Mongolia’s long-awaited draft securities law aims to modernise the Mongolian Stock Exchange (MSE). Investors anticipate the proposed changes to be announced ahead of the landmark Erdenes Tavan Tolgoi (ETT) initial public offering.
The securities law has been drafted in collaboration with the MSE’s strategic partner, the London Stock Exchange, and the non-profit Business Council of Mongolia. It was sent to Parliament in September 2011.
But it is unclear how the law has changed since it entered Parliament. Darin Hoffman, a partner at Ulaanbaatar firm MahoneyLiotta, told IFLR the legislative process had been largely opaque.
There is little information about the draft’s status, though recent news indicates that the law will not be adopted until after the June 28 Parliamentary elections. Michael Aldrich, a partner at Hogan Lovells’ Ulaanbaatar office, said the draft law aimed to provide an encyclopedic overview of all possible financial instruments on the MSE. “It is a patchwork of ideas that reflects a ‘committee-style’ drafting process,” he explained.
The current Mongolian Securities Market Law is not well-regarded by legal professionals. A new securities law must be implemented before the $3 billion triple listing of Mongolian mining company ETT on the Hong Kong, London and Mongolian exchanges, currently set for late 2012 or early 2013.
A new securities law will be better equipped to regulate the projected increase in trading after the ETT IPO. All citizens will be granted a yet-to-be-determined number of shares in ETT and many will likely move shares after they are released from a lockup period.
ETT’s IPO is a litmus test for the MSE. If the listing raises a lot of money and is well-managed by the MSE and other securities regulators, Mongolia’s capital markets could attract new listings. “It is conceivable that many more companies with assets in Mongolia will try to access the global capital markets through the MSE,” said Hoffman.
Without the new law, investors will consider MSE-listed securities risky investments. “Although some foreign investors have looked into the MSE, many require a stronger regulatory framework before committing to the capital markets,” he said.
Hoffman said the law had a very limited scope. “It only applies to companies listed on the MSE,” he said. “This presumably was not the intention of the drafters.”
Under current guidelines, all companies listed on the MSE must be registered in Mongolia and comply with Mongolian law. The draft law includes provisions for companies to pursue MSE listings without compulsory dual compliance.
To encourage dual listings, the MSE is also hoping that the law includes listing rules compatible with the Hong Kong Stock Exchange’s standards, which will mean that Mongolia can be added to a list of approved jurisdictions.