Session II (B) Presentation by Ms. Bolormaa Jalbaa

Transcription

1 Session II (B) Presentation by Ms. Bolormaa Jalbaa OECD Centre for Private Sector Development Sixth Conference on Financial Sector Development in the Central Asian Countries, Azerbaijan and Mongolia April 2004, Istanbul

2 Sixth OECD Conference on Financial Sector Development in the Central Asian Countries, Azerbaijan and Mongolia Securities market development of Mongolia J.Bolormaa. 1. Mongolian Stock Exchange. 1 Indices Listed companies On 18 January 1991 the MSE was established under the purpose of privatization of state-owned enterprises and organizing securities trading in further. Primary market. Totally 476 State organizations were transformed into companies and fully or partly privatized. At the end of this period, 48% of the population, over 1.1 million individuals, were stockholders from February 1992 to August Secondary market. During the secondary market /cash trading/, beginning 28 August 1995, the MSE assumed the role of a regular stock exchange and gave a opportunity to citizens for trading their stocks, bought by vouchers on the primary market, between themselves via brokerage firms. Mongolia is in the process of developing a modern trading market structure and regulatory system for its emerging securities market that will attractive to both Mongolian and international investors. The Government is also taking a number of steps to strengthening State owned stock exchange and to improve the regulatory framework of the Mongolian capital market and to protect public investors and shareholders. Mongolian Stock Exchange s main indices Market capitalization US $ / in mln / ,9 53,2 39,8 32,1 36,9 37,

3 3 Trading value / in mln/ USD 1,8 6,0 15,0 11,9 3,1 2,7 1, Traded volume/in million/ 6,8 24,8 33,7 33,1 21,4 35,1 15, Bond trading value;/in mln $/ Government Corporate , TOP 75 index 88,9 152,9 360, ,7 469, Stock market liquidity has fallen substantially. Share trading value at the MSE was $US 15 million in 1997, then fell sharply to $US 3.1 million in 1999 and $US 0.2 million in Market capitalization in 2003 averaged approximately USD 42.4 million, approximately 3.65 % of GDP. During the period from 1997 to 2003 year saw a decline on the equity market of 18.9 times. There are many reasons behind this. Firstly. The adverse effect on the equity turnover brought on by completion of voucher privatization. It leads to high ownership concentration and the significant degrease in the demand, and supply of shares. The result of the secondary market activity to date is that stockholdings in Mongolia s listed companies have become highly concentrated. The 476 listed companies have reduced to about 402 as a result of mergers and voluntary de-listings, with 68 continuing to be partly owned by the State. It is reported that, of the 336 listed companies owned fully by private stockholders, 83.5 % of their stocks are owned by 2227 individuals. Secondly. In 1996 government policy for privatization method changed. Government has preferred the auction method of privatization. In the period from 1995, many of the original stockholders sold out. In addition, from 1996 the Government continued the privatization process by selling down its stakes in partly privatized companies by auctions run by the State Property Committee. It reducing new issuing shares by the government through the MSE. In , the State Property Committee has traded 42.4 million state shares, which has been listed to Stock Exchange, by 1.6 billion US$. It caused seriously to fall of trading volume and value of share in the

4 Stock exchange. Thirdly. A generally unfavorable market climate caused by the high real interest rate, low household saving rate, high inflation and unemployment rate and weak financial sector development, influenced the activity on the equity market. The debt securities market is in better condition than the stock market. Until November 2000, the Government issued its debt directly to banks. The Government recently began issuing its debt by auctions via the MSE. These auctions have been successful in increasing competition for the issues on the primary market, but they have been placed with domestic banks, and there has so far been little interest from other investors. There has been no secondary market trading of these bonds, which have very short maturates, less than 6 months. For these reasons, there is no Government yield curve beyond the very short term. Since 2001 one of construction Shareholding Company Barilga corporation has been stating to issue bonds amounted 4.1million US$ to the public through the Mongolian Stock Exchange. An increasing bond trading in 2003 has partly compensated the decline in the share trading value. The government bond trading in 2003 reached 18.6 million US$, and corporate bond 2.55 million US$. In 2003 the bond trading was accounted percent of the Exchanges total securities market turnover, against 100 percent of share trading value in The reasons for the increase were demand in Government budget expenditure and high differences between deposit (saving) and lending (loan) interest rate of Commercial banks. The privatization of state-owned enterprises through investment vouchers had a negative influence on development of the stock market of Mongolia. First, the general public lost the in confidence in the stock market. Shareholders were not able to recognize value of shares and did not understand that dividend is one of sources of fixed income for them. All that led to much less confidence of many clients in the stock market. Second, the number stock market experts and professional organizations related to stock market are reduced, some of them were liquidated. Thus the financial situation of MSE and BDC weakened due to decrease of trading activity that is connected with share centralization. Securities Clearing Settlement and Central Depository House From 1992 until October, 2003, Securities Clearing Settlement and Central Depository House (SCSCDH) conducted their activities as one of the department of Mongolian Stock Exchange (MSE). In October of 2003 it was reorganized into Securities Clearing Settlement and Central Depository House. The main activities are to settle a transaction based on contract, to record transferring of owner rights to others and to deposit stocks. SCSCDH use delivery versus payment system for settling all securities transactions.

5 Settlement of transactions in shares conducted on the stock exchange is effected on the next business day following the day of transaction (T+1) but for bond, transaction is settled on the same day as the transaction day (T0). Thus anyone who wants to participate in stock trading should open an account at centralized depository and the transaction in stocks would be settled when client places cash in centralized depository to buy a stock. Therefore the participant places a payment for stock on house account at bank by a transfer or pay to the cashier of the house by cash. Based on this account statement, transfer officer places the cash on client account at centralized depository. The participant should place money before of the trading day and all transfers are stopped at and a report of the account is transmitted automatically by a computer network to the trading of MSE. The trading ends and all transactions are transferred to the house by the network program and inspected. Thus the record of a stock and cash is automatically recorded on clients accounts at the centralized depository by using the computer program on that trading day. The house gives information of an account record only for broker Dealer Company (BDC). When company gets this information a specialist of the company inspects, receives selling client s application to receive money and delivers it to the house , within working hours every day. The transfer officer inspects completeness of a document, makes this transfer and deducts client s money from an account according to his application. If client receives by cash, money is paid out to a proxy attorney of the BDC but if client receives by transfer than it is transferred from an account of SCSCDH into the account of client. Broker Dealer Companies present a report on money delivered to the client, in 3-business days since the company received cash, to SCSCDH.

6 Consent to settle Securities Clearing Settlement and Central Depository House transfer Transaction statement BDC executes customer orders BDC executes customer orders Transaction Transaction Executes Orders executes orders Cash Stock trading Stock Stocks Cash Customers with buy order Customers with sell order

7 In our case, client can not buy shares by borrowing therefore there is very low risk. SCSCDH monitors that BDC distributes cash to every client who has sold stocks. SCSCDH activities are regulated by the regulations on clearing settlement activities and are undertaken according to internationally accepted standards and IOSCO. Depository functioning The functioning of the depository is regulated by regulations on Depository functions. SCSCDH amends on depository record to deduct from depository, to amend on volume or value of stock and deposits a stock in depository based on the order of SEC. Thus when stock is sold by non-exchange trading, state owner shares are traded by closed auction and when stock is presented, donated or inherited the house shall transfer an owner s rights according to relevant regulations and an order of SEC. Cash and stock are deposited on client s account of client at SCSCDH depository. In our case, stock is issued by non-physical form at the end of year 2003 total 402 company s 1.2 billion shares were deposited at the central depository of SCSCDH. SCSCDH has an electronic form of recording titles of securities that are held in an account to represent the holding securities. The agent holding the accounts normally provides a statement of ownership concerning this electronic form of record to the beneficiary from time to time. The dematerialization of securities and their transfer by book entry within central depository has many benefits: lowering the costs associated with securities settlement and custody; improving the speed and efficiency of settlement; increasing the transparency and legal robustness of custody and transfer arrangements.