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Securities Market of the Kyrgyz Republic

Kyrgyzstan has a limited but active securities market, mainly dominated by post-privatisation equity, corporate debt and Government paper. New forms of securities, such as gold-backed bonds and mortgage paper have recently been introduced by the Government. Derivatives trading received its regulatory framework in early 2017.

The local securities exchange — Kyrgyz Securities Exchange based in Bishkek lists dozens of issuers and has a special category for startups raising cash through public offerings. A pilot project is now under way to combine a locally regulated IPO with an ‘initial coin offering’ (ICO) so much favoured by cryptocurrency investors, to bring the ‘best of borth worlds’ to the investors who desire to own shares of a regulated issuer but have the flexibility of trading them on crypto-platforms.

A locally licensed underwriter is required by law for all issues. There are over 30 local broker-dealers and investment managers licensed by the local regulator.

The law allows foreign securities to be publicly placed and distributed in and from Kyrgyzstan but requires that the prospectus be approved by the national regulator and a locally regulated underwriter be involved.

Besides being supervised by the local financial market regulator, securities firms are subject to AML/CTF supervision by the local FIU and are adhering to FATCA standards.

An amendment to the main securities act of the Kyrgyz Republic is being passed now by the Parliament to introduce the distinction between qualified and retail investors. Any foreign person or company would by definition be «qualified» and this should open up the local financial and regulatory infrastructure to professional issues of complex securities not generally suitable for the local retail investors. Such products may be listed on the local stock exchange which will provide their issuers an inexpensive and flexible listing.

The Kyrgyz investment market infrastructure and flexible law provides an abundance of opportunities to international securities professionals and investors, both in terms of structuring their products and activities and in providing a unique market access to the ex-USSR States.

Benefits of listing at the Kyrgyz Stock Exchange

Besides the obvious benefit of introducing securities to the open investment market, the listing at the Kyrgyz Stock Exchange (KSE) provides a number of market access, tax and regulatory benefits.

  • Liberal listing rules of the exchange provide the opportunity to publicly list startup companies and thus open them up to global investors (reminder: there are no exchange or capital movement controls in Kyrgyzstan). Listing the startup on a regulated exchange can be a law-compliant alternative to all the unregulated forms of crowd investing and capital solicitation which are popular now (such as the ICOs). A special listing category for startups exists at the exchange.
  • Listing at the KSE provides a ‘backdoor’ entry to the Russian investment market which taps into the multi-billion dollar savings of the Russian population (144 million people), most of whom are de-facto barred from investing offshore. Securities listed at the KSE can be accepted for listing at any Russian stock exchange without the need for the approval of the Russian securities market regulator (the Central Bank of Russia). The legal basis for that privilege is the Central Bank of Russia Directive of 28 January 2016 N 3949-U which included the KSE into the list of exchanges whose listing is sufficient for an approval-free secondary listing in Russia.
  • A KSE listing of bonds or other debt instruments is a way to repatriate interest income from Russia free of the Russian withholding tax. In accordance with the Russian tax law and the Directive of the Russian Central Bank of 30 May 2017 No 4393-U, if a Russian project is financed with the proceeds of a debt securities issue listed at the KSE (the issuer may be a Russian company or a foreign SPV), Russian withholding tax on interest on such borrowing is not applied. Originally a Eurobond privilege, this tax stimulus was extended to cover KSE to ensure closer cooperation of the Customs Union States.

NB! Kyrgyz law allows listing both domestic and foreign securities at the local stock exchange.

  • Those desiring law-compliant privacy in controlling an asset or keeping savings may obtain the KSE listing for the shares of their holding company to legally enjoy non-disclosure of the beneficial owner apart from the disclosures required by the listing rules of the exchange. There is various legislation in different countries supporting this privilege of publicly listed companies.
  • Kyrgyz law provides for exemption from the Profit and Income taxes of income on certain types of securities listed at the local stock exchange.

Securities Trading Through Kyrgyzstan

  • Kyrgyz-licensed broker-dealers can transact business both with locally issued and foreign securities.
  • The Central Depository of the Kyrgyz Republic may be used for the custody of securities issued in Russia, Kazakhstan and other countries, including the financial instruments clearable via Euroclear and Clearstream.
  • There is an abundance of opportunities to trade securities through Kyrgyzstan tax-free; there is no withholding tax on capital gains from foreign securities traded via local broker-dealers.
  • Since there are no exchange controls in Kyrgyzstan, it is possible to trade any securities in any currency, issued by any issuer. The only restriction is that you may not publicly offer foreign securities to the local retail investors unless those securities have been approved for local public distribution by the Kyrgyz regulator.

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