- EBRD provided technical assistance for development of capital market legislation
- New legal framework is putting Kazakhstan on the derivatives and netting map
- Businesses will have better tools for hedging risks
Businesses in Kazakhstan will able to better hedge their currency exchange and interest-rate-related risks thanks to a new regulatory framework developed with the help of the European Bank for Reconstruction and Development (EBRD).
The framework consists of the Netting Law and Resolution 77. The Netting Law helps reduce risks in financial contracts between two or more parties by combining or aggregating multiple financial obligations. The Resolution 77 is adopted by the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market (the Agency). It establishes the list of foreign professional organisations, the documentation of which is now recognised for close-out netting – the method of closing a deal after a default occurs.
Developed by major international law firm Dentons Kazakhstan and in close cooperation with the National Bank of Kazakhstan (NBK), the Agency and the EBRD, the new legal framework is putting Kazakhstan on the derivatives and netting map and helping to develop the financial and capital markets.
The result of a joint four-year effort, also coordinated with and supported by the International Swaps and Derivatives Association (ISDA), means that Kazakhstan now has a fully effective legal and regulatory framework for cross-border, over-the-counter (OTC) derivative and repurchase agreement (repo) transactions. Businesses will be able to trade securities such as derivatives outside of formal exchanges and without the supervision of an exchange regulator.
The new framework, by means of the amendments made into the Civil Code and a number of key laws, provides for the enforceability of cross-border OTC derivative and repo transactions, including the early termination and close-out netting provisions typically applied to such transactions.
Huseyin Ozhan, EBRD Head of Kazakhstan, said: “The adoption of this legal framework is a milestone for the local capital markets. In these globally turbulent times it is more important than ever to provide businesses in Kazakhstan with cost-efficient hedging tools for the mitigation of their risks. It will also help the Bank source local currency to finance new projects in the country.”
Mariya Khajiyeva, Vice-Chairman of the Agency, noted that: “Based, among other things, on the principles of the Model Netting Act developed by the ISDA, we aimed to introduce a generally accepted procedure applicable for OTC derivative and repo transactions in Kazakhstan. We believe that the adopted framework considerably improves the quality of the Kazakhstan legislation on the securities market.”
The EBRD, through its Capital and Financial Markets Development team, and in collaboration with key departments such as the Bank’s Treasury, is working on similar projects in Azerbaijan, Bulgaria, Egypt, Morocco, Ukraine and Uzbekistan.
With almost €9.84 billion invested in the country to date through 304 projects, Kazakhstan is the EBRD’s largest and longest-running banking operation in Central Asia.