2013, PRESENTATION, The Mongolian Stock Exchange The extent to which liquidity will be improved by working with the LSE, Altai Khangai

Mongolian Stock Exchange:

The extend to which liquidity will be

Improved by working with the LSE

Mongolian Stock Exchange www.mse.mn

Altai Khangai /CEO/

Mongolian Stock Exchange

Mongolia: Country Statistics

• GDP 2012: $8.7 Billion

• GDP per capita 2012: $4,763;

• GDP growth 2012: 12.3%

• Inflation: 9.5%

• Exports 2012: $4.384 billion

• Imports 2012: $6.738 billion

• Population: 2.9 million

Factors supporting the growth:

– Much potential with promising human resources (literacy rate of 98%);

– Abundant natural resources (copper, gold, coal, uranium resources among the top in

the world)

– Next door to the largest consumer/ manufacturer;

– Large scale infrastructure projects (e.g. railway and road pavement);

– Boom in real estate and construction sector (e.g. Construction of 100,000

apartments);

– High potential for agricultural industry with over 45 million livestock;


2012 2011 2010

Market Cap (in USD bln) 1.28 1.62 1.03

Equity Trading Value (in USD mln)

103 78 45

Equity Trading Volume (bln shares)

131.1 122.8 64.5

Daily share turnover (in thousand USD)

510.4 311.2 178.6

No. of Members 80 76 45

No. of Listed Companies 329 332 336

TOP 20 Index 17714.5 21687.57 14759.81


Capital Markets: Mongolian Stock Exchange Statistics

Opportunity to grow

with the fastest growing

market

Mongolia’s GDP in 2012:

+12.3%

International standards

offered domestically

(Millennium IT

technology, revised

rules & regulations, T+3

settlement system)

-

20

40

60

80

100

120

140

160

180

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

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20

06

20

07

20

08

20

09

20

10

20

11

20

12

Mill

ion

s

Mill

ion

s

Market Cap USD

Shares #


MSE TOP-20 Index

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

1995 он

1996 он

1997 он

1998 он

1999 он

2000 он

2001 он

2002 он

2003 он

2004 он

2005 он

2006 он

2007 он

2008 он

2009 он

2010 он

2011 он

2012 он

Топ 20 индекс


MSE TOP-20 Index VS World’s Major Indices

-200

0

200

400

600

800

1000

1200

1400

1600

1800

20

07

.01

.02

20

07

.02

.09

20

07

.03

.23

20

07

.05

.02

20

07

.06

.12

20

07

.07

.25

20

07

.09

.03

20

07

.10

.11

20

07

.11

.20

20

07

.12

.28

20

08

.02

.07

20

08

.03

.19

20

08

.04

.28

20

08

.06

.05

20

08

.07

.16

20

08

.08

.25

20

08

.10

.02

20

08

.11

.11

20

08

.12

.22

20

09

.01

.30

20

09

.03

.13

20

09

.04

.22

20

09

.06

.02

20

09

.07

.10

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09

.08

.20

20

09

.09

.29

20

09

.11

.06

20

09

.12

.17

20

10

.01

.27

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10

.03

.11

20

10

.04

.20

20

10

.05

.28

20

10

.07

.08

20

10

.08

.19

20

10

.09

.28

20

10

.11

.05

20

10

.12

.16

20

11

.01

.25

20

11

.03

.09

20

11

.04

.18

20

11

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.26

20

11

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.06

20

11

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20

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11

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20

11

.12

.13

20

12

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.23

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12

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.05

20

12

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20

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20

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20

12

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12

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20

12

.11

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20

12

.12

.14

IN/DEC percentage TOP20

IN/DEC percentage CAC40

IN/DEC Percentage NIKKEI225

IN/DEC Percentage HANG SENG

IN/DEC Percentage NASDAQ-100

IN/DEC Percentage DAX

IN/DEC Percentage S&P500

TOP-20 Index 800%

Changes in total trade value by Foreign entities

Year

Foreign

Institution/L

egal entity

Foreign retail

investor

Domestic

Institution/

Legal Entity

Domestic

retail

Investor Total Trade

value /USD

million/

Total trade

value

percentage

of foreign

entities

Total trade

value

percentage

of domestic

entities

Trade Value

/USD /

Trade Value

/USD/

Trade Value

/USD /

Trade Value

/USD/ % %

2006 $3,046,318 $425,068 $4,817,433 $4,463,210 $12,752,030 27.2 72.8

2007 $24,158,012 $3,046,318 $33,084,433 $12,256,117 $72,544,880 37.5 62.5

2008 $7,792,907 $2,833,784 $7,651,218 $25,858,282 $44,136,192 24.1 75.9

2009 $4,604,900 $637,601 $4,179,832 $7,013,616 $16,435,949 31.9 68.1

2010 $35,493,149 $5,384,190 $19,765,646 $5,100,812 $65,743,798 62.2 37.8

2011 $50,795,585 $7,863,752 $173,994,361 $15,373,280 $248,026,978 23.6 76.4

2012 $92,523,060 $2,054,494 $6,163,481 $2,054,494 $102,795,528 92 8

Mongolian Stock Exchange and the London Stock Exchange Group

The Master Service Agreement

• The Master Services Agreement was signed on April, 7 2011 between the State

Property Committee (SPC), the Mongolian Stock Exchange (MSE) and the London Stock

Exchange for the purpose of implementing the MSE Development Plan

• 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

• Establishment of an appropriate regulatory framework

• Implementation of new technology

• Development of a sustainable business model for the exchange

• Training of market participants and exchange employees

MASTER SERVICE AGREEMENT

OBJECTIVES OF THE AGREEMENT


Mongolian Stock Exchange since the strategic partnership with the

London Stock Exchange Group: Key achievements

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;

The Master Services

Agreement was signed

between the State

Property Committee

(SPC), the Mongolian

Stock Exchange (MSE)

and the London Stock

Exchange Group for the

purpose of implementing

the MSE Development

Plan;

April, 7 2011

July, 2 2012

Revised market

rules and

regulations (app.10)

necessary for making

Mongolian market

highly productive,

well organized, open

and transparent.

Advanced level Capital

markets training

provided by London

Stock Exchange

Academy professionals

in Ulaanbaatar and

London.

June–September

2011

2011 - 2012

Launched the integrated

Millennium IT technology,

consisting of Millennium

Exchange, Millennium CSD,

Millennium Surveillance,

Millennium Trader programs,

produced by LSEG subsidiary

Millennium IT company.

The

System

Launch

2011 - 2012


Mongolian Stock Exchange and the London Stock Exchange Group

The Master Service Agreement: High-level Project Milestones

NEW RULES AND

REGULATIONS

TRAINING

Listing Rules Pending FRC approval

Trading Rules Complete

Membership Rules Complete

Clearing & Settlement Rules Complete

The Academy of the London Stock Exchange has carried out a series of training programs

for regulators, market participants and other stakeholders

Optimal organization structure, new roles and responsibilities

Mid to long-term Business Development Plan adopted by the Board

A SUSTAINABLE BUSINESS

MODEL FOR THE EXCHANGE


Newly Implemented Clearing, Settlement, Custody Model

• Payments in NPSS are handled by Clearing Banks on behalf of

MongolBank

• The new Securities Markets Law has been submitted to the parliament

for approval with an aim to

– Provide needed updates to the legislation

– Address concentration of securities processing activities

– Improve market standards and procedures

– Increase international exposure

SECURITIES SETTLEMENT

AND CUSTODY


• The new Millennium IT system launched in July, 2012, moving from pre-

funded trades to T+3 rolling settlement model

• The new system has all of the technological capabilities needed to

operate a modern world-class exchange

• Payments executed through the National Payment and Settlement

System (NPSS), a RTGS operated by MongolBank

Clearing, Settlement, Custody Model Specifics

SETTLEMENT FEATURES


CLEARING

• Net clearing for cash and gross clearing for securities settlement

• Multilateral trade matching among participants

• Facilitate Domestic settlement at the moment

• Goal is to expand up to cross-border and international settlement

types with the introductions sub-custodian banks

• Securities settled through the CSD, but cash is paid through MongolBank

payment system, which in turn is handled through select clearing banks

• Securities are delivered in dematerialized form based on cash settlement

through DVP model on single currency

• Securities borrowing and lending are likely to be legalized with the

passage of the new Securities Markets Law

New Securities Market legal framework: Optimal climate for

investing in MSE

The new securities law is the gateway to promoting the principles of fair,

transparent and efficient market, creating a robust capital market and achieving ambitious

growth and development objectives in Mongolia .

1. Efficient procedure for new listings

2. Dual listing opportunities

1. Provides legal framework for infrastructure required to attract foreign investment.

a) Global custodian services

b) Investment fund framework

2. Higher free-float requirement -

a) Requirement to increase free-float over time up to 30 percent

3. Investor protection –

a) Adequate disclosure requirement and proper dissemination of information by Issuers

b) Stringent licensing requirements for regulated activities and professionals working for

regulated persons. This will include the services of Broker/dealers, underwriters

custodians, investment advisors.

c) “fit and proper test” for regulated persons

1. New instruments such as Depository Receipts both Mongolian DR’s and Foreign DR’s,

Derivatives, asset backed securities and other instruments approved by the commission.

2. Easier compliance procedures for foreign PLCs looking to list in MSE secondary market

3. Provision for setting up of institutional investor base in Mongolia


ATTRACTIVE LISTING VENUE

ATTRACT FOREIGN INVESTMENT

IMPROVE MARKET LIQUIDITY

Mongolian Stock Exchange and FTSE Group: A 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.


Tax and other advantages of investing on MSE


Mongolia is considered “tax heaven” since companies pay 10% corporate tax (25% for taxable profit exceeding 3 billion MNT) on their profits and with 10% flat rate tax on individual incomes whereas in developed

countries corporations pay effective tax rate of up to 55 % on their earnings.

There is no stamp duty tax when trading on MSE, while UK have 0.5% stamp duty rate on share transfers valued more than 1000 GBP

and EU is planning to introduce such tax.

Another advantage is that foreign firms and individuals can open their depository account

directly at MSCHCD (Mongolian central depository and clearing house).

Mongolian capital market and financial system is very liberal and flexible, for

example there is no currency movement restriction and there is no prohibition on

foreign individuals and companies to participate in stock exchange trading.

Advantages

Mongolian Capital Market – the foreign investment friendly

environment

0 10 20 30 40 50 60

Italy

Denmark

France

United States

Sweden

Norway

Germany

Finland

United Kingdom

Australia

Japan

Spain

Canada

OECD Avg (non-US)

Israel

Estonia

Iceland

Ireland

Poland

Slovak Republic

Belgium

Mongolia

Capital Gains Taxation by Country (OECD) and Mongolia (in %)

** Capital gains rate plus the corporate income taxrate.


20

0 10 20 30 40

US

UK

Australia

Belgium

Germany

China

Japan

Mongolia

Dividend Tax Rate in %

MSE looking to the future: The market of choice for small to

mid-cap companies looking to maximize their growth potential

• One of the smallest exchanges with the biggest potential

• The market of choice for companies and investors looking to participate in Mongolia growth story

• Higher visibility of MSE companies and development of liquidity through new product initiatives

including:

The promotion of equity research

Development of new indices

Hosting Company Investor days

• Driving growth through following initiatives:

Mongolian top strategic deposits

Foreign listed companies in mining sector with assets in Mongolia

Leading domestic companies in mining, infrastructure and consumer sectors

State-owned enterprises planned to be privatized


Future Prospect for Mongolian Stock Exchange


•MCS Group

•Mobicom

•Tavan Bogd

Mongolia’s Top 20

listed companies

account for 86%

of the current

market cap •MMC

•Oyu Tolgoi

•South Gobi

•Tavan Tolgoi

•Oyu Tolgoi

•MIAT

•Erdenet

= $45 bln POTENTIAL

$5 bln

$15 bln

$15-20 bln

$4+ bln

Billions USD

Current Market Cap doesn’t reflect the full market potential

THANK YOU FOR YOUR ATTENTION

Mongolian Stock Exchange www.mse.mn

Altai Khangai /CEO/
