Thomas Murray upgrades the Central Securities Depository Risk Assessment for the AIX CSD from ‘A’ to ‘A+’ with Outlook ‘Stable’

Astana International Exchange Posted

Thomas Murray, the global post-trade risk and custody specialists, has completed the second CSD risk assessment of Astana International Exchange Central Securities Depository (AIX CSD) and assigned an overall risk assessment of ‘A+’, which denotes a ‘Low Risk’.

The overall assessment of ‘A+’ reflects the weighted average of the eight individual risk components and indicates a low risk exposure profile with ‘Stable’ outlook. This grade places AIX CSD above the average for Eurasian CSDs (BBB) and at the same level of the average for Asia Pacific CSDs (A+) covered by Thomas Murray.

The market was launched in November 2018 within the jurisdiction of Astana International Financial Centre (AIFC) and since then, the AIX CSD and its parent company Astana International Exchange (AIX) have been working on implementing a model that meets the needs of its participants through simple, innovative, and relatively secure and efficient practices.

At the time of the assessment in March 2022, market activity volume was dominated by on-exchange transactions and settlement was being conducted involving mostly brokers as clearing members. A settlement model involving custodian banks has been introduced although the volume of transactions settled under this arrangement is still minor.

The settlement model used by AIX CSD affords limited or almost zero asset commitment exposure to its participants during the settlement process. This is supported by settlement fails arrangements to reduce participant exposure to liquidity constraints, deriving from the late delivery or non-availability of assets. The settlement process is still conducted using ‘commercial bank’ although the possibility of using several settlement banks is now available. Trading and settlement volumes remain highly concentrated in a few participants, something that is expected to change once the market matures.

The AIX CSD operates in a legal environment that has full recognition of the nominee concept and a robust framework for the protection of client assets. The CSD’s rules and procedures allow for account segregation at the level of individual clients and provide for the segregation of participant and client assets. The depository has in place processes and controls for elementary corporate actions, albeit the number of events is still quite low.

The assessment of AIX CSD’s financial, operational and governance and transparency risks considered the nature of the CSD and its heavy reliance on AIX. The depository offers basic CSD services, and its operational functions are outsourced to the AIX. The CSD has no outstanding debt and has sufficient liquid net capital in the form of cash, although this capital has been weakening in the last couple of years. Nevertheless, the sources of revenue have been diversified which could help the depository to ensure its financial stability. AIX’s comprehensive insurance policy covers the activities of AIX CSD.

AIX innovative approach of utilising cloud technology for its production and disaster recovery facilities is supported by redundant network arrangements. AIX has certified controls around information and cyber security which conform to international standards. In addition, AIX CSD has shown improvements on its governance arrangements; in particular, the introduction and regular operation of a formal user group/committee is a great step in order to understand the needs of its participants and design the means and mechanisms to fulfil them. However, there are gaps that still need to be closed to reach the level desired of a well-run, mature company, with the participation of independent directors yet to be addressed.

Jim Micklethwaite, Director, Head of Operations for Thomas Murray said:

“Thomas Murray is delighted to announce the upgrade of the overall risk assessment of AIX CSD. The assessment recognises the efforts of AIX CSD to observe the best standards and maintain a secure and efficient post-trade infrastructure in a still nascent market and jurisdiction. We will keep monitoring AIX CSD’s improvements as the market grows and they continue to adopt international best practices.”

Ayana Kassymkhan, CEO of AIX CSD said:

“We are proud of making such progress and achieving notable improvements in managing our market’s overall risks. We have been working continuously to embrace international best practices that would enhance operating efficiency, leverage technology to improve timeliness, reduce cost wherever possible, and safeguard market participants and investors’ interests. The rating forms part of our on-going risk assessment process to ensure that we continue to provide robust and safe depository services for our customers and create new models that will support better outcomes and satisfy regulatory demands.”

The CSD risk assessment reviews and assesses the risk exposures for investors associated with the processes the CSD has in place to facilitate the safekeeping and the clearing and settlement of securities, where applicable. It assesses eight key risks (assessment components). The methodology considers the capabilities of the depository and the quality and effectiveness of its operational infrastructure. It also assesses the depository’s willingness and ability to protect its participants or clients from losses. As part of the assessment, the scope and quality of the depository’s services are reviewed. The assessments are on a consistent global scale, using the familiar AAA to C grading scale. Once the grading is assigned, there is an ongoing surveillance process to monitor the depository.

Thomas Murray maintains proprietary assessments of over 140 CSDs globally as part of the Thomas Murray Depository Risk Assessment services.

The full Thomas Murray report is available to interested parties upon request.