INTRODUCTION

Why are we issuing this Consultation Paper (CP)?

1.       The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek views from market participants and stakeholders on the proposed designation of Clearing Participation Certificates (CPC) to be issued by International Trading System Limited (ITS) as Qualified Investment under Rule 5.3 of the AIFC Multilateral and Organised Trading Facilities Rules (MOTF).

Who should read this CP?

2.    This paper will be of particular relevance to current and potential AIFC Participants involved in capital markets activities, issuers, investors, as well as other market participants and interested stakeholders.

Terminology

3.    Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in the AIFC Glossary. Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.

What are the next steps?

4.    AFSA invites comments from interested stakeholders on the proposed designation. All comments should be in writing and submitted to the email address specified below. When submitting comments by email, please use “Consultation Paper AFSA-CMD-CSP-2026-0001” in the subject line. Respondents may, where relevant, identify the organisation they represent. AFSA reserves the right to publish, including on its website, any comments received, unless the respondent expressly requests otherwise. Comments supported by reasoning and evidence will be given greater weight.

5.    The deadline for providing comments is 13 August 2026. Following receipt of responses, AFSA will consider whether it will proceed to such designation and whether any refinements are required before proceeding with a designation decision.

6.    Following public consultation, AFSA may proceed to designate CPCs as Qualified Investment under MOTF Rule 5.3(1) by publishing a notice to that effect. Stakeholders should not act on the basis of the proposals set out in this paper until a formal designation notice has been issued.

7.    AFSA prefers to receive comments by email at markets@afsa.kz.

Structure of this CP

Part I – Background

Part II –Proposals

Part III – Public consultation questions

PART I. BACKGROUND

I.      Introduction

       1.    The development of an efficient and well-regulated financial market is a strategic priority for the AIFC. Central to this objective is the availability of robust collateral management infrastructure that supports secured funding, enhances liquidity among market participants, and promotes the efficient allocation of financial resources. As the AIFC’s financial ecosystem continues to mature, the emergence of new instruments that advance these objectives warrants careful regulatory consideration.

      2.    International Trading System Limited (ITS) is an AIFC-licensed entity authorized to carry on the following activities: Operating a Multilateral Trading Facility (MTF), Operating a Clearing House acting as a Central Counterparty (CCP), and Providing Money Services. ITS has submitted a formal application requesting that Clearing Participation Certificates (CPCs) be designated as Qualified Investments under MOTF 5.3. The application reflects ITS’s intention to introduce CPCs as a standardised collateral instrument for use in repo transactions conducted through its MTF platform.

      3.    Under MOTF Rule 5.1, a Trading Facility Operator may allow a product to be traded on its MTF or OTF only if the product is a Qualified Investment. While MOTF Rule 5.2 sets out the categories of instruments that constitute Qualified Investments, CPCs do not fall within any of these categories as currently defined. Accordingly, formal designation by AFSA under MOTF Rule 5.3(1) is required before CPCs may be admitted to trading on the ITS MTF.

      4.    This Consultation Paper sets out AFSA’s assessment of the application and invites market views on the proposed designation, in accordance with the public consultation requirement under MOTF Rule 5.3(6).

II.    Overview of the instrument

Definition and Structure

      5.    CPCs are non-emission uncertificated instruments to be issued by ITS CCP. Each CPC represents a unit of participation in a Collateral Pool, which is a segregated clearing pool maintained by ITS CCP formed from eligible assets contributed by clearing members. Eligible assets currently comprise of securities and cash, including foreign currency. The range of eligible assets is planned to be broadened to include commodities and precious metals, subject to market demand.

      6.    The quantity of CPCs issued to a contributing clearing member corresponds to the value of the assets contributed to the Collateral Pool, adjusted by a haircut determined by ITS CCP to account for price volatility. CPCs share a single ISIN per Collateral Pool. Their formation and issuance do not involve a listing process and are carried out by decision of ITS CCP.

       7.    CPCs carry no independent return. Their value is derived entirely from the underlying assets contributed to the collateral pool and is maintained through ongoing daily revaluation. Members retain the rights associated with the underlying securities (e.g., income and voting rights), and CPCs do not involve corporate actions, which distinguishes them materially from direct ownership of securities or baskets of securities.

Intended use

 8.       CPCs are intended to be used exclusively as the subject of repo transactions. They are not freely traded financial instruments and are not designed for secondary market distribution. ITS acts as Central Counterparty to all CPC repo transactions, entering into each deal as both buyer and seller across every leg of the transaction. Clearing members may obtain CPCs either by contributing assets to a Collateral Pool (becoming Pool Participants) or by entering into a repo transaction with an existing Pool Participant. In both cases, all obligations are incorporated into the ITS CCP clearing pool and are subject to netting.

 9.       Repo transactions involving CPCs are cleared and settled through ITS. Securities settlement is performed via ITS CSD; cash settlement is effected through accounts maintained by ITS CCP. CPCs are held in depository accounts of clearing members at ITS CSD.

Collateral Pool and Asset Segregation

 10.       Assets contributed to the Collateral Pool are recorded separately from the proprietary assets of ITS CCP. Where multiple Collateral Pools exist, assets belonging to each pool are maintained in separate accounts.

 11.      A Pool Participant may redeem CPCs provided that the relevant CPCs are held in their depository account and there are no           outstanding obligations under the Collateral Pool. Upon redemption, ITS CCP returns to the clearing member the assets originally contributed. Pool Participants may also substitute, contribute, and withdraw assets from the Collateral Pool in real time, with any substitution carried out at the then-current market value of the assets being replaced.

PART II. PROPOSALS

12.       MOTF 5.3(4) sets out the factors that AFSA must consider when exercising its designation power. AFSA’s assessment of each factor is set out below.

a)    Economic Effect of the Instrument

13.   CPCs are best understood as collateral-backed liquidity instruments designed to support repo market activity within a CCP environment. They convert a pool of heterogeneous assets into a standardised collateral instrument for use in repo transactions, enabling secured funding without the need to negotiate individual collateral arrangements.

14.   By pooling diverse collateral assets into a single, fungible instrument, CPCs enhance collateral mobility and support netting efficiency within the ITS clearing ecosystem. This instrument contributes to the development of a centralised liquidity pool and is expected to support the growth of the AIFC money market segment.

b)    Class of Potential Investors

15.   Access to repo transactions with CPCs is restricted to clearing members and professional investors, who are required to have adequate operational and risk management capabilities. Retail investors are excluded by design. The restricted investor base materially limits the potential for consumer harm associated with the instrument’s complexity and risk profile.

c)    Treatment in Comparable Jurisdictions

16.   Analogous instruments, referred to as «Клиринговые Сертификаты Участия», are already in use in the Republic of Kazakhstan (RoK), where they are issued by Central Counterparties and regulated under established frameworks. In Kazakhstan, CPCs are regulated under the Law “On Securities Market” dated 2 July 2003 (No. 461-II) and “Instruction for Issue, Placement, Circulation and Redemption of Clearing Participation Certificates of the KASE Clearing Center JSC,” issued by KACC. The existence of established regulatory precedent in this jurisdiction supports the case for designation within the AIFC framework.

d)    Impact of Designation

17.   Designation of CPCs as Qualified Investments would enable their admission to trading on the ITS MTF, aligning their regulatory treatment with their intended use. From a market perspective, designation is expected to support the development of the ITS’s money market segment, improve liquidity conditions for clearing members, and enhance the overall efficiency of collateral utilization within the AIFC.

18.   Risk of material adverse impacts on market stability or investor protection is mitigated through a restricted investor base, the closed CCP environment in which CPCs operate, and the risk mitigation measures imposed by AFSA.

Key Risks and applicant’s mitigation measures

The following principal risk categories have been identified in respect of CPCs, together with ITS’s proposed mitigation measures:

19.   Liquidity Risk - the risk that collateral assets held in the Collateral Pool cannot be liquidated in a timely manner to meet obligations arising from CPC repo transactions. ITS CCP proposes to mitigate this risk by restricting eligible collateral to assets that can be liquidated on the ITS MTF within no more than two trading days.

20.   Market Risk - the risk that the market value of assets held in the Collateral Pool declines relative to the value of outstanding CPCs. ITS CCP proposes to manage this risk through daily revaluation of all Collateral Pool assets. Where pooled asset values fall below the value of outstanding CPCs, ITS CCP will either redeem CPCs (where redemption is available) or issue a margin call requiring the relevant clearing member to contribute additional assets to restore parity.

21.   Credit Risk - the risk of default by a Pool Participant in respect of their obligations to ITS CCP. ITS CCP proposes to address this through a dedicated default management framework under which obligations are discharged using assets contributed by the defaulting member. All securities proposed for inclusion as collateral will also be subject to a credit quality assessment prior to acceptance.

22.   Wrong-Way Risk - the risk that the creditworthiness of a Collateral Pool participant deteriorates simultaneously with a decline in the value of the assets that participant has contributed to the Pool. This correlation risk is structurally inherent in the CPC model and is not adequately addressed by standard credit quality screening of individual securities at the point of acceptance.

23.   Operational Risk - the risk of failure in the real-time revaluation, asset substitution, or automated margining systems on which the CPC structure depends. Given that CPCs have no operating track record, system failures could result in under-collateralisation going undetected, with material consequences for clearing members.

24.   Intraday Collateral Adequacy Risk - Collateral Pool revaluation occurs daily within the clearing session. In fast-moving markets, asset values may decline materially between revaluation cycles. With a haircut of, for example, 10% applied at the close of the prior session, intraday price moves in excess of that haircut would result in the Collateral Pool being temporarily under-collateralised with no automated response until the next revaluation cycle. This risk is amplified where all CPCs issued to a member are simultaneously committed in repo transactions, leaving no free CPCs available to debit in a margin adjustment.

Proposed Conditions of Designation

25.   Having regard to the above risk assessment, AFSA proposes that designation of CPCs as Qualified Investments be made subject to the following conditions:

1) Access to CPC repo transactions is restricted to clearing members and professional investors, with retail investor access being prohibited. 

2) CPCs are used exclusively in connection with repo transactions on ITS MTF.

3) ITS amends its Business and Clearing Rules to give full regulatory effect to the CPC framework, covering issuance, margining, and redemption mechanisms, Collateral Pool governance, asset segregation, investor eligibility, and disclosure obligations. ITS secures AFSA approval of those amendments before the commencement of CPC activity.

4) ITS CCP submits to AFSA, before launch, a consolidated collateral framework document covering all criteria requested and assessed by AFSA.

5) ITS CCP submits to AFSA, before launch, a description of the operational and technology controls underpinning the revaluation, automated margining, and asset substitution processes, together with business continuity and disaster recovery arrangements and evidence of satisfactory pre-launch operational testing.

6) ITS CCP publishes on its website: decisions on the formation of and any material changes to Collateral Pools; the list of instruments eligible for deposit; and the revaluation methodology.

7) ITS CCP shall submit periodic regulatory reports to AFSA covering all matters as specified by AFSA.

PART III. PUBLIC CONSULTATION QUESTIONS