IMPROVING CAPITAL MARKET’S SURVEILLANCE
The conditions for delisting criteria have already been formed for 64.8% or in other words, 225 of the MSE’s listed companies. A total of 166 listed companies’ transactions have been stopped by a decision of the Financial Regulation Committee and the Mongolian Stock Exchange. Transactions of 3 joint stock companies have been recovered and 7 companies were delisted from the register in 2010. The capital of 63 companies has been spent. Currently, securities of only 96 stocks are traded and only 8.2% of the total number of registered securities is involved in transactions.
Since 2005, have been stopped transactions on 2 of the 13 IPO’s, with 4 IPO’s suffering large drops in market value in comparison with the nominal value. There has also been insufficient duties fulfillment of 6 JSC’s and no dividend distribution of 7 JSCs.
From the survey conducted by brokerage, dealing and underwriting companies, we can observe that “the history of failures and the IPO cases of damages to investors” are among the important factors in reducing the interests of investors in capital market.
There is a need to answer such questions as to why surveillance in the capital market is so weak.
Compared with commodity markets, where consumers can see and touch products to buy, the capital market is a unique sector which requires good regulation and a decent inspection/examination mechanism addressed to maintain fair and transparent market and public confidence in order to protect investors’ rights and interests. However, in recent times, people have begun to worry about Mongolian capital market surveillance, claiming that it is insufficient, causing minority shareholders to suffer the loss.
Indeed, many public companies that issued new shares since 2006 have faced a worsening recession and difficulties, and their securities trading has ceased while some uncertainties have arisen. Now investors’ rights are violated and they begin to suffer the loss.
Even though the recent economic recession and world economic crisis have negatively affected this situation, the low level and insufficient inspection in the securities market itself have increased the investors’ risks, especially minority shareholders, and has hurt the interest to invest in Mongolia. This situation also prevented business organizations from extending their business and blurred their business opportunities. In broad terms, it is making the capital market develop slowly. Thus, the situation calls for prompt action to address this problem.
The current situation clearly demonstrates that today’s inspection system is working inefficiently. The investors’ confidence in the capital market is clearly undermined; the investors’ rights are blatantly violated and many listed companies have a strong desire to get delisted from the MSE.
If we go with today’s supervision and surveillance system, it is certain that we cannot see any development and improvement in our capital market. Establishing some new institutions could incur high costs, but these could be the institutions and reforms that would correct today’s recession and uncertainties and provide investors with much protection and confidence to invest in our market. In fact, the only thing market regulators should consider, is to build and maintain investors and public confidence through an efficient and sound market operation.
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