Clearing and settlements

Using T+2 scheme Kazakhstan Stock Exchange trade participants are getting an opportunity to exercise securities transactions using partial prefunding and making final payment for obligations derived from these transactions on the second day following the transaction date. This opportunity will allow not only to reduce transaction costs of the participants, but also to facilitate better managing of their assets during several working days before the settlement date. Generally T+2 is considered a standard scheme in the international markets and is fully compliant with the requirements of the International Organization of Securities Commissions, IOSCO, based on which the maximum period between the date of transaction conclusion and the date of settlement should not exceed three days. Advantages of T+2 scheme over T+0 scheme are: first, future transaction obligations can be financed partially instead of full financing; second, T+2 scheme that is new for our trade participants, is conventional for international trade participants and their clients. As such T+2 scheme is intended to increase liquidity of shares traded under this regime both via increased participation from Kazakhstan trade participants and via attracting international trade participants.

Yes, in addition to the current commission fee clearing fee will be introduced for transactions with securities under T+2 scheme. The clearing fee rate is 0.001% of the amount of the transaction, which is subject to payment by each party to the transactions.

Assets (securities and money) of the trade participants accounted for on the respective accounts in Central Securities Depository, JSC, that is a settlement organization for the stock market that is operating under T+2 scheme, would be used not only for the payment of obligations resulting from concluded transactions, but also as a collateral for future transactions. Therefore withdrawal of assets by trade participants will be dependent on the sufficiency of the required assets on the accounts of the above mentioned participants. It will be possible to withdraw only the portion of assets calculated as the difference between total amount (quantity) of assets on the specific account and amount (quantity) of assets blocked as transactions' collateral, this includes future transactions. In any case each request for assets withdrawal from trade participant to Central Depository will be forwarded to the Stock Exchange, and only in cases of successful validation of assets sufficiency trade participant will be allowed to withdraw assets.

Stock Exchange trade system for each trade account maintains record-keeping of positions created as a result of the submission of orders and conclusion of transactions, where positions are representing quantity of securities (amount of money) accounted at trading (cash) account of the trade participant. This record-keeping is automatically performed by the trade system. Orders submitted to the trade system form a planned position, where concluded transactions form current (open) position and impact the changes of the planned position.

Settlements on securities transactions concluded under T+2 scheme are done by Central Depository on T+2 day after the trades are closed clearing session is finalized by 19:00 Almaty time. Trade participants should credit appropriate accounts at the Central depository with necessary assets by 17:20 Almaty time on T+2 day.

Yes, it is possible. At the same time KASE's risk management system and default regulating procedures are in place to minimize implications of such failure to deliver. In any case trade participant, claiming non-delivered assets will receive cash equivalent of the expected assets, that can be composed of margin contributions and guarantee payments of the default trade participant, as well as financed by the Stock Exchange reserve fund that is created specifically to cover obligations of the defaulting trade participants.

Transfer of ownership on securities is done as a result of settlement on T+2 day.

Only after the shares were credited to his account, i.e. two days after the conclusion of the deal. In other words, if the date of fixing the registry for payout of dividends on shares of a certain title falls on the two days following the date of conclusion of the shares purchase deal, then the person, acting as the seller in that deal, will be entitled to dividends before crediting of shares to the account.

Shares included in KASE index.

Existing KASE trade system. At the moment it is being modified to support new T+2 scheme.

Commission and clearing fees for transactions with securities under T+2 scheme are written-off in the same manner as commission and clearing fees for transactions with securities under T+0 scheme, i.e. monthly based on the invoices provided by KASE under established procedure.

No, assets are accumulated on same trade participant's account. That is trade participant has single position to account for assets related to T+0 as well as T+2 scheme transactions.

Settlement day for T+2 is second working day after the transaction conclusion day. For example, if transaction is concluded on Friday, then settlement day is Tuesday next week. At the same time, if Monday is non-working day, then settlement day is shifted from Tuesday to Wednesday.

Any order for securities transaction submitted in KASE trade system should be at minimum prefunded by initial margin calculated using margin rate applicable to the security that is subject of the said order. At the same time sell order may be fully prefunded by securities, where number of securities should correspond to the total number of such securities indicated in the order.

No, they cannot. All orders to execute opening transactions on repo netting market should be fully prefunded. The reason is that settlement of opening transactions is done on transaction conclusion date.

Transition period will last no less than 30 calendar days. Starting date of the transition period will be announced separately.

No, they will not be used.

Trade participant committing a default on the obligations under concluded transactions will be recognized as a default participant and will have to pay a forfeit in form of a fine calculated as 0.1 % of the underperformed obligations per day, multiplied by number of days used to settle the obligation.

Yes, it is possible. In this case the portion of the obligation not settled on T+2 day will be settled in the consecutive days using default regulating procedure and applying applicable forfeits.

No.

Margin is composed of initial one and supported one. Initial margin rates are set depending on the securities volatility, so that the lower the security's volatility the lower are the margin rates on that security. Supported margin is fixed and equal to 80% of initial margin requirement. Initial margin rates are set using internal methodology used by Stock Exchange to calculate the risk parameters and are available to the trade participants in the trading system. For example, if the initial margin rate is 15% and the price of a share is 1000, then the initial margin requirement equals to 150 and the supported margin requirement – 120. If however, the price of the share went up next day to 1050, then the initial margin requirement calculated with the same rate equals to 157.5 and the supported margin requirement – 126. This difference of 6 (126-120) provides grounds for a margin call and in order to fulfill this margin call the participant should pay-in 6 to his margin account in order restore the balance of the initial margin to the necessary level.

Yes, this opportunity exists. Repo operations on repo netting market, that will be launched approximately at the same time with the T+2 scheme trading, is designed to allow trade participants to obtain assets required for settlement at acceptable rates with the transfer of ownership on repo operation security from seller to buyer and with the settlement of the opening transactions on the transaction conclusion day (T+0). Settlements on the closing transactions are in turn settled on the T+1 day, which allows to perform transfer of positions. Results of repo opening and closing transactions are included in general netting together with the results of trade transactions concluded based on T+2 scheme.

They can, however this is allowed only if these are sell orders or orders to conclude repo opening transactions on repo netting transactions market. In both cases prefund amount is equal 100% of transaction amount.

Collateral is calculated using margin rate multiplied by maximum planned position amount in absolute expression - sell or buy, if this is not equal zero, then the collateral would not be equal zero.

Yes, margin rates are reassessed. Margin rates for securities are calculated taking into account volatility of the specific securities and are set in the trade system once per day before trades are open. Depending on changes in securities volatility margin rates will be reassessed and updated rates published.

Collateral is taken into account. For example, if margin rate is 10%, then on the settlement day you need to provide the appropriate account at Central depository with the remaining 90% to settle the obligations.

Yes.

During transition period, while both T+2 and T+0 will operate simultaneously, corporate securities traded under T+2 scheme will be assigned temporary codes, for example "ABCD_T2".

DvP-3. DVP (Delivery versus payment) - securities transactions settlement method under which transfers of securities and money occur simultaneously. Under DVP-3 settlements are done by netting securities and monetary obligations.

In the Procedure of executing transactions on the stock market via T+2 scheme available on the website of KASE.