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Financial Instruments for Investment

In the modern world, almost everyone dreams of becoming an investor and earning additional income, but not everyone knows how and where to start. With the development of technology, new financial instruments for investment are emerging, some of which don’t require individuals to leave their homes – a few clicks on their smartphones are sufficient. Let’s take a closer look at the most popular investment opportunities in the Republic of Kazakhstan.

First and foremost, it’s worth paying attention to the cryptocurrency industry. Since the legislative regulation of cryptocurrency, it has become a part of many Kazakhstani people’s lives and has gained significant popularity. People have started seeking investment options in cryptocurrencies, opening accounts on various cryptocurrency exchanges, and trying to navigate this field, which has led to the emergence of numerous scammers. It’s worth noting that the long-awaited Law “On Digital Assets in the Republic of Kazakhstan” will come into effect on April 1, 2023. This law will help you understand what financial instruments for investment exist in the Republic of Kazakhstan and how to use them correctly.

Let’s move on to the financial instruments for investment:

The first method is digital mining.

According to the new Law “On Digital Assets in the Republic of Kazakhstan,” digital mining is the process of performing computational operations using computer power according to specified encryption and data processing algorithms, ensuring the verification of block data integrity through the blockchain.

Digital mining can only be carried out by a digital miner, which refers to an individual entrepreneur or legal entity in the Republic of Kazakhstan engaged in digital mining activities.

It’s worth noting that starting from April 1, 2023, digital miners can only conduct their activities based on a license for digital mining activities, issued for a period of three years.

The license will be divided into two types:

Type I – for a digital miner who owns a data processing center for digital mining based on ownership or other legal grounds.

Type II – for a digital miner who doesn’t own a data processing center for digital mining based on ownership or other legal grounds but conducts digital mining using their hardware and software complex for digital mining, which is located in a digital mining data processing center.

The owner of unencumbered digital assets resulting from digital mining activities is the digital miner.

It’s important to note that digital mining is subject to taxation. According to Article 606-3 of the Tax Code of the Republic of Kazakhstan, a fee for digital mining is levied based on the amount of electricity consumed during digital mining. The fee is calculated according to the rates of the Tax Code of the Republic of Kazakhstan, depending on the price per kilowatt-hour of consumed electricity for the reporting period, ranging from 1 to 25 tenge.

Second method is to become a broker or dealer.

According to the legislation of the Republic of Kazakhstan, an ordinary citizen can trade on the stock exchange only through a broker.

A broker, according to the Law of the Republic of Kazakhstan “On the Securities Market,” is a professional participant in the securities market who carries out transactions with securities and other financial instruments on behalf of and at the expense and interest of the client.

A dealer is a professional participant in the securities market who carries out transactions with securities and other financial instruments for their own account and at their own expense on the unorganized securities market and on the organized securities market with direct access to it.

The main difference between a broker and a dealer is that a broker conducts transactions on behalf of and in the interest of the client, while a dealer does so for their own interest and at their own expense. A broker receives remuneration in the form of commissions as stipulated in the agreement between the broker and the client.

Brokerage and dealer activities are carried out through a company, which is a legal entity in the form of a joint-stock company (JSC), with the following requirements:

– The sufficiency ratio of own capital, the value of which must be no less than 1 on a daily basis.

– The liquidity ratio, the value of which must be no less than 1.4 on a daily basis.

For brokers and/or dealers to obtain a license to carry out certain types of banking operations provided for in subparagraphs 1), 2), 3), and 4) of part 4 of clause 1 of Article 63 of the Law on the Securities Market, the following requirements apply:

– The minimum size of the authorized capital must be no less than 10,000,000,000 (ten billion) tenge.

– The minimum size of own capital must be no less than 10,000,000,000 (ten billion) tenge.

Brokerage and dealer activities are conducted based on a license. To engage in trading on the exchange, a broker or dealer must be a direct participant of the exchange.

The broker or dealer license is divided into two categories:

1) Category I – with the right to hold client accounts as a nominal holder (with the right to register transactions with securities).

2) Category II – without the right to hold client accounts (without the right to register transactions with securities).

To obtain a license, the applicant submits documents to the National Bank in accordance with the Rules for Issuance, Suspension, and Revocation of Licenses for Professional Activities in the Securities Market approved by the decision of the Board of the National Bank dated March 30, 2020. The submitted documents include:

  1. A business plan approved by the applicant’s governing body for the next 3 (three) years. The business plan should reflect the following:

– Objectives for obtaining the license.

– Description of the main areas of activity and an overview of the market segment targeted by the applicant.

– Information on the expected services within the scope of the activity, their assessment procedures, as well as plans for their terms and volume of sales.

– Information about the main risks associated with the activity, methods for assessing and compensating them using own capital, the sufficiency ratio of own capital, risk management procedures, and internal control.

– Financial plan, including income and expenditure forecasts for the first 3 (three) financial (operational) years, admissible loss ratios for the specified period.

– Investment policy, sources of financing the company’s activities.

– Organizational structure of the applicant, including the investment committee and internal audit service, description of the implementation methods for corporate governance procedures, and educational requirements for specialists.

  1. Availability of software and technical equipment necessary for conducting activities in the securities market in accordance with the regulatory legal acts of the authorized body.
  2. Availability of an organizational structure that complies with the requirements established by the Law and regulatory legal acts of the authorized body.

The organizational structure of a broker and/or dealer with the right to hold client accounts as a nominal holder includes the following structural units:

1) Trading division, which conducts transactions with financial instruments (trading division).

2) Settlement division, which executes transactions with financial instruments, accounts for financial instruments and funds of the broker and/or dealer and its clients (back office).

3) Other structural units determined in accordance with the internal documents of the broker and/or dealer with the right to hold client accounts as a nominal holder.

The documents submitted for obtaining a license are reviewed by the National Bank, and if the applicant and the submitted documents meet the requirements of the legislation of the Republic of Kazakhstan, the National Bank issues the license no later than 30 working days from the date of document submission.

The license fee for the issuance of a license for the right to engage in:

– Brokerage activities is 30 (thirty) Monthly Settlement Indicator (MSI).

– Dealer activities is 30 (thirty) Monthly Settlement Indicator (MSI).

The third method is to launch an Initial Coin Offering (ICO).

An Initial Coin Offering, or ICO, is the initial sale of a cryptocurrency. This instrument is designed to raise capital for company projects by issuing digital tokens in exchange for cryptocurrencies or fiat currencies. ICOs can be seen as an alternative to more traditional sources of startup funding, such as venture capital (VC) and angel financing.

ICOs are largely unregulated in the world. The process of launching an ICO typically involves a company deciding to conduct an ICO, announcing the date, rules, and process for purchasing the new cryptocurrency in advance. In practice, investors mostly buy the new cryptocurrency (tokens) using other cryptocurrencies, with Bitcoin (BTC) and Ethereum (ETH) being two common options. There are also ICOs that accept fiat currencies.

The purchase process usually involves sending funds to a specified cryptocurrency wallet address. Investors provide their own recipient address to receive the cryptocurrency (tokens) they are purchasing.

There are several variations in the issuance of ICOs:

  1. Fixed quantity of tokens and price: The company sets both parameters in advance, for example, offering one million tokens at a price of $1 per token.
  2. Fixed quantity of tokens and variable price: The company sells a fixed quantity of tokens and evaluates them based on the amount of funds received. Greater funding leads to a higher token price. For example, if it sells one million tokens and raises $2 million, each token will have a price of $2.
  3. Variable quantity of tokens and fixed price: The company sets a fixed price but does not limit the quantity of tokens sold. For example, if the company sells tokens at $0.50 each until the end of the ICO.

The fourth method is to create your own cryptocurrency exchange or invest in existing cryptocurrency exchanges.

According to the Law “On Digital Assets in the Republic of Kazakhstan,” a digital asset exchange is a digital platform that facilitates the organization and technical support of trading, issuance, circulation, and storage of digital assets.

It is important to note that, according to the legislation of the Republic of Kazakhstan, it is only possible to open a cryptocurrency exchange within the territory of the Astana International Financial Centre (AIFC).

The term “cryptocurrency exchange” is defined in the AIFC acts as “Digital Asset Trading Facility.” According to the AIFC Glossary Act No. FR0017 of 2018, the concept of “Operating a Digital Asset Trading Facility” is defined as the operation of a “mechanism” on a regular basis and the combination of multiple parties for the conclusion of contracts:

(a) to buy, sell, or exchange digital assets for fiat currency, and/or

(b) to exchange one digital asset for another on its platform in accordance with its internal rules.

According to the AIFC’s rules on the regulation of authorized market participants (Authorised Market Institution Rules), an authorized digital asset trading facility is a central participant that has obtained an AFSA (Astana Financial Services Authority) license to conduct market activities for trading digital assets. This indicates that a cryptocurrency exchange is a platform created for trading digital assets, and its activities require licensing from the AIFC Financial Services Regulatory Committee.

Moreover, a cryptocurrency exchange must demonstrate its ability to exercise real control over anti-money laundering and counter-terrorism financing measures.

Currently, there are 9 companies registered in the AIFC public register with the activity type “Operating a Digital Asset Trading Facility,” namely:

– Bybit Limited (07.06.2023)

– Top Line Limited (27.10.2022)

– BN KZ Technologies Limited (29.09.2022)

– Biteeu Eurasia Ltd. (03.05.2022)

– ATAIX Eurasia Ltd. (07.04.2022)

– Upbit Eurasia Ltd. (13.07.2021)

– Xignal&MT Ltd. (29.06.2021)

– Eurasia Blockchain Fintech Group Limited (22.08.2019)

– SD Group Ltd. (09.03.2021, license suspended)

How to invest in cryptocurrency exchanges?

As a rule, the investment process is similar. You need to visit the cryptocurrency exchange’s website, create an account, undergo a complete identification procedure by providing identity documents, and then you will gain access to trading on the cryptocurrency exchange. To do this, you will need a bank account through which you can deposit funds into your personal account on the cryptocurrency exchange and convert money into crypto-assets. You can also withdraw them later. For more detailed information on the investment procedure, you can refer to the websites of individual cryptocurrency exchanges.

In conclusion, it is important to note that any investment carries risks. It is advisable to use only “spare” funds for investments, avoid taking loans or getting into debt, as losing the invested funds can lead to financial difficulties.

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