PRESENTATION

1. Narantuya Z.
Chair, Financial Regulatory Commission
Invest Summit Mongolia 2015
Hong Kong

2. Contents
Policy & Regulatory
reforms
•Challenges
•Policy & regulatory reform
• Legal framework
•Decreasing constraints
•Investment fund & custodian
regulatory framework
•Investor & client protection
•Risk based supervisory approach
New products & services
•Privatization of state owned
companies
•Increasing bond market
/government & corporate/
•Strategic mining deposits
•Quality of listed companies & top
private companies IPO
• Forex futures trading
•Commodity based derivatives
•Insurance companies & NFFIs as
investor
•Social welfare - Insurance – Capital
market
Strategy & Future
plans
• Sustainable national
strategy until 2025
•UB international
financial zone
initiative

3. Policy and Regulatory reforms

4. Challenges of market development
Macro instability
/inflation, exchange rate/
High deposit rate
/caused by instability/
Weak investor protection
Inefficient infrastructure
Regulatory capacity
11
12.5
14
8.9
13
4.2
22.1
17.8
6.2
9.5
11
4.7
1.6
8 8.1
0
5
10
15
20
25
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Annual inflation rate /2014-2000/
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
2015.10
2015.06
2015.02
2014.10
2014.06
2014.02
2013.10
2013.06
2013.02
2012.10
2012.06
2012.02
2011.10
2011.06
2011.02
2010.10
Monthly exchange rate /2015.10-2010.10/
USD/
MNT
EUR/
MNT
0.0
13.6 12.9
10.7 10.5 11.7 12.1 12.5 13.1
8.4
9.8 10.0 11.0 12.3
13.3
10.5 12.0 13.0
9.9
14.8
10.8 11.0
14.3
15.5
10.5
12.1
13.0
2007 2008 2009 2010 2011 2012 2013 2014 2015Q3
Interest rates /2007-2015Q3/
Central bank note Policy rate Bank MNT deposit, weighted average

5. Legal framework
Recent legislations
2010. Law on
asset backed
securities
2011.
Corporate
law
renewed
2011.
SCU law
renewed
2012. Loan
guarantee
fund law
2013.
Investment
law
2013.
Investment
fund law
2014. Law
on index
based
insurance of
livestock
Following recent changes and reforms in legal framework;
• 40+ regulations in securities market
• ~20 regulations in insurance market
• 10+ regulations in micro finance industry
Were newly introduced or renewed.
All intended to adapt international standards by IOSCO, Basel and IAIS.

6. Decreasing constraints in 2015
Regulatory
Administrative
Financial
Infrastructure
•New licensing regulations
•Accounting rules compliant to int’l
standard
•Registration & Licensing separated
from supervision
•Licensing & registration software
•Electronic reporting
•Reduced regulatory fee
•Reduced transaction cost
•Custodians in operation
•Investments managers licensed
•Clearing & settlement

7. Investment fund & Custodian regulation
• Comprehensive regulatory framework consistent to the international standard
is ready
• Mutual funds are adequately regulated
• Private funds can be more flexible
• 10+ funds are registered abroad and invest in Mongolia
• Approx. 180 foreign companies and 1800 foreign citizens own investment
account at CSD.
•
• JPM & Development Bank of Mongolia setting an investment fund
• 3 major banks are operating custodian banking

8. Investor protection
Strong regulation & advocacy
Investor protection fund
Ombudsmen mechanism
Division for Investors and clients rights

9. Risk based supervision
Regulation System
Efficient regulation
Improved
efficiency
Less
administrative
burdens
Systemic risk
management
Participants
Listed companies 302 Insurance company 16
Broker, dealer 61 Insurance broker 33
Underwriter 25 NBFI 423
Investment advisor 16 S&C Union 242
Investment manager 3 Mortgage backed sec issuer 6
Custodian 3 Loan guarantee fund 1
Totally 1000+ regulated entities by 2015 Q2

10. New investment products
& services

11. Privatization of SOCs
In 2015 – 2016, 8 companies to be
privatized through stock exchange;
- 5 biggest power plants in UB,
Darkhan and Erdenet /major cities/
- Mongol Post, Nationwide post
service
- Shivee Ovoo, supplies 30% of total
domestic coal
- Baganuur, supplier of 70% of
Mongolia’s energy coal consumption
- MSE privatization is offered in 2016
budget draft +more 51 SCOs
SPO, Dual
listing
Strategic partnership with MSE
Daiwa
implements
project
under JICA

12. Domestic bond market
• Government bond trading at stock exchange
rapidly increases since 2014
• Secondary trading already activated
• Setting benchmark yield curve
• More supply of government bond with
longer term is expected to be traded at MSE
• Needs of domestic corporate bond market is
very high at relatively high coupon rate
because of higher interest rate, short
maturity & collateral requirement of bank
loans
• Varieties of bond such as insured & covered
bonds are regulated

13. Strategic mining deposits
• License holders of strategic mining deposits must offer at least 10% of its equities to
the public through domestic stock exchange according to law.
• FRC is facilitating regulatory framework of this financial activity and also preparing
regulations for dual and cross listing with other international exchanges.
• FRC will also introduce financial valuation standard and guideline of mineral deposits
soon with cooperation of Ministry of Mining, National Mining Association and other
stakeholders.
• There are 23 companies that hold exploration or mining licenses of 15 groups of
strategic deposits. 14 of them started mining operations.
Internationally listed
Can be dual or cross-
listed at MSE
Need to be complaint
with ASX, TSX, HSK…
State owned
companies
Some registered at MSE
& to be privatized
Private companies
Policies to encourage
them to be listed at
domestic market shall
be implemented

14. Quality of listed companies &
National TOP companies’ IPO
• Corporate governance of listed companies is in focus
• In terms of numbers of shares, 51% ownership of MSE listed companies are
centralized in government’s hands. That constraints the efficiency and liquidity of
market significantly.
• Policy direction; De-listing over centralized companies, privatization of state owned
listed companies & incentives to offer additional stocks or secondary public offering
• Tax incentives to go public to be legalized
• Promoting advantages of listed companies.
• With JICA project 2-3 of TOP private companies will do IPO within 2016-2017
• New registration rule of securities & MSE listing rule

15. Insurance companies and NBFIs
as institutional investor
• Pension fund reform and creation of
sovereign wealth fund are expected in near
future
• Insurance companies and non-bank
financial companies can now be a capital
market player under new regulation
• Insurance companies can allocate portion
of its reserve funds in capital market;
government bonds, central bank note,
investment fund share, investment grade
equities, shares of financial companies.
• NBFIs are no longer just a credit company
but can be an investment manager and
institutional investor.
• Policy is planned to transfer social welfare
expenses of state budget & social
insurance fund into life insurance scheme.
66.4 78.5 96.5 128.6
205.4
252.1
381.1
508.0
581.9
0
100
200
300
400
500
600
2007 2008 2009 2010 2011 2012 2013 2014 2015Q3
Growth of NBFIs /assets in billion MNT/
56.8
81.2
107.6
126.4
152.5
169.6
23.8
48.9
79.0
93.9
108.7
89.1
2010 2011 2012 2013 2014 2015.Q3
Growth of insurance industry
Total asset /billion MNT/ Total premium / billion MNT/

16. FOREX & Commodity derivatives
• Plan to establish open Forex exchange is submitted
• Before that some hedging instruments will be traded in 2016
• Listed currency futures and interest rate futures at MSE
• Cashmere futures /Mongolia supplies 30% of world cashmere/
• OTC market regulation is prepared
• Splitting state owned Central Securities Depository and Settlements
Company into CCP and CSD

17. Strategy & Future plans

18. Strategy & future plan
Comprehensive national strategy
Derivati-
ves, ABSs
Securities
market
Gov’t
bond
market
Money &
Forex
market
Micro
finance
industry
Insurance
industry
Banking
industry
Financial
Regulatory
Commission
Financial market
regulation
Central Bank
Monetary policy
Banking regulation
Ministry of Finance Fiscal policy

19. Policy & Regulatory reform
Development phases
Pre conditions for
development;
macro stability,
regulatory framework,
capacity of market
intermediaries
infrastructure
Development
phase;
Depth
Access
Efficiency
Matured
market;
Competitiveness
Integrated
Stability
2016-2017
2018-2020
2020-2025

20. UB International Financial Zone initiative
• Special law is drafted
• Expected features;
• Unique legal environment
• Modern regulatory framework
• Tax incentive
• Stability guarantee
• Beneficial to;
• Adopt international standards
• World class knowledge & skills
• Capital market integration
• Advantages over region;
• Strategic location
• Democracy
• Market economy
• Open financial system

21. THANK YOU FOR ATTENTION!
www.frc.mn