2.2.1. Dealing in Investments as Principal
2.2.1.1. General description
Dealing in Investments as Principal is listed in section 1 of Schedule 1 of GEN. The activity consists of:
(a) buying;
(b) selling;
(c) subscribing for; or
(d) underwriting
any Investment as principal.
The definition of Investment in Glossary includes the following: A Security, Unit, Derivative or a Digital Asset and a right or interest in the relevant Security, Unit, Derivative, Digital Asset or Environmental Instrument.
In order to be covered by the description, the principal must hold itself out as willing, as principal, to:
(a) buy, sell, or subscribe for Investments at prices determined by the principal generally and continuously rather than in respect of each particular transaction;
(b) engage in the business of buying Investments with a view to selling them;
(c) engage in the business of underwriting Investments; or
(d) regularly solicit members of the public with the purpose of inducing them, as principals or agents, to enter into a transaction.
An Authorised Firm authorised to carry on the regulated activity of Dealing in Investments as Principal is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms, as well as AIFC Banking Business Prudential Rules and Banking Prudential Guideline if applicable to a PRU Dealing Investment Firm.
Currency regulation
Currency transactions will be performed via AIFC Banks if processed in only foreign currency, and via second-tier banks in any currency. For more details of transactional implications see Chapter 4 of PERG.
The table below illustrates currency regulation implications if services are offered to residents of Kazakhstan that are not AIFC Participants.
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Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? |
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Yes:
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Your services will be subject to the AIFC Rules on Currency Regulation: |
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Name of allowed activity: |
Offering dealer services. This activity will also include placement of securities during IPO / SPO at the AIX and foreign stock exchanges. |
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Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: |
1) 3.2.1 in the list of financial services. 2) 3.1.1 in the list of financial services. |
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Type of currency: |
Any currency |
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Transaction: |
Via AIFC Banks: only foreign currency Via second-tier banks: any currency |
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Currency reporting: |
Quarterly (no later than the 10th day of the month following the reporting month) reports on securities to the AFSA in accordance with Annex 3 to Schedule 5. Transactional reporting may also be applicable (see Chapter 4 of PERG for more details). |
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No: |
Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
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For more details see Chapter 4 of PERG.
2.2.1.2. Exclusions
There are several exclusions for this activity:
(1) A Person does not Deal in Investments as Principal merely by accepting an instrument, creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation which that Person has made or provided.
(2) When a Person issues or redeems Securities issued by that Person it does not fall into this category as well.
(3) When a Person (not an Authorised Firm or an Authorised Market Institution) enters into a transaction with or through an Authorised Firm or a Regulated Financial Institution (meaning a Person authorised in other jurisdiction by another Financial Services Regulator).
The exclusion in (3) does not apply if the Person holds itself out as:
(a) willing to enter into transactions in Investments of the kind to which the transaction relates; or
(b) engaging in the business of buying, selling, subscribing for or underwriting Investments.
A Person may hold itself out as carrying on an activity by various means including, for example, on its webpage, in an advertisement or through representations made by its employees. However, merely placing orders for a person’s own account with a broker or on a market will not amount to holding out unless it offers to do so on behalf of other persons.
A Person who is an Authorised Firm, does not Deal in Investments as Principal if in the course of managing the assets of a Private Equity Fund:
(a) the Person makes an initial subscription for Units of that Fund; and
(b) the Units are held by that Person for a period of more than 12 months.
When a Person Deals in Investments for their own account, this will also be excluded from the scope of the Regulated Activity.
The additional condition for being considered a Regulated Activity is that a Person must hold themself out as making a market in the relevant specified Investments or as being in the business of Dealing in Investments, or they must regularly solicit members of the public with the purpose of inducing them to deal.