Listing rule of Mongolian Stock Exchange 2016.09.09
1. INTRODUCTION TO LISTING RULE – LEGAL
FRAMEWORK & REGULATION
29 August, 2016
Ariuntuya Batsaikhan
Specialist, Listing & Research Division, Policy Planning Department
2. Contents
• Legal framework: Laws and regulations
• Listing and listing rule of MSE
• Basics for listing
• Listing entry criteria
• Preparation process
• Application to list on MSE
• Securities prospectus
• Listing requirements and waivers
• Payments and fees
3. Legal framework: Laws and regulations
• Company Law of Mongolia
• Law of Mongolia on the Securities Market
• Law of Mongolia on Investment Fund
• Law of Mongolia on Securitization and Asset Backed Securities
• Law of Mongolia on Legal Status of Financial Regulatory
• Registration rule of securities by FRC
• Listing rule of securities by MSE
4. Important timeline on Mongolian capital market
MSE established 1.18.1991
1991 First company law
First securities law 1994
11.17.2005 Legal status of FRC
FRC established 1.25.2006
4.23.2010
Company law 10.6.2011
5.24.2013 Securities law
10.3.2013
11.23.2015
12.30.2015
FRC-Security
registration rule
Asset backed
securities law
MSE-Security listing
rule
Investment fund
law
5. Company law
• Passed in October 06, 2011 (updated version)
• 1.1. The purpose of this law is to regulate relations with respect to
the establishment, registration and reorganization of a company, its
management and organizational structure, supervisory structure, the
rights and obligations of its shareholders, and its liquidation.
6. Law of Mongolia on the Securities Market
• Passed in May 24, 2013 (updated version)
• 1.1 The purpose of this Law is to regulate relations concerning the
regulation and monitoring of activities of participants in the securities
market, and the protection of the rights and interests of investors.
• 1.2 In order to achieve the objectives of this Law, the following
principles shall be observed in its implementation: reducing the risks
in the securities market system and ensuring fairness, transparency
and efficiency.
7. Legal framework: Laws and regulations
• Law of Mongolia on Investment Fund
• Passed in October 03, 2013
• The Investment Funds Law regulates matters relating to the issue of licenses to investment funds, management of fund
assets, the activities of investment funds, safe-keeping and registration of fund assets, the disclosure of information to
investors, and the operations of regulated entities that provide services to investment funds.
• It stablishes a fundamental basis to direct the infrastructure of the financial market into the right direction.
• Law of Mongolia on Securitization and Asset Backed Securities
• Passed in April 23, 2010
• It is the policy of Mongolia to promote the development of the housing finance market and the capital markets generally by
supporting implementation of securitization, by providing a legal and regulatory framework for securitization, and creating a
favorable market environment for a variety of asset backed securities. This law is intended to provide the framework for
implementation of securitization and the asset backed securities market by authorizing Special Purpose Companies to be
created for the sole and exclusive purpose of holding revenue producing assets and issuing asset backed securities, subject
to the regulation of the Financial Regulatory Committee of Mongolia.
• Law of Mongolia on Legal Status of Financial Regulatory
• Passed in November 17, 2005
• The purpose of this Law is to define the structure of the Committee, legal grounds for its activities, and govern relations
arising from regulation and monitoring financial services other than banking activities.
• Registration rule of securities by FRC (updated in November 23, 2015)
8. Listing: What we list?
• Stocks
• Bonds; company & government
In the future?
• Derivatives; options & futures
• Warrants
• REITs
• DRs
• Other products
9. Listing: Statistics
7, 3%
46, 20%
175, 77%
Listed JSCs by classification
CLASSIFICATION I CLASSIFICATION II CLASSIFICATION III
19, 8%
15, 7%
194, 85%
Listed JSCs by ownership
State owned Partly state owned Private
11. Listing rule of securities by MSE
• The amendment consists of 10 sections and 27 articles.
• The regulation will register a securities issuer’s initial (IPO)
and additional shares and debt instruments on the
securities registry of the MSE; determine listing categories
and criteria; introduce securities to the public; and regulate
relations concerning listing and de-listing of securities.
• It includes set of requirements, entry criteria and forms
attached.
12. Importance of recent updates
The following improvements were made on;
• Process for issuing securities
• Decision on whether list or not
• Regular duties
• Listing criteria and fees
13. Listing rule: Listing criteria for issuers
• Financial and economic indicators (Sales, profit & earnings, and expected
rate of return etc.), market capitalization, and stock public float are must
meet the requirements and entry criteria,
• Issuance of an opinion from a law firm authorized to provide legal services
(Securities law 10.6)
• The financial reports and legal opinion as verified by the entities specified
(Securities law 10.7)
• Business and capital valuation report from the authorized entities
• Contract with the underwriter
14. Listing rule: Preparation process
To contract with
underwriter
company that
accepted by FRC
Securities
prospectus
To contract with
business and
capital valuation
company that
accepted by FRC
(Listing rule 4.5,
4.6, 4.7)
Valuation
report
Complete list of
documents in
compliance with
the listing rule
Application
15. Listing rule: Application to MSE
Required
Documents
Application (Form 1)
Security issuer’s notification (Form 3)
Underwriter’s notification (Form 4)
Authorized person’s decision on issuance of securities
Securities prospectus
Legal opinion, business valuations and audit report set forth in rule 4.5, 4.6, 4.7
If the securities prospectus contains the valuations and opinions of independent experts or professionals (set
forth in rule 4.4)
Payment slips of application fee
16. Listing rule: Prospectus
Prospectus consists of main three parts;
1. Information of issuer
2. Information of securities itself
3. The regulated entities and other professional
service providers involved in the public offer
of the securities
A prospectus is a formal legal document that is considered as important factor for an investment decision
and provides details about an investment offering for sale to the public.
17. Listing rule: Prospectus (cont.)
• The name, permanent address, postal and contact address of the securities issuer, its industry/business activities, and whether
it is registered with the stock exchange;
• The state registration number and registration number and the registration date of the securities issuer;
• The full name of any influential shareholder, and if a legal entity, the name, state registration number, and the number and
percentage of shares held by it and its connected persons;
• Information concerning the structure, organization, and governing persons of the securities issuer, and information concerning
the number and percentage of shares held by such governing persons;
• Information concerning the amount of share capital of the securities issuer, the number, type and par value of securities that
were previously authorized, issued, and redeemed, the net asset value and information concerning the securities issuer's
tangible and intangible assets;
• The securities issuer's financial statements, and an auditor's report in relation to the same;
• Details of the contracts and transactions having a value of an amount equal to 5% or more of the share capital of the securities
issuer, and information on performance and/or current status of the same;
• Property valuation reports prepared within the past one year;
Information of issuer
18. Listing rule: Prospectus (cont.)
• The number, type and par value of securities being publicly offered, the
conditions and procedures for any public offer and/or trade of these, the
conditions and procedures for distributing dividends, and in the case of debt
instruments, the details of the maturity term, and the conditions and procedures
for payment of the principal and interest;
• The rights and obligations attaching to the securities being publicly offered;
• A business plan specifying the use of the capital to be raised by issue of the
securities;
• If a security is convertible into shares, the conditions and procedures for such
conversion; and
• Risks for the security issuer's operations and risk management plans;
Information of securities
19. Listing rule: Prospectus (cont.)
• The regulated entities and other professional service providers
involved in the public offer of the securities and the rights, obligations
and liabilities provided in the contracts entered into therewith;
• In respect of debt instruments, information regarding any guarantees
for repayment and/or pledged property; and
• Details of the connected persons of the securities issuer;
The regulated entities and other professional service providers
20. Listing rule: Stock classification & its
requirements
I
II
III
STOCK
CLASSIFICATION
• LARGER companies that is prestigious, with
high market capitalization, and with
consistent & profitable business operation,
• MEDIUM sized companies that meet the
requirements for market capitalization and
current asset,
• SMALL & MEDIUM companies that has high
risk and the trade of stocks is offered for only
institutional & professional investors
21. Listing rule: Stock classification & its requirements (cont.)
№ Requirements on securities
1 Market capitalization (USD)
2.5 million
↑
0.5 million
↑
It varies regarding request of
company and MSE set the
requirements per case
2 Public float ≥ 25% ≥ 15%
3 Period of trade 2 year
4
Shares of stock/security must be
available to trade
Securities for listing must not under pledge of third party,
suspended, securities ownership rights separated for other
entities and should be free of any obligations.
Classification
I
Classification
II
Classification
III
22. Listing rule: Stock classification & its requirements (cont.)
№ Requirements for the issuer/company
5 Period of business operation 3 year ↑ 2 year ↑
6 Financial statements 3 year IFRS/GAAP 3 year IFRS/GAAP
7 Sales amount for the last year (USD) 2.5 million ↑
8 Profit for the last year (USD) 250 thousand ↑
9 Current asset
Sufficient amount of current asset
for period of 12 months after listed
10 Must have underwriter + + +
11
Compliance of corporate governance
principals
+ + /if no explain/
+ /if no
explain/
12
Criteria for the company, board members,
persons who hold a controlling block, and
CEO
There should not be tax penalty or overdue of loan and if so details should be
explained in the securities prospectus.
13
Experience of management and changes
to persons who hold a controlling block
Authorized officials must have sufficient
experience, no changes of CEO for last 1-2
years, no more 2/3 changes to management,
and no drastic changes to CP holders
Classification I Classification II Classification III
23. Listing requirement waivers or alterations
• Waivers or alterations for entry criteria are possible;
• Issuers and its underwriters have right to request submission of discount and
waivers with explanation that states the reason why.
• Above permission is decided by the MSE’s CEO and decrees are passed. CEO
may set a certain period or conditions for the issuer to follow.
• Waiver and discounts for fees;
• Waive for the first year of listing service fee after issuance of IPO,
• Up to 20% discount if you issue additional shares of stocks in classification I,
upgrade of classification, and changes with no direct raise of fund etc., and
• Flexible rate for government and local bonds based on discussion.
Waivers or alterations
24. Payments and fees
Classification I Classification II Classification III
IPO or issuing additional
securities
1,000USD 1,000USD 1,000USD
Making changes into the
listed securities
750USD 750USD 750USD
Classification I Classification II Classification III
Stocks /0.1% of trade
amount/
5,000USD - 50,000USD 5,000USD - 25,000USD 500USD - 5,000USD
Classification I Classification II Classification III
Annual service fee /0.005%
of companies market
capitalization/
600USD - 12,000USD 600USD - 12,000USD 250USD - 5,000USD
Application and
processing fee (one
time)
Stock listing fee based
on the trade (one
time)
Annual service
payment
25. Congratulations, you are listed. What know?
• Must follow the rules, laws, and obligations at all time!
• Disclose, disclose and disclose!
• Legal disclosure
• Timely disclosure
• Voluntary disclosure
• MSE has the right to monitor, take appropriate actions and provides
consultation in a timely manner.
Further steps to take
26. THANK YOU
29-30 August, 2016
Listing & Research Division,
Policy Planning Department,
Mongolian Stock Exchange
