26.08.2013, The New Securities Markets Law Overview, G.Saruul

MONGOLIAN STOCK EXCHANGE l www.mse.mn MONGOLIAN STOCK EXCHANGE l www.mse.mn

THE NEW SECURITIES MARKETS LAW OVERVIEW

Saruul Ganbaatar, Deputy CEO, Mongolian Stock Exchange


NEW SECURITIES MARKETS LAW

1

the New Securities Markets Law was approved on May 24th

2013 with an effective date of January1st 2014.

• creates an enabling regulatory environment for further

development of the securities market

• follows the adoption of the revised Company Law in 2011


KEY FEATURES

3

exchange to set the standards of listed futures and options contracts

regulatory framework for depositary receipts

global and Mongolian DR-s

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

DISTINGTION

BETWEEN

NOMINAL AND

BENEFICIAL

OWNERSHIP

increases the range of tradable securities to include derivatives (options, futures),

depositary receipts and warrants

over-the-counter trading of securities is expressly permitted

INCREASED

LIQUIDITY

MONGOLIAN STOCK EXCHANGE l www.mse.mn MONGOLIAN STOCK EXCHANGE l www.mse.mn 4

detailed IPO procedure and stringent requirements on issuers and their advisors, sanctions

for non-compliance

detailed disclosure requirements in prospectus

• financial information, related parties, business plan and forecast, investment risk

disclosures

• Statements to be verified by independent authorized auditors and legal professionals

depositary receipts to be issued by depositors for accessing foreign markets, while

underlying securities are held by custodian

dual listing opportunities for both Mongolian in overseas and overseas companies in

Mongolia

INVESTOR

PROTECTION

CAPITAL RAISING

OPPORTUNITIES

KEY FEATURES


KEY FEATURES

3

insider information is information not publicly available, which may substantially affect

the price of the security

holders of inside information are prohibited from trading in the securities or inducing other

to trade

prohibition of fraudulent trading, artificial pricing, misleading clients, etc.

INSIDER

DEALING AND

MARKET ABUSE

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

INCREASED

MARKET

TRANSPARENCY


KEY FEATURES

3

introduction of detailed set of regulations governing regulated activities

conditions and requirements to be imposed

risk management requirements

procedures for advertisements, for provision of services to clients, for appointing

suitable governing persons, for preparing and maintaining records, for opening

branch offices, for disclosing connected persons transactions, etc.

REGULATED

ACTIVITIES

AND DETAILED

REGULATIONS

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

CLEAR

DEFINITION OF

POST TRADING

ACTIVITIES


KEY FEATURES

3

custody is safeguarding of securities and providing services connected with exercising of

legal ownership rights

services to be conducted by banks and/or securities depositories

CUSTODY

SERVICES


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


RISK MANAGEMENT

MARKET RISK

CREDIT & SETTLEMENT RISK

price risk is managed through the utilization of:

daily price bands

dynamic and static circuit breakers

counterparty risk

Know Your Client

collateral management

quality collateral only (i.e. cash)

mark-to-market throughout the trading day

central Systemic Risk Management

Settlement Guarantee Fund

MONGOLIAN STOCK EXCHANGE l www.mse.mn

Client Broker MSE

SCHCD Clearing

Bank

Bank

Of

Mongolia

Order T+0

Execution T+0

Trade T+0

Trade

Execution T+0 O

nlin

e

Re

al T

ime

Fu

nd

req

uire

d

T+

0 T

+1

T+0 16:00

T+1 9:00

Funds required per

Broker

Confirmation of

Funding requirements

Funding T+3

MSE LOOKING TO THE FUTURE: POST TRADING ENVIRONMENT CURRENT MODEL

MONGOLIAN STOCK EXCHANGE l www.mse.mn MONGOLIAN STOCK EXCHANGE l www.mse.mn l 11

Tra

din

g

Po

st-

Tra

din

g

Client International

Broker

Dealer

Local

Broker MSE

Order T+0

Execution

Information T+0

Order T+0 Trade T+0

Trade

Execution T+0

Trade T+0

Execution

Global

Custodian

T+

0 T

+1

T

+2

Instr

uctio

ns

Se

ttle

me

nt

Co

nfirm

atio

n

Central

Clearing

Member

Settlement

Center

Local

Custodian

Bank of Mongolia

Funding Cash

T+3

Funding Cash

T+3

T+

1 T

+2

Pre

-Ma

tch

ing

Give Up

T+1

T+2

SCHCD

MSE LOOKING TO THE FUTURE: POST TRADING ENVIRONMENT CURRENT MODEL


THANK YOU

8

Website: www.MSE.mn

Business

26.08.2013, The New Securities Markets Law Overview, G.Saruul