About: Brokers, INVESTMENTS, Mongolia, MSE, Stock Exchange
You are considering investing on the Mongolian Stock Exchange? Here is a little guide about how to go about doing that.
First, a little bit of history about the MSE:
The Mongolian Stock Exchange was established in 1991 by young entrepreneur Naidansurengiin Zolzhargal, as a vehicle to implement the government’s plan for privatisation of large state-owned enterprises. In an attempt to ensure an equitable distribution of assets, the Mongolian government chose to instantiate a voucher-based scheme; one blue voucher worth MNT7,000 was issued to every citizen born before 31 May, 1991 for the purchase of shares in large enterprises, and a nation-wide network of 29 brokerage houses were established to take their orders. Red vouchers worth MNT3,000 were also issued for the purchase of the assets of small enterprises which would not be listed on the exchange; unlike the blue vouchers, these could be traded in secondary markets.
Auctions officially began on 7 February, 1992; shares in three companies were auctioned off. The first day’s turnover was 16,000 shares, valued at US$15,000; that grew by over twelve times to 200,000 shares in March. Auctions continued to be held weekly; regional brokers collected vouchers and share orders from individuals, and submitted bids through their floor traders in Ulan Bator. By October, 121 enterprises had been floated on the exchange.
Mongolia soon boasted the world’s highest rate of share ownership, as more and more people redeemed their vouchers for shares. Family members were permitted to transfer their vouchers to each other, so not everyone became a stockholder, but the peak number of shareholders was estimated at one million, or 43% of the population at the time. In the end, a total of 475 companies worth MNT17.33 billion were privatised by auctions and listed on the Mongolian Stock Exchange, including MNT5.04 billion worth of manufacturing companies, MNT4.09 billion of agricultural companies, MNT1.27 billion of construction companies, MNT1.25 billion of state farms, MNT580 million of trading companies, MNT520 million of transport companies, and MNT280 million of companies in other sectors.
Government bonds, rather than stocks, came to be the Mongolian Stock Exchange’s biggest business as soon as they began being auctioned through the exchange in November 2000; previously, they had been sold directly to banks. The following year, the Barilga Corporation, a construction company, became the first to sell corporate bonds through the MSE, with a USD4.4 million issue. In 2004, bond trading accounted for 96% of total securities turnover on the exchange. By that same year, the stock market had recovered somewhat as well, but retail investors remained suspicious of trading due to volatility and lack of transparency; MSE officials estimated that 80% of listed companies were majority-owned by private individuals. Furthermore, the number of registered shareholders bounced back to 483,100, three-and-a-half times the figure a decade earlier, and nearly half the peak number seen in 1995 after privatisations was completed. Total market capitalisation as of September 2006 was MNT97 billion (US$83 million).
The Mongolian Stock Exchange Today:
Today MSE has formal connections with over 10 Exchanges, signed on MOU with 7 stock exchanges, became an active member of Federation of Euro-Asian Stock Exchanges (FEAS) and Asia Oceania Stock Exchanges Federation (AOSEF) and distributing its data worldwide via Bloomberg Professional Services.
The MSE has been very active in the recent years in developing their relationships with other Stock Exchanges around the world, signing formal agreements with 10 other Exchanges and has signed MOU’s with another 7, the MSE became an active member of Federation of Euro-Asian Stock Exchanges (FEAS) and Asia Oceania Stock Exchanges Federation (AOSEF) and has recently started distributing its stock data worldwide via Bloomberg Professional Services.
Of the 350 -400 companies listed today on the MSE, about a fifth are mining companies, by far the largest and most active sector, this trend is set to keep increasing as the mining sector in Mongolia booms.
Currently housed in a pretty pink and orange building on Sukhbaatar Square, for all intents and purposes the MSE is still a small operation, while the market has improved constantly it still suffers from lack of transparency, liquidity and volatility. The advantage of the MSE when compared to other Asian exchanges is that there is no discrimination whatsoever against foreign investors when compared to Mongolian Investors. It is also still the smallest market in Asia and has enormous potential for growth in the future.
Trading is done electronically and allows for immediate matching and executions of the orders. Secondary market trading is carried out between 11:00-12:30 and primary market trading is between 12:30-13:00, two types of securities are traded, stocks and bonds (both corporate and Government). Securities trading at the MSE is administered by using two different methods of auction, continuous auction and normal auction.Foreign investors are also able to invest in private equities, Bank CDs, or finance projects through the use of special purpose vehicles.
How to Invest on the MSE:
It is compulsory for individuals and companies wanting to invest on the Mongolian Stock Exchange to go through a registered securities broker in order to be able to invest on the MSE. The brokers will help you set up an account with the Securities Clearing House & Central Depositary (Zoos Bank). A client is allowed to have only one account in the Securities Clearing House and Central Depository, but can have more than one account with broker-dealer companies.
Individual investors will need to show a passport, fill in an account opening form and deposit a minimal amount in the brokers accounts, Institutional investors will need to fill in a little more paperwork but the basic process is the same as for individual investors. Additional requirements are a corporate letter, a company stamp, copies of incorporation certificates and so forth. Requirements differ between the brokers so best to check directly with them.
To place an order, you will still need to go through the archaic process by filling in an order form with your broker. The order form will be attested by your notarized signature. Generally speaking, once placed, a buying order will be valid for 26 days and a selling order will be valid for 78 days at the stock exchange.
You will be able to send funds to your broker directly along with your orders for trading, positions are usually taken for the long term, short term trading has not yet caught on with the MSE and the trading hours don’t really allow it.
Concerning the fees and taxes linked with your investments on the MSE, please contact directly the securities brokers to verify their own fees, just note that the Stock Exchange will retain a 40% commission of your fees as their own fees, this will be paid directly by your broker on your behalf.
Further notes:
If an investor wishes to buy between 5% and 33.3% of shares in a public company than the Financial Regulatory Commission of Mongolia (Securities and Exchange Commission) has to be informed of the trade. If an investor wishes to purchase over 33.3% than a tender has to be announced in due time.
There is no international or domestic custodian in Mongolia. Instead of a custodian, SCHCD will arrange securities settlement and depository. SCHCD does not pay any interest on funds within the brokerage account and all funds must be in Mongolian Tugrug (MNT) only.
Your account and your funds are always held within the Central Depository and Clearing House of the Stock Exchange, this means that if your broker goes bankrupt, your account (and by extension, your funds) are safe and a new account can be opened with a new broker but using your same account at the clearing house.
Secondary market trading is carried out between 11:00-12:30 and primary market trading is between 12:30-13:00, as levels of trading increase, it is expected that trading hours will improve.
A short list of the main Securities Brokers Operating in Mongolia:
There are 32 official brokers operating on the MSE but few are active and even fewer speak English well, the ones above are the ones I could find that seemed to be both active and had english speaking staff. If you can recommend another Securities Broker to this list please contact me.
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Please Note: This article is written in good faith and is intended to be a helpful tool, the author makes no guarantees as to its accuracy nor takes responsibility if the process this information relates to has changed. It is always advisable that you do your own research and find various sources of information, in particular pertaining to laws and regulations.
If you have recently gone through this process yourself and would like to add or comment to the text above, please contact me so that I may make the necessary changes.
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About: Brokers, INVESTMENTS, Mongolia, MSE, Stock Exchange
