The Securities Services participants of the Mongolian market are pleased to announce that a major step towards international trading and settlement standards will be taken shortly.

The Mongolian Stock Exchange will introduce the internationally recognized T+3 settlement cycle. This means that trading will take place on a particular day and three business days later the ownership of the security is transferred once the money is exchanged between buyer and seller. For instance a purchase of Securities happens on Monday but the actual transfer of cash and securities happens on the following Thursday i.e. three business days later.

The move from pre-funding to a T + 3 settlement cycle is designed to significantly improve the liquidity of the market as well as to increase its attractiveness to foreign investors.

For further information please refer to the MSE website for the new trading rules (www.mse.mn) and to the MSCH&CD website for the new Clearing and Settlement rules (www.schcd.mn)

For retail investors the important changes are as follows: Depending on the agreement with their brokers, investors have the choice of funding their trading activity as follows:

a) Opening a special share trading account at their broker’s Clearing Bank which will be used to fund their trades; or

b) Make remittances directly into the settlement account of the broker on T+0 ( trade day) T+1, or T+2, depending on the settlement arrangements with the broker.

Special Share Trading Account

In the first example, investors will deposit the funds to meet the settlement of trades executed by them based on the execution report furnished to them by their broker. This will take place on the trading day if the broker requires prefunding (depending on the creditworthiness of its client) or on T+1,T+2, as agreed.

The Clearing Bank will move the funds to the settlement account of the broker on T+3 based on the settlement reports furnished by the MSCH&CD in order to ensure that money moves only in respect of executed trades.

Immediately thereafter on T+3, the Bank will apply the funds towards the settlement process to facilitate the movement of shares into the buyers account on T+3. This method is recommended for regular investors since it minimizes risk.

Brokers Settlement Account

For those investors who perform ad-hoc trades and where it is not practical to open a Special Share Trading Account, funds may be deposited directly through the broker’s Settlement Account. The broker is then fully responsible for the safekeeping of these funds until the settlement is made and also for the safekeeping of proceeds from the sale of shares of the investor.

In addition to the above, it is important to take note that brokers as well as Clearing Banks will perform ‘Know your Customer’ (KYC) validations. This is standard in the investment industry and protects both the client as well as the broker and respectively the Clearing Bank. For example, clients are protected because their brokers know the client’s financial position, investment knowledge and risk tolerance. Brokers are protected because they know what they can and cannot include in their clients’ portfolios.

The effective date of these changes as well as any other related information will be notified through our website www.mse.mn on a regular basis.