Date post: | 15-Apr-2017 |
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Business |
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Contents
Policy & Regulatory reforms
• Challenges
• Policy & regulatory reform
• Legal framework
• Decreasing constraints
• Investment fund & custodian regulatory framework
• Investor & client protection
• Risk based supervisory approach
New products & services
• Privatization of state owned companies
• Increasing bond market /government & corporate/
• Strategic mining deposits
• Quality of listed companies & top private companies IPO
• Forex futures trading
• Commodity based derivatives
• Insurance companies & NFFIs as investor
• Social welfare - Insurance – Capital market
Strategy & Future plans
• Sustainable national strategy until 2025
• UB international financial zone initiative
Challenges of market development
Macro instability
/inflation, exchange rate/
High deposit rate
/caused by instability/
Weak investor protection
Inefficient infrastructure
Regulatory capacity
1112.5
14
8.9
13
4.2
22.1
17.8
6.2
9.511
4.7
1.6
8 8.1
0
5
10
15
20
25
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
Annual inflation rate /2014-2000/
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
20
15
. 10
20
15
. 06
20
15
. 02
20
14
. 10
20
14
. 06
20
14
. 02
20
13
. 10
20
13
. 06
20
13
. 02
20
12
. 10
20
12
. 06
20
12
. 02
20
11
. 10
20
11
. 06
20
11
. 02
20
10
. 10
Monthly exchange rate /2015.10-2010.10/
USD/MNT
EUR/MNT
0.0
13.6 12.910.7 10.5 11.7 12.1 12.5 13.1
8.4
9.8 10.0 11.0 12.313.3
10.5 12.0 13.0
9.9
14.810.8 11.0
14.315.5
10.512.1
13.0
2007 2008 2009 2010 2011 2012 2013 2014 2015Q3
Interest rates /2007-2015Q3/
Central bank note Policy rate Bank MNT deposit, weighted average
Legal frameworkRecent legislations
2010. Law on asset backed
securities
2011. Corporate
law renewed
2011. SCU law renewed
2012. Loan guarantee fund law
2013. Investment
law
2013. Investment
fund law
2014. Law on index
based insurance of
livestock
Following recent changes and reforms in legal framework; • 40+ regulations in securities market • ~20 regulations in insurance market • 10+ regulations in micro finance industry
Were newly introduced or renewed. All intended to adapt international standards by IOSCO, Basel and IAIS.
Decreasing constraints in 2015
Regulatory
Administrative
Financial
Infrastructure
• New licensing regulations
• Accounting rules compliant to int’l standard
• Registration & Licensing separated from supervision
• Licensing & registration software
• Electronic reporting
• Reduced regulatory fee
• Reduced transaction cost
• Custodians in operation
• Investments managers licensed
• Clearing & settlement
Investment fund & Custodian regulation
• Comprehensive regulatory framework consistent to the international standard is ready
• Mutual funds are adequately regulated • Private funds can be more flexible
• 10+ funds are registered abroad and invest in Mongolia
• Approx. 180 foreign companies and 1800 foreign citizens own investment account at CSD.
•
• JPM & Development Bank of Mongolia setting an investment fund
• 3 major banks are operating custodian banking
Investor protection
Strong regulation & advocacy
Investor protection fund
Ombudsmen mechanism
Division for Investors and clients rights
Risk based supervision
Regulation System
Efficient regulation
Improved efficiency
Less administrative
burdens
Systemic risk management
Participants
Listed companies 302 Insurance company 16Broker, dealer 61 Insurance broker 33Underwriter 25 NBFI 423Investment advisor 16 S&C Union 242Investment manager 3 Mortgage backed sec issuer 6Custodian 3 Loan guarantee fund 1
Totally 1000+ regulated entities by 2015 Q2
Privatization of SOCs
In 2015 – 2016, 8 companies to be privatized through stock exchange;
- 5 biggest power plants in UB, Darkhan and Erdenet /major cities/
- Mongol Post, Nationwide post service
- Shivee Ovoo, supplies 30% of total domestic coal
- Baganuur, supplier of 70% of Mongolia’s energy coal consumption
- MSE privatization is offered in 2016 budget draft +more 51 SCOs
SPO, Dual listing
Strategic partnership with MSE
Daiwa implements project under JICA
Domestic bond market
• Government bond trading at stock exchange rapidly increases since 2014
• Secondary trading already activated
• Setting benchmark yield curve
• More supply of government bond with longer term is expected to be traded at MSE
• Needs of domestic corporate bond market is very high at relatively high coupon rate because of higher interest rate, short maturity & collateral requirement of bank loans
• Varieties of bond such as insured & covered bonds are regulated
Strategic mining deposits
• License holders of strategic mining deposits must offer at least 10% of its equities to the public through domestic stock exchange according to law.
• FRC is facilitating regulatory framework of this financial activity and also preparing regulations for dual and cross listing with other international exchanges.
• FRC will also introduce financial valuation standard and guideline of mineral deposits soon with cooperation of Ministry of Mining, National Mining Association and other stakeholders.
• There are 23 companies that hold exploration or mining licenses of 15 groups of strategic deposits. 14 of them started mining operations.
Internationally listed
Can be dual or cross-listed at MSE
Need to be complaint with ASX, TSX, HSK…
State owned companies
Some registered at MSE& to be privatized
Private companies
Policies to encourage them to be listed at
domestic market shall be implemented
Quality of listed companies & National TOP companies’ IPO
• Corporate governance of listed companies is in focus
• In terms of numbers of shares, 51% ownership of MSE listed companies are centralized in government’s hands. That constraints the efficiency and liquidity of market significantly.
• Policy direction; De-listing over centralized companies, privatization of state owned listed companies & incentives to offer additional stocks or secondary public offering
• Tax incentives to go public to be legalized
• Promoting advantages of listed companies.
• With JICA project 2-3 of TOP private companies will do IPO within 2016-2017
• New registration rule of securities & MSE listing rule
Insurance companies and NBFIs as institutional investor
• Pension fund reform and creation of sovereign wealth fund are expected in near future
• Insurance companies and non-bank financial companies can now be a capital market player under new regulation
• Insurance companies can allocate portion of its reserve funds in capital market; government bonds, central bank note, investment fund share, investment grade equities, shares of financial companies.
• NBFIs are no longer just a credit company but can be an investment manager and institutional investor.
• Policy is planned to transfer social welfare expenses of state budget & social insurance fund into life insurance scheme.
66.4 78.5 96.5 128.6205.4
252.1
381.1
508.0581.9
0
100
200
300
400
500
600
2007 2008 2009 2010 2011 2012 2013 2014 2015Q3
Growth of NBFIs /assets in billion MNT/
56.8
81.2
107.6
126.4
152.5169.6
23.8
48.9
79.093.9
108.7
89.1
2010 2011 2012 2013 2014 2015.Q3
Growth of insurance industry
Total asset /billion MNT/ Total premium / billion MNT/
FOREX & Commodity derivatives
• Plan to establish open Forex exchange is submitted
• Before that some hedging instruments will be traded in 2016
• Listed currency futures and interest rate futures at MSE
• Cashmere futures /Mongolia supplies 30% of world cashmere/
• OTC market regulation is prepared
• Splitting state owned Central Securities Depository and Settlements Company into CCP and CSD
Strategy & future planComprehensive national strategy
Derivati-ves, ABSs
Securities
market
Gov’t bond
market
Money & Forex
market
Micro finance industry
Insurance industry
Banking industry
Financial Regulatory
CommissionFinancial market
regulation
Central BankMonetary policy Banking regulation
Ministry of Finance Fiscal policy
Policy & Regulatory reform Development phases
Pre conditions for development;
macro stability,
regulatory framework,
capacity of market intermediaries
infrastructure
Development phase;
Depth
Access
Efficiency
Matured market;
Competitiveness
Integrated
Stability 2016-2017
2018-2020
2020-2025
UB International Financial Zone initiative
• Special law is drafted • Expected features;
• Unique legal environment• Modern regulatory framework• Tax incentive • Stability guarantee
• Beneficial to;• Adopt international standards • World class knowledge & skills• Capital market integration
• Advantages over region;• Strategic location • Democracy • Market economy • Open financial system