whether there are specific regulatory requirements in respect of fair valuation of assets where market prices are not available?

The Rules for Recording and Determining the Value of Assets of an Investment Fund, Net Assets of the Investment Fund, Calculated Value of a Unit and Redemption Price of a Share of an Investment Fund approved by the Resolution of the Board of FSA No. 259 dated 21 August 2004 provide that: (i) listed financial instruments shall be evaluated at the market price determined in accordance with the rules for evaluation of financial instruments of a trade arranger; In this case the basic value is the last announced sale price during trading. (ii) debt securities and shares issued under foreign law are evaluated according to Bloomberg; (iii) market value of any assets other than

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financial instruments shall be determined by certified valuers.

PRICING AND REDEMPTION OF INTEREST

38. Whether the operator of a CIS is required to disclose or publish the price of the CIS unit on a regular basis?

(only for unit fund)

Article 42.1.4 of the Law on Investment Funds provides that a management company must regularly (at least once per month) inform the stock investment fund or the holders of units in the unit fund of the composition and value of net assets of the investment fund and the calculated value of a unit. Please note that there is no such obligation in respect of the shares in a stock investment funds.

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39. Whether CIS operators are subject to an on-going obligation to disclose, in a timely fashion by way of notices or announcements, information which is material to the value of a CIS or otherwise significant to holders of interests in a CIS?

Article 46.2 of the Law on Investment Funds provides that information about the placement or redemption price of shares or units, the methods for determining the calculated value of a unit and the net asset value (including in respect of one share or unit) as of the last determination date must be provided to potential investors, shareholders and holders of units in accordance with the procedure and methods specified in the charter, prospectus, investment declaration or the rules of the investment fund.

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40. Whether there is a maximum time period for making payment of redemption proceeds? Please specify

(only for open

Article 24.4 of the Law on Investment Funds provides that the transfer of money to 20


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unit fund) the holder of units of an open and interval investment fund must be made within one day following receipt of a redemption application. The holders of units of a closed investment fund have no right to claim redemption. With regards to stock funds, shareholders have the right to demand redemption only in certain cases, and there is no clear provision setting out when the redemption proceeds must be paid. Based on Article 46.2 of the Law on Investment Funds, it should be set out in the charter, prospectus, investment declaration or the rules of the investment fund.

41. Whether there are rules governing the fees or charges payable by investors on the purchase or redemption of shares or units of a CIS?

The rules of unit investment funds can set out conditions of application and the amount of mark-up on the calculated price of units on purchase or discounts to the unit price on redemption. The maximum amount of discount may not exceed 3% of the calculated price of the unit (Article 25 of the Law on Investment Funds). No discount may be given on redemption of units due to the winding up of an investment fund or due to amendments to the rules of an open and interval investment fund. The shares of a stock fund shall be redeemed at the price calculated according to the

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methodology for determining the cost of shares approved by the general meeting of shareholders of the investment fund.

42. Whether there are rules or mechanisms in place to address errors in respect of the price of the CIS units or the value of CIS assets?

There is no specific procedure for correction of errors, therefore the general rules of law will apply. However, Article 38.3 of the Law on Investment Funds provides that the regulator can order the management company to rectify errors in the event of incorrect application of accounting or valuation methods or incorrect calculation of asset value, net asset value, the price of redemption or placement of units or shares.

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43. Whether suspension or deferral of routine valuation and pricing and regular redemption of shares or units of a CIS is permissible under certain circumstances? If "yes", please briefly the circumstances.

As mentioned above, the shares of a stock investment fund can be redeemed only in certain circumstances. The holders of units of a closed investment fund have no right to claim redemption. The units of an open or interval investment fund can be redeemed in certain cases provided by the rules of such funds, at least at the intervals established by the Law on Investment Funds. Article 26 of the Law on Investment Funds provides that redemption of the units can be suspended in the following cases: (i) based on an order of the regulator, if the entities supporting the operation of the fund or the entities whose financial instruments or assets are included in the fund violate or

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cannot comply with Kazakhstan law or breach contractual obligations; or (ii) the management company suspends redemption in accordance with the rules of the open or interval fund.

44. Whether the regulator has the power to demand, delay or stop the deferral or suspension of redemption rights?

Articles 26.4 and 26.5 of the Law on Investment Funds provide that if the placement or redemption of shares should be suspended, the management company must inform the regulator on the same date specifying the reasons and actions to be taken in order to eliminate such reasons. The regulator is entitled to prohibit the suspension of placement or redemption of the units if it infringes upon the interests of the unit holders, or to prohibit the resumption of placement or redemption until the reasons for the suspension are eliminated.

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AUTHORISATION AND LICENSING

Whether licensing is required to conduct business as:

(i) Market intermediaries16?

Kazakhstan law does not recognise such a term as “market intermediaries”. Article 45.1 of the Securities Market Law provides that the following activities are subject to licensing: (i) dealing; (ii) brokerage; (iii) maintenance of the system of records of securities holders; (iv) management of investment portfolio; (v) custodial; (vi) transfer agent's activity; (vii) arrangement of trading of securities and financial instruments.

1.

(ii) Investment Advisers17?

Kazakhstan law does not provide for any investment advisors, unless the broke-dealers or investment portfolio manages fall within this category.

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2. Whether the relevant law or regulations establish minimum standards or criteria that all applicants for licensing must meet before a license is granted?

Article 46 of the Law on Securities Market established requirements as to the charter capital of licensees; Article 47 establishes requirements as to the founders and shareholders of licensees, Article 48 establishes qualification

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16 “Market intermediaries” include those who are in the business of managing individual portfolios, executing orders and dealing in, or distributing, securities. 17 “Investment advisers” for the purpose of this assessment are those engaged in the business of advising others regarding the value of securities or the advisability of investing in, purchasing or selling securities. They offer only advisory services without offering other investment services.


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requirements, e.g. the availability of a business-plan, software and hardware required for the applicable activity, the organisational structure which complies with the requirements of applicable laws and regulations, regulations on internal audit services, and senior managers of professional participants in the securities market must be approved by the regulator.

3. Whether the circumstances in which a license application may be refused are clearly set forth in the law or regulation? If "yes", please briefly describe.

Article 19 of the Law on Licensing sets out a list of reasons for which a license application may be rejected. Such reasons include a failure to submit all necessary documents or a failure to meet the qualification requirements. The documents and qualification requirements applicable to the licensees in securities market are set forth in Articles 46, 48, 49 and 54 of the Securities Market Law and Article 1 of the Rules for Licensing the Activity in Securities Market approved by Resolution No. 117 of the Board of FSA dated 30 April 2007)

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If the answer to the above question is "yes", whether these requirements include:

(1) an assessment of whether the applicant has the appropriate financial resources (e.g., minimum initial capital) to carry on the proposed business? If "yes", please specify

Article 46 of the Securities Market Law provides that the minimum charter capital of an applicant shall be established by the regulator, that it must be made up of only the national currency of the Republic of Kazakhstan, that the shareholders of the applicant can pay for the shares of the applicant only within the limits of their net worth, and that the licensee can redeem its shares from the shareholders who own 10% or more only if it will not result in breach of prudential standards or other criteria of financial stability established by the regulator.

(2) an assessment of whether the applicant has adequate operational systems and controls for the businesses it proposes to carry on, such as proper books and records, internal controls, risk management, and supervisory systems?

Article 48 of the Securities Market Law establishes qualification requirements, e.g. software and hardware required for the licensed activity, an organisational structure which complies with the requirements of applicable laws and regulations, internal audit service rules.

4.

(3) an assessment of whether the applicant has senior management and directors with the knowledge, skills and experience necessary to perform their proposed roles?

The documents to be submitted for the license include the documents provided for approval of the senior management. Therefore, a failure to provide such documents can be the reason for rejection of the application for the license. (Article 1 of the Rules for Licensing the Activity in Securities Market approved by Resolution No. 117 of the Board of FSA dated 30 April 2007)

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(4) an assessment of whether the applicant has a proven track record/past conduct?

The previous conduct and record however is checked during the process of approval of the key management of the licensees.

ONGOING REQUIREMENTS

In the event that a market intermediary fails to meet ongoing requirements, whether the regulator has the power to: 5.

(1) suspend the intermediary's license?

Art. 51.1 of the Securities Market Law provides that the regulator has the right to suspend a license for up to 6 months in case: (i) discovery of any inconsistency between the information contained in the documents submitted for application for the license and the regulator’s report on the activity of the licensee; (ii) failure to provide information concerning changes to documents submitted for the license application; (iii) non-observance of qualification requirements; (iv) violation of the legislation of the Republic of Kazakhstan regulating the securities market and internal documents of the licensor; (v) failure to perform an order of the regulator; (vi) an application for voluntary suspension of the license; (vii) non-performance of the licensed activity for the period of 6 months or more; (viii) failure to comply with the requirements established by the Kazakhstan law concerning submission of information to state authorities; (ix) performance of the activity prohibited or restricted for the licensor; and (x) violation of requirements relating to the approval of the managers.

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(2) revoke the intermediary's license?

Article 51.4.1 of the Securities Market Law provides that a license can be revoked if the reasons for suspension are not eliminated within an established time period. The reasons for suspension include the failure to provide the required information to the state authorities, failure to observe the qualification requirements, violation of the Kazakhstan law regulating the activity in securities market, performance of the activity prohibited for licensees, non-compliance with the requirements for approval of key managers, etc..

(3) impose conditions or restrictions on the intermediary's business operations?

(4) take effective steps to seek the removal of persons employed at the intermediary which have committed securities violations?

Article 3-1 of the Securities Market Law provides for "limited" sanctions by the regulator. These include the right to demand that the shareholders consider removal of the key managers of the company in the event of violation of prudential standards or other mandatory regulations or unlawful actions or failure to act by the senior managers.


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(5) impose other sanctions? If "yes", please specify.

Article 3-1.1 of the Law on Securities Market generally provides that, if the regulator discovers violations of prudential standards and other mandatory norms or limits, violation of legal acts, illegal actions or failure to act of officers or employees of security market entities, the regulator can impose on them one of the following measures of limited influence: (i) order the elimination of violations within a certain time period; (ii) suggest to the shareholders to consider the removal of the managers of the securities market entity; (ii) require a letter of obligation; (iv) enter into a written agreement with the violating entity. In addition, there are a number of administrative fines that can be imposed by the regulator.

Whether intermediaries are required to immediately report to the regulator on the occurrence of the following events: 6.

(1) significant change in the ownership of the firm?

Article 103.9 of the Securities Market Law requires licensees to inform the regulator about any changes to the documents submitted for application for a license. Pursuant to the Rules on Licensing Activity in Securities Market the information concerning the shareholders must be provided to the regulator for the purpose of obtaining the license.

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(2) change in the senior management or directors of the firm?

Pursuant to the Rules on Licensing Activity in Securities Market, documents relating to the approval of the key managers must be submitted to the regulator. In addition, Article 54 of the Securities Market Law requires the regulator's approval for the appointment of key managers.

(3) change in the information delivered during the licensing process or a material change in the intermediary's circumstances? Please see our answer in item (1) above.

(4) other specific events? If "yes", please specify.

Whether the following information about intermediaries is required to be made publicly available: 7.

(1) the existence of a license, its category and status?

Article 106 of the Securities Market Law provides that the regulator must disclose information about the issuance, revocation or suspension of licenses for the securities market and the reasons for the regulator’s decision. The Rules for Custodial Activity require custodians to display in their head office and branch offices a notarised copy of their custodial license. The Rules for Carrying Out Broker/Dealing Activity in the Securities Market require that brokers and/or dealers place notarised copies of their license and the list of documents that the broker/dealer must provide at the request of the client in places easily accessible by their clients.

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(2) the scope of its permitted activities, the names of its senior management and other individuals authorised to act in the name of the intermediary?

INVESTMENT ADVISERS18

8.

Does the regulatory framework on investment adviser include detailed requirements setting out the disclosures to be made by the adviser to potential clients, including: (i) descriptions of the adviser’s educational qualifications, (ii) investment strategies, (iii) fee structure and other client charges, (iv) potential conflicts of interest, and (v) past investment performance? [please specify for each of the items]

Kazakhstan securities market legislation does not provide for investment advisers as a separate type of participants in securities market. Advice can be provided by managers of investment portfolios and by brokers and dealers.

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CUSTODIANS19

9. In case of custodians, does regulation provides for the protection of client assets, including segregation and periodic or risk-based inspections (either by the regulator or an independent third party)?

The custodian must account separately for each investment fund for which it acts (Article 1 of the Rules for Accounting and Determining the Value of Assets of an Investment Fund, Net Assets, Value of a Unit and Share Buy-Out Price approved by the Resolution of the FSA No. 259 dated 21 August 2004). Article 43 of the Law on Investment Funds provides that assets of an investment fund must be recorded and kept by the custodian separately from its own assets and from the assets of its other clients.

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18 See footnote 17, above. 19 For the purpose of this assessment, custodians are c those professionals who do not deal, but are permitted to have custody of client assets (i.e., to hold securities on behalf of clients).


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Article 45.5 of the Securities Market Law provides that the money and securities of the clients of licensees (i.e. brokers, dealers, managers of investment portfolios, custodians, etc.) must be accounted for by the licensee separately from its own assets and will not be included in the bankruptcy estate.

CAPITAL ADEQUACY REQUIREMENTS

10. Whether intermediaries are required to calculate and maintain a minimum amount of capital on an on-going basis? If "yes", please briefly describe.

The prudential standards for brokers and dealers include a criterion of the sufficiency of net worth (capital) (Rules for Calculation of Prudential Standards for Entities which Carry Out Broker and Dealer Activity in the Securities Market, approved by the Decree of the FSA No. 264 (dated 25 September 2004)).. The standard is to be calculated by the regulator on a quarterly basis, based on the documents and information provided to it by the applicable entities. The criterion of sufficiency of net worth is also a prudential standard for investment portfolio managers and banks (under Kazakhstan law custodial activity is performed by the banks).

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11. Does the regulatory framework provide for different minimum capital requirement for intermediaries depending on the risks undertaken?

Kazakhstan law establishes only prudential standards that include minimum net worth (capital) and sufficiency of capital.

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12. Whether intermediaries are required to provide audited financial statements or other audited reports to the regulator?

Kazakhstan law does not have a direct requirement that the audited financial statements or other audited reports of

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professional participants be provided to the regulator. However, it does provide that professional participants must provide a number of financial and other reports for calculation of prudential standards. In addition, since the professional participants of the securities market are joint stock companies, they must annually publish their financial reports.

13. Whether the regulatory framework require intermediary to have specific liquidity and solvency requirements (e.g., enough capital to run the business for three months)?

There is no general requirement in Kazakhstan law for intermediaries to maintain a particular level of liquidity. The legislation only lists the assets which can be included as liquid assets for the purposes of calculating capital adequacy (see answer 11 above).

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14. Whether an intermediary is required to give notice to the regulator if its capital falls below the minimum requirements?

The regulator itself regularly checks the capital of the relevant entities and can order that certain actions be taken to address the situation if the regulator discovers that the capital has fallen below the minimum. Pursuant to the Rules for Licensing Activity in the Securities Market, approved by the Decree of the FSA No. 117 dated 30 April 2007, applicants for a license must provide the following financial documents: balance sheet of the applicant as of the last quarter preceding the application and financial statements of the applicant for the past year. In addition, Article 46.1 of the Securities Market Law provides that the

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regulator can establish 'minimum charter capital' requirements for licensees. However, in practice charter capital is unlikely to be changed.

15. Whether there are regulatory measures that the regulator can take in the event that a market intermediary's capital falls below a required minimum? If "yes", please list them.

Pursuant to Article 3-1 of the Securities Market Law, if the regulator identifies a violation of prudential standards, it can apply limited measures or sanctions including, a request for a letter of obligation to eliminate the violation, a written agreement, or a demand for the shareholders to consider the removal of key managers. If the orders of the regulator are not complied with, the regulator can suspend the license. If the reasons for the suspension are not eliminated, the license can be revoked.

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16. Whether capital adequacy requirements take into consideration trading book20 positions?

The broker's/dealer's coefficient of capital adequacy is calculated according to the following formula: C=(LA-O)/MNW Where: LA is liquid assets; O is total obligations; and MNW is minimum net worth. (Rules for Calculation of Prudential Standards

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20 The trading book of an institution shall consist of all positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book (Art.111 of EC Directive 2006/49).


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for Entities which Carry Out Broker and Dealer Activity in the Securities Market, approved by the Decree of the FSA No. 264 (dated 25 September 2004))

MANAGEMENT AND SUPERVISION

Whether market intermediaries are required to establish and maintain: (1) appropriate standards of conduct to ensure that the firm complies with all applicable laws and regulations? Please describe

17.

(2) appropriate systems of risk management and internal controls? On 30 April 2007 the FSA issued Resolution No. 129 On Establishment of Requirements to Introduction of Risk Management Systems by Professional Participants of Securities Market.

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CUSTOMER PROTECTION

18. Whether a market intermediary is required to “know its customer” before providing specific advice to a customer? 23

19. Whether market intermediaries are subject to a general duty to put the interests of a client ahead of its own interests?

Article 64.2 of the Securities Market Law provides that in the event of a conflict of interest, the broker and/or dealer must perform the transaction based on the priority of the client's interests over its own interests.

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20. Whether market intermediaries are required to disclose to the clients where there is a potential for conflicts of interest?

Article 103.1.4 of the Securities Market Law provides that the licensee must inform its client of potential or actual conflicts of interest during transactions with financial instruments on the client’s order. Article 25 of the Rules for Carrying Out Broker/Dealing Activity in Securities Market

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provides that the broker/dealer must inform the client of potential and actual conflicts of interest. It further provides that the broker/dealer cannot advise the client on the transaction if it will result in a conflict of interest. If these requirements are violated, the broker/dealer must pay to the client all relevant damages.

21. Whether market intermediaries are required to treat all clients equally in case where conflicts of interest arise between several of the firm's clients? 23

22. Whether market intermediaries are required to enter into written contracts with all clients?

Article 63.3 of the Securities Market Law provides that relations between broker and client are on the basis of a brokerage agreement. Investment portfolio management is carried out on the basis of a trust management agreement.

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Whether market intermediaries are required to provide clients with:

(1) transaction reports and/or confirmations? [Please specify the frequency]

23. (2) account statements? [Please specify the frequency]

The Rules for Registration by Professional Participants of the Securities Market Providing Services of Nominal Holders, of Transactions with Securities, Preparation and Issue by Them of Extracts from the Account of a Securities Holder and Disclosure of Information by Nominal Holders, approved by the Decree of the FSA No. 61 (dated 25 February 2006) provide that: 1. information operations (i.e., issuance of extracts and reports on transactions) shall be performed on the basis of written orders from securities holders; and 2. information operations are to be performed by the nominal holder within 5 calendar days from the date of registration of the written order of a holder of securities. In addition, Article 20 of the Rules for Broker and Dealer Activity in the Securities Market, approved by the Decree of the FSA No. 317 (dated 27 August 2005) provides that the agreement between the broker and the client should set out the procedure for the broker to report on the performance of the client's orders. There is no particular frequency required by the law, rather the obligation is to provide the information the client’s request.

23


-- 85 --

# Issue Yes ( )

No ( )



IOSCO Relevance

PROCEDURES FOR DEALING WITH INTERMEDIARY IN FINANCIAL DIFFICULTY

24.

Whether the regulator has a contingency plan or other measures to deal with the financial difficulty (i.e., a situation which could potentially lead to insolvency) of a market intermediary, including a combination of activities to restrain conduct, to ensure assets are properly managed and to provide information to the market as necessary?

As mentioned above, in the event of identifying any violations by the licensees, the regulator can impose limited sanctions, or suspend or revoke a license.

24

25. Whether there is an investor compensation fund/scheme21 in place?

Article 101-1 of the Securities Market Law provides that for the purpose of compensating damage caused to clients, the professional participants of the securities market may (but are not obliged to) establish mutual insurance associations.

24

26.

Does the regulatory framework provide for early warning systems or other mechanisms (e.g., a specified threshold below which a market intermediary is considered in financial difficulty and the regulator's action is required) to give the regulator notice of financial difficulty by a market intermediary and time to address the problem and to take corrective actions?

Article 49 of the Securities Market Law provides that licensees in the securities market must comply with prudential standards and other criteria of financial stability established by the regulator. Compliance with those standards and criteria is regularly checked by the regulator on the basis of reports and other information provided by the licensees.

24

21 The investor compensation fund (or scheme) is a fund set up usually with contributions of market intermediaries (or the state) aiming to compensate investors in case of an intermediary insolvency. It is not a banking deposit insurance scheme.


-- 86 --

# Issue Yes ( )

No ( )



IOSCO Relevance

In the event of financial difficulty of a market intermediary, whether the regulator has the power to:

(1) restrict activities by the intermediary?

In the event that any non-compliance with prudential standards is identified, the regulator can apply limited measures and sanctions, e.g. order that the situation be remedied. If the order is not complied with within a certain period of time, the license of the intermediary can be suspended.

(2) require the intermediary to take specific actions (e.g., moving clients accounts to another intermediary)?

Article 34-1 of the Rules for Carrying Out the Broker/Dealing Activity in Securities Market Require that within 30 calendar days from revocation of the license, the broker and/or dealer must transfer the client's assets to the registrar or new broker/dealer pursuant to the client's order and place the relevant orders in publicly accessible places.

(3) freeze or seize assets held by the intermediary or by a third party on behalf of the intermediary?

Article 29.1 of the Securities Market Law provides that the regulator may suspend the free circulation of securities by blocking all or certain accounts in the records system of securities holders or nominal holding system, in the event of violation of those provisions of the Securities Market Law or other regulations which protect the rights and interests of investors in the process of purchasing securities or which establish the terms and procedure for performance of transactions with securities.

27.

(4) appoint a monitor, receiver, or other administrator?

24


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# Issue Yes ( )

No ( )



IOSCO Relevance

(5) require that the relevant information is disclosed to the market?

The Rules for Carrying Out Broker/Dealing Activity in Securities Market require the broker and/or dealer to inform clients and nominal holders of any suspension or revocation of its license within two business days. Article 106 of the Securities Market Law requires that the regulator disclose the information concerning the suspension or revocation of licenses and give reasons for doing so.


-- 88 --

Section F – Secondary Market

# Issue Yes ( )

No ( )



IOSCO Relevance

LICENSING OF EXCHANGES AND TRADING SYSTEMS

Whether prior authorisation or licensing [please specify] is required in respect of:

(1) a securities exchange? [please specify is this authorisation/licensing is different from the one of market intermediary]

A stock exchange is required to be licensed. This license is a specific type of license but is categorized as a license issued to professional participants of the securities market. Article 45.1 of the Securities Market Law provides that the organisation of trading in securities and financial instruments is subject to licensing by the regulator.

1.

(2) a trading system 22? [please specify is this authorisation/licensing is different from the one of market intermediary]

Kazakhstan law does not recognise the term “trading system,” only “trade arrangers,” which includes stock exchanges and quotation entities. Quotation entities in the over-the-counter market are legal entities which provide organisational and technical support for trading of securities by way of operating and maintaining a system of exchanging quotations between its clients. This type of activity also requires licensing pursuant to Article 45.1 of the Securities Market Law.

25

22 A trading system means essentially any organization, association, person, group of persons, or system that constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange. The main difference between a trading system and the stock exchange is that the former does not set rules governing the conduct of subscribers other than the conduct of such subscribers' trading on such organization, association, person, group of persons, or system; or discipline subscribers other than by exclusion from trading (for a different definition under EU law, see Art. 4, item 14 and 15 of Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments – so-called MiFID).


-- 89 --

# Issue Yes ( )

No ( )



IOSCO Relevance

In connection with an application by an exchange or trading system for authorisation or licensing, whether the regulatory framework requires: 2.

(1) evidence of the operational or other competency or fitness of the system operator as a secondary market ?

In order to obtain a licence the following documents are required: (i) application, (ii) copy of the state registration certificate; (iii) copy of the statistical card; (iv) notarised copy of the charter; (v) list of all branches which will be involved in the activity in securities market and copies of regulations of such branches; (vi) information about shareholders; (vii) balance sheet, income and loss statement, cash flow statement, report on changes in the net worth; (viii) documents required by Kazakhstan law for approval of the key managers; (ix) a list of employees; (x) departmental regulations; (xi) the rules of the internal audit service; (xii) the regulations of the investment committee, and a list of members thereof; (xiii) a document confirming the availability of software and equipment required for the activity in the securities market Article 1 of the Rules for Licensing the Activity in Securities Market.

25


-- 90 --

# Issue Yes ( )

No ( )



IOSCO Relevance

(2) the operator of the system assuming risks23 to comply with prudential and other requirements designed to reduce the risk of non-completion of transactions (e.g., mandatory margin assessment and collection, capital or financial resources, member contributions, compensation scheme, credit or position limits)?

All licensees in securities market must comply with prudential standards established by the regulator. (Article 49 of the Securities Market Law) In addition the trade arranger (i.e. a stock exchange or quotation entity) must have a specific organisation structure which shall include the subdivision monitoring transactions of financial instruments. (Resolution No. 152 of the Board of the FSA dated 12 June 2004 On Requirements to Organisational Structure of the Trade Arrangers and On Rules for Carrying Out Activity of the Subdivision of Trade Arrangers which Monitor the Transactions Made in the Trading System) In addition, the trade arrangers must develop internal rules that must subsequently be approved by the regulator. (Article 85 of the Securities Market Law)

(3) the regulator to be informed of the types of securities to be traded?

The rules of the stock exchange and its charter must be submitted to the regulator. The Resolution of the FSA No. 73 dated 30 March 2007 On Requirements to Issuers and Their Securities Which Can Be Admitted (Are Admitted) to a Stock Exchange and Certain Categories of the Stock Exchange’s List sets out the requirements as to which securities may be admitted for listing.

23 I.e., principal risk, settlement risk, guarantee risk and performance risk.


-- 91 --

# Issue Yes ( )

No ( )



IOSCO Relevance

(4) the regulator to give approval of the rules [and any amendments thereof] governing the admission of securities to be traded?

Article 85.1 of the Securities Market Law provides that the rules of the trading arranger (i.e. a stock exchange or a quotation entity) shall be developed by the executive body and approved by the board of directors of the trade arranger and the regulator.

(5) all persons with direct access to the system to be authorised or licensed? [please specify if the same rules apply to the trading system and stock exchange]

The Rules for Certification of Users of Trading System adopted by Resolution of the Board of Kazakhstan Stock Exchange No. 57/0 dated 1 July 2002 provide that only the individuals who successfully passed certification or confirmation of certification in accordance with the Rules will be permitted to use the trading system.

(6) the same financial capacity, integrity, or performance criteria as those for market intermediary must be met by persons with direct access to the system or exchange?

Only professional participants in securities market (i.e. the licensed intermediaries) may be admitted to the stock exchange.


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# Issue Yes ( )

No ( )



IOSCO Relevance

(7) clearly disclosed standards or procedures governing trade execution (e.g., requirements with respect to precedence of client orders, prohibitions on front-running24 or trading ahead of customers, etc)? If "yes", please describe.

Article 85 of the Securities Market Law provides that the rules of the trade arranger must be approved by the regulator and such rules shall include the procedure for carrying out the trading of securities by the stock exchange and the procedure for settlements under the transactions concluded at the stock exchange. The legislation itself does not contain the requirements for the trading procedure, only the requirements as to the conduct of brokers and/or dealers.

ONGOING SUPERVISION

3. Whether the regulatory framework requires the regulator to have arrangements in place for continuous monitoring, surveillance and supervision of the trading system and the conduct of its participants?

Resolution of the FSA No. 152 dated 12 June 2004 approved the following relevant resolutions "On Requirements to Organisational Structure of the Trade Arranger" and "On Approval of the Rules for Carryout out the Activity of the Structural Subdivision of the Trade Arranger which Monitors the Transactions Performed in the Trading System of the Trade Arranger". The organisational structure of the trade arranger must include, inter alia, divisions carrying out technical support of the trade

26

24 The illegal practice of taking a position based on information not publicly available regarding an imminent transaction, possibly ahead of a customer order. (e.g., a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares).


-- 93 --

# Issue Yes ( )

No ( )



IOSCO Relevance

arranger and the monitoring of transactions in the trading system of the trade arranger. The main functions of the division monitoring the transactions are: (i) identification of transactions that give grounds to suspect manipulation of prices; (ii) submission of information concerning such transactions to the regulator, and other functions established by internal documents of the trade arranger. A representative of the regulator must be a member of the board of directors of a stock exchange.

4. Whether the regulatory framework provides the system operator, the regulator or others have the power to suspend or halt trading, set margins, set position limits or otherwise intervene in case unusual or potentially improper trading occurs? If "yes", please briefly describe.

The rules of the trade arranger approved by the regulator must include the conditions and procedure for suspension and resumption of trade. The Rules for Activity of Arrangers of Trading in Securities, approved by Decree No. 19 of the National Securities Commission (dated 23 December) 1998 provide in Article 52 that the internal documents of the trade arranger must when and how trading can be suspended and resumed. The rules further provide that trading must be suspended in the following circumstances: (a) if the quality of securities has changed to a degree which significantly threatens the interests of investors; (b) if the deviation of the prices of the securities transactions or of the quotations declared by the trade participants has reached the limit

25


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# Issue Yes ( )

No ( )



IOSCO Relevance

established by the internal documents of the trade arranger.

5. Whether the regulatory framework requires the regulator to have a procedure in place to assess the continuing compliance of the trading system or exchange with the initial authorisation requirements?

Since the trader arranger is a licensed entity, it must inform the regulator of any changes to the documents submitted by it for obtaining the license. (Article 103.9 of the Securities Market Law)

26

Is the regulator determines that the exchange or trading system is unable to comply with the conditions of its initial authorisation, does the regulatory framework provide the regulator with the power to:

(i) re-examine the exchange or trading system conditions of authorisations/licensing and impose a range of actions, such as restrictions or conditions on the market operator?

Article 108 of the Securities Market Law provides that the regulator has the right to audit the activity of licensees. Article 109 provides that the auditing committee shall prepare an act based on the results of such audit, and if any violations were discovered the regulator may issue a written order to eliminate those violations. In the event that the violation is not eliminated by the securities market entity, the regulator may impose sanctions as provided by the law in respect of the licensee or its employees, including the suspension or revocation of the license.

6.

(ii) withdraw the exchange or trading system’s authorization? Article 51 of the Securities Market Law sets out the general grounds for suspension or revocation of licences.

26


-- 95 --

# Issue Yes ( )

No ( )



IOSCO Relevance

TRANSPARENCY OF TRADING

Whether the regulatory framework includes (i) requirements or arrangements for providing (a) pre-trade (i.e., posting bids and offers) and (b) post-trade (i.e., last sale price and volume of transactions) information to market users? If "yes", please indicate the frequency and timing of reports and what is reported.

7.

(ii) Requirements or arrangements that information on completed transactions be provided on an equitable basis to all participants?

8. Does the regulatory framework allow the exchange or trading system’s operator to permit derogation from the objective of real-time transparency25? If yes, are conditions clearly defined?

The regulatory framework does not deal specifically with this issue and does not contain any prohibition of this or any provision that the real time requirement must be observed.

27

25 The degree of transparency of a market can be measured as a deviation from a real-time standard. However, there is no single standard of “timeliness.” Most exchanges and regulatory systems provide for a certain degree of deviation from a real-time standard, such as, permitting some degree of opaqueness of quote information for block transactions, adopting different definitions of “real-time,” adopting a “promptness” standard that varies from several minutes to a longer time, allowing exceptions to real-time based on the size of the trade, type of trade (dealer mediated rather than auction market) or type of dealer. Indeed, each type of market microstructure delivers market fairness, efficiency and transparency in slightly different ways.


-- 96 --

# Issue Yes ( )

No ( )



IOSCO Relevance

DETECTION OF UNFAIR PRACTICES

Whether there is legislation prohibiting the following conduct in respect of securities admitted to trading on authorised exchanges and regulated trading systems:

(1) market or price manipulation?

(2) misleading information?

Article 56 of the Law on Securities Market provides that licensees are prohibited from: (i) exercising any form of influence over other licensees and investors in order to change their conduct in the securities market; and (ii) distributing inaccurate information in order to influence the securities market. Article 56 further provides that transactions concluded for the purposes of price manipulation are prohibited. Persons involved in such transactions shall bear liability as provided by the Law on Securities Market and other laws of Kazakhstan. A transaction concluded for the purpose of price manipulation can be invalidated by a court.

(3) insider trading?

Article 56 of the Securities Market Law includes insider trading transactions with transactions concluded for the purpose of price manipulation, both of which are prohibited.

9.

(4) front-running26? No regulation available.

28

26 See footnote 25.


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# Issue Yes ( )

No ( )



IOSCO Relevance

(5) excessive leverage in the system (e.g., trading on margin27)? No regulation available.

(6) other fraudulent or deceptive conduct and market abuses?

10. Does the regulatory framework provide the regulator with the power to supervise and inspect (i) securities position limits, (ii) quotation display rules, (iii) order handling rules, (iv) settlement price rules or market halts?

The stock exchanges must provide to the regulator its internal rules including the procedure for conducting trade at the stock exchange. No further detail is provided in the law. A representative of the regulator must be a member of the board of directors of the stock exchange.

28

In case of detection of trading violations, whether the following actions can be taken by the relevant authority: 11. (1) liquidation of positions? No legislation is available.

28

27 This practice is about trading with borrowed money, which can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.


-- 98 --

# Issue Yes ( )

No ( )



IOSCO Relevance

(2) suspension of trading?

However, Article 52 of the Rules for Activity of Securities Trade Arrangers provides that the internal documents of the trade arranger must establish the cases of suspension and resumption of securities trading. The internal rules must provide for the following two cases in addition to any other cases of suspension: (i) if the quality of traded securities has changed to the extent which significantly threatens the interests of investors; (ii) if the securities transaction prices or quotations announced by the trade participants deviate from the previously registered quotations by the limiting amount established by the internal documents of the trade arranger.

(3) fines?

The Code of Administrative Violations provides for fines for violation of "rules for performance of transactions with securities" and for "violation by the professional participants of securities market and trade arrangers of the legislative requirements to their activity". – However, these fines are of a general nature. It is unlikely that they would ever be imposed for the violations described in the question, because the regulator is not required to identify such violations..


-- 99 --

# Issue Yes ( )

No ( )



IOSCO Relevance

(4) revocation or suspension of membership or access authorisation?

This is within the competence of the stock exchange, which is an SRO (Chapter VIII of the Regulations for Membership of the Kazakhstan Stock Exchange: Termination of Membership of the Stock Exchange).

(5) other sanctions [please explain]?

There are administrative and criminal sanctions for violation of regulations applicable to the securities market. The limited sanctions available to the regulator have been described in other items of this questionnaire, as has the right of the regulator to suspend or revoke a license. (Articles 3-1 and 51 of the Securities Market Law)

(6) required arbitration or mediation?

Article 85 of the Securities Market Law provides that the rules of the stock exchange must contain rules for resolution of disputes arising during performance of transactions with financial instruments.

MONITORING OF LARGE EXPOSURES

12.

Whether the relevant regulatory framework requires the clearing firm, the market, and/or the regulator to monitor trading in order to identify large exposures28? If "yes", please briefly describe (i) how the law defines “large exposure” and (ii) the monitoring functions conducted (e.g., reporting requirement, inspections etc.)

No regulation. 29

13. Whether the regulator or the market has the power to compel customers or market members carrying or controlling large positions to reduce their No regulation. 29

28 The terms “large exposure” refers to open positions or credit exposures that are sufficiently large to expose a risk to the market or to a clearing firm.


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# Issue Yes ( )

No ( )



IOSCO Relevance

exposures or to post increased margin? In case a market member does not make relevant required information needed to evaluate an exposure available to the market authority, whether the following action can be taken by the relevant market authority:

(1) impose limitations on future trading?

(2) require liquidation of positions?

(3) increase margin requirements?

(4) revoke trading privileges?

(5) suspend from trading?

14.

(6) require to increase capital of the market member?

Pursuant to Articles 3-1 and 51 of the Securities Market law, the regulator can issue an order to eliminate the defects. If the order is not complied with within a certain period of time, the regulator can suspend the license.

29

DEFAULT PROCEDURES

15. Whether the market is required to have contingency plans or emergency procedures in dealing with a market disruption or system failure?

The Rules for Activity of the Securities Trade Arrangers approved by the National Commission on Securities of the Republic of Kazakhstan No. 19 dated 23 December 1998 provide that in order to ensure the continuance of trade, the trade arranger must have several trading systems. One of such systems shall be used as the main system, and others as reserve systems. If the trade arranger has only one trade system the trade arranger must have available and maintain reserve components. In case of 3 or more failures of the trading system within 3 consecutive months, the license of the trade arranger can be suspended

29


-- 101 --

# Issue Yes ( )

No ( )



IOSCO Relevance

or revoked.

16. Whether the regulatory framework requires markets and/or the clearing and settlement system(s) promptly to isolate the problem of a firm in financial difficulty by addressing its open positions or otherwise protect customer funds and assets from an intermediary’s default under national law?

29

17. Whether the regulatory framework requires intermediaries to separate and segregate customers’ assets from other funds and assets?

Article 45.5 of the Securities Market Law provides that the licensees and the central depository must record money and securities of their clients separately from their own assets and that such money and securities will not be included in the bankruptcy estate of the licensees.

29

18. If yes, in the event of intermediary’s insolvency, does the framework enable customer’s positions to be moved by a receiver to a solvent intermediary?

The Rules for Broker and Dealer Activity in Securities Market of the Republic of Kazakhstan, approved by the Resolution of FSA No. 317 (approved on 27 August 2005) provide in Article 22 that the broker must inform the client of the reasons for deterioration of its financial position. Article 33 provides that the agreement between broker and client can provide reasons for termination of the broker’s services and the actions to be taken upon termination. If upon termination of the brokerage agreement any money or financial instruments remain on the account of the broker, they must be returned to the client within 3 days or a shorter period provided by the brokerage agreement. Article 34-1 provides that in the event the broker's license is revoked, the broker must within 30 days from the revocation notice

29


-- 102 --

# Issue Yes ( )

No ( )



IOSCO Relevance

transfer all assets to the client's register, or another broker, if there is an agreement with such.


-- 103 --

Section G – Clearing and Settlement

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

AUTHORISATION AND LICENSING OF SECURITIES SETTLEMENT SYSTEMS

1. Whether the clearing and settlement systems are subject to direct supervision either by the regulator or the relevant market authority?

Kazakhstan law does not contain any clear regulation concerning clearing and settlement systems. Article 45 of the Rules for the Activity of Securities and Financial Instruments Trade Arranger provides that performance of transactions with financial instruments included in the official lists of the trade arranger shall be made only through the Central Depository. Pursuant to the Regulations on Settlements based on the Results of Securities Trading approved by the Resolution of the Kazakhstan Stock Exchange on 18 May 2000, performance of transactions according to the scheme T+0 shall be made only if the securities are delivered to the Central Depository (Article 23), settlements under transactions according to T+N scheme shall also be made only if the securities are delivered to the Central Depository (Article 32); performance of transactions according to the "Outright" scheme shall be made in the place and on time specified in the applicable stock exchange certificates and if such transactions are made through direct deals trading, their performance can be through accounts opened with independent registrars

18


-- 104 --

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

Article 42). In addition, Section II of the Regulations on Settlements provides for determining the clearing sessions held by the stock exchange to determine the net positions of the trade participants. Thus, it appears that clearing and settlement operations under Kazakhstan law are performed by the Central Depository and possibly by the stock exchange. The stock exchange is a licensed whereas the Central Depository is not. However, both are non-profit organisations and the shareholders of both organisations are professional participants of the securities market.

If the regulator has oversight responsibility regarding the clearing and settlement system, whether the regulator has the power to:

(1) license clearing and settlement systems? The Central Depository is not subject to licensing. The stock exchange is subject to licensing.

(2) issue rules mandating specific standards for clearing and settlement systems?

Generally the regulator has the power to issue regulations for specific operations in the securities market.

(3) approve changes to a clearing and settlement system’s rules and procedures?

2.

(4) conduct surveillance of the operations of clearing and settlement systems?

However, pursuant to Article 79.2 of the Securities Market Law the Board of Directors of the Central Depositary must include the representative of the regulator with a voting right.

30


-- 105 --

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

(5) inspect, audit or require a third party inspection or audit of clearing and settlement systems?

(6) require the clearing organization to file reports?

(7) bring regulatory actions against a clearing and settlement systems for violations of the securities laws and regulations or for failure to enforce its own rules?

TRADE CONFIRMATION AND DELIVERY VERSUS PAYMENT

3. Whether the regulatory framework requires that confirmation of trades between direct market participants occur no later than trade date (T+0)?

The law does not regulate this issue, but it may be provided for by the rules of the stock exchange. It is not clear what direct market participants are. Article 45.2 of the Rules for the Activity of the Arrangers of Trading in Securities and other Financial Instruments approved by the Resolution of the FSA No. 175 (dated 25 June 2007) provides that performance of transactions with financial instruments included into the official lists of the trade arranger must be completed not later than on the third business day from the date when the transaction is concluded in the trading system. The Regulations on Settlements Based on the Results of Trading In Securities contains Sections III-V which provide for "T+0", "T+N" and "Outright" schemes, however they do not clearly specify which scheme is

2


-- 106 --

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

applied to which method. Article 42.2 of the Regulations states that performance of transactions concluded as direct transactions may, by agreement between the parties, be done through independent registrars.

4. Whether the regulatory framework requires that trades be settled within three days from the trade date (T+3)?

Article 59 of the Rules for Activity of Securities Trade Arranger provides that the procedure for performance of securities transactions concluded in the trading system of the trade arranger must be determined by internal rules of the trade arranger. Such rules must contain, inter alia, the following conditions:…. (iii) transactions with securities included in the official list of the trade arranger must be performed no later than on the third business day from the date when the transaction was concluded in the trading system.

3

5. Does the technical, legal and contractual framework ensure that delivery of securities takes place if, and only if, payment is received? (i.e., DVP - delivery versus payment)?

Article 59 of the Rules for Activity of Securities Trade Arranger provides that the procedure for performance of securities transactions concluded in the trading system of the trade arranger must be determined by internal rules of the trade arranger. Such rules must contain, inter alia, the following conditions: (i) transactions with securities included in the official list of the trade arranger must be performed solely through the central depositary in the

3


-- 107 --

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

procedure established by Kazakhstan law and the set of rules of the central depository; (ii) transactions with securities included in the official list of the trade arranger must be performed according to the method "Delivery versus Payment"; (iii) transactions with securities included in the official list of the trade arranger must be performed no later than on the third business day from the date when the transaction was concluded in the trading system.

TRANSPARENCY

6. Do entities that provide the clearing, settlement and custodial infrastructure of securities markets make clear disclosures to market participants about their rules, regulations, relevant laws, governance procedures, risks, steps taken to mitigate risks, and the rights and obligations of participants?

Article 75.2 of the Law on Securities Market provides that upon conclusion of a custodial agreement, a custodian must provide for the review of the client its internal documents. Pursuant to Articles 78.3 and 81 of the Securities Market Law, the Central Depository must establish Rules of the Central Depositary. Article 6 of the Rules for the Activity of the Central Depository approved by the Resolution of the Board of the FSA No. 128 dated 27 May 2006 provides that the Central Depository must inform all of its clients and the trade arrangers of all amendments to the Rules 15 calendar days prior to their coming into force.

17


-- 108 --

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

CENTRAL DEPOSITORY29

7. Are securities issued on a dematerialised basis (i.e., electronic issue opposed to the issuance as a physical certificate)?

In Kazakhstan securities may be issued in documentary and non-documentary form. Shares are issued in a non-documentary form (Article 12 of the Law on Joint-Stock Companies).

6

8. Does the transfer of securities require any form of physical delivery?

In the event of transfer of non-documentary securities, confirmation of the transfer will be evidenced by a certificate of share transfer into the account of the purchaser. The transfer of documentary securities requires the physical delivery of a document unless such documentary security has been deposited with a licensed professional participant of the securities market, in which case the extract from the account maintained with such professional participant is sufficient. (Article 130 of the Civil Code)

6

9. Does a central securities depository (CSD) exist? If NO, please briefly describe the settlement system.

The rules concerning the Central Depository are provided in Chapter 16 of the Securities Market Law and in the Rules for the Activity of the Central Depository approved by the Resolution of the Board of the FSA

6

29 There are several different ways for owners to hold securities. In some jurisdictions, physical securities circulate and beneficial owners may keep securities in their possession, although owners typically employ a custodian to hold them to reduce risks and safekeeping costs. The costs and risks associated with owning and trading securities may be reduced considerably through immobilisation of physical securities, which involves concentrating the location of physical securities in a depository. The immobilisation or dematerialisation of securities and their transfer by book entry within a CSD significantly reduces the total costs associated with securities settlements and custody.


-- 109 --

# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

No. 128 dated 27 May 2006 and a few other acts of legislation.

10. If the answer to the above question is “yes”, does an entry in the CSD result automatically in the transfer of the legal title to the securities in the official register of the issuer? If NO, please specify which rights are given by the entry

Article 19 of the Rules for Registration of Securities Transactions, Preparation and Issue of Certificates (Extracts) from the Account of the Securities Holder and Disclosure of Information by Nominal Holders provides that when a transaction is made between the clients of the same nominal holder (e.g. broker/dealer) the registration of the transfer of rights shall be made by the nominal holder and shall then be reflected in the system of the Central Depository. When a transaction is made between the clients of different nominal holders, the registration of the transfer of rights shall be made on their accounts with the Central Depository and shall then be reflected in the systems of the nominal holders. The law does not specify at what point legal title is transferred when transactions are made on the Stock Exchange and settled through the CSD.

6

11. Are securities immobilised or dematerialised and transferred by book entry in a CSD?

Article 18 of the Rules for Operation of Central Depository Approved by the Resolution of the Board of the FSA No. 128 dated 27 May 2006 provides for dematerialisation of securities. Dematerialisation of financial instruments

6


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# Issue Yes ( )

No ( )



CPSS / IOSCO

Relevance

issued in a documentary form is done by the central depository by recording and certifying the rights to such financial instruments in its system of records of nominal holding on the accounts of the clients of central depository. Confirmation of the rights of clients to financial instruments is made by the central depository by issuing extracts from the accounts in the records system of the central depository.

OVERSIGHT

Is the clearing and settlement systems required to:

a) file periodic reports to the regulator?

The Rules for Submission of Reports by the Central Depository approved by the Resolution of the Board of the FSA No. 252 (dated 21 August 2004) provide that the Central Depository must provide reports concerning its deponents and the securities in its nominal holding and the transactions therewith on a quarterly basis. However, it appears that there is no clear requirement to report on clearing and settlement issues.

12.

b) submit to periodic and/or special audits and inspections?

30

DERIVATIVES

13. Whether derivative securities clear and settle on a different system through a specialised trading and/or clearing system?

However, the law and the regulations of the stock exchange do not clearly deal with this issue,

30


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14. If the answer to the above question is "yes", whether the legislative framework addresses the treatment of derivatives risks? 30

PROTECTION OF CUSTOMERS’ SECURITIES

15. Dies the legal or regulatory framework provide any arrangements to protect customers’ securities from theft, loss or misuse and to ensure that they will not become subject to claims of the custodian’s creditors (e.g., segregation of assets insurance, compensation schemes)?

Rules for Custodial Activity in Securities Market adopted by Resolution No. 142 of the Board of the National Bank provide in Article 3-1: the bank which performs custodial and broker and dealer activity in the securities market shall ensure that: 1) its organisational structure includes a separate division performing custodial activity in the securities market; 2) the custodial division must not be involved in any other types of activity; 3) the custodial division must have separate premises; 4) the premises of the custodial division must have a system of regulated access; 5) the custodial subdivision must have a system of recording and documenting which is separate from the systems of the broker/dealer division; 6) no employee of any of the above-mentioned divisions may have access to the documents or software of another division; 7) the information of one of the above-mentioned divisions must not be provided to any officers or employees of another subdivision. Article 6.8 of the same document provides that the custodian must ensure that the assets of its clients and its own assets are held and

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recorded separately. The custodian is not entitled to use the assets of its clients in its own interests, including their use to repay its own obligations, pledge them or perform any other actions not expressly permitted by Kazakhstan law. A model custodial agreement is provided in the law. The model agreement states that any party which causes damage to the other party as a result of non-performance or improper performance of its obligations must reimburse such damage within 5 days from the date when the relevant failure occurred, and pay a penalty of an amount agreed by the parties based on the Kazakhstan National Bank refinancing rate.

16. Are the entities holding securities in custody subject to mandatory internal or external audit, or both, to determine if there are sufficient securities to satisfy customer claims?

The custodians must keep securities for their clients and regularly reconcile their records with the respective broker/dealers or managers of the investment portfolios. Since custodians in Kazakhstan can be only banks, as such, they are also subject to regular audits.

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Section H – Accounting and Auditing of Financial Reports

# Issue Yes ( )

No ( )



IOSCO Relevance

DISCLOSURE OF FINANCIAL RESULTS

1. Whether issuers are required to publish financial and other information at regular intervals (i.e. annual and periodic financial reports, please specify)?

Article 76.4 of the Law on Joint Stock Companies provides that a joint stock company must annually publish in the mass media its annual balance sheet, cash flow statement, report on changes in the capital and its income and expense statement.

14

If the answer to the above question is "yes", 14

(1) Whether the issuer or other persons (depending on the circumstances, they might be the underwriter, sponsor, advisor, etc.) is legally responsible for the contents of these reports?

The officers of the issuer are responsible for the data contained in the reports. Article 62.3 of the Law on Joint Stock Companies provides that they must arrange for the proper maintenance of accounting and financial reports. In addition, Article 178 of the Code of Administrative Violations, provides for penalties against the officers of a legal entity for failing to properly maintain accounting records, preparing inaccurate financial reports, or concealment of data. Article 179 of the Code of Administrative Violations provides for an administrative fine on legal entities who violate the requirements of Kazakhstan law as to accounting and financial statements.

2.

(2) Whether companies are required to file these reports with the regulator for review/approval?

However, the auditors must inform the regulator of any violations discovered during the audit.


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(3) Whether the regulator has the power to take action for incomplete or misleading information in these reports?

Article 193 of the Code of Administrative Violations provides for administrative fines on the officers of the market entity and the market entities for provision of inaccurate or false information.

EXTERNAL AUDITOR

3. Whether the relevant law or regulation requires that annual financial statements published by issuers should be audited by external auditors?

Article 78 of the Law on Joint Stock Companies provides that a joint stock company must ensure that its annual financial reports are audited.

16

4. Does the regulatory framework require that an issuer’s governance body independent in both fact and appearance of the management of the company (e.g., shareholders or a statutory or corporate audit oversight body) oversee the process of selection and appointment of the external auditor?

Article 36.6 of the Law on Joint Stock Companies provides that entity that will perform the audit should be selected by the general meeting of shareholders.

16

5. Whether the regulatory framework requires issuer to change the external auditor after a certain number of years (i.e., rotation)? If yes, please specify the rotation period

16

6. Whether issuers are required to provide audited financial statements in public offering prospectuses?

Article 9.2 of the Securities Market Law provides that the audited annual financial reports of the issuer shall be an integral part of the prospectus.

16

Whether the required audited financial statements include the elements listed below: 16

(1) a balance sheet or statement of financial position? Article 15.2 of the Law on Accounting and Financial Statements.

7.

(2) a statement of the results of operations?

If an income and expense statement is what is meant by the question. Article 15.2 of the Law on Accounting and Financial Statements.


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(3) a statement of cash flow? Article 15.2 of the Law on Accounting and Financial Statements.

(4) a statement of changes in ownership equity or comparable information included elsewhere in the audited financial statement or footnotes? Article 15.2 of the Law on Accounting and

Financial Statements.

ACCOUNTING STANDARDS

8. Are financial statements required in public offering and publicly available annual reports required to be prepared and presented in accordance with a comprehensive body of accounting standards?

All issuers of securities included in list A (the highest category) of the Kazakhstan stock exchange must maintain their financial reports in accordance with IFRS (Resolution of the FSA No. 73 dated 30 March 2007 On Requirements to the Issuers and Their Securities Admitted to the Stock Exchange and Certain Categories of the Stock Exchange Lists). Major companies and all joint stock companies in Kazakhstan must maintain their accounts and report in accordance with IFRS. (Articles 2 and 16 of the Law on Accounting and Financial Statements) The accounting and financial reporting system of financial organisations is regulated by the National Bank by way of special legislation and methodological recommendations.

16

9. If the answer to question above is “yes”, are these accounting standards of a high and internationally acceptable quality? IFRS. 16

10. Whether an organisation responsible for the establishment and timely interpretation of accounting standards is set out by the relevant law or regulation? If "yes", please state the name of the body and its composition

Kazakhstan law does not clearly provide for any authority responsible for establishment and timely interpretation of accounting standards. The Regulations of the Ministry of Finance of

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the Republic of Kazakhstan approved Decree of the Government of the Republic of Kazakhstan No. 1119 dated 28 October 2004 provides in Article 1 that the primary tasks of the Ministry include methodological guidance of accounting practices. In practice, there are a number of Methodological Recommendations for Application of International Accounting Standards, however those are only recommended for use by the Experts Council of the Ministry of Finance of the Republic of Kazakhstan.

11. If the answer to the above question is "yes", whether the standard setting body is subject to regulatory oversight? If "yes", please indicate who the supervisory authority is.

National regulation of the system of accounting and financial reporting is carried out by the Ministry of Finance of the Republic of Kazakhstan.

16

Whether the accounting standards used in preparing financial statements and financial reporting address the general topics listed below: 16

(1) presentation of financial information?

(2) consolidation of financial information?

(3) business combinations?

(4) tangible and intangible assets (including impairment of assets)?

(5) leases?

(6) income taxes?

(7) employee benefits (e.g., pension, stock compensation, etc.)

12.

(8) provisions and contingencies?

Financial reporting by joint stock companies in Kazakhstan is required to be done in accordance with IFRS. However, as noted above, there is no mandatory domestic interpretation of IFRS. Accordingly it is not possible to comment on whether the standards are actually or properly used in the preparation of financial statements and reports.


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(9) financial instruments (including derivative financial instruments)?

(10) securitisation? See comments above

Whether the accounting standards used in preparing financial statements and financial reporting address the following areas of particular interest to investors: 16

(1) earnings per share?

(2) interim financial reporting?

(3) information about business segments?

(4) related party transactions? 13.

(5) leases?

The law provides that IFRS and IAS shall apply in Kazakhstan. It also states that an official translation of IFRS and IAS should be made (into Russian or Kazakh). However, there is no such translation available as yet. In practice, companies and audit firms use the translations prepared in Russia or provided by the Kazakhstan offices of international audit firms. The issue concerning the applicable versions of IFRS and IAS is also unclear. It appears that it should be the most current version, but in the absence of any official translation or any further guidance further clarification cannot be provided.

AUDITING STANDARDS

14. Are audited financial statements included in public offering and publicly available annual reports, required to be audited in accordance with a comprehensive body of auditing standards?

15. Are these auditing standards of a high and internationally acceptable quality?

16. Does the regulatory framework provide for an organization responsible for the establishment and timely interpretation of auditing standards?

Article 4.2 of the Law on Auditing Activity provides that the audit must be performed in accordance with the Law on Auditing and international auditing standards which do not contradict the legislation of the Republic of Kazakhstan and are published in the state and Russian languages by an entity which has a

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written permit for official publication thereof in the Republic of Kazakhstan, given by the Committee for International Auditing practice under the International Federation of Accountants.

Do auditing standards expressly require the auditor to: 16 (1) use due professional care in the performance of the audit? (2) adequately plan and supervise the audit? (3) obtain an understanding of the internal control system of the entity?

17.

(4) obtain sufficient evidence to determine whether the financial statements are free of material misstatements?

The Law on Auditing Activity refers to the international standards as mentioned above. However, there is no official translation currently available and no further guidance in the law. Therefore it is not possible to answer to these questions.

Whether an auditor report is required to disclose: 16 (1) any exceptions to the application of accounting principles used? (2) any material uncertainties in the financial statements? 18.

(3) any going-concern issues?

The Law on Auditing Activity refers to the international standards as mentioned above. However, there is no official translation currently available and no further guidance in the law. Therefore it is not possible to answer to these questions.

19. Whether the regulatory framework requires auditors to be independent from the issuer? If "yes", please define “independence”

Article 24 of the Law On Auditor's Activity provides that the auditing organisation is prohibited from auditing (i) the customers in which it or its employees holds an interest, or of which it or its employees are creditors; (ii) its insurance companies; (iii) the companies for which has provided accounts restoration, accounting and reporting services in the 3 years’ prior; (iv) if persons performing the audit are employees or relatives of the officers of the

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audited entity or the shareholder or a participant who owns 10% or more of the shares or interest units.

20. Whether auditors are required to be licensed or approved and to satisfy specific education criteria and other qualifications in order to practice?

Under Kazakhstan law an auditor is an individual who has passed the attestation of the Qualification Commission and holds an auditor's qualification certificate. (Article 1 of the Law on Audit Activity)

16

21. Whether auditors are subject to continuing professional education requirements after they are licensed or approved to practice?

Article 20.1.2 of the Law On Auditing Activity provides that the auditors must no less than once in three years attend training courses in professional organisations.

16

22. Does the regulatory framework provide for a mechanism for enforcing compliance with accounting standards such as requiring restatements of financial statements that deviate from accepted standards?

No clear regulation of this issue. However, Article 179 of the Code of Administrative Violations provides for administrative fines on legal entities for violations of Kazakhstan law concerning accounting and reporting.

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Section I – Money Laundering

# Issue Yes ( )

No ( )



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SCOPE OF THE CRIMINAL OFFENCE OF MONEY LAUNDERING

1.

Whether there is legislation in place to address the issues of money laundering (ML)? If "yes", please identify the name of such legislation and when it was adopted [if a special law exists, please include details of the law in Section I, above]

There is no specific domestic legislation to address this issue. At the end of 2005 a draft law On Combat of Legalisation (Laundering) of Illegal Income and Financing of Terrorism was prepared. It is still in draft form.

1

Whether the following conventions have been signed and ratified (please specify in your comments):

(i) 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention)? Acceded by RK Law No. 246-1 dated 29

June 1998

(ii) 2000 UN Convention against Transnational Organized Crime (the Palermo Convention)?

Kazakhstan has signed (on 13 December 2000) but has not ratified the Palermo Convention.

2.

(iii) 2003 UN Convention against Corruption?

1 and 35

3.

Does the law provide for the confiscation of property (including funds and securities) that has been laundered or which constitutes (i) proceeds from; (ii) instrumentalities used in; and (iii) instrumentalities intended for use in the commission of any ML, financing of terrorism (FT) or other predicate offences, and property of corresponding value.

Kazakhstan law does not contain any specific regulation with respect to money laundering. However, Article 190 of the Criminal Code provides for confiscation of property in the event of illegal entrepreneurial activity. Article 193 provides for confiscation of property in the case of legalisation of money and other property which was illegally gained or acquired.

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Article 205 provides for confiscation of profits in the event of crimes relating to violations of rules for securities transactions.

CUSTOMER DUE DILIGENCE AND RECORD-KEEPING

4. Does the regulatory framework require that financial institutions obtain senior management approval before establishing business relationships with politically exposed persons?

6

5. Does the regulatory framework require financial institutions to maintain all necessary records on transactions, both domestic and international, for at least five years following completion of the transaction regardless of whether the account or business relationship is ongoing or has been terminated?

The broker and/or dealer companies are required to keep all document relating to transactions in accounts held by them during five years from the date when the relevant account is closed. Custodians must keep reports on separated assets and the basic documents concerning accounting or record keeping for such assets during five years. The independent registrars are also required to keep certain basic documents for at least five years. (Article 46 of the Rules for Brokers and Dealers Activity in the Securities Market, approved by the Decree of the FSA No. 137 (dated 27 August 2005))

10

6. Are financial institutions required to undertake customer due diligence measures including identifying and verifying the identity of their customers?

Financial institutions should know the identity of their customers but are not required to undertake any due diligence.

5

7. Does the regulatory framework prohibit from opening/maintaining (i) anonymous accounts, (ii) accounts in fictitious names, (iii) numbered The Resolution of the FSA No. 62 (dated 25

February 2006) On Approval of the Rules 5


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accounts and (iv) non registered (i.e., bearer) securities? for Maintaining Registers of Securities Holders provides in Articles 12 and 13 that an account shall be opened for an individual on the basis of his/her order and identity document, and for a legal entity on the basis of its order and a copy of its state registration certificate. Resolution of the FSA No. 61 dated 25 February 2006 On Approval of the Rules for Registration by Professional Participants of Securities Market, Who Provide Services of Nominal Holding, of Transactions with Securities, Preparation and Issuance by Them of an Extract from the Account of the Securities Holder, and Disclosure of Information by the Nominal Holder provides in Article 4 that the account of the client and the client’s sub-account with the Central Depositary show a list of data including the full name of the individual or the company’s name, residence, and information from the identity document or the company registration document.

REPORTING OF SUSPICIOUS TRANSACTIONS AND COMPLIANCE

8. Does the regulatory framework require financial institutions to report to the relevant authority suspicious transactions (i.e., when it suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity or terrorism financing), regardless of the amount of the transaction?

There is no specific regulation on this issue, except that the stock exchange is required to monitor and report to the regulator any suspicious transactions.

13

9. Does the regulatory framework require market intermediaries to have in place policies and procedures designed to minimise the risk of using an 8


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intermediary's business as a vehicle for money laundering?

INTERNATIONAL COOPERATION

10. Does the regulatory framework allow the relevant authority to cooperate with foreign authorities for AML purposes (e.g., search and seizure of information, taking of evidence or statements from persons, providing originals or copies of relevant documents and records)?

Kazakhstan legislation generally allows the regulator to cooperate with foreign authorities for the purposes of precluding or eliminating any violations in the securities market. (Article 15.40 of the Regulations of the FSA)

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Section J –Financial Instruments

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No ( )



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VARIETY OF FINANCIAL INSTRUMENTS TRADED

1. Does the regulatory framework provide for a definition of financial instruments/securities or similar? [Please provide the definition in your answer]

The Civil Code and the Securities Market Law contains the following definition of securities: “A security is a totality of specific records and other symbols evidencing property rights. Securities include shares, bonds and other types of securities defined as such in accordance with the Civil Code and other laws of Kazakhstan.”

Does the regulatory framework provide comprehensive regulation for listing and trading of: 2.

(i) commercial bonds

Kazakhstan law concerning listing and trading generally does not provide for different rules for admission of shares and bonds. Therefore, the listing rules of the Kazakhstan Stock Exchange will apply to commercial (private) bonds, and the Resolution of the Board of the FSA Concerning Requirements for Issuers and their Securities Admitted to Circulation on the Stock Exchange and for Certain Categories of the Stock Exchange’s Lists will also apply.

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(ii) government bonds

Rules for Placement of State Treasury Bonds of the Republic of Kazakhstan approved by the resolution of the KSE Council on 24 December 2004.

KASE's Rules for Admission of State Securities (Decision of the Board of KASE (Minutes No.49 of December 29, 2004), in force from January 24, 2005)

Rules for admission of foreign state securities to circulation approved by the resolution of the KASE Council dated 6 August 2003

(iii) municipal bonds

(iv) derivatives

Although it is difficult to assess whether it is comprehensive. There is no specific regulation on admission of derivatives. Therefore the Rules for Listing and the above-mentioned resolution of the FSA concerning the requirements to securities and their issuers will also apply.

3. Whether there is a specific regulation applicable to the issuance of financial instruments to the benefit of employees as an employee share purchase plan? 14, 25


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DERIVATIVES

4. Does the regulatory framework clearly provide that derivative contracts are enforceable without exceptions?30

The Law on Securities Market recognises that derivatives are securities. Options and futures will be derivatives only if they are standardised by the stock exchange. Therefore, the relevant contracts are expected to be relatively simple and will be enforceable in accordance with the Civil Code and other legislation applicable to contracts generally. The Law On the Securities Market and the Law No. 57 “On Currency Regulation and Currency Control” adopted on 13 June 2005 define the terms “derivative” and “derivative security”. However, there is still some conceptual confusion on what a derivative is and which derivatives a bank can use in the OTC market. With reference to enforcement, the Kazakhstani legislation is similar to the Russian, in that it contains a provision (Article 914 of the Civil Code) under which claims of individuals and legal entities relating to games and bets that are based on a risk, or claims relating to participation in such games and bets, do not enjoy judicial protection in the courts.

14, 25

30 In some jurisdictions, the enforceability of derivatives is limited due to a concurring provision addressing unenforceability of gaming bets. In some other countries enforceability of derivatives is limited only to licensed financial institutions.


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Russian courts have refused to enforce derivative transactions on the basis of a provision identical to the above. In Kazakhstan there is as yet no such case law. There is a small risk of such an argument winning favour in Kazakhstan courts also, however this risk is remote for the following reasons. The Civil Code of Russia sets forth the provision concerning games and bets as a separate chapter of the Civil Code. It therefore establishes a separate type of obligation. The Kazakhstan Civil Code includes Article 914 as one of the provisions of Chapter 46: Tender Obligations. Consequently, under the Kazakhstan Civil Code, the provision concerning games and bets applies only to tender obligations. Tender obligations include obligations arising from the public promise of an award or arising on the basis of a tender, auction or other form of trade. Furthermore, pursuant to Article 910 of the Kazakhstan Civil Code, under a tender obligation the tender initiator makes an offer to participate in the tender and promises either to pay the award or to conclude a contract with the winner. Therefore, it seems that application of this provision to obligations arising under contracts in unlikely under Kazakhstan law.


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5. If a market for derivatives exists, does the regulatory framework require disclosure of the terms of the contracts traded, the mechanisms of trading and the risks?

Kazakhstan legislation recognises derivatives. However, we are not aware of there being an active market. Options and futures will be derivatives only if they are standardised by the stock exchange. Therefore, there is no need and no legislation requiring specific disclosure in respect of derivatives or risks relating to them. The mechanisms of trading will be established by the rules of the stock exchange.

14

CROSS-BORDER ISSUANCE

6. Does the regulatory framework provide for any limits/restrictions to the issuance and the selling of financial instruments by a foreign issuer in your market? Please describe

Article 4 of the Law on Securities Market provides that the objects of the securities market of the Republic of Kazakhstan include, inter alia, (i) non-state securities of non-residents of the Republic of Kazakhstan, the issuance of which is registered in accordance with applicable foreign legislation and that have been allowed into circulation on a stock exchange in accordance with the procedure established by a legal act of the applicable regulator; and (ii) non-state securities of non-residents of the Republic of Kazakhstan the issuance of which is registered by the regulator or which are allowed to circulate on a stock exchange.

14-16

7. Does the regulatory framework provide for any limits/restrictions to the issuance and the selling of financial instruments by a national issuer in a Article 22-1 of the Securities Market Law

provides that a company-resident of the 14-16


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foreign market? Please describe Republic of Kazakhstan is entitled to place its securities in a foreign state only if it has the appropriate permission of the regulator and a number of conditions are met. The conditions vary for shares and bonds. They basically require that the securities previously issued by the issuer be listed at the stock exchange operating in Kazakhstan and that a certain amount of such securities be offered in Kazakhstan.

SPONSOR/UNDERWRITER

8. In the case of Initial Public Offering, whether the issuer is required to have a sponsor or an underwriter?

The legislation does not specifically require that the issuer have a sponsor or an underwriter in the case of an Initial Public Offering. However, in order to sell the shares through a stock exchange, an agreement with the broker/dealer will be required, and if such broke/dealer also becomes the initiator of the listing and agrees to be a market-maker, then in practice the company will have an underwriter.

14

CONCENTRATION RULE

9. Does your regulatory framework require that all relevant transactions be conducted on a stock exchange? 14

PRIVATE PLACEMENT

10. Whether there is a specific regulation for private placement of financial It appears that a private placement is not 14


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instruments? Please define private placement. allowed in Kazakhstan. Article 22.1 of the Law on Securities Market provides that an issuer (underwriter) shall be entitled to place securities through an auction or by subscription. The law further provides that the terms and conditions of the auction or subscription must be established by internal documents of the issuer and must include the requirements to investors who intend to purchase the securities.

This Assessment does not constitute legal advice. Readers are advised to seek appropriate legal advice before entering into any transaction, making any determination or taking any action related to matters discussed herein. The contents of this Assessment are copyrighted. For further information or eventual comments please contact Gian Piero Cigna at [email protected]

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CHADBOURNE PARKE LLP - ebrd.com · Law of the Republic of Kazakhstan No.474-II on State Regulation...

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