On Approval of Instruction on Regulatory Values of Prudential Norms, Methods of Their Calculation for Organizations Performing Investment Management of Pension Assets (стр. 1 )

Registered with the Ministry of Justice of the Republic of Kazakhstan as of September 30, 2008 No 5322

RESOLUTION

OF THE BOARD OF
THE AGENCY OF THE REPUBLIC OF KAZAKHSTAN ON REGULATION AND SUPERVISION OF FINANCIAL MARKET AND FINANCIAL ORGANIZATIONS

Almaty

August 22, 2008

No 118

On Approval of Instruction on Regulatory Values of Prudential Norms, Methods of Their Calculation for Organizations Performing Investment Management of Pension Assets

In accordance with Article 57 of the Law of the Republic of Kazakhstan as of June 20, 1997 “On Pension System in the Republic of Kazakhstan”, sub-point 11) of point 2 of Article 3 and point 3 of Article 49 of the Law of the Republic of Kazakhstan as of July 2, 2003 “On Securities Market”, sub-point 5) of point 1 of Article 9 of the Law of the Republic of Kazakhstan “On State Regulation and Supervision of Financial Market and Financial Organizations”, the Board of the Agency of the Republic of Kazakhstan (hereinafter – “the Agency”) has resolved to:

1. Approve Instruction on Regulatory Values of Prudential Norms, Methods of Their Calculation for Organizations Performing Investment Management of Pension Assets attached.

2. Declare invalid regulatory legal acts of the Republic of Kazakhstan according to supplement to the Resolution.

3. This Resolution shall come into force from October 1, 2008.

4. Strategy and Analysis Department (N. Adbrakhmanov) shall:

1) take measures in co-ordination with the Legal Department (N. Sarsenova) for state registration of this Resolution with the Ministry of Justice of the Republic of Kazakhstan;

2) inform within ten days from the state registration with the Ministry of Justice of the Republic of Kazakhstan the concerned subdivisions of the Agency, Union of legal persons “Association of Kazakhstan Financiers” about this Resolution.

5. Department for Information Technology (K. Tusupov) shall provide perfection of the Automatic information subsystem “Automation of Formation of Reporting of Accumulative Pension Funds and Professional Participants of Securities Market” till November 30, 2008.

6. Agency Chairperson’s Office (A. Kenzhe) shall cause publication of this Resolution in the mass-media of the Republic of Kazakhstan.

7. Agency Deputy Chairman A. Aldambergen shall be responsible for execution of this Resolution;

Chairperson

Bakhmutova Y. L.

Supplement To the Resolution of the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations as of August 22, 2008 No 118

List of Regulatory Legal Acts Declared Invalid

1. Resolution of the Board of Agency as of October 27, 2006 No 223 “On Approval of Instruction on Regulatory Values of Prudential Norms, Methods of Their Calculation for Organizations Performing Investment Management of Pension Assets” (entered in the Registry of state registration of regulatory legal acts under No 4480).

2. Resolution of the Board of the Agency as of July 16, 2007 No 211 “On the Introduction of Amendments and Changes to Some Regulatory Legal Acts of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations” (entered in the Registry of state registration of regulatory legal acts under No 4900).

3. Resolution of the Board of the Agency as of January 25, 2008 No 4 “On the Introduction of Amendments and Change to Resolution of the Board of the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations as of October 27, 2006 No 223 “On Approval of Instruction on Regulatory Values of Prudential Norms, Methods of Their Calculation for Organizations Performing Investment Management of Pension Assets” (entered in the Registry of state registration of regulatory legal acts under No 5161).

Approved by the Resolution of the Management Board of the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations as of August 22, 2008 No 118

Instruction

on Regulatory Values of Prudential Norms,

Methods of Their Calculation for Organizations

Performing Investment Management of Pension Assets

This Instruction has been worked out in accordance with Article 57 of the Law of the Republic of Kazakhstan as of June 20, 1997 “On Pension System in the Republic of Kazakhstan”, sub-point 11) of point 2 of Article 3 and point 3 of Article 49 of the Law of the Republic Закона as of July 2, 2003 “On Securities Market”, sub-point 5) of point 1 of Article 9 of the Law of the Republic of Kazakhstan “On State Regulation and Supervision of Financial Market and Financial Organizations”, and shall establish regulatory values and method of calculation of prudential norms compulsory to observance by organizations performing investment management of pensions assets, and accumulative pension funds, independently performing investment management of pensions assets.

Chapter 1. General Provisions

1. The following definitions are used in this Instruction:

1) Exchange risk is default (expenses) risk concerned with foreign currency rate changes while organization, performing investment management of pension assets, or accumulative pension fund possessing license for pension assets management, carries out its activity. Risk of default (expenses) occurs due to overestimation of positions on currencies in value terms;

2) Money equivalents are short-term high-liquidity investment easily transferred to previously known sum of money, and incurring negligible risk of their value change. Money equivalents also include investment in deposits at the second-tier banks and other investment with short-term maturity (no longer than three months from the date of acquisition). Qualification of investment as money equivalents shall be carried out in accordance with International Accounting Standard 7 “Cash Flow Statements”;

3) Credit risk is default (expenses) risk due to borrower’s (issuer’s) default in payment of principal debt and (or) fees payable to creditor (investor) at time stated by conditions of securities issue (bonds, state liabilities, etc.). Credit risk also includes risk of losses occurring due to default of partner’s liabilities on swaps, options and during the period of settlements for securities;

4) Organization is organization carrying out investment management of pension assets and accumulative pension fund carrying out investment management of pension assets independently (hereinafter – “Organization”);

5) Interest rate risk is default (expenses) risk due to unfavorable change of rates of remuneration, including:

Total interest rate risk concerned with failure to meet assets in place maturity date (at fixed remuneration rates);

Specific interest rate risk concerned with application of different methodologies of charge and correction of remuneration receivable and payable on a number of instruments which have similar price characteristics on other equal conditions;

6) Market risk is default (expenses) risk concerned with unfavorable flow of financial markets. Market risk is of macroeconomic nature, i. e. macroeconomic indicators of financial system are market risk sources. Market risk represents summary of interest rate, exchange and funds risk;

7) Cumulative capital adequacy rate is a sum of rate of Organization’s owned capital calculated in accordance with the Instruction, and rate of accumulative pension fund’s capital adequacy calculated in accordance with Resolution of the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations as of August 22, 2008 No 117 “In Approval of Instruction on Regulatory Values of Prudential Norms, Methods of Their Calculation for Accumulative Pension Funds”;

8) Authorized body is a state body executing regulation and supervision of financial market and financial organizations;

9) Conventional unit of pension assets is specific value of pension assets of accumulative pension funds used for characterization of their change due to Organization investment management and calculated in accordance with the Instruction;

10) Fund is accumulative pension fund;

11) Stock exchange is stock exchange carrying out its activity in the territory of the Republic of Kazakhstan;

12) Funds risk is default (expenses) risk due to stock value change occurring in case of change of financial markets environment affecting stock commercial value;

13) “Net” pension assets are pension assets of the fund less its liabilities to pension assets (liabilities on pension payments, transference to other funds and other possible similar liabilities);

2. Authorized body shall recognize rating appraisals of "Moody's Investors Service” and “Fitch” agencies and their subsidiary rating organizations (hereinafter – “the other rating agencies”) in addition to rating appraisals of “Standard&Poor's” agency.

Chapter 2. Cumulative Capital Adequacy Rate

3. Value of cumulative capital adequacy rate specified in sub-point 7) of point 1 of the Instruction is not less than 0,04.

From January 1, 2009 value of subject rate shall not be less than 0,06.

4. Cumulative capital adequacy coefficient observance agreement shall be concluded between Organization and fund, assets of which are under investment management of Organization, in order to fulfill requirements of point 3 of the Instruction. Agreement shall be concluded in written form and shall contain the following information:

Correlation of Organization R1 ratio value to cumulative capital adequacy ratio;

Correlation of R1 ratio value of fund, assets of which are under investment management of Organization, to cumulative capital adequacy ratio;

Periodicity of agreement variation with regard to determination of correlation of R1 rate values of Organization and fund, assets of which are under investment management of Organization, to cumulative capital adequacy coefficient, stating the date of those variations introduction into effect.

Organization shall submit copy of that agreement to the authorized body within one day from its date.

Should Cumulative capital adequacy coefficient observance agreement between Organization and fund be absent, value of R1 ratio of Organization shall not be less than thirty per cent of cumulative capital adequacy coefficient.

Should Organization have pension assets under investment management of more than one fund, R1 shall be calculated in regard to every fund with distribution of liquid assets and liabilities of Organization in regard to every fund in the proper proportions for the purpose of R1 ratio observance.

Organization R1 rate value shall be determined every day EOB.

Chapter 3. Prudential Norm 1 “Capital Adequacy”

5. Organization capital adequacy shall be specified by R1 ratio.

R1 ratio shall be calculated from the formula:

R1 = (LA-L)/(VFI), where

LA – liquid and other assets specified by points 6 and 7 of the Instruction;

L – balance liabilities (while conducting REPO transaction on open-bid basis, liabilities shall include only amount of discount of repo object market value at the repo opening determined according to domestic rules of stock exchange);

VFI – value of financial instruments being in investment portfolio of the fund, extent of risk-weighted which shall be calculated from the formula:

VFI = å (C * Efi) + ((Tirr + Sirr) + åSt * Rfi + Er)) + TRA, where

å (C*Efi) – credit risk, where

C – current value of debt securities related to held to maturity category in accordance with International Accounting Standards, and debt securities being in portfolio more than three years, deposits, refined precious metals, reverse repo transactions and metal deposits;

Efi – extent of financial instrument risk, credit risk-weighted, in accordance with supplements 1 and 2 to the Instruction;

(Tirr + Sirr) + åSt * Rfi + Er – market risk, where

(Tirr + Sirr) – interest rate risk representing sum of specific interest rate risk, calculated in accordance with supplement 3 to the Instruction and total interest rate risk calculated in accordance with supplement 4 to the Instruction, on debt securities denied in calculation of credit risk.

St * Rfi – funds risk, where

St – current value of stock, units, depositary receipts,

Rfi – extent of financial instrument risk, funds risk-weighted, in accordance with supplement 7 to the Instruction,

Er – exchange risk specified as E * Rfi, where

E – current value of financial instruments foreign currency-denominated, and also denominational value and/or coupon fees on which indexed to change in foreign exchange rate, except for financial instruments issue conditions or which provide for money flow fixation on that instrument at statutory rate in national currency for the whole period of those securities circulation, and precious metals, foreign currency in cash repo transaction value;

TRA – total revenue averaging calculated from the formula:

∑ of total revenue, earned for the last three financial years

TRA = _________________________________________________________________________________________.

3

TRA value shall be calculated annually as of the first of the first month of reporting year in accordance with financial statements and shall be corrected, if required, after annual audit.

TRA for recreated Organizations shall be calculated at the end of financial year, and average value of annual total revenue shall be calculated on the assumption of number of expired years.

6. The following assets of Organization in rates specified by supplement 8 to the Instruction shall be recognized as liquid assets:

1) money and money equivalents, including:

Stocks in the till no greater than ten per cent of total assets as to Organization balance;

Current account money in second-tier banks of the Republic of Kazakhstan specified in sub-point 3 of this point;

Current account money in central securities depositary;

Current account money in non-resident banks which have long-term and/or short-term individual rating at least «BBB-» in accordance with international scale of «Standard & Poor's» agency or rating of the similar level from one of the other rating agencies;

Current account money in non-resident organizations rendering banking services to organizations for execution of operations in organized securities market

2) Deposits at the National Bank of the Republic of Kazakhstan;

3) Deposits at the second-tier banks of the Republic of Kazakhstan (with consideration of the principal debt and benefits accrued), less reserve for possible losses provided by compliance with one of the following terms:

Banks shall have long-term credit rating at least “BB-“ in accordance with international scale of “Standard & Poor's” agency or rating of the similar level from one of the other rating agencies, or rating at least “kzВВ-“ in accordance with national scale of “Standard & Poor's”;

Banks shall be resident bank subsidiaries, non-resident parent bank of which has long-term credit rating at least “А-“ in accordance with international scale of “Standard & Poor's” or rating of the similar level from one of the other rating agencies;

Banks shall be emitting banks included into the first category of “shares” sector of official list of stock exchange

4) Deposits at non-resident banks having long-term and/or short-term individual rating at least “BBB-“ in accordance with international scale of “Standard & Poor's” agency or rating of the similar level from one of the other rating agencies (with consideration of the principal debt and benefits accrued), less reserve for possible losses;

5) Government securities of the Republic of Kazakhstan including issued in accordance with legislation of the other countries (with consideration of the principal debt and benefits accrued), less reserve for possible losses;

6) Shares of legal entities of the Republic of Kazakhstan having rating at least “ВВ-“ in accordance with international scale of “Standard & Poor's” agency or rating of the similar level from one of the other rating agencies, or rating at least “kzВВ-“ in accordance with national scale of “Standard & Poor's” agency, less reserve for possible losses;

7) Shares of legal entities included into the first and/or the second category of “shares” sector of official list of stock exchange, less reserve for possible losses;;

8) Non-government debt securities of the legal entities of the Republic of Kazakhstan issued in accordance with legislation of the Republic of Kazakhstan and other countries, having rating at least “В-“ according to international scale of “Standard & Poor's” agency or rating of the similar level from one of the other rating agencies, or rating at least “kzВ-“ in accordance with national scale of “Standard & Poor's” agency (with consideration of the principal debt and benefits accrued), less reserve for possible losses;

9) Non-government debt securities of the legal entities of the Republic of Kazakhstan issued in accordance with legislation of the Republic of Kazakhstan and other countries, included into sub-category “debt securities without rating of the first sub-category” of the official list of stock exchange, (with consideration of the principal debt and benefits accrued) less reserve for possible losses;

10) Securities of foreign countries having sovereign rating at least “ВВВ-“ according to international scale of “Standard & Poor's” agency or rating of the similar level from one of the other rating agencies (with consideration of the principal debt and benefits accrued), less reserve for possible losses;

11) Non-government debt securities of foreign issuers having rating at least “ВВВ-“ according to international scale of “Standard & Poor's” agency or rating of the similar level from one of the other rating agencies (with consideration of the principal debt and benefits accrued), less reserve for possible losses;