Z.Narantuya: Custodian banking services will push the stock market to a new level

Trans. by B.DULGUUN

The Mongolian government has been executing many legislative and regulatory projects aimed at developing the banking and financial sectors in Mongolia, as well as the stock market. As a result, Mongolia is now ready to introduce a brand new custodian banking service to the market.

Chairwoman of the Financial Regulatory Commission Z.Narantuya gave an interview highlighting the significance of custodian banking services and urgent issues that need to be addressed to develop the Mongolian stock market.

What should be the focus for developing the securities market in Mongolia? 

Firstly, infrastructure should be fixed to develop the correct and stable type of stock market. Before anything, it’s necessary for the Mongolian Securities Clearing House and Central Depository to develop its securities registration and displacement with a classical method. The clearing house should be separated and operated as an independent institute. The clearing house needs to integrate its primary and secondary trading platform, switch commercial information analysis to a real-time mode, and create correct processes for executing commercial orders and pricing terms.

The Financial Regulatory Commission is focusing on creating a control system that will monitor the entire stock market. 

Can you elaborate on and explain what custodian banking is? How many banks have been licensed to provide custodian banking services? Have their operations stabilized?

Custodian banking is a completely new concept for us, Mongolians. Custodian banking is the most important institute for investors in the securities market.

Our nation has made amendments and changes in the Securities Market Law and Banking Law to establish a suitable legal foundation for custodian banking services. At present, several banks have received licenses for carrying out custodian banking services. Among these banks, Golomt Bank, which has attained a license, is about to become the first Mongolian bank to introduce the system and begin operations. Another bank will also launch custodian banking services soon as well. Having two banks begin this type of operation is a step towards the development of custodian banking services.

Individuals and companies engaged in investment, pensions, and other private funds will not only have their purchased securities and money reliably deposited in their chosen custodian bank, but also have their information protected and kept confidential. Like so, this new service has many advantages.

Although the financial market expands to a wide range and presents opportunities for attracting investment and earning higher returns, Mongolians and businesses only deposit savings in banks and try to find profit from other people and businesses. How exactly is the stock market useful to the public?

If we explain how stock markets work in a simpler way to people, they will realize that it is actually just a type of financial service similar to saving money in banks and earning profit from interests. People deposit money in banks and place their money in their current accounts only because they are used to this type of banking service and consider it reliable, as the Central Bank supervises commercial banks. Useful financing can also be acquired through a short-term loan, but they have high interest rates.

The stock exchange puts out stocks that give off more yield than interest from savings. Yet, national companies and individuals don’t come to the stock exchange to participate in stock trading or to try to generate the financing they need for businesses by issuing bonds and securities. From one side, this is connected to people and companies not being used to using this service, and from another side, it’s connected to the fact that people don’t understand the process of generating funds from stock trading that well. Just like how people trust banks, it’s crucial to build their trust in professional financial organizations. 

As you mentioned, the Mongolian stock market isn’t well developed. What do you think caused the stock market to reach its current state? 

The reason why local companies engaged in the stock market haven’t developed the market to a professional level, despite operating for 25 years, is related to the legal environment and various foreign and domestic factors. On the other hand, it can also be said that the history of getting pink and blue slips has caused people to lose faith in the idea that one can profit from shareholding and trading stock.

Now, the technology of banks and financial institutions have developed and reached a much higher level compared to the time when they received poor evaluations. Moreover, a favorable legal environment has been created. Affirmative aspects of the stock market have grown so much that it’s become more attractive for businesses. 

Can it be said that the Mongolian stock market is reaching a new and higher level of development?

It’s most important for stock markets to be risk-free and be able to give high returns. To make these conditions consistent, the first thing to do is destroy barriers obstructing people from entering this sector and switch to an easy access mode.

Secondly, measures should be taken at each level for lessening the burden of fees. In the end, favorable tax, customs, and investment conditions are being created. Officials are working to develop a draft bill and change some provisions in associated legislation to make the stock market more favorable. Experts are conducting research for establishing a financial free zone, creating a legal foundation for stock trading, promoting investment competitiveness, and reducing the cost of capital.

Furthermore, major work directed at improving public financial education and to increase access to financial services is required. This line of work is being included in many projects being executed through international organizations. Even so, the inter-relations between the operations of policymakers, regulators, and implementers is poor, because there isn’t any integrated information or statistical data. This is ultimately pulling us back from reaching substantial achievements.

The Financial Regulatory Commission is functioning to regulate and integrate knots of interest for every stakeholder within the system. 

Foreign investors say that the stock market of nations develop through banks if foreign banks and companies are brought into a nation. Is this true?

Large-scale professional investors, investment banks, and funds are extremely significant in a stock market, just like water and air are essential to humans. I’ve hinted that research and projects related to the legal environment and other sectors have been planned. Making this sector transparent without discriminating between foreign and domestic companies, as well as developing this sector through a flexible policy, are the most prudent steps. Our commission has the authority to control risks and ensure the stability of the market through regulatory devices. Particularly, the Financial Regulatory Commission will support the cooperation of large foreign investment banks and funds with Mongolian financial organizations and help create a legal environment, which will allow foreign companies to operate in specific regions where they will be protected by international standards and international laws. 

In relation to investment funds getting licenses for custodian banking services, how will this service be introduced in the investment market? 

Four investment management companies have been licensed by the Financial Regulatory Commission. These companies are currently working to create their own funds. It’s absolutely necessary for companies to establish an agreement and cooperate with a custodian bank in accordance with the law. The custodian bank will not only safekeep the capital of funds, but also perform registration to ensure a fund’s credibility. 

Source: news.mn



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Posted by on Sep 27 2015. Filed under Prime Interview. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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