Mongolia’s long-awaited draft securities law aims to
modernize the Mongolian Stock Exchange (MSE). Investors anticipate the proposed
changes to be announced ahead of the landmark Erdenes Tavantolgoi (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 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 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 market 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 score. “If 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
standars, which will mean that Mongolia can be added to a list of approved
jurisdictions.

Source: www.iflr.com