Many people know that brokers work at the exchanges and mostly their work is accentuated on the trade of various security papers, but few people really have a clear idea of who the brokers are, why the work of a broker is considered as a prestigious one and what brokers actually do.
Who can become a broker?
First, we will determine who the broker is. The broker acts as an intermediary between the seller and the buyer on the securities market. Under the legislation of the Republic of Kazakhstan, an ordinary citizen does not have the right to enter the stock exchange independently to buy or sell securities. He can do this only through a broker – professional market participant who deals with securities and other financial instruments on behalf of, at the expense and in the interests of the client. The broker must necessarily have a license to carry out activities in the securities market and be a direct participant in the exchange. The broker is not the owner of the securities purchased for the client, and receives remuneration in the form of commissions for his work. The terms and procedure for the payment by the client of remuneration to the broker for the provision of services on the securities market are established by the broker's internal documents and (or) the contract concluded by the broker with his client.
A brokerage company is created and carries out activities in the organizational and legal form of a joint-stock company. The founders and shareholders of the brokerage company may be individuals and legal entities - residents and non-residents of the Republic of Kazakhstan, taking into account the restrictions established by the legislation of the Republic of Kazakhstan. The minimum amount of the authorized capital of a brokerage company is 400,000 times the monthly calculation index established by the law of the Republic of Kazakhstan on the republican budget for the corresponding financial year.
To obtain a license, the applicant must meet the following qualification requirements:
- availability of a business plan approved by the applicant's management body for the next three years, which should reflect the objectives of obtaining a license, a financial plan for the first three financial (operational) years, investment policy, sources of financing for the company's activities, and more;
- availability of software and hardware and other equipment necessary to carry out activities in the securities market;
- presence of an organizational structure that meets the requirements of the legislation of the Republic of Kazakhstan;
- existence of a provision on the internal audit service of the applicant.
The licensee has the right to carry out activities on the securities market only if there are internal documents establishing:
- conditions and procedure for carrying out activities in the securities market;
- general conditions of operations;
- rights and obligations of the licensee and his client, their responsibility.
In order to obtain a license, the applicant submits to the National Bank the documents listed in the Rules for the Issuance, Suspension and Deprivation of Licenses for the Professional Activity in the Securities Market approved by the Resolution of the Board of the National Bank No. 25 of February 26, 2014. Documents submitted to obtain a license shall be considered by the National Bank and if the applicant and documents submitted by him comply with the requirements of legislation of the Republic of Kazakhstan , the National Bank shall issue a license no later than thirty days from the date of submission of documents.
Is control exercised over the activities of the broker?
It should be noted, being a broker your activities will be strictly monitored by the supervisory authority. Brokers are required to submit to the National Bank reports on activities in the securities market, the frequency and procedure for submission of which are established by regulatory legal acts of the authorized body.
In addition, the National Bank controls and supervises in the forms of verification and other forms in accordance with the Law on the National Bank. Inspections are conducted on the basis of risk assessment, unscheduled and documented inspections of the activities of the audited entities in a complex or selective manner on specific issues of their activities.
Also, the National Bank carries out other forms of control and supervision, including by analyzing information and reporting provided in accordance with the requirements of the legislation of the Republic of Kazakhstan, analyzing the activities of financial organizations to identify factors that affect the deterioration of their financial situation (remote supervision), and more.
The grounds for carrying out inspections of brokers' activities can be
- appeals from investors;
- appeals of holders of securities;
- appeals of professional participants of the securities market and professional organizations;
- decision of the court, decision of the prosecutor or the body of inquiry and preliminary investigation on the inspection or participation of the employees of the authorized body in the verification;
- discrepancies identified by the authorized body in the process of reviewing reports on the activities of the broker;
- availability of information on manipulation on the securities market, transactions with equity securities and other financial instruments using insider information, as well as commercial and other legally protected secrets;
- other facts of violations of the legislation of the Republic of Kazakhstan by the broker, which became known to the authorized body.
Inspections are carried out by inspectors appointed by the order of the head of the supervisory authority, as a rule, at the place of the organization's actual location on working days. For each fact of the violation an act is drawn up.
For what reasons a brokerage license can be suspended?
In the course of both scheduled and unscheduled inspections, the supervisory authority may be exposed to comments that may lead to suspension of the license. The authorized body is entitled to suspend the license for a period of up to six months in the following cases:
- revealing unreliable information contained in documents submitted for obtaining a license or reviewing a report on the activities of the broker;
- failure to provide information on changes in documents submitted for obtaining a license;
- non-compliance with qualification requirements;
- violation of the legislation of the Republic of Kazakhstan regulating activities in the securities market, as well as internal documents of the broker;
- non-fulfillment of the requirements of limited measures of influence applied by the authorized body;
- non-submission of a letter of obligation at the request of the authorized body;
- refusal to draw up a written agreement with the authorized body;
- availability of a written application for voluntary suspension of the license;
- failure to perform the broker for six or more months of activity for which the license was granted;
- failure to comply with the requirements established by the legislation of the Republic of Kazakhstan on the submission to government authorities of information on activities in the securities market;
- activities prohibited and restricted for brokers;
- violation of the requirements related to the coordination with the management of the broker;
- systematic (three or more times during the last twelve calendar months) violations of the requirements provided by the Law of the Republic of Kazakhstan "On Combating Legalisation (Laundering) of Proceeds from Crime and Financing of Terrorism".
Brokers, whose license is suspended, are obliged within a specified period to eliminate the identified violations and submit a report to the licensing authority. If the results of consideration of the broker's report are positive, the suspended license can be resumed.
When can a brokerage license be revoked?
The National Bank has the right to revoke licenses for brokerage activities on the securities market in the following cases:
- non-elimination of the reasons for the suspension of the license;
- systematic (three or more times during the last twelve calendar months) violations of the legislation of the Republic of Kazakhstan regulating activities in the securities market, as well as internal documents of the broker;
- systematic (three or more times during the last twelve calendar months) failure to comply with the requirements of the authorized body;
- repeated during the last twelve consecutive months, violations of the requirements stipulated by the Law of the Republic of Kazakhstan "On Combating Legalisation (Laundering) of Proceeds from Crime and Financing of Terrorism", for which a sanction was applied in the form of suspension of a license;
- participation of licensees in transactions related to money laundering or the financing of terrorism;
- on other grounds established by this Law and other legislative acts of the Republic of Kazakhstan.
Upon termination of the license, the licensee is obliged to return the license to the licensor within 10 working days.