OBG talks to Masa Igata, Founder & CEO, Frontier Securities

Interview: Masa Igata

What impact can we expect from new regulations, such as the Mongolian Revised Securities Market Law or the Investment Funds Law?

MASA IGATA: All the regulatory changes that Mongolia’s financial sector is going through are good and beneficial in the long run, although we might not see immediate changes in the current status quo. The Revised Securities Market Law and Investment Fund Law took effect on January 1, 2014. However, as of yet, we do not seem to have an entity or individual that is actively leading or initiating the implementation of such new laws. At the same time, specific regulations under each law have not been decided yet, and these are crucial in order to ensure a correct market performance. As pointed out by entities such as the World Bank, it will take time before we can see such regulations in place.

Talking about the Mongolian Stock Exchange (MSE), there are issues that need to be addressed, like high trading costs, which come as a result mainly of a lack of liquidity. Even with the right laws and regulations in place, the MSE will not develop unless trading costs are reduced. Additionally, there is no education process for investors here, and they need to become more familiar with the way the local stock market works in Mongolia. The government should therefore provide more support for MSE members and investors, minimising taxes for example, which remain too high today.

How can the government encourage listed firms to disclose financial information to reduce speculation on the growth of the capital markets?

IGATA: The obligation for listed firms to disclose financial information has been a challenge in recent years. To this end, the new Revised Securities Market Law has an enforcement clause, which establishes that listed companies will be strictly monitored by the Financial Regulatory Commission and the MSE. While the effectiveness of such a clause remains to be seen, there is more that can be done from the private side in order to bring more transparency to the MSE and reduce speculation. Annual reports and financial statements should be publicly available on the companies’ websites and should also be given to the MSE regularly. There are few firms that do this, generally only in Mongolian.

Both the public and private sector need to take steps to reduce speculation in the market. This will have a positive impact on investors’ interest in this market, resulting in more investments and liquidity.

How would you describe the influence of politics in the performance of the MSE?

IGATA: The main issue is that there are nine members on the board of directors, appointed by the government, which sometimes do not fully understand how the capital market works. More often than not, there is a mismatch between senior management decisions and approval from the board of directors, resulting in a slow decision-making process. In such a situation, it is difficult to satisfy investors’ needs and increase the value of the stock exchange. Today, there are different financing options for Mongolian companies, and the MSE is not among the preferred ones, given its cost and low liquidity. In fact, less than 1% of financing is done through the stock exchange in Mongolia, leaving room for growth. The board of directors and MSE management should share a common idea or goal for the exchange to increase its value. Ultimately, the MSE has to be a good alternative for companies that are looking for financing options and investors.

What are your expectations for growth on the MSE?

IGATA: There is a feeling that it is impossible to make money in this market. Speculation needs to stop and the government has to take measures to ensure investors get returns. A change in attitude and mentality needs to take place in order to ensure that investors are pleased both with the overall performance of the MSE and their decision to invest in this market. In general terms, the performance of the MSE will be linked to the success of upcoming initial public offerings.