{"url_path":"/sec/frhc/10-k/2026/item-7a","section_key":"item-7a","section_title":"Item 7A QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-01","source_url":"https://www.sec.gov/Archives/edgar/data/924805/0000924805-26-000012-index.html","accession_number":"0000924805-26-000012","cik":"0000924805","ticker":"FRHC","issuer_name":"Freedom Holding Corp.","edgar_url":"https://www.sec.gov/Archives/edgar/data/924805/0000924805-26-000012-index.html","primary_entity_key":"0000924805","primary_entity_name":"Freedom Holding Corp."},"word_count":2629,"has_tables":true,"body_markdown":"ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK\n\nMarket Risk\n\nThe following information, together with information included in \"Overview\" in \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in Part II Item 7 of this annual report, describes our primary market risk exposures. Market risk is the risk of economic loss arising from the adverse impact of market changes to the market value of our trading and investment positions. We are exposed to a variety of market risks, including, but not limited to, interest rate risk, foreign currency exchange risk and equity price risk.\n\nInterest Rate Risk\n\nOur exposure to changes in interest rates relates primarily to our investment portfolio and outstanding debt. While we are exposed to global interest rate fluctuations, we are most sensitive to fluctuations in interest rates in Kazakhstan. Changes in interest rates in Kazakhstan may have significant effect on the fair value of securities on our balance sheet.\n\nOur investment policies and strategies are focused on preservation of capital and supporting our liquidity requirements. We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investment policies generally require securities to be investment grade and limit the amount of credit exposure to any one issuer with the exception of government and quasi-government entities. To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 200 basis point and 50 basis point parallel shift in the yield curve for non USD/EUR and USD/EUR denominated securities.\n\nBased on investment positions as of March 31, 2026 and 2025, a hypothetical 50 basis point (for USD, EUR denominated securities) and 200 basis point (for other currencies) increase in interest rates across all maturities would have resulted in $104.0 million and $87.7 million incremental decline in the fair market value of the trading portfolio and in $20.7 million and $13.8 million in incremental decline in the fair market value of the portfolio available-for-sale, respectively. A hypothetical 100 basis point decrease in interest rates across all maturities would have resulted in a $96.1 million and $50.7 million incremental increase in the fair market value of the trading portfolio and in $19.0 million and $10.3 million incremental increase in the fair market value of the portfolio available-for-sale, respectively. Such gains and losses would only be realized if we sold the investments prior to maturity.\n\nForeign Currency Exchange Risk\n\nWe have a presence in Kazakhstan, Cyprus, the United States, the United Kingdom, Armenia, the United Arab Emirates (UAE), Uzbekistan, Kyrgyzstan, Tajikistan, Azerbaijan, Türkiye, Bulgaria, Germany, Greece, Lithuania, The Netherlands, Portugal, Spain, Austria, France, Poland, and Italy. The activities and accumulated earnings in our non-U.S. subsidiaries are exposed to fluctuations in foreign exchange rate between our functional currencies and our reporting currency, which is the U.S. dollar.\n\nIn accordance with our risk management policies, we manage foreign currency exchange risk on financial assets by holding or creating financial liabilities in the same currency, maturity and interest rate profile. This foreign exchange\n\n92\n\n[Table of](#i70ff496d74d2478e8fff6b413c2fcd4c_7)[Contents](#i70ff496d74d2478e8fff6b413c2fcd4c_7)\n\nrisk is calculated on a net foreign exchange basis for individual currencies. We may also enter into foreign currency forward, swap and option contracts with financial institutions to mitigate foreign currency exposures associated with certain existing assets and liabilities, firmly committed transactions and forecasted future cash flows.\n\nAs mentioned before, our main market is Kazakhstan. Because Kazakhstan's economy is highly dependent on oil exports, any significant decrease in oil prices lead to a devaluation of local currency, which can lose up to 17% quarterly (during COVID-19 outbreak) of its value relative to the U.S. dollar. In addition to its dependence on oil, the Kazakhstani economy is influenced by the economic conditions in Russia due to historically strong trade ties, which manifests in a correlation between the exchange rate of the local currency to the US dollar and that of the Russian ruble to the US dollar.\n\nAs of March 31, 2026 and 2025, based on our analyses, we estimate that a 10% decrease in the value of all currencies compared to the U.S. dollar would result in the following:\n\n•A total loss of $92.7 million in 2026 and $90.0 million in 2025.\n\n•A loss of $150.3 million on trading securities in 2026 and $131.3 million in 2025.\n\n•A gain of $57.6 million, excluding trading securities, in 2026 and a gain of $41.3 million in 2025.\n\nEquity Price Risk\n\nOur equity investments are susceptible to market price risk arising from uncertainties about future values of such investment securities. Equity price risk results from fluctuations in price and level of the equity securities or instruments we hold. We also have equity investments in entities where the investment is denominated in a foreign currency, or where the investment is denominated in U.S. dollars but the investee primarily makes investments in foreign currencies. The fair values of these investments are subject to change at the spot foreign exchange rate between these currencies and our functional currency fluctuates. We attempt to manage the risk of loss inherent in our equity securities portfolio through diversification and by placing limits on individual and total equity instruments we hold. Reports on our equity portfolio are submitted to our management on a regular basis.\n\nAs of March 31, 2026, and 2025, our exposure to equity investments at fair value was $174.6 million and $111.1 million, respectively. Based on an analysis of the March 31, 2026 and 2025 (not including trading portfolio) balance sheets we estimate that a decrease of 10% in the equity price would have reduced the value of the equity securities or instruments we held by approximately $17.5 million and $11.1 million, respectively.\n\nCredit Risk\n\nCredit risk refers to the risk of loss arising when a borrower or counterparty does not meet its financial obligations to us. We are exposed to credit risk through our products and assets, such as loans issued, marginal lending, derivatives, debt securities, reverse repurchase agreements, and trading account assets.\n\nThe table below presents the current credit ratings of issuers of securities in our proprietary portfolio as of March 31, 2026 and 2025:\n\n93\n\n[Table of](#i70ff496d74d2478e8fff6b413c2fcd4c_7)[Contents](#i70ff496d74d2478e8fff6b413c2fcd4c_7)\n\nMarch 31, 2026\n\n>BB<BBNot ratedTotal\n\nNon-U.S. sovereign debt$1,337,321 $256 $— $1,337,577 \n\nCorporate debt748,691 26,585 18,574 793,850 \n\nCorporate equity120,637 2,292 43,465 166,394 \n\nU.S. sovereign debt33,060 — — 33,060 \n\nExchange traded notes4,079 1,063 3,077 8,219 \n\nTotal trading securities$2,243,788 $30,196 $65,116 $2,339,100 \n\nNon-US sovereign debt240,453 — — 240,453 \n\nCorporate debt260,437 11,851 39,316 311,604 \n\nUS sovereign debt21,981 — — 21,981 \n\nTotal available-for-sale securities, at fair value$522,871 $11,851 $39,316 $574,038 \n\nNon-US sovereign debt429,215 208 — 429,423 \n\nTotal held-to-maturity securities$429,215 $208 $— $429,423 \n\nTotal investment securities$3,195,874 $42,255 $104,432 $3,342,561 \n\nMarch 31, 2025\n\n>BB<BBNot ratedTotal\n\nNon-U.S. sovereign debt\n$1,257,719 $24,376 $355 $1,282,450 \n\nCorporate debt702,564 94,980 10,441 807,985 \n\nCorporate equity67,432 1,999 36,796 106,227 \n\nU.S. sovereign debt73,787 — — 73,787 \n\nExchange traded notes1,326 — 3,511 4,837 \n\nTotal trading securities$2,102,828 $121,355 $51,103 $2,275,286 \n\nCorporate debt231,770 11,533 427 243,730 \n\nNon-US sovereign debt207,659 572 — 208,231 \n\nUS sovereign debt21,626 — — 21,626 \n\nTotal available-for-sale securities, at fair value$461,055 $12,105 $427 $473,587 \n\nNon-US sovereign debt65,860 — — 65,860 \n\nTotal held-to-maturity securities$65,860 $— $— $65,860 \n\nTotal investment securities$2,629,743 $133,460 $51,530 $2,814,733 \n\nMargin lending receivables risk\n\nWe extend margin loans to our customers. Margin lending is subject to various regulatory requirements of MiFID, Central Bank of Armenia and the AFSA. Margin loans are collateralized by cash and securities in the customers' accounts. The risks associated with margin lending increase during periods of fast market movements, or in cases where collateral is concentrated and market movements occur. During such times, customers who utilize margin loans and who have collateralized their obligations with securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of a liquidation. We are also exposed to credit risk when our customers execute transactions, such as short sales of equities that can expose them to risk beyond their invested capital.\n\n94\n\n[Table of](#i70ff496d74d2478e8fff6b413c2fcd4c_7)[Contents](#i70ff496d74d2478e8fff6b413c2fcd4c_7)\n\nWe expect this kind of exposure to increase with the growth of our overall business. Because we indemnify and hold harmless our clearing houses and counterparties from certain liabilities or claims, the use of margin loans and short sales may expose us to significant off-balance-sheet risk in the event that collateral requirements are not sufficient to fully cover losses that customers may incur and those customers fail to satisfy their obligations. As of March 31, 2026, we had $4,632,506 in margin lending receivables from our customers, $3,286,545 of which was attributable to three non-related party customers. The amount of risk to which we are exposed from the margin lending we extend to our customers and from short sale transactions by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potential significant and undeterminable increase or fall in stock prices. As a matter of practice, we enforce real-time margin compliance monitoring and liquidate customers' positions if their equity falls below required margin requirements.\n\nWe have a comprehensive policy implemented in accordance with regulatory standards to assess and monitor the suitability of investors to engage in various trading activities. To mitigate our risk, we also monitor customer accounts to detect excessive concentration, large orders or positions, patterns of day trading and other activities that indicate increased risk to us.\n\nOur credit exposure is substantially mitigated through our policy of closing positions for accounts identified as under-margined based on the automatic evaluation of each account throughout the trading day. In situations where no liquid market exists for the relevant securities or commodities, liquidation for certain accounts is performed following a corresponding analysis. We regularly monitor and evaluate our risk management policies, including the implementation of policies and procedures to enhance the detection and prevention of potential events aimed at minimizing margin loan losses.\n\nOperational Risk\n\nOperational risk generally refers to the risk of loss, or damage to our reputation, resulting from inadequate or failed operations or external events, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems.\n\nFor a description of related risks, see the information under the headings \"Risks Related to our Business and Operations\" in \"Risk Factors\" in Part I Item 1A of this annual report.\n\nTo mitigate and control operational risk, we have developed and continue to enhance policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments. We also have business continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits.\n\nCybersecurity Risk\n\nCybersecurity risk refers to the risk of loss, or damage to our reputation, resulting from inadequacies or breaches in our control processes, including IT, information security, data protection and AI incidents, that could lead to penetration, disruption, integrity violation or misuse of our information systems and data.\n\nFor a description of these risks, see \"Risks Related to Information Technology and Cybersecurity\" in \"Risk Factors\" in Part I Item 1A of this annual report.\n\nFor cybersecurity risk management and governance practices see \"Cybersecurity\" in Part I Item 1C of this annual report.\n\nLegal and Compliance Risk\n\nWe operate in a number of jurisdictions, each with its own legal and regulatory structure that is unique and different from the other. Legal and regulatory risk includes the risk of non-compliance with applicable legal and regulatory requirements and damage to our reputation as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. Legal and compliance risk includes compliance with AML, counter terrorist financing, anti-corruption and sanctions rules and regulations. It also includes contractual and commercial risk, such as the risk that a counterparty's performance obligations will be unenforceable.\n\n95\n\n[Table of](#i70ff496d74d2478e8fff6b413c2fcd4c_7)[Contents](#i70ff496d74d2478e8fff6b413c2fcd4c_7)\n\nWe are subject to regulation from numerous regulators, which include the NBK, the AFSA, the ARDFM, CySEC and the SEC. From time to time, we are, have been, and in the future may be, subject to investigations, audits, inspections and subpoenas, as well as regulatory proceedings and fines and penalties brought by regulators. We could experience negative publicity and reputational damage as a result of the foregoing, as well as lawsuits, claims or regulatory actions. The legal costs associated with responding to the regulatory investigations can be substantial, regardless of the outcome. We have received, and are likely to continue to receive, various inquiries and formal requests for information on various matters from certain regulators, with which we have cooperated and will continue to do so. Since 2021, the Company and certain of our officers and directors have received several document subpoenas, document requests and subpoenas and requests for testimony from the SEC’s Division of Enforcement. In the context of certain of those requests, on March 11, 2026, the Company and the Company's controlling shareholder, chairman and chief executive officer, Timur Turlov received a Wells Notice from the SEC staff in connection with the SEC investigation. For additional information about the SEC investigation and its potential outcome see Note 29 \"Commitments and Contingencies\" to the consolidated financial statements included in Part II, Item 8 of this annual report on Form 10-K. Any of the foregoing could, individually or in the aggregate, materially adversely affect, our reputation, business, financial condition, results of operations, prospects, and cash flows.\n\nWe have established and continue to enhance procedures designed to ensure compliance with applicable statutory and regulatory requirements, such as public company reporting obligations, regulatory net capital and capital adequacy requirements, sales and trading practices, potential conflicts of interest, anti-money laundering, privacy, sanctions and recordkeeping. The legal and regulatory focus on the financial services industry presents a continuing business challenge for us.\n\nOur business also subjects us to the complex income tax laws of the jurisdictions in which we operate, and these tax laws may be subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes.\n\nGeopolitical Risk\n\nGeopolitical conflicts, such as the ongoing Russia-Ukraine war, war involving Iran and escalating tensions in the Middle East and other regions, have contributed to increased volatility and uncertainty in global financial markets. Such conflicts frequently result in sanctions, trade restrictions, and countermeasures between countries, leading to disruptions in international trade flows, financial transactions, and economic activities. These developments may trigger shortages or price increases for critical commodities, energy resources, and transportation services, amplifying inflationary pressures and influencing central banks' interest-rate policies worldwide. Furthermore, heightened geopolitical tensions increase the risks associated with cybersecurity threats, operational disruption, supply chain disruptions, payment delays, and failures to settle financial transactions. The extent, severity, and duration of these conflicts, sanctions, and associated market disruptions remain uncertain, making it challenging to accurately predict their potential impact on our business, liquidity, financial condition, and results of operations.\n\nEffects of Inflation\n\nBecause our assets are primarily short-term and liquid in nature, they are generally not significantly impacted by inflation. The rate of inflation does, however, affect our expenses, including employee compensation, communications and information processing and office leasing costs, which may not be readily recoverable from our customers. To the extent inflation result in rising interest rates and has adverse impacts upon securities markets, it may adversely affect our results of operations and financial condition.\n\n96\n\n[Table of](#i70ff496d74d2478e8fff6b413c2fcd4c_7)[Contents](#i70ff496d74d2478e8fff6b413c2fcd4c_7)"}