Amended Mongolian Securities Law

The year 2014 marks significant changes to the regulatory environment of the Mongolian economy. On January 1 st, 2014, the amended “Law on Securities Market” was enacted. The law replaces the former Securities Market Law enacted on 12 December 2002.

The amended Mongolian Securities Market Law brings several key changes:

  • Dual Listing

Companies listed on the MSE can now list and trade internationally, and internationally listed companies can now list in Mongolia. The stock issue at the MSE requires mandatory approval from the Financial Regulatory Commission (FRC) of Mongolia, as it is the over-arching mechanism for approval and monitoring of such dual-listing activities.

  • Regulation of listing and initial IPOs

In a shift to more standardized and international regulatory norms, the MSE now requires more comprehensive disclosure requirements from the securities prospectus which must include information regarding securities issuer, shareholders, management, organization structure, governing persons, and detailed financial information in an effort to normalize improved disclosure practices.

  • Standardized procedures for professional participants

The law introduces requirements for 14 activities that will now necessitate an FRC license. The activities include credit rating services, securities brokering and dealing, and investment fund and management activities.

  • Depository Receipts

The amended law explicitly recognizes the concept of depository receipts, and concurrently, custodian banks. The law now recognizes both depository receipts issued by Mongolian-listed and foreign-listed companies. Financial instruments issued through the authorized legal person to conduct custodian activities based upon securities issued in Mongolia and issued only by the issuer of depository receipts shall be construed as foreign depository receipts’. Detailed regulation, beyond the framework for issuing depository receipts as stated in the amended law, will be provided by the Mongolian Financial Regulatory Committee.

  • Nominal and Beneficial Holder Defined

The law introduces the first legal distinction between nominal legal and beneficial ownership of securities. A “nominal owner” is defined as a regulated person as the depositor of a security; whereas a “beneficial owner is defined as the actual owner of the securities entitled to the ownership benefits thereof.

  • Increased Range of Tradable Securities

Coupled with depository receipts is the widened range of tradable securities including derivatives and warrants. Derivative as defined in the law are options contracts, futures contract as well as any other financial instruments permitted for trading in the regulated market. Further, the law for the first time explicitly permits over the counter trading of securities. The regulatory body governing the trading is the FRC and the MSE.

For clarity purposes, we present a table of reference to the implementing regulations that have followed the amended Mongolian Securities Law. This table is current as of February 10 th, 2014. We will continue to update this table as more regulations are approved.

No.

Regulations Approved / To Be Approved

Approval Status

1

Securities Registration Procedure (“ Listing Procedure ”)

Approved by FRC Resolution No. 06 dated 15 Jan 2014.

2

“Model Guideline of Accounting Applicable to the Brokers, Dealers, Underwriters operating the Securities Market” and “Model List of Account, Financial Statement and Its Explanations for the Brokers, Dealers, Underwriters operating the Securities Market”

Approved by FRC Resolution No.454 dated 6 November 2013.

3

Procedure for Custodian’s License and its Activities

Will be approved by joint decree with President of Bank of Mongolia. Approved by FRC Resolution No.37 dated 29 Jan 2014 tentatively.

4

Regulation for Opening securities trading account, disposing from the account, making cash transaction (Article 37.8 of SML 2013)

Yet to be approved.

Regulations related to Regulated activities in Security market

5

Licensing Procedure of the Regulated Activities (Article 26.2.1of SML 2013)

Approved by FRC Resolution No. 506 dated 12 Dec 2013.

6

Procedure for Activities of Regulated Entities

Approved by FRC Resolution No. 07 dated 15 Jan 2014.

7

Procedure of the Securities Issuer’s Regular Public Disclosure Information

Approved by FRC Resolution No. 505 dated 12 Dec 2013.

8

Regulated Entities or Securities Issuer's Advertisement Procedure (Article 26.2.6 of SML 2013)

Approved by FRC Resolution No. 370 dated 23 Oct 2013.

9

Database Procedure of the Regulated Entities

Approved by FRC Resolution No. 457 dated 20 Nov 2013.

10

Regulation for Accepting and Implementing Client’s Instruction (Article 26.2.8 of SML 2013)

Covered in Procedure for Activities of Regulated Entities (Resolution No. 07 of 2014).

11

“Regulation on standard conditions of brokerage service contracts and procedures for concluding” (Article 36.3 of SML 2013).

Covered in Procedure for Activities of Regulated Entities (Resolution No. 07 of 2014).

12

Regulation for Appointing Governing Person of Regulated Entities and Determining Suitable Persons (Article 26.2.9 of SML 2013)

Covered in Licensing Procedure of the Regulated Activities (Resolution No. 506).

13

Regulation on Intermediary Activities Relating to Selling and Purchasing Securities on a Foreign Securities Market (Article 36.16 of SML 2013)

Covered in Licensing Procedure for Regulated Activities

(Resolution No. 506).

14

“Regulation for Disclosing and Reporting the Information and Documents of Registration of Security Rights Ownership by an Entity Carrying Out Activities of Securities Ownership Rights

Registration which includes Articles 42.7 and 42.8 of SML 2013.

Respective provisions are covered in Procedure for Custodian’s License and its Activities. (FRC Resolution No. 37).

15

Regulation for Securities Clearing (Article 43.4 of SML 2013)

Yet to be approved.

16

Regulation on Limiting the Service Fee and Charge of the Regulated Entities (Article 26.2.4 of SML 2013)

Yet to be approved.

Others

17

Procedure for Securities Internal Information and Its Holders Activities in the Securities Market

Approved by FRC Resolution No. 05 dated 15 Jan 2014.

18

Registering Procedure for the Entities Providing Legal Advice for Participants in the Securities Market

Approved by Resolution No. 451 dated 06 Nov 2013.

19

Registering Procedure for the Entities Providing Audit Service for Participants in the Securities Market

Approved by Resolution No. 452 dated 06 Nov 2013.

20

Registering Procedure for the Entities Providing Property Valuation Services for Participants in the Securities Market

Approved by Resolution No. 453 dated 06 Nov 2013.

21

Investment Management Activities and Licensing Procedure

Approved by FRC Resolution No. 08 dated 15 Jan 2014.

22

Regulation Procedure for the Financial Capacity Rating

Approved by FRC Resolution No. 529 on 18 Dec 2013.

23

Procedure of the Regulated Entities Risk Fund

Approved by Resolution No.507 dated 12 Dec 2013.

24

Regulation on Procedure for Purchasing All or Controlling Block of the Shares of a Company

Yet to be approved. Will be discussed at meeting of FRC on 12 Feb 2014.

25

Regulation for Conducting Certification and for Granting, Suspending and Revoking Professional Certificates

Yet to be approved. Will be discussed at meeting of FRC on 12 Feb 2014.

26

Regulation on Registering and Trading the Depository Slip

Yet to be approved.

27

Regulation on Delivering the Information for Shareholders’ of Joint stock company

Yet to be approved.

28

Regulation on Self-governing Body

Yet to be approved.

29

Regulation on Procedure to Take in the Event of Emergency Situation of Regulated Entities of Security Market

Yet to be approved.

30

Regulation on Preventive Measures against Market Abuse

Yet to be approved.

31

Regulation on Issue of Derivative Financial Instruments

Yet to be approved.

32

Corporate Governance Codec

Yet to be approved.

33

Regulation on Activity of Security Nominee

Yet to be approved.

34

Regulation on Investment Funds

Yet to be approved.

35

Regulation on Dispute Resolution Board

Yet to be approved.

For further information, please contact:

Zoljargal Dashnyam
Tel+976 332020
E-Mail:
zoljargal@
gtsadvocates.mn

Byambasuren Narantuya
Tel+976 332020
E-Mail:
byambasuren@
gtsadvocates.mn

Nomindari Sukhbaatar
Tel+976 332020
E-Mail:
nomindari@
gtsadvocates.mn


admin: 04 4 2014