Limping Economy - Part Ii

In my previous article, I pointed out that there is a surplus of capital on one side of the river and a lack of capital on the other side. If we manage to create financial infrastructure that will serve as a bridge connecting the two sides of the river, we will be able to fix our limping economy and experience rapid development.

Then what environment needs to be formed in order to develop the capital market?

Necessary conditions

A market not only needs products, but also subjects of the economy who are willing to sell and buy those products. Securities serve the role of products in a capital market. These may include all types of stock (common, preferred, and so on), debt securities (bonds, mortgages and savings certificates), and their derivatives.

Securities markets can be divided into two groups: primary and secondary. The primary market refers to the market where securities are created, whereas the secondary market is the market where previously issued securities are bought and sold. The revenue generated by selling securities in the primary market goes to the company that issued those securities, while the same revenue in the secondary market goes to the seller.

Buyers and sellers of securities include individuals, companies and investment funds. The biggest players in the securities market are public and private pension funds, insurance companies and joint funds. The organizations that link the buyers with the sellers are called broker-dealers.

Securities can be traded online or on a stock exchange. The infrastructure of the Mongolian Stock Exchange is technically on par with the London Stock Exchange. However, when it comes to over-the-counter (OTC) trading, which includes online transactions, Mongolia needs to be cautious about its security issues.

The capital market allows huge transactions to take place in a very short amount of time. Therefore, it goes without saying that there should be laws that fully regulate the activities of entities within the market.

Sufficient conditions

An essential part of keeping the capital market efficient is the prevention of insider trading. Insider trading is the trading of a company’s stock by individuals who secretly use non-public information to gain profits. The Mongolian Association of Securities Dealers proposed including clauses regulating insider trading, and its penalty, in the draft securities law. However, there have been complaints that the proposal was discarded when the draft law was developed.

For example...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT