OREANDA-NEWS. April 17, 2012. Kazakhstan Stock Exchange (KASE) Board of Directors considered and approved the program of reforming the institute of market-makers (Program), reported the press-centre of KASE. 

The main task of reforming the institute of market-makers is increasing the liquidity of securities traded at KASE. The Program provides for solving this through the introduction of a flexible system of preferences and requirements for market-makers by improving the existing model and allowing increasing the liquidity via stimulation of market-makers through monetary payments by the Exchange on a competitive basis.

The Program stipulates setting of the following requirements for KASE members aspiring for the status of a securities market-maker:

- availability of a license for brokerage and dealing operations at the securities market;

- availability of auditor's report on annual financial statements prepared by an auditing organization included in the list of KASE-acknowledged organizations.

Currently, at KASE the minimum volume of mandatory quotation for market-makers for shares is set at 3,000 MCI (1 MCI is currently equal to KZT1,648). At the same time the maximum spread (difference between prices of a market-maker's best purchase and sales quotations) for a market-maker for first class liquidity shares makes up 7 %, second and third liquidity classes - 10 %. A market-maker is obliged to display during the trading day at least two mandatory quotations, e.g. be prepared for concluding deals to the amount of 6,000 MCI (slightly less than KZT10 m).

The Program stipulates the introduction of a matrix of requirements for market-makers and preferences, according to which the amount of preferences on commission fee directly depends on the amount of the maximum allowed spread on mandatory quotations (hereinafter - Spread) and maximum volume of deals, which a market-maker is obliged to conclude during one day at quotations he displayed with counter orders available (hereinafter - Maximum volume). At the same time the minimum volume of quotations available at one time for concluding deals in KASE trading system, should be at least 1,000 MCI.

According to this matrix, the amount of preferences on commission fee increases when the Spread narrows and the Maximum volume of deals increases. For example:

- 15%-preference on commission fee is set for market-makers maintaining the Spread at 7 % with the Maximum volume equaling to 2,000 MCI, or Spread 5 % with the Maximum volume equaling to 4,000 MCI, or Spread 3 % with the Maximum volume equaling to 2,000 MCI ;

- 25%-preference is set for market-makers maintaining the Spread at 7 % with the Maximum volume equaling to 8,000 MCI, or Spread 5 % with the Maximum volume equaling to 6,000 MCI, or Spread 3 % with the Maximum volume equaling to 4,000 MCI, or Spread 1 % with the Maximum volume equaling to 2,000 MCI, etc.

When market-makers fulfill conditions of maintaining the Spread at 1 % with the Maximum volume of 8,000 MCI, a 100%-preference on commission fee is applied.

Amongst market-makers who fulfill this condition during each trading day for as long as one month the Exchange will choose on a competitive basis the three best to whom KASE will pay premiums of as much as KZT1 m each for such month. The criteria for defining the best is the activity ranking calculated for each market-maker in accordance with KASE internal document "Methodology of Kazakhstan Stock Exchange Members Activity Indicators Calculation" exclusively on deals concluded based on a particular market-maker's quotations, as well as other ratios which are currently being considered by the Exchange. In doing so, the market-maker's contribution to increasing the liquidity of the instrument he quotes will be determined.

Other preferences provided for by the Program include the possibility of obtaining by an Exchange member of the status of a financial advisor provided he is a market-maker at KASE for corporate securities of at least two titles out of those quoted at KASE.

After the period of trial operation of the Program, KASE is supposed to switch to quarterly summarizing of results and awarding of premiums.

It is supposed that in the first stage of the Program implementation, the most liquid shares of KASE's representative list will become the subject of market-making. Further, the accent of stimulation may be shifted to other shares of the first liquidity class.

Currently, the Exchange is working on amendments to the Rules of Market-Makers' Activities, which are supposed to be made effective until July 1, 2012.