20.11.2013 update on the mongolian stock market – impact of the new securities law, altai khangai
TRANSCRIPT
MONGOLIAN SECURITIES MARKET UPDATE
December 2013
PART I.
LEGAL AND REGULATORY ENVIRONMENT
1
LEGAL AND REGULATORY REFORM
MSE
Rules &
Regulations
Depository
Receipt rules
Trading rules
Membership
rules
• Listing Rules: Designed to meet
highest international standards,
setting out the entry requirement
and obligations for companies on
the market
• Ensures smooth process for dual
listing in other markets
• Trading rules cover how participants access the trading
and procedures and behaviour while trading
• Trading rules are aligned with the operation and system
rules of the trading system
• Membership rules to ensure conduct and general suitability
of market participants. Required to provide access to trading
National legal
framework
Securities
Law
Companies
Act
Post Trade rules
Mineral Law
• Settlement rules cover how the activities after trading and
management of risk of default before delivery
• Settlement rules are aligned with the operation and system
rules of the settlement / post trade systems
Investment
Law
Investment
Fund Law
Private
Pension
Fund Law
Listing rules
Custodian rules • Custodian rules to ensure conduct and general suitability of
custodian banks. 2
THE REVISED SECURITIES MARKETS LAW
an important and established concept in common law
jurisdictions
"nominal holder“ is regulated entity
who is registered as depositor/custodian of a given
security
who is not the beneficial owner of such security
"beneficial owner" is "real" owner of the security
who is entitled to enjoy the rights and benefits attached
to such security
increases the range of tradable securities to include
derivatives (options, futures), depositary receipts and
warrants
over-the-counter trading of securities is expressly permitted
exchange to set the standards of listed futures and options
contracts
regulatory framework for depositary receipts
global and Mongolian DR-s
ongoing disclosure requirements
semi-annual and annual financial reports
changes to the management, influential shareholding
structure
shareholding meetings
share transactions by the issuer and insiders
operational updates and press releases
mandatory facilitation of disclosure information via issuer’s,
exchange’s and FRC’s websites
securities clearing activities
matching trades and managing settlement risk
securities settlement activities
delivery-versus-payment
rolling settlement process
securities ownership registry activities
central securities depositories
nominee ownership records of members
custodian banks
nominee and beneficial ownership records of banks
clients
Distinction between nominal and beneficial owner Increased market transparency
Increased liquidity Clear definition of post trading activities
3
THE REVISED INVESTMENT LAW
Key features The form of investment
Promotion of Investment
• Applies to both foreign and domestic direct investments.
• Companies with foreign investment need only register with the Legal Entities Registration Office ("LERO").
• No approval requirements are imposed on foreign private investment.
• Increases the minimum capital requirements for foreign- invested entities. Each foreign shareholder contributes US$ 100,000 if foreign investor(s) hold a 25% or more interest therein.
• Provides the definition of a foreign state-owned legal entity ("FSOE") as "a legal entity in which a foreign state directly or indirectly holds more than 50 per cent of the entity's issued shares".
• Removes the classification of strategic economic sectors for foreign private investment, but maintains the approval requirements for certain equity investments made by FSOEs in those sectors that were regarded as strategically important under the SFI Law.
• Appoints the Ministry of Economic Development ("MED") as the approval authority for certain investments by FSOEs.
i. Incorporation of a business entity;
ii. Purchase of securities;
iii. Merging or consolidating a company;
iv. Enter into concession, production-sharing, marketing or management agreements;
v. Financial lease and franchise; or
vi. Other types
Non-tax incentives
in relation to land rights, customs clearance,
foreign labour quotes, immigration matters
Tax incentives
exemption from the payment of certain taxes,
preferential tax treatment, accelerated
depreciation and amortisation that is deductible
from taxable income, carrying forward of losses
TAX STABILISATION
(i) Stabilisation Certificates
(ii) Investment Agreements
Came into force on 1 Nov 2013
4
THE INVESTMENT FUND LAW
Will be effective from 1 Jan 2014
MUTUAL FUNDS
Can raise funds through public
offering to 50 or more people
All funds will be allowed to run for
up to 10 years
PRIVATE FUNDS
Not allowed to go public marketing
SPECIAL
PURPOSE VEHICLE
Funds will be
established by Fund
Management companies,
licensed by the FRC*
*FRC – Financial regulatory commission of Mongolia www.frc.mn
Custodian services
Investable asset classes:
1. Government bonds
2. Municipal and aimag bonds
3. Listed stocks
4. Private company shares
5. Public debt instruments
6. Private debt instruments
7. Foreign gov. bonds
8. Asset backed securities
9. Derivatives
10. Foreign and local currency
11. Gold and other commodities
12. Real estate
5
SPV, investments funds will
not be taxed. Investors will pat
income tax
PART II.
LSE-MSE STRATEGIC PARTNERSHIP
6
TOTAL LISTED COMPANIES - 262 JSCs /100%/
LISTED - 183 JSCs /69.8%/
“A” board - 36 JSCs
“B” board - 147 JSCs
DELISTABLE - 58 JSCs /22.1%/
100% State owned - 21 JSCs
CAPITAL MARKETS KEY STATISTICS
47
57
41
70
47
Number of listed companies
Mining
Manufacturing
Agriculture
Construction &transportation
Trade & Services
1019.2 2030.81
10256.13
5583.22 6189.91
14759.81
32954
17714.51
13829.76
2005 2006 2007 2008 2009 2010 2011 2012 2013
ТОP-20 INDEX PERFORMANCE
TOTAL MEMBER COMPANIES - 82
Broker, dealer and underwriter - 17
Broker dealer - 49
Broker, dealer, underwriter - 8
and investment advisor
Broker, dealer and investment advisor - 8
0
0.5
1
1.5
2
2.5
In t
rill
ion
MN
T
MARKET CAPITALIZATION
7
April 2011
The Master Services
Agreement was signed
with the London Stock
Exchange for the purpose
of implementing the MSE
Development Plan;
April 2011
July
Millennium IT technology,
was introduced to Mongolian
market.
T+3 settlement system
introduced with the new
technology.
RECENT DEVELOPMENTS IN CAPITAL MARKETS
July-August
Advanced level Capital
markets training provided
by London Stock Exchange
Academy professionals in
Ulaanbaatar and London.
April
Brokers started remote
trading. Currently 15
brokers are trading from
their offices.
August
Established
cooperation agreement
with the FTSE group
for the design and
calculation of FTSE-
MSE indices
September
Placed on FTSE
Frontier Market
Watchlist.
October
FRC established MOU
with Securities and
Futures Commission
of Hong Kong
8
2011 2012
2013
The Principle Objective of the Plan is to transform the MSE to a world class Exchange Operator and Develop the Mongolian
Capital Market as a whole
9
FRC
Central Bank of
Mongolia
MSE Equities &
Debt
Commodities
Derivatives
CCP
MSCH&CD
Domestic Issuers
Local Brokers
International Brokers
International Investors
Investors
Domestic Banks
Custodian Banks
MSE LOOKING TO THE FUTURE
Authorities with regulatory
oversight
Mongolian market infrastructure
Key Participants using
the market
Key
Existing
Future
MSE GROUP
NEW FRONTIER MARKET
• The Mongolian capital market has been placed on FTSE’s Watch List for possible promotion to Frontier market status.
• FTSE assumes a major position in global financial market and enjoys an unparalleled reputation for provision of indices
and market data that many international investors an investment funds base on to make informed investment decisions.
• The implementation of a world standard trading and
settlement system and market infrastructure and increased
transparency in the market had a major influence in placing
Mongolia on a Watch list for possible promotion to Frontier
market status.
10
Delisted
Existing listed companies who failed to meet
the new listing standards
PROFILE OF TARGET LISTED COMPANIES
Existing
Current listed companies who meet (or
close to) the new listing standards
New Domestics
Existing Mongolian companies
which decide to list on the
market
Ap
pro
x. m
ark
et ca
pita
lisa
tion $
m
Repatriations
Mongolia companies listed on another exchange who decide to dual
list on MSE
(e.g South Gobi / Petro Matad)
Approx. timing
State Privatisations
Significant state assets listed on MSE and LSEG for capital raising
New Licences
Small parcels of mining assets sold off by Government
Foreign Listings
Siberian mining companies too small to list on
MICEX (or London) but wanting to raise further
capital. Success could establish MSE as a
regional exchange
Increasing the quality of the companies on the market is key to attracting new investors. There are seven categories of
companies that we should target.
11
“MONGOLIAN STOCK EXCHANGE” JSC
Sukhbaatar Square-2, Ulaanbaatar city, Mongolia
Fax: (976)-11-325 170
Email: [email protected]
Website: www.MSE.mn
Contact us: