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SECURITIES MARKETS LAW

MONGOLIA

/Revised edition /

CHAPTER ONE

GENERAL PROVISIONS

Article 1 Objectives

1.1 The objectives of this Law are to regulate and oversee the activities of market participants

and to protect the rights and interests of investors;

1.2 Principles to promote fair, transparent and efficient market and to reduce systemic risk

shall be applied when implementing the objectives of the Law.

Article 2 Securities Legislation

2.1 The legislation relating to securities market is comprised of this Law, the Constitution of

Mongolia, the Civil Law, the Company Law, and other relevant legislation that is

consistent with this Law.

2.2 If an international treaty to which Mongolia is a party is inconsistent with this Law, the

provisions of the international treaty shall prevail.

Article 3 Applicability of the Law

3.1 This law shall regulate matters with respect to public offering in open or closed manner,

trading, listing, clearing, settlement, and custody of securities and other regulated

operations.

3.2 This law shall apply to basic matters with respect to issuing and trading asset-backed

securities, but specific matters shall be regulated by the legislation on Asset-backed

Securities.

3.3 This law shall apply to basic matters with respect to issuing and trading commodity-

based derivative instruments, but specific matters shall be regulated by the respective

laws.

Article 4 Definitions of Terms

4.1 The following terms used in this Law shall have the meanings ascribed to them as

follows.

4.1.1 “Securities Market” means regulated and over-the-counter market procedures

with respect to listing, issuing, trading, transferring the ownership rights and

providing custody for the securities and derivative instruments;

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4.1.2 “Regulated Market” means procedures with respect to operations stated in

Article 24 of this Law;

4.1.3 “Over-the-counter market” means a closed market where buying and selling

of financial instruments occurs by direct agreements between authorised parties

stated in 24.1.1-24.1.5, 24.1.10 of Article 24 of this Law; through un-prohibited

means and facilities;

4.1.4 “Primary Market” means the procedures with respect to trading securities by

an Issuer through initial offering to the public or a closed group;

4.1.5 “Secondary Market” means the procedures with respect to buying and selling

of securities by persons other than the Issuer issuing securities in the Primary

Market;

4.1.6 “Financial Instrument” means securities, derivative financial instruments, and

other instruments permitted for trading in money market and regulated markets.

4.1.7 “Derivative Financial Instrument” means other financial instruments

permitting Options Contract and Futures Contract to be traded in regulated

markets;

4.1.8 “Securities” means instruments described as such in 5.1 of Article 5 of this

Law;

4.1.9 “Debt Instrument” means the instrument which obligates the securities issuer

to repay the principal and its interest to the holder in forms of cash, specific

assets, or entitlement to an asset, after specified period of time and other

equivalent instruments;

4.1.10 “Options Contract” means a derivative financial instrument that offers the

buyer the right, but not the obligation, to buy or sell a specified quantity of an

asset at an agreed-upon price during a certain period of time, while the seller

incurs the corresponding obligation to fulfil the transaction.

4.1.11 “Futures Contract” means a derivative financial instrument or a contract that

obligates the parties of the contract to buy or sell a specified quantity of an asset

at an agreed-upon price during a certain period of time.

4.1.12 “Depositary Receipt” means securities issued for the purpose of trading

underlying asset, deposited at an authorized custodian, in foreign securities

markets.

4.1.13 “Underlying Asset” means securities /shares/ based on which the Depository

receipts are issued;

4.1.14 “Prospectus” means a prospectus and a set of documents prepared by an Issuer

pursuant to regulations set out in respective legislation and approved by the

Financial Regulatory Commission (hereinafter the “Commission”) for the

purpose of offering securities for subscription or purchase;

4.1.15 “Market Participant” means an issuer, a regulated person and an investor;

4.1.16 “Regulated person” means a person authorized to conduct operations stated in

24.1 of Article 24 of this Law;

4.1.17 “Professional Investor” means a legal person authorized to run securities

dealing, and underwriting operations in the securities market and any natural

and legal person the Commission prescribed as such;

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4.1.18 “Issuer” means a person that registered its securities or in the process of

registering it with the Commission to trade in the securities market pursuant to

this law;

4.1.19 “Public Offer” means public disclosure through media with respect to selling

the securities via the securities trading organisation by offering it to more than

50 persons in accordance with the regulations set by the Commission;

4.1.20 “Official List of Securities Admitted to Public Offering” means the

registration of the securities admitted to public offering by the Commission in

accordance with the regulations of this Law;

4.1.21 “Registration of Securities Ownership Right” means the registration to verify

the ownership of the securities in accordance with the regulations of this Law;

4.1.22 “Securities Registrar” means a legal person that registers the securities in the

Central Depository on a national scale and run the records based on a contract

made with the securities issuer;

4.1.23 “Nominal Owner” means a regulated person registered as the depositor in the

securities ownership records who is not the beneficial owner of the securities;

4.1.24 “Beneficial Owner” means the actual owner entitled to the benefits of the

securities who registered the securities of his/her ownership under the name of

the nominal owner pursuant to the Law;

4.1.25 “Stock Exchange Listing” means the listing of the securities admitted to be

traded on that exchange;

4.1.26 “Stock Exchange” means legal person, authorized to operating securities

trading;

4.1.27 “Influential shareholder” means a natural or a legal person who possess more

than 5% of the total voting shares solely or jointly with related persons and

exercising the rights as indicated in the Law and the agreement;

4.1.28 “Related Person” means the following persons:

4.1.28.1 the person‟s wife, husband, son, daughter, adopted son, adopted

daughter, stepson, stepdaughter, brother-in-law, sister-in-law,

grandchild, father, mother, father-in-law, mother-in-law, stepfather,

stepmother, brother, sister, younger brother, younger sister, half

brother or half sister, if such person is a natural person

4.1.28.2 a company in which such person is a director;

4.1.28.3 a company in which a person referred to in Article 4.1.28.1of this

Law hold(s) 10 percent or more of the voting shares solely or jointly

with related person(s);

4.1.28.4 any employee if such person is an employer;

4.1.28.5 parent company, affiliate, subsidiary and other related legal persons if

such person is a company;

4.1.28.6 other persons prescribed as Related Person by the Commission.

4.1.29 “Affiliation of Legal Persons” means the following legal persons related to

securities market participants:

4.1.29.1 Parent company, partner, and other legal persons of the securities

market participant

4.1.29.2 Subsidiary, dependent, parallel company, partner and other legal

persons of the securities market participant

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4.1.29.3 Parent company and other legal persons of the subsidiaries and

dependent companies of the securities market participant

4.1.29.4 Persons owning the controlling interest of legal persons stated in

4.1.29.1-4.1.29.2 of the securities market participant

CHAPTER TWO

ISSUANCE AND TRADING OF SECURITIES

Article 5 Securities

5.1 The following Financial Instruments shall constitute securities pursuant to this Law:

5.1.1 Company shares offered to the public (hereinafter “shares”);

5.1.2 Company debt instruments;

5.1.3 Debt Instruments issued by the Government and municipal governors;

5.1.4 Debt Instruments issued by the Central Bank of Mongolia with the maturity of

more than one year;

5.1.5 Depositary Receipts;

5.1.6 Asset-Backed Securities;

5.1.7 Warrants or rights to subscribe a specified quantity of shares or debt instruments

offered to the investors from the securities issuer at an agreed-upon price during

a specified period;

5.1.8 Derivative Financial Instrument stated in this law;

5.1.9 Other Financial Instruments prescribed by the Commission as a security within

this Law.

5.2 Unless otherwise stated in the law, the following Financial Instruments shall not

constitute securities pursuant to this Law:

5.2.1 Shares of limited liability companies;

5.2.2 Derivative financial instruments not permitted to be traded in regulated markets;

5.2.3 Bills of exchange and promissory notes;

5.2.4 Certificate of deposit issued by commercial banks;

5.2.5 Other instruments with a maturity term of up to one year issued by commercial

banks for trading in the money market, pursuant to Article 15.2 of the Banking

Law.

5.3 Financial instrument, stated in 5.2.4 of Article 5 of this Law shall not constitute receipt of

depository

Article 6 Issuing Securities

6.1 Securities may be issued through offering to the public or to a closed group.

6.2 List of persons prohibited to buy securities offered to public may be determined by Law

6.3 Securities may be issued for sales in Mongolian or foreign territory.

6.4 Securities listed at foreign exchange may be traded in Mongolia accordance with

Commission‟s set order.

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6.5 The decision to issue securities cannot be changed after it is registered by the

Commission.

6.6 Securities to trade in stock exchange shall only be issued in bearer type.

6.7 If the issuer, applying for initial listing in a regulated market, has previously issued non-

bearer and inscribed types of securities, those securities shall be converted to bearer type

in accordance with the relevant regulations.

Article 7 Securities Issuer

7.1 Government, municipal governors, Bank of Mongolia and Company may issue securities

through public offering in accordance with this Law and other relevant law, rule ,

regulation.

Article 8 Regulation on Issuing Securities through Public Offering

8.1 Specific regulations related to the Government and municipal governors‟ decision to

issue debt instruments and the Mongolbank‟s issuance of securities shall be enacted by

the Government and the Mongolbank president respectively.

8.2 Offering securities and raising capital from other persons except for professional

investors is prohibited if the funds are to be used for identifying resources, conducting

explorations and mining operations in deposits whose resources have not been identified

in accordance with the legislation on Mineral resources.

8.3 Regulations and procedures on issuing securities through public offering shall be

approved by the Commission.

Article 9 Registration and Approval of the Securities to be Offered to Public

9.1 The securities and its prospectus to be offered to public shall be registered and admitted

by the Commission for public offering and trading in the primary market.

9.2 Debt instruments issued by Government, Mongolbank, and Municipal Governor(s) to be

offered to public shall be registered by the Commission. The registration may be

conducted by simplified procedures and the respective regulations shall be set by the

Commission.

9.3 If the same class of securities previously offered to the public is offered to a closed group

when the issuer is issuing additional securities, those securities shall be registered by the

Commission.

9.4 If the legal person that previously issued securities through public offering is to issue

another type of securities to a closed group, those securities shall be registered by the

Commission.

9.5 The following documents shall be submitted to the Commission when applying for

registration into the official list of securities admitted for public offering.

9.5.1 Application for registration;

9.5.2 Prospectus;

9.5.3 The respective stock exchange‟s report stating that there is no objection to list

the securities on the exchange;

9.5.4 Payment receipt for the regulated service fee;

9.5.5 Other documents prescribed by the regulations of the Commission.

9.6 The Commission shall review the application for registration, the prospectus, and other

relevant documents for securities except for ones specified in article 9.2 of this law,

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within 20 working days since the receipt of the application; and shall approve the listing

if it satisfies legal and Commission‟s requirements or disapprove it based on reasonable

grounds. The duration shall begin since the full application satisfying necessary

requirements has been received.

9.7 The decision-making period can be extended by up to 15 working days if additional

documents, independent and professional reports such as audit and appraisal report,that

are necessary for the decision specified in 9.6, are requested.

9.8 The applicant shall bear the costs incurred by the action stated in 9.7 of this Law.

9.9 The Commission‟s admission of securities for public offering shall be granted based on

the decision to register, stated in 9.6 of this Law.

9.10 The Commission shall refuse to register the securities into the official list of securities

admitted for public offering in the following circumstances.

9.10.1 The application to register securities was not made in accordance with relevant

regulations.

9.10.2 Securities issuer or the application and supporting documents did not satisfy the

established criteria.

9.10.3 The required information was not provided in the application or incompletely

provided.

9.10.4 False, misleading, incorrect or conflicting information was provided.

9.10.5 Additionally requested information was not provided within the deadline.

9.10.6 The Commission considered that the issuance of securities would negatively

affect the investors‟ rights and interests.

9.11 Publicizing and advertising the securities, that is not registered into the official list of

securities admitted for public offering or rejected by the Commission from registration, is

prohibited.

9.12 An Issuer cannot make a second application to register the same securities within one

year since those securities was rejected from registration.

9.13 The Commission‟s and stock exchange‟s registration of the securities and its prospectus

and admission of the securities for public offer and primary market trading pursuant to

article 9.6, 9.9 of this Law shall not serve as a guarantee for the securities

9.14 Fair and accurate information must be provided in prospectus and other relevant

documents; the securities issuer and its authorized person shall both be liable for any

losses incurred to others due to false, incomplete, misleading, conflicting, and inaccurate

information.

9.15 A person involved in preparing the prospectus and relevant documents shall be liable for

any losses incurred to others by this person‟s service.

9.16 The securities issuer can make the application to register into the official list of securities

admitted for public offering and to be listed with the stock exchange simultaneously.

Listing the securities issuer on the stock exchange shall not serve as a ground for

approving the securities for public offering or registering into the official list of securities

admitted for public offering.

Article 10 Prospectuses

10.1 The securities and its prospectus shall be offered to public within 6 months since the

approval by the Commission.

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10.2 If the securities are to be offered to public after the duration stated in 10.1 of this law has

expired, the securities shall be newly registered with the Commission.

10.3 Prospectuses shall contain information on the securities issuer, its shareholders,

management, organizational structure, authorized persons, assets, liabilities and other

financials of the issuer, current position, future prospects, risks, information on securities

being issued, rights certified by those securities, securities trading rules, independent

conclusion and report and other information that the Commission considers as necessary

for investors to make an informed decision.

10.4 Prospectuses shall be prepared pursuant to the instructions stated in 8.3 of Article 8 of

this law.

10.5 The following information shall be provided in the prospectus.

10.5.1 Name of the issuer, permanent, mailing and contact addresses, company

operations, statement on whether the company is listed on a stock exchange;

10.5.2 State registration number, registration certificate number and date of registration

as a legal person;

10.5.3 Surnames, given names, registration numbers, national ID card numbers of

influential shareholders owning more than 5% of the total voting securities

solely or with related persons, and volume and percentage of their shares;

10.5.4 Structure, organization of the issuer, information about the authorized persons,

information on volume and percentage of shares under their ownership;

10.5.5 Value of issuer‟s share capital, volume, type and nominal value of the securities

previously declared, issued or bought-back, value of equity, tangible and

intangible assets;

10.5.6 Financial statements and relevant auditor‟s reports.

10.5.7 Agreements and transactions with obligation worth more than 5% of the issuer‟s

share capital, and information on their implementations;

10.5.8 Related persons of the issuer;

10.5.9 Volume, type, nominal price of the securities being offered, trading terms and

regulations on offering the securities to public, terms and regulations on

distributing dividends, maturity, principal, and terms and regulations on interest

payment, should the security be a debt instrument;

10.5.10 Rights and responsibilities associated with the securities offered to public;

10.5.11 Business plan for spending the capital raised through the securities issuance;

10.5.12 Terms and regulations on converting the securities to shares, should the security

be convertible to shares;

10.5.13 Risks pertaining to the issuer‟s operations and risk management plan;

10.5.14 Information on the regulated person and other persons performing professional

services and cooperating on the procedure of offering the securities to public,

rights, duties and obligations assumed, pursuant to the agreements made with

them;

10.5.15 Repayment guarantee and collateral in case of a debt instrument;

10.5.16 Asset appraisal report conducted within last one year;

10.5.17 . Other information required by the Commission if necessary.

10.6 Accuracy and validity of the information presented in the prospectus shall be verified by

an Independent Lawyer registered as stated in 33.3.1 of article 33 of this law; accuracy

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of financial statements shall be verified by Independent Auditor registered as stated in

33.3.3 of article 33 of this law.

10.7 the issuer‟s financial statements verified by an Independent Auditor registered pursuant

to33.3 of Article 33 of this law , and the Lawyer‟s report shall be inseparable parts of the

prospectus.

10.8 If an independent expert report or a professional report is included in the prospectus, the

following information shall be provided with regards to this document:

10.8.1 Evidence of the right of the expert to provide a report;

10.8.2 Name, address and experience of the expert that the report was conducted;

10.8.3 Attestation by the expert that the report was conducted without any conflicts of

interest and pursuant to relevant regulations;

10.8.4 Statement confirming that there is no objection to disclose the report along with

the prospectus to public.

10.9 Expert report shall include the following information.

10.9.1 Clan name, surname and given name of the expert, evidence of the right of the

expert to provide a report;

10.9.2 Information on the subscriber for the service;

10.9.3 Duration, frequency and date of the inspection;

10.9.4 Subscriber‟s order;

10.9.5 Methodology and scope of the inspection, documents used during the inspection

and uncovered issues;

10.9.6 Overview of the expert report;

10.9.7 Expert‟s attestation confirming that the inspection was conducted pursuant to

relevant regulations and without conflicts of interest;

10.9.8 Signature and stamp of the expert;

10.9.9 Others required by the Commission and the Exchange.

10.10 The Commission shall determine the additional relevant information to be included in the

prospectus except for those stated in 10.5-10.9 of this law.

10.11 The issuer‟s application to the Commission, the prospectus and their photocopies shall be

validated through signatures of the company‟s Chairman of the Board of Directors, Chief

Executive Officer, Chief Financial Officer, the independent lawyer, the auditor, and other

independent experts who conducted inspections.

10.12 If there any changes made to information stated in 10.5 of Article 10 of this Law issuers

obliged to make changes to the prospectus Commission‟s consent. The issuer is

prohibited to make any changes to the prospectus approved by the Commission without

the Commission‟s consent.

10.13 If there any impact changes made to issuer‟s marketing condition and investment

decision during period of time stated in 10.1 of article 10 of this law, issuer shall report to

the Commission and add to the prospectus.

10.14 Interested person may request the Commission to check whether the prospectus presented

to the public has been approved.

10.15 Preparation of the prospectus may not be mandatory in the following cases.

10.15.1 Public offering and issuance of debt instruments by Government, Municipal

governor and Mongolbank;

10.15.2 Issuance of securities wholly guaranteed by the Government;

10.15.3 Stock split or stock merge;

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10.15.4 Converting debt instruments convertible to shares in accordance with the

prospectus previously presented to public;

10.15.5 Others prescribed by the law;

10.16 The Commission shall set the specific regulations on registering the securities stated in

10.15 of this law, into the official list of securities admitted for public offering.

Article 11 Public Offer

11.1 Presentation and advertisement of the securities for sales in primary market, to investors

equal to or more than 50, by the issuer solely or jointly with a regulated person pursuant

to their agreement, shall be construed as public offer.

11.2 Securities shall be presented to a certain limited group if indicated as such in the

prospectus registered by the Commission.

11.3 When offering securities to public, the issuer shall make a contract with a legal person

authorized to perform underwriting services.

11.4 The issuer shall provide the prospectus free of charge to interested parties when offering

securities to public.

11.5 The Commission shall suspend the public offer or invalidate the securities registration

depending on the criticality of the violation if additional information is required from the

issuer on the securities admitted, or the issuer provided incomplete, false, or misleading

information during the registration process and presented the securities based on that

information, or gave false promises. The Commission shall give a notice with reasonable

grounds to the Exchange and the issuer, and announce to the public.

11.6 The issuer shall be liable for the costs and other losses incurred when invalidating the

registration of the securities admitted for public offer, due to the fault of the issuer

pursuant to 11.5 of this law.

11.7 The regulated person and independent experts, involved in public offering and trading of

the securities in the primary market, must immediately report to the Commission and

authorized state organizations if detected a situation stated in 11.5 of this law.

11.8 The issuer‟s compensation for losses incurred to others due to violation(s) stated in 11.5,

shall not serve as a ground to exempt the regulated person, and independent experts

involved, from material, administrative and capital punishment.

11.9 The losses specified in 11.6 of this law may be claimed through court.

11.10 The securities not registered into the official list of securities admitted for public offering

and the securities of limited liability companies are prohibited to be offered to public.

Article 12 Selling Securities in the Primary Market and Subsequent Reporting

12.1 The securities admitted to both the official list of securities admitted for public offering

and the exchange‟s list shall be traded in the primary market.

12.2 The Commission shall grant the permission to trade the securities in primary market,

based on the issuer‟s request and the relevant exchange‟s recommendation stating that the

securities were admitted to the exchange‟s list and the necessary preparations were made.

12.3 Selling securities on credit in the primary market and granting ownership of securities

free of charge unless otherwise stated in the law, are prohibited.

12.4 The issuer shall submit the primary market trade report to the Commission pursuant to

the regulations, within three days after the trading in the primary market has finished.

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12.5 Primary market trade report must include the exchange‟s statement confirming that the

trading was conducted in accordance with the relevant regulations.

12.6 The Commission shall review the primary market trade report within 3 days and shall

start the secondary market trading and grant the permission to enable the issuer to use the

funds generated from the trading if no violations are detected and the primary market

trading is considered to have gone successful.

12.7 The Commission considers the primary market trading as successful in the following

circumstances.

12.7.1 all shares offered has been sold if the securities is issued at its nominal value, or

the funds aimed to generate from the trading has fully been transferred to the

issuer‟s account;

12.7.2 funds sufficient to implement the project indicated in the prospectus presented to

the public has been generated and fully transferred to the issuer‟s account, if

sold at a price more than the nominal value;

12.7.3 If an underwriter is involved, the underwriter has fully completed the necessary

payment or established a situation stated in 12.7.1 and 12.7.2.

12.8 Within three months after the Commission concluded and informed the public that the

trading was successful, a person, whose rights has been violated, may file a complaint

regarding this conclusion to the Supervisory Board next to the Commission.

12.9 The issuer is not entitled to use the funds generated by the trading until the Commission

makes a decision stated in 12.6 of this law.

12.10 The authorized securities settlement organization may require the investors subscribing

the securities to place funds sufficient to buy the securities in a special account, or to

provide with a guarantee of payment ability, in order to confirm the customer‟s interest to

buy securities in the primary market and to create a condition to successfully run the

primary market operations.

12.11 Provision 12.10 of this law is also applicable to the underwriter performing services

related to public offering of the securities.

12.12 The issuer is prohibited to use the funds generated from the securities trading for any

other purposes except for the intended purpose stated in the prospectus.

12.13 The registration of the securities shall be invalidated if the securities were not traded in

the primary market within one year since the Commission admitted the securities for

public offering.

Article 13 Depository Receipt

13.1 Depository Receipt (DR) shall attest the rights certified by its underlying securities in

custody and other associated rights.

13.2 DR shall have a basic condition to freely convert to its underlying securities and when the

DR is sold to others, the underlying securities and rights indicated in 13.1 of Article 13 of

this Law shall be transferred to the buyer.

13.3 The conversion of the DR to its underlying securities or the conversion of the underlying

securities to a DR may be performed free of payment. Should the owner of the DR

change, registration of the owner of underlying securities, settlement and clearing may be

provided free of payment.

13.4 DR can only be issued by a legal person authorized to conduct securities custody.

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13.5 Issuer of the DR shall be considered as the executor of the orders given by the securities

Issuer pursuant to their agreement; and the owner of the DR shall be the owner of the

underlying securities in custody unless the DR issuer buys the DR by its own assets.

13.6 It is prohibited to issue DR if the underlying securities are not held in custody or the size

or volume is incomplete.

13.7 DR can be issued representing securities that is being additionally issued or that has been

previously issued upon the issuer‟s permission or a combination of both.

13.8 Each DR of the same type shall represent equal rights certified by the same type of the

securities.

13.9 One DR may certify one or more of underlying securities.

13.10 DR has the following types:

13.10.1 Mongolian DR

13.10.2 Foreign DR

13.11 DR issuer shall not be considered as the beneficial owner unless the issuer buys the DR

by its own assets.

Article 14 Mongolian DR

14.1 Financial instruments registered and issued for trading in the regulated market of

Mongolia, by an authorized custodian providing custody for underlying shares listed in a

foreign exchange, shall be construed as Mongolian DR.

14.2 Unless otherwise stated in the law, the Commission shall define the types of underlying

securities and lists of respective securities markets and countries where the underlying

securities are listed, based on the proposal of the Exchange.

14.3 It is prohibited to sell in Mongolia the DRs based on securities not included in the

Commission‟s list.

14.4 The rights and responsibilities of the DR issuer and underlying securities issuer shall be

determined by their agreement and the terms of the agreement shall be an inseparable part

of the DR prospectus.

14.5 Although the issuer of underlying securities may prescribe to follow the legislations of

their affiliated country in the agreement specified in 14.4 of Article 14 of this law, DR

issuer shall comply with Mongolian legislation when issuing and selling Mongolian DR.

14.6 The Commission shall determine the terms and conditions required from Mongolian DR

issuer, and set regulations with respect to issuing DR, registering into the official list of

securities admitted for public offering, granting permission for public offering and

trading, and disclosing information to public.

14.7 The following items must be reflected in the agreement specified in 14.4 of this Law:

14.7.1 Rights of the underlying securities entitled to the owner of the DR, regulations

on exercising those rights, accumulating and passing the votes attached to

underlying securities onto the relevant party and presenting the voting summary;

14.7.2 Statements that DR is issued upon taking the underlying securities in custody;

the volume of underlying securities in custody must always exceed the volume

of the DRs; and more than one DR cannot be assigned to the same underlying

security.

14.7.3 Responsibility of the issuer of underlying securities to provide information

without any constraints regarding the underlying securities and the issuer that

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require public disclosure in accordance with legislation and the Commission‟s

regulation;

14.7.4 Statements that DR shall be discontinued upon the holder‟s first demand and the

ownership rights of the underlying securities shall be registered to the DR

holder; DR cannot be discontinued without the consent of the DR holder.

Article 15 Foreign DRs

15.1 Financial instruments issued for sales in a foreign country, representing securities listed

in Mongolia that are in custody of an authorized custodian shall be construed as „Foreign

DR‟.

15.2 Foreign DR may have a title to represent the market and the country in which it shall be

traded.

15.3 The securities issuer that decided to issue DR abroad representing its securities shall

inform the public, the Commission and the Exchange in writing within 5 working days

since that decision has been made.

Article 16 Company Debt Instruments

16.1 Company that satisfies the requirements set by the Commission and the Exchange may

issue and offer debt instruments to public.

16.2 The Commission shall set the regulation on registering the debt instruments that a

company shall offer to the public.

16.3 A company‟s debt instrument shall have collateral for repayment or a guarantee by a third

party.

16.4 The value of the debt instrument to be issued by a company shall not exceed the

company‟s equity value. The value of the debt instrument issued by a company with a

third party guarantee shall not exceed the sum of the equity value of the company and the

guarantee made by a third party.

16.5 Dependent upon the repayment conditions, the company may call the debt instruments

before maturity or the holder may request repayment.

16.6 Company debt instruments may be issued convertible to shares dependent upon certain

conditions or after a certain period of time.

Article 17 Issuance of Shares Abroad by a Company Listed on the Stock Exchange

17.1 Unless otherwise stated in the law, a company listed in Stock Exchange in Mongolia may

dual-list and trade up to 90% of its shares and DR based on it at a foreign exchange.

17.2 The company specified in 17.1 of Article 17 of this law shall register with the

Commission if it is to issue shares abroad. The commission shall set the Registration

rules.

17.3 A legal person registered in Mongolia shall inform the Commission if it is to list on a

foreign exchange.

Article 18 Issuance of Securities in Mongolia by a Legal Person Listed Abroad

18.1 A legal person listed on a foreign exchange may list and trade its securities on an

exchange operating in Mongolian territory upon the approval of the Commission.

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18.2 Unless otherwise stated in the law rules and regulation to be followed by securities issuer

stated in 18.1 shall be set by the Commission..

18.3 The legal person, specified in 18.1 Article 18 of this law, shall reflect the regulatory

difference between Mongolia and the country in which the securities were first issued, in

the prospectus for the securities to be issued in Mongolia; and shall make provisions for

investor risks arising from this issue and arrangements to allow investors to exercise their

rights.

18.4 The criteria for foreign securities issuers to issue securities in Mongolia and the list of

foreign exchanges shall be defined by the Commission.

18.5 The listing rules specified in 18.1 of Article 18 shall be endorsed by the stock exchange

upon the approval of the Commission.

18.6 Unless otherwise stated in the law, securities issuance in Mongolian capital market by a

legal person registered abroad shall not be considered as that person having operations in

Mongolia.

18.7 Clause 20.1.3 of this law will not be applied to person stated in 18.1 of this law.

Article 19 Issuance of Derivative Financial Instruments

19.1 Person authorized to run securities dealing operations may issue derivative instruments,

and trade within professional investors.

19.2 Clause 19.1 of Article of this law is not applicable to issuing and trading asset-backed

securities.

19.3 The Exchange and the Commission shall set the terms, conditions, and requirements for

derivative issuers and the regulations on issuing and trading derivative instruments.

19.4 Derivative financial instrument may be issued based on certain securities price and

trading index, provided that it had been approved by Commission.

Article 20 General Responsibilities of the Securities Issuer

20.1 The issuer shall have the following general responsibilities.

20.1.1 To have their decision to issue securities discussed and concluded by the

meeting of an authorized organization.

20.1.2 To submit accurate information and reports related to the securities trade

prepared in compliance with the relevant methods and forms within the

specified period to the Commission and disclose to the public;

20.1.3 To employ independent members not less than the number indicated in the

Company Law.

20.1.4 To appoint or elect a suitable person for authorized positions.

20.1.5 To inform the public and the shareholders, if the implementation of the business

plan change from that stated in the prospectus.

20.1.6 To submit the mid-year and annual year-end financial statements, attested by the

auditing firm registered with the Commission, to the Exchange and the

Commission within the period indicated in Article 13 of Accounting Law of

Mongolia.

20.1.7 To disclose the information regarding company operational and financial

position to the public according to the rules set by the Commission.

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20.1.8 To submit the shareholders‟ meeting decision and relevant information to the

Commission and the Exchange within 3 working days since the meeting was

held and to disclose the information to public as soon as possible.

20.1.9 To report immediately to the public if a situation that might affect the price and

volume of the securities has formed.

20.1.10 To follow corporate governance principles endorsed by the Commission in its

operations.

20.1.11 If the company is included in 3.1.1 of “Law on the regulation of foreign

investment in entities operating in strategic sectors” and if it selling its securities

on foreign stock exchange directly and/or through issuing DR it shall record the

beneficial owners of that security.

20.2 Clauses 20.1.3, 20.1.4, 20.1.6-20.1.8 and 20.1.10 of Article 20 of this law will not apply

to Government, Municipal Governor and Mongolbank.

20.3 The Exchange shall define the types of information that might affect the price and

volume of the trade, and set regulations on disclosing such information to public, upon

the approval of the Commission.

Article 21 Demanding Information related to Securities Issuer and Making Claims

21.1 The Commission has a right to demand information from the securities issuer and its

related persons pursuant to the regulations, if the following circumstances are created or

may be created.

21.1.1 Conducted or conducting unlawful operations such as fraud, deceit and

swindling, thus violating the rights of the investors;

21.1.2 Established the company for unlawful purposes such as for fraud, deceit and

swindling;

21.1.3 A founder, a large shareholder or an authorized person of a company conducted

unlawful actions such as deceiving and swindling the company and its

shareholders.

21.1.4 Information to be disclosed to investors and public has not been provided

pursuant to the regulations.

21.2 The Commission may make an appeal to court against the issuer or the authorized

persons on behalf of the investors if they conducted unlawful actions and violated the

rights of the investors and shareholders.

21.3 No amendments to the Charter of the Issuer that contradicts with the amendments made

by the court decision can be made.

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CHAPTER THREE

FULL ACQUISITION OF A COMPANY OR ACQUISITION OF ITS MAJORITY

STAKE

Article 22 Take-Over Offer

22.1 An offer to take over a company (hereinafter the “offer”) shall be made in the following

forms.

22.1.1 A shareholder solely or jointly with its related persons or a person who does not

own shares of this company makes an offer to acquire all of the equity securities

or more than the controlling interest voluntarily;

22.1.2 A shareholder holding the controlling interest of the company solely or jointly

with its related parties makes an offer in order to perform its obligation under

57.1 of Company Law.

22.2 The organization running securities depository operations shall inform the Commission

and the Stock Exchange when duty specified in22.1.2 of Article 22 of this law within 5

working days since that controlling interest has been bought, and is responsible for

informing the public through its website.

22.3 Any changes to the volume of shares held by controlling shareholders of the company by

five percent shall be reported to the Commission within 5 working days and the company

is responsible to disclose such information to public through its website.

22.4 An offeror shall notify the Commission and public about its offer to acquire the company

simultaneously.

22.5 Regulation specified in 57.1 of Company Law shall be complied when the offeror makes

an offer to acquire the company‟s shares to shareholders; and the information related to

the take-over shall be disclosed to all interested parties simultaneously.

22.6 The following information shall be disclosed to public related to the offer.

22.6.1 Offeror‟s clan name, surname, given name, permanent address, name and

address of the company, should the offeror be a legal person;

22.6.2 Volume of shares offering to buy and the minimum price to pay for each share;

22.6.3 Proof of funds ability to buy the shares;

22.6.4 Proposal/ plan to develop the company.

22.7 The offer shall be valid for at least 2 months and no more than 6 months.

22.8 The Offeror shall inform the company‟s Board of Directors before applying to the

Commission regarding the take-over offer.

Article 23 Conduct of a Take-Over

23.1 The Commission shall set regulations with respect to the conduct of a take-over.

23.2 The matters that may be covered by regulations specified under 23.1 of Article 23 of this

Law shall include the following:

23.2.1 methods and type of offers;

23.2.2 grounds for making an offer, granting permission and rejecting;

23.2.3 content of documents related to the offer and timeframe to inform the public

23.2.4 proof of funds ability to ensure completion of a takeover offer;

23.2.5 management actions related to the take-over;

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23.2.6 rights, duties and responsibilities of the parties engaged in the take-over;

23.2.7 regulation of the securities trade related to the take-over;

23.2.8 surveillance on the conduct of take-over;

23.2.9 prohibitions on take-over of a company;

23.2.10 any other additional requirements that the Commission considers necessary to

ensure the proper conduct of a take-over.

23.3 It is prohibited to pursue takeover attempts without making an offer or making the offer

without compliance with the regulations set by the Commission.

23.4 If the person specified in 22.1.1 of Article 22 of this law and its related persons do not

comply with the regulation on the conduct of take-over specified in this law, all shares

obtained through a procedure that breached the regulations, shall not have voting rights.

23.5 If a person specified in 22.1.2 of Article 22 of this law and its related parties do not

execute its duty specified in 57.1 of Company law or breached the take-over rules

specified in this law, all shares under their ownership shall not have voting rights.

23.6 The Commission shall disclose the information on the shares deprived of their voting

rights to public within 15 days through its website.

CHAPTER FOUR

REGULATED OPERATIONS

Sub-chapter One

General Regulation

Article 24 Regulated Operations

24.1 Regulated operations include the following:

24.1.1 securities brokerage;

24.1.2 securities dealing;

24.1.3 securities advisory;

24.1.4 securities trust;

24.1.5 underwriting;

24.1.6 securities ownership right registration;

24.1.7 securities trade clearing;

24.1.8 securities trade settlement;

24.1.9 central securities depository;

24.1.10 securities custody;

24.1.11 securities trading;

24.1.12 financial rating;

24.1.13 legal advising for securities‟ market participants;

24.1.14 providing asset appraisal service for securities‟ market participants;

24.1.15 providing auditing service securities‟ for market participants;

24.1.16 other operations prescribed as regulated by the Commission.

24.2 Only those persons holding an effective license granted by the Commission shall engage

in operations stated in 24.1.1.-24.1.12 and 24.1.16 of Article 24 of this Law.

24.3 Persons authorized to run the operations stated in 24.1.13-24.1.15 of Article 24 of this

Law shall perform such services provided that they satisfy the Commission‟s

requirements and register with the Commission.

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24.4 A shareholder of a regulated person is prohibited from selling, trading, pledging and

transferring the shares in any other means without consent from the Commission. This

clause does not apply to regulated person with joint stock company type.

24.5 A regulated person running operations stated in 24.1.1-24.1.12, 24.1.16 of Article 24 of

this Law shall get approval from the Commission when establishing its branch or

representative office.

24.6 Name of a regulated person running operations stated in 24.1.1-24.1.12, 24.1.16 of

Article 24 of this Law shall be formed from its given name and detailed mark saying

“Securities market participant”, or abbreviated mark of “SMP”.

24.7 It is prohibited for persons other than persons stated in 24.6 of this Law to use detailed

mark saying “securities market participant” or abbreviated mark of “SMP” together with

its given name.

Article 25 Principles for Regulated Operations

25.1 Regulated persons shall observe the following principles in their operations.

25.1.1 Comply with the legislation, rules, regulations, and standards and norms

publicly accepted;

25.1.2 Have researched and became aware of the investor‟s objective and opportunities

when performing professional services to the client;

25.1.3 Provide clients with information and advice necessary for them to make an

informed investment decision;

25.1.4 Avoid conflicts of interest with clients and other relevant persons; and inform

the clients immediately if a conflict of interest arises

25.1.5 Not to promote self-interest over interests of clients, and not to utilize

information obtained when performing services for self-benefit;

25.1.6 Ensure security for customers‟ assets by segregating each customer‟s account

from its own and others‟ accounts;

25.1.7 Possess financial resources sufficient to run the operations and to hedge against

potential risks;

25.1.8 Coordinate internal operations effectively and establish an internal surveillance

structure;

25.1.9 Conduct and keep primary-level records and documents with respect to the

operations pursuant to the standards;

25.1.10 Employ human resources adequate for the operational requirements;

25.1.11 Not to conduct any other operations unrelated to the operation with a license.

Article 26 Set of Regulations on Regulated Operations

26.1 The set of regulations approved by the Commission shall regulate matters with respect to

conducting regulated operations in the securities market.

26.2 The set of regulations for regulated operations shall be comprised of the following rules,

regulations, guidance and instructions.

26.2.1 Regulations on issuance, extension, suspension, reinstatement and revocation of

licenses referred to in 24.2 of Article 24 of this Law and measures to take in

case of a suspension and revocation of a license;

26.2.2 Terms and conditions for regulated persons, method and criteria to assess their

solvency, and supervision of such operations;

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26.2.3 Regulation on establishment, use, and monitoring of the risk fund for regulated

persons;

26.2.4 Unless otherwise stated in the Law setting the maximum limit on service

charges and fees of regulated persons.

26.2.5 Regulation on submitting the information stated in law to the Commission,

disclosing to public and monitoring;

26.2.6 Regulation governing advertisements by the regulated persons and the securities

issuers;

26.2.7 Regulations and instructions on provision and documentation of the services for

customers;

26.2.8 Regulations on receiving and executing orders from customers;

26.2.9 Appointing authorized persons at regulated entities, and recommending suitable

candidates;

26.2.10 Collection, maintenance and transfer of archive documents of regulated persons.

26.2.11 Instructions on submitting information and reports to the Commission;

26.2.12 Terms and conditions for regulated persons to open branches and representative

offices;

26.2.13 Setting the amount of fee for regulated operations payable by regulated persons;

26.2.14 Regulations for regulated persons to submit information to the Commission with

respect to its related persons and its public-disclosure.

Sub-chapter Two

Registration and Issuance of a License for Regulated Operations to Legal Persons

Article 27 Application for License

27.1 A legal person, wishing to obtain a license stated in 24.2 of Article 24 of this Law, shall

apply to the Commission using a custom application form.

27.2 The following documents shall be attached to the application stated in 27.1 of Article 27

of this Law, in addition to documents required as set out in the Law on Business Entities‟

Licensing.

27.2.1 Copy of legal person‟s company charter ;

27.2.2 Information regarding the founders or shareholders, their payment ability,

confirmation that no overdue loans are outstanding at banking and financial

institutions and other persons, information on the person‟s suitability;

27.2.3 Evidence that the minimum level of share capital and current assets are

maintained;

27.2.4 Evidence that qualified personnel with sufficient professional experience and

expertise are employed;

27.2.5 Evidence that the office, techniques, equipments and software are sufficient for

the operations;

27.2.6 Business and risk management plan for conducting the operation for at least 3

years;

27.2.7 Other additional information and documents prescribed by the Commission‟s

regulations.

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27.3 If a bank, its parent company, subsidiary, dependent company or any legal person

involved with the banking association, wants to conduct a regulated operation, it must

obtain prior approval from Mongolbank.

27.4 A legal person wishing to obtain a license for securities trade clearing, settlement, or

securities depository and custody, shall have connection to the electronic trading network

of stock exchange and the evidence of such shall be attached in the application stated in

27.1 of Article 27 of this Law.

27.5 A legal person wishing to obtain a license for securities trading shall have connection to

the electronic network of securities clearing and settlement organization and the evidence

of such shall be attached in the application stated in 27.1 of this Law.

Article 28 Issuance of a License

28.1 The Commission shall issue a license provided that the applicant meets the following

conditions and requirements.

28.1.1 The regulated operation shall not contradict with other operations that the

applicant undertakes and shall not cause conflicts of interest;

28.1.2 The authorized person is considered as suitable for the role;

28.1.3 The person has satisfied the requirements prescribed by the Commission with

respect to human resources;

28.1.4 The person has satisfied the minimum requirements prescribed by the

Commission with respect to share capital and current assets;

28.1.5 Office, techniques, equipment and software satisfy the requirements for

conducting the operations;

28.1.6 The person satisfied additional conditions and requirements prescribed by the

Commission pursuant to the law.

28.2 The Commission shall refuse to issue a license, if it considers that the applicant does not

satisfy the conditions and requirements necessary for conducting the regulated operation.

Article 29 Suspension of a License

29.1 Under the following circumstances, the Commission may suspend a license as set out in

the Law on Business Entities‟ Licensing:

29.1.1 if the license holder makes a request

29.1.2 if the license holder breached law and the Commission‟s regulations; if a valid

petition for suspension of the license is filed by the Stock Exchange, securities

trade clearing, settlement and depository organization;

29.1.3 license terms, conditions, and requirements have been violated or unfulfilled;

29.1.4 the license holder fails to comply with orders given by the Commission pursuant

to Article 65 of this Law;

29.1.5 the license holder fails to provide information on time as required by the

Commission and provides inaccurate, false, incorrect, incomplete, and

misleading information;

29.1.6 the authorized person of a legal person fails to maintain eligibility status; or

29.1.7 the license holder fails to pay the regulated service fee within the specified time.

29.2 Upon remedy of the situation for the license suspension, a license holder may file a

petition for reinstatement of the license to the Commission.

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29.3 The Commission shall resolve the petition referred to in 29.2 of Article 29 of this Law

within 30 days.

29.4 A suspension of a license shall not constitute grounds for change of term of the license

initially issued.

Article 30 Revocation of a License

30.1 Under the following circumstances, the Commission may revoke a license:

30.1.1 the license holder files a petition for the revocation of the license;

30.1.2 the license holder fails to remedy the violations during the suspension period

and to file a petition for reinstatement of the license to the Commission;

30.1.3 upon repeated and/or serious violations of the terms, conditions, and

requirements of license;

30.1.4 the license holder causes substantial damage to a client;

30.1.5 the regulated operation has not been conducted for a period of a year;

30.1.6 upon bankruptcy or liquidation of that legal person

30.1.7 upon other circumstances contradicting with the regulated operation.

30.2 A revoked license shall not be reinstated.

Article 31 Consequences of Suspension and/or Revocation of a License

31.1 The Commission shall inform the license holder of its decision referred to in Article 28 and 29.430 of this Law in writing. The following information shall be specified in the

decision:

31.1.1 grounds for the decision;

31.1.2 the effective date of the decision; and

31.1.3 follow-up actions and tasks to be undertaken in relation to the decision.

31.2 A suspension or revocation of a license shall not constitute grounds for termination of an

agreement or a transaction between the person and others or a waiver of liabilities or

obligations for the person to compensate others for any damage in respect of any such

agreement or transaction.

31.3 A legal person, whose license has been suspended or revoked, is prohibited to make any

agreement or a transaction unless permitted by the Commission for customer protection

purposes.

Article 32 Actions by the Commission following up Suspension, Reinstatement and

Revocation of a License

32.1 The Commission shall inform the public within 5 working days following its decision for

suspension, reinstatement or revocation of a license.

32.2 The Commission shall transfer the person‟s rights and responsibilities assumed by the

agreement with clients, in case of a revocation and services that need to be delivered to

clients during the suspension period in case of a suspension, to other authorized legal

persons in accordance with the specified regulations.

32.3 The Commission may restrict the right of the suspended person to enter into the

customer‟s accounts, or to make a transaction, and may arrest or segregate the person‟s

property and monetary assets during the suspension period, if deemed necessary.

32.4 The Commission may take measures such as to restrict the rights of a person whose

license was revoked, to enter into the customer‟s accounts and to make a transaction, and

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may arrest the person‟s property, and take over and archive the documents related to the

operations, in order to protect the rights of the investors, and to ensure market stability, if

deems as necessary.

32.5 The person, whose license is revoked, is obligated to make a decision regarding its

liquidation, through discussions with authorized organizations, within 45 days since the

license was revoked, if the person has no other operations conducted with a license.

32.6 The Commission shall appeal to court to mandatorily liquidate the legal person, who has

not made a decision regarding liquidation within the deadline stated in 32.5 of this Law.

Article 33 Regulated Operations that Require Registration

33.1 The operations stated in 24.1.13-24.1.15 of this Law shall only be conducted upon

registration with the Commission.

33.2 The registration of a legal person to conduct operations stated in 24.1.13-24.1.15 shall be

based on competitive selection.

33.3 A person, wishing to undertake operations stated in 24.1.13-24.1.15 of this Law, shall

satisfy the following requirements.

33.3.1 Must have a certain number of lawyers chosen by a competitive selection to

work permanently pursuant to an employment contract, if the person is to

provide legal advising;

33.3.2 Must have a certain number of appraisers to work permanently pursuant to an

employment contract, with a license to conduct asset appraisal, if the person is

to provide asset valuation;

33.3.3 Must have a certain number of auditors to work permanently pursuant to an

employment contract, with a license to conduct auditing, if the person is to

provide auditing services;

33.4 The Commission shall set the terms and conditions for each of the regulated operations

indicated in 24.1.13-24.1.15 of this Law, considering the proposals of securities market

self-regulated organizations, non-standing committee for selecting lawyers, professional

organization for asset appraisal, and the Institute of Certified Public Accountants.

33.5 The Commission may organize professional trainings in conjunction with the respective

professional organizations for legal persons and their employees registering with the

Commission.

33.6 The Commission shall resolve the application for registration within 20 working days

since the receipt of the application.

33.7 The Commission shall reject the application in the following circumstances:

33.7.1 The applicant has not satisfied the terms, conditions and requirements set out in

33.4 of this Law;

33.7.2 Financial position of the person conducting such services is not sufficient;

33.7.3 The applicant has not satisfied the criteria set out in 33.3 of this Law.

33.8 The Commission shall discontinue the registration of a person in the following

circumstances:

33.8.1 The legal person files such petition

33.8.2 Upon conduct of services, not compliant with the regulations and standards;

upon critical professional failure;

33.8.3 Upon identification of a violation of laws.

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33.9 The Commission shall not re-register the person, discontinued from the registration

within 3 years.

33.10 The registration of the Commission shall be valid except for circumstances set out in 33.8

of this Law.

Article 34 Right to File Appeal

34.1 In the event of disagreement with the decision of the Commission stated in 28.2, 29.1,

30.1, 33.7, and 33.8 of this Law, a person shall have 14 days to file an appeal with the

Supervisory Council pursuant to Article 28 of the Law on Legal Status of the Financial

Regulatory Commission.

34.2 Filing of an appeal as set out in Article 34.1 of this Law shall not constitute a ground for

suspension of the decision and only upon the decision of the Supervisory Council, the

enforcement of the Commission‟s decision may be temporarily suspended.

34.3 The Commission shall be obliged to accept and enforce the lawful decisions rendered by

the Supervisory Council. In the event of disagreement with the decision of the

Supervisory Council, court resolution may be sought.

Sub-chapter Three

Granting a License to a Professional

Article 35 Granting License to a Professional

35.1 A professional to work for a legal person with regulated operations shall obtain a license

from the Commission pursuant to this Law.

35.2 The license to be granted to a professional shall be of certain types and ranks dependent

upon the types of services to be provided and level of expertise required.

35.3 The Commission shall prescribe the types and ranks stated in 35.2 of this Law,

considering the proposals of the non-governmental and self-regulated organizations of the

securities market.

35.4 Chairman of the Commission shall grant the license stated in 35.1 of this Law with the

validity of three years to an individual who passed the competitive selection, based on the

resolution of the Non-standing Professional Board next to the Commission (hereinafter

the „Board‟).

35.5 Professional selection process shall be conducted by the Board. Board shall consist of

nine members.

35.6 A board member shall be an individual nominated by respective public administrative

organization, self-regulatory and professional organizations, with a minimum of three

years working experience in finance, economics and legal sector. The Commission shall

prescribe regulations on board operations and appointment of members.

35.7 The Board shall be chaired by a Board member designated by the Commission Chairman.

35.8 The Commission shall prescribe regulations on conducting professional selection,

licensing professionals, suspending and revoking their licenses.

35.9 An individual participating in professional selection by the Commission, shall have

attended the training organized or accepted by the Commission and shall satisfy the

established criteria.

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Sub-chapter Four

Types of Regulated Activities

Article 36 Brokers’ Operations

36.1 Engaging in intermediary services related to the purchase and sale of securities on behalf

of clients using clients‟ funds upon the client‟s instructions on the basis of a contract shall

be construed as Brokers‟ operations.

36.2 A Broker is obliged to abide by laws, rules and regulations approved by the Commission,

and self-regulated membership institutions such as the Stock Exchange and the securities

clearing, settlement and depository organization.

36.3 The relations between a Broker and a client shall be subject to a formal agreement. The

Commission shall set the regulations and standard terms to be reflected on an agreement

for brokerage services.

36.4 A Broker shall be obliged to provide fair and professionally-qualified execution for its

client in accordance with the terms and conditions set forth in the agreement. A broker

shall be obliged to inform the client and have the order renewed, should the terms of the

agreement change.

36.5 A Broker must execute orders on behalf of their clients in a chronological order of who

has placed the order first and must execute clients‟ orders on a priority basis despite that

the broker also engages in securities dealing.

36.6 The Broker shall inform the client beforehand if any conflict exists when making a

contract, or shall inform the client immediately if any conflict arises at any time after the

making of the contract.

36.7 A Broker shall be liable for any material damage incurred to the client as a consequence

of its failure to inform the client of a conflict of interest beforehand or immediately after

such conflict has arisen if it has occurred after the contract.

36.8 A broker shall place client‟s monetary and securities assets in client‟s account opened at

an authorized organization for cash and securities deposits separate from its monetary and

securities assets.

36.9 A client‟s cash depositing account stated in 36.8 of this Law shall be securities trading

account to make the securities settlement only.

36.10 As stated in 36.8 of this Law no other person except for the client and his/her trustee shall

be allowed to use the money in the client‟s account for any purpose other than clearing or

settling the securities trade transaction.

36.11 Unless otherwise stated in the law and the agreement, a broker shall transfer the money,

received from the client pursuant to their agreement or received from others on client‟s

behalf pursuant to the agreement made with others upon the client‟s instruction, to the

client‟s account at an authorized cash depository organization.

36.12 A broker shall keep primary-level accounting records of the client‟s monetary assets and

securities by each client and shall present the records to the client pursuant to the

prescribed regulations.

36.13 A broker is obliged to know its clients, and shall check the participation eligibility of the

client for any securities trade that the client may be ineligible to participate and shall

refuse to execute the order if the client has no right to participate in such trade.

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36.14 Client‟s money shall not be used for compensating the obligations that the broker

assumes to others.

36.15 A Broker shall be prohibited from transferring money between his own account and a

client‟s account, unless the broker provided credit for the securities trade to the client

pursuant to their agreement.

36.16 Intermediary services of buying and selling securities in international securities market

shall be undertaken upon the Commission‟s permission and the Commission shall

prescribe regulations.

36.17 For the purpose of satisfying cash settlement of trades, the Stock exchange and/or the

Central Securities Depository may require the broker to deposit collateral in a special

account.

Article 37 Dealer’s Operations

37.1 Buying and selling securities by its own account with its own money shall be construed

as a dealer‟s operation.

37.2 A dealer may offer the following terms and conditions for the operation referred to in

Article 37.1 of this Law:

37.2.1 the minimum and maximum number of securities to be purchased or sold;

37.2.2 the validity period of the price offered for the purchase or sale; and

37.2.3 others that are not prohibited by laws.

37.3 A dealer may change or cancel an offer referred to in Article 37.2 of this Law by the

same means and modes that the initially offered, pursuant to regulations set by the stock

exchange.

37.4 A dealer shall be obliged to execute an accepted offer of purchase or sale of securities

undisputedly upon receipt of the reply following his valid offer.

37.5 A dealer shall deposit the securities and monetary assets under his ownership in a special

account at an authorized independent organization for securities and cash deposits.

37.6 For the purpose of satisfying the performance of the obligation referred to in Article 37.4

of this Law, the Stock Exchange and/or the Central Securities Depository may require the

dealer to place collateral in a special account.

37.7 Any damage resulting from a failure of performance of the obligation referred to in

Article 37.4 of this Law shall be claimed under a court procedure.

37.8 Regulations of securities trading accounts stated in Articles 36.8 and 37.5 of this Law

shall be prescribed by the joint regulations of the Mongolbank and the Commission.

Article 38 Securities Advisory Operations

38.1 Conducting research and analysis to determine the price of any securities to be offered in

the Primary Market and providing professional advice with respect to the price, terms and

the timing for purchase and sale of any securities pursuant to the agreement made with a

Client, shall be construed as „Securities Advisory Operations‟.

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38.2 In the following circumstances it shall not be considered as that person performing

securities advisory operations.

38.2.1 A regulated person conducting research and analysis for its own use;

38.2.2 An investor conducting research and analysis for his investment decision;

38.2.3 Producing research studies for scientific purposes and disclosing the results for

public use.

Article 39 Securities Trust Operations

39.1 Exercising the ownership rights of the securities and other relevant assets of the

beneficiary within the limits of the trust agreement, shall be construed as a securities trust

operation.

39.2 The conductor of the securities trust operation (hereinafter the “trustee”) shall be liable

for any losses incurred due to the conflict of interest arisen between the trustee and its

client or between its clients that was not informed to the parties in advance.

39.3 The beneficial owner shall exercise his ownership rights only in accordance with the

agreement, once the securities and monetary assets are transferred to the trustee.

39.4 Obligations that the trustee bears to others that are unrelated to the operation stated in

39.1 of this Law shall not be compensated by the securities of the beneficiaries.

39.5 The trustee may make agreements and transactions on derivative financial instruments,

should the beneficiary be a professional investor.

39.6 Specific regulations on conducting trust operations shall be approved by the Commission.

Article 40 Underwriting Operations

40.1 Providing professional services related to offering shares to the public based on their

agreement with the securities issuer and buying the issuer‟s shares that had not been sold

in the primary market shall be construed as underwriting operations.

40.2 A license for underwriting operations may be issued to a legal person holding a license

for brokers‟ or dealers‟ operations.

40.3 Revocation of a license for brokers‟ or dealers‟ operations shall constitute a ground for

revocation of a license for underwriting operations.

40.4 The underwriting services shall be provided in following forms.

40.4.1 to prepare the prospectus and to determine the offering price of the securities;

40.4.2 to buy all securities of the issuer that was offered to the public;

40.4.3 to make the best efforts to sell the securities by introducing the securities to

public;

40.4.4 to buy all the remaining securities that had not been sold during the public

offering;

40.4.5 to provide guarantee to buy the securities at a price indicated in the agreement if

not buying from the issuer‟s securities offered to public;

40.4.6 to coordinate actions to present and sell the securities to its own clients;

40.4.7 other terms indicated in the agreement.

40.5 The underwriter may provide the services referred to in 40.4 of this law independently or

in cooperation with other persons licensed to act as underwriters. In the latter case, parties

shall sign an agreement, and must mandatorily state the following terms and conditions in

the agreement.

40.5.1 the extent of the rights, duties and obligations of the parties for a joint provision

of underwriting services; and

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40.5.2 the agreement validity term.

40.6 The Commission shall specify standard terms and conditions for underwriting service

agreement and the regulations for underwriting operations.

Article 41 Securities Ownership Rights Registration Operations

41.1 Receiving information on actions and processes undertaken in the course of performance

of securities ownership rights under an agreement between an Issuer and an Owner

(trustee), inputting and storing the information in the centralized and specific securities

registration database, processing the information in accordance with applicable

procedures, and reporting to others shall be construed as the securities ownership rights

registration operation.

41.2 The ownership rights registration operation shall consist of the following types:

41.2.1 Centralized registration;

41.2.2 Specific registration.

41.3 Securities ownership rights registration shall have a centralized structure and the

centralized registration shall be conducted by authorized professional organization to

undertake central securities depository operations. Such legal person shall assign

centralized identification number to securities according to the international securities

identification number.

41.4 A legal person authorized to conduct specific registration shall have a mandatory

membership with the Central Securities Depository. Changes to the specific registration

shall be recorded in the centralized securities registration on timely manner.

41.5 The specific registration database shall contain information on the securities

owned by each beneficiary (trustee), their rights and responsibilities, information on

related persons and other additional information as prescribed by the Commission.

41.6 Centralized securities registration database shall contain the following information:

41.6.1 Type and volume (issued and declared) of financial instruments authorized to be

traded in a regulated market in Mongolia, relevant information of the securities

issuer;

41.6.2 Type and volume (issued and declared) of securities of an issuer listed on an

exchange operating in Mongolian territory whose securities are traded abroad,

and other financial instruments representing such securities, and relevant

information of the securities issuer;

41.6.3 Type and volume (issued and declared) of securities of an issuer dual-listed on a

foreign exchange, whose securities are traded in Mongolia, and other financial

instruments representing such securities, relevant information of the securities

issuer;

41.6.4 Centralized securities registration with sub-accounts for the members.

41.7 A person acting as a securities ownership right registrar is obliged to maintain and

accurately preserve the securities ownership rights information and data for such period

as specified in the legislation, and disclose such information in accordance with the

respective regulations.

41.8 The Commission shall set the regulations regarding the operation stated in 41.7 of this

Law.

41.9 An Issuer shall be entitled to obtain a copy of the register of holders of the securities it

issued, once a year free of charge.

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41.10 A person at fault shall be liable for any damage caused due to the input of inaccurate

information to the specific registration.

41.11 A person acting as securities ownership rights registrar has the right to refuse to conduct

the registration due to grounds set out in law and respective regulations, and to report and

have the information examined by the authorities.

41.12 Securities owner (trustee), person acting as securities depository and brokers operation

are obliged to provide information necessary for the securities registration accurately on

an expedited basis.

41.13 Trustee shall co-register the beneficiary of the securities when registering into the

securities ownership rights registration. List of securities owner who are not required to

be co-registered in securities ownership rights registration shall be approved by the

Commission.

41.14 Securities shall be registered with only one legal person acting as a securities registrar

and it is prohibited to be co-registered.

41.15 A person acting as a securities ownership rights registrar is prohibited from arbitrarily

disposing of the securities of others‟ ownership recorded in the securities registration it

maintains without the consent of the owner. This article shall not apply in the case when

securities owner failed to make securities settlement on time set as in article 43.2 of this

Law.

41.16 The Commission shall set the maximum fees for the securities ownership right

registration service.

Article 42 Securities Trade Clearing Operations

42.1 The securities trade clearing operations (hereinafter the “clearing operations”) shall be

construed as the composition of the following procedures.

42.1.1 determining the amounts payable by each agreement and in cumulative totals

based on the transactions and agreements made between the trade participants

after the securities trading, and undertaking relevant financial records;

42.1.2 making preparations for the settlement, and sending payment orders to the

authorized settlement banks;

42.2 The securities trade clearing operations shall be made at trading day or one day after the

trading.

42.3 An authorized person to execute clearing operations (hereinafter the “clearing authority”)

shall establish a segregated fund with the purpose of mitigating risks of revocation of

agreements and transactions made during the securities trading.

42.4 The clearing authority shall analyze securities market system risks and provide securities

trade settlement organization with the recommendation of minimizing those risks.

42.5 The Commission shall set the regulations for clearing operations.

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Article 43 Securities Trade Settlement Operations

43.1 Securities trade settlement operations (hereinafter the “settlement operations”) shall be

construed as the composition of the following procedures:

43.1.1 transferring the payment to the sellers account based on the order received from

the clearing authority;

43.1.2 transferring the shares to the buyers account;

43.1.3 conducting settlement transactions simultaneously within the given period

sending orders to central securities depository and cash depository organization;

43.1.4 confirming transactions by compelling financial records in accordance with

statements reflecting the completed payment;

43.1.5 furnishing relevant information to the securities depository and registration

authorities.

43.2 Securities trade settlement transaction shall be conducted within 3 working days after the

trade.

43.3 Securities trade settlement transaction can only be conducted once. The transaction can

be cancelled by the Commission inspector based on the requests of securities trading,

clearing, settlement organizations if the securities and cash are placed in their respective

accounts.

43.4 The Settlement organization may receive collateral from payee side, have guarantee

issued and charge liabilities pursuant to the agreement to minimize credit and settlement

risks that might be faced during the settlement process.

43.5 When the payment has been fully made securities trade settlement shall be executed

following securities ownership transferring principle.

Article 44 Central Securities Depository Operations

44.1 Providing custody for the securities pursuant to the agreement made with the securities

owner /trustee/ and the relevant record-keeping services shall be construed as Central

Securities Depository Operations.

44.2 The license for central securities depository operations shall be granted to only one legal

entity. The Commission shall define the entity‟s management, structure, organization,

operational terms and conditions and the list of the terms that must be included in their

agreement with their clients.

44.3 The legal entity conducting central securities depository operations may have secondary

operations as a registrar of the specific securities ownership rights and as a custodian.

44.4 Central Securities Depository Organisation is prohibited to dispose the securities in

deposit and shall assume responsibility for any damage caused to those securities.

44.5 Central Securities Depository Organisation shall inform the securities issuer upon his

request and the securities registrar regarding the transfer of beneficial ownership.

44.6 Central Securities Depository Organisation is not authorized to hold cash deposits, thus

dividends and shares of the securities under the depositors‟ ownership and payments from

selling securities shall be transferred to the owners‟ account at a commercial bank that

meets the Mongolbank‟s capital adequacy requirements.

44.7 The liabilities that the depository organization bears to others, is prohibited to be

compensated by the securities and relevant monetary assets in the clients‟ accounts.

44.8 The securities offered to the public shall be registered in the central securities

registration.

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Article 45 Securities Depository /Custody/ Operations

45.1 Providing custody for the securities owned by the client, and conducting other services

related to exercising other ownership rights attested by the securities shall be construed as

custody operations.

45.2 Custody operations can be conducted by a bank holding a license for banking operations,

its controlled or subsidiary company, and/or foreign custody bank branch which is

registered in Mongolia according to the applicable rules and regulations.

45.3 A person acting as a custodian is prohibited to dispose the securities in their custody or

sign a contract with regards to the securities in their custody except with the securities

owner.

45.4 A person acting as a custodian shall ensure reliability by having separate account from its

customers‟ account and bookkeeping each customer‟s account individually.

45.5 The Commission and Mongolbank shall jointly set the regulations of custody operations.

45.6 The liabilities that the custody organization bears to others, is prohibited to be

compensated by the securities and relevant monetary assets in the clients‟ accounts.

Article 46 Securities Trading Operations

46.1 Enabling an agreement or a transaction related to the public offer, purchase and/or sale of

any securities and facilitating the securities trading shall be construed as securities trading

operations.

46.2 The organization to be engaged in the securities trading shall be the Stock Exchange.

46.3 The stock exchange shall approve and make public the following regulations:

46.3.1 Regulation on facilitating the securities trading;

46.3.2 Regulation on putting securities to trading;

46.3.3 Regulation on signing a securities trade agreement and registration;

46.3.4 Regulation on performance under a securities trading agreement;

46.3.5 Regulation for control on securities trading;

46.3.6 Schedule for rendering the service by facilitating the securities trading;

46.3.7 Other rules and regulations necessary for securities trading operations;

46.3.8 Other information requiring public disclosure as provided in legislations and

internal regulations.

46.4 The stock exchange shall disclose the following information to the public regarding the

securities trade.

46.4.1 the date of the transaction, securities registration number and trading symbol;

46.4.2 total volume of the securities traded, quotes, opening and closing prices;

46.4.3 other information requiring public disclosure as provided in legislations and

respective regulations.

46.5 The stock exchange may run the operations indicated below in addition to those specified

in 46.1 of this law.

46.5.1 trading operations for commodity-based derivative financial instruments;

46.5.2 clearing operations;

46.5.3 allowing the use of specific properties with fee for the purpose of organizing

securities trading in accordance with specified regulations;

46.5.4 other activities provided in the legislation and regulations of the Commission.

46.6 The stock exchange is prohibited to run operations except for those indicated in 46.1 and

46.5 of this law.

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46.7 The exchange shall have a special operational unit if it is to run securities trade clearing,

settlement operation additionally.

46.8 An authorized person of the stock exchange is prohibited to take up any position at a

regulated legal person that is a market participant.

46.9 The Government‟s approval shall be needed when one or more related persons are

owning 10 and more percent of the securities issued by the stock exchange.

46.10 The stock exchange shall establish a Professional Registration Council designated to

manage the exchange‟s listing. The stock exchange shall specify the procedures for

establishment and operations of the Council.

Article 47 Participation in Trading at the Stock Exchange

47.1 Brokers, dealers, and underwriters registered as set in this Law shall participate in trading

at the stock exchange.

47.2 In case that the securities are cleared by a person different from the one organizing the

trade, such person‟s operation shall not be regarded as a participation in trading at the

stock exchange.

Article 48 Term, Conditions, and Requirements for the Stock Exchange Operations

48.1 The Stock Exchange shall be obliged to meet the following terms, conditions, and

requirements in its operations:

48.1.1 to provide relevant services when Financial Instruments derived on securities

and commodities are traded at the Stock Exchange;

48.1.2 to approve the Listing rule of the Stock Exchange;

48.1.3 to approve the procedures for registration, deregistration, and trading of

Derivative Financial Instruments;

48.1.4 to seek authorization from the Commission with respect to the regulations and

procedures subject to approval of the Stock Exchange under this Law and the

amendments to such regulations and procedures;

48.1.5 to check and control to make sure the trading is being undertaken in accordance

with the applicable procedures;

48.1.6 to operate a fair, orderly and transparent market, and to make necessary

preparations by its own resources.

48.2 With a view to performing its duties referred to in Article Error! Reference source not found.5 of this Law, the Stock Exchange shall be entitled to demand necessary

information from the trade participants, securities owners, and Issuers.

48.3 The Stock Exchange shall have the right to set the amount of the service fee and the

promotion.

Article 49 Financial Rating Operations

49.1 Independent and external rating of the Issuer‟s financial strength in accordance with the

specially-developed procedures shall be construed as a financial rating operation.

49.2 A legal person authorized to act as a financial rater, may conduct analysis on certain

types of financial instruments in the securities market and may assign different ranks

dependent upon their quality, risk, and return, provided that the person satisfies relevant

terms and conditions.

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49.3 A legal person authorized to act as a financial rater is prohibited to perform services with

conflicts of interest, to assign inaccurate ranking, or assign ranking based on incomplete

information and analysis.

49.4 The Commission shall prescribe the methodology for financial rating and the regulations

for operations.

Article 50 Conducting a Secondary Regulated Operation 50.1 The following operations may be conducted additionally by each person indicated below.

50.1.1 securities dealing and underwriting operations by a person authorized to act as a

broker;

50.1.2 securities clearing and settlement operations by an organization authorized to

run central securities depository operations;

50.1.3 securities trade clearing operations by the stock exchange;

50.1.4 specific registration operations by an organization authorized to run custody

operations;

50.1.5 operations permitted by the Commission on each case, as applicable.

50.2 Other regulated operations except for ones stated in 50.1 of this law, is prohibited to be

conducted additionally.

50.3 Should one legal person conduct several of the regulated operations indicated in this law

simultaneously, the financial requirements to be imposed shall be increased by the

requirements that have to be met for each operation conducted additionally.

Sub-chapter Five

Accounting Records and Auditing

Article 51 Keeping Accounting Records

51.1 A Regulated Person shall be obliged to keep and maintain primary accounting records

and bookkeeping which accurately reflect all transactions made in relation to the licensed

activities and the changes in its own assets and its clients‟ assets and present accurate

statements of balance, income and performance in a timely manner.

51.2 A Regulated Person shall maintain the documents and records referred to in this article in

its archive for at least 5 years. The Commission or its delegate shall be entitled to review

and obtain a copy of these documents free of charge.\

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Article 52 Auditor

52.1 A regulated person shall choose and sign a contract with an auditing firm registered with

the Commission within one month after receiving its license and inform the Commission

accordingly.

52.2 The following persons are prohibited to be chosen as an Auditor referred to in 52.1 of this

Law.

52.2.1 A person who had or has an authorized position at a regulated person; its

shareholder or client;

52.2.2 Related persons of a person stated in 52.2.1 of this Law;

52.2.3 Auditors not registered with the Commission.

52.3 A regulated person shall inform the Commission in writing within seven days following a

termination or an expiry of its contract with an auditor.

Article 53 Auditing

53.1 A Regulated Person shall have its accounts and other records audited at the end of each

financial year and submit a certified copy of the audited financial statement to the

Commission along with the auditor‟s opinion within the period specified in the Law on

Accounting.

53.2 If, during the performance of auditing for a Regulated Person, an auditor becomes aware

of any matter which would critically affect the financial position of the Regulated Person,

or discovers evidence of a violation of financial regulations, it shall immediately report to

the Commission and to the Regulated Person in writing.

53.3 The Commission may demand the regulated person to have its quarterly financial

statements audited, if deems as necessary.

CHAPTER FIVE

SECURITIES MARKETS INFORMATION

Article 54 Information of the Primary Market

54.1 An Issuer of securities in the primary market is obliged to provide the following

information to interested parties free of charge.

54.1.1 Information in the prospectus;

54.1.2 Procedures specified in the Company‟s regulations with respect to issuing and

trading securities;

54.1.3 Financial statements;

54.1.4 Other information prescribed by the Commission, Stock Exchange, and other

authorities; and information required by the issuer‟s own regulations as

necessary for public-disclosure.

Article 55 Information of the Secondary Market

55.1 The issuer, whose securities are traded in the secondary market, is obliged to disclose the

relevant information to public through the Commission, the Stock Exchange and its own

website within one day following the establishment of the circumstances indicated below:

55.1.1 Changes to the issuer‟s management structure;

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55.1.2 Changes to the influential shareholder‟s structure, and changes in shares of other

legal persons under his ownership;

55.1.3 Re-structuring of the issuer, its subsidiary, dependent and parallel company, if

applicable;

55.1.4 Arrest or seizure of the issuer‟s property, if applicable;

55.1.5 Information with respect to a license obtained, suspended or revoked, if

applicable.

55.1.6 Resolution from the shareholders‟ meeting;

55.1.7 Other price-sensitive information.

55.2 The stock exchange is obliged to disclose the following information related to the listed

securities and issuers to the public through its website:

55.2.1 securities quotes and other price-sensitive information;

55.2.2 operations and financials of the securities issuers;

55.2.3 shareholders‟ meeting of the issuers and their subsequent decisions;

55.2.4 large-scale transactions and agreements with conflicts of interest, made by the

issuers;

55.2.5 percentage and volume of the shares and financial derivative instruments owned

by the authorized persons of the issuers;

55.2.6 changes in management and organizational structure and information about the

independent members of the Board of Directors;

55.2.7 information about the influential shareholders of the issuers and their related

persons;

55.2.8 other information required by regulations, the Commission and the Exchange.

55.3 The issuer shall be responsible for the reliability of information stated in 55.2 of Article 55

of this Law.

Article 56 Information of Regulated Persons

56.1 A Regulated Person operating with a License shall provide the following information to

relevant persons.

56.1.1 To provide information to the clients about a circumstance that might adversely

affect the rights and interests of investors;

56.1.2 To provide available, un-confidential information about the securities and the

issuer to the clients when taking purchase or sale order of the securities;

56.1.3 To provide information to the clients on the restrictions placed on the securities

or the issuer by an authority, and special terms related to those securities.

56.1.4 To provide a reasonable explanation to the clients, if the person had not

executed or refused to execute the client‟s order.

56.1.5 To provide information concerning an agreement, a trade or a transaction of the

securities that are required to be reported to the Commission pursuant to the

Law and information of the participants to such transaction;

56.1.6 To deliver information directed to a client from a relevant person to such client.

56.1.7 To inform the clients and the Commission about the changes in the person‟s

operation, organisation, structure, rules and regulations, pursuant to the

established regulations.

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Article 57 Information of Investors

57.1 An investor is obliged to provide all the necessary information with respect to the

securities to the securities registrar and nominal owner, when registering the securities

under his ownership or transferring them to a nominal owner.

57.2 Securities registrar and nominal owner shall not be liable for any losses incurred to others

due to the investor not performing his obligation stated in 57.1 of this Law.

57.3 Investor is obliged to provide information with respect to the securities under his or

related person‟s ownership, upon the demand of the Commission.

Article 58 Information of the Commission

58.1 The Commission shall be obliged to disclose the following information to the public in

addition to that required by this Law:

58.1.1 registered securities and their prospectuses;

58.1.2 notes, reports, and conclusions provided to the Commission by an Issuer;

58.1.3 decisions for issuing a license for a regulated person, registering, and granting a

license to a professional and the grounds for such decisions;

58.1.4 annual financial and operational reports received from regulated persons and

self-regulatory organizations;

58.1.5 annual operational reports of the Commission; and

58.1.6 other additional information as prescribed by the Commission.

58.2 Matters concerning the release of information by the Commission to regulatory agencies

of foreign countries and international organizations shall be subject to Article 64 of this

Law.

Article 59 Commission’s Right to Demand Information

59.1 The Commission is authorised to demand information from individuals and legal persons

except for those indicated in 81.1 of this Law, in order to conduct its functions properly

and to take prompt actions or by the request of foreign regulatory agencies and

international organizations.

59.2 The information stated in 59.1 of this Law shall be treated as confidential information of

the Commission unless otherwise stated in the Law, and such information shall only be

used for official purposes and shall not be disclosed to others without consent from the

provider of the information.

CHAPTER SIX

SECURITIES MARKETS REGULATION

Sub-chapter One

State Regulation in the Securities Markets

Article 60 State Central Authority for Financial Matters

60.1 The State Central Authority for Financial Matters shall exercise the following powers:

60.1.1 to prepare proposals for the development of legislation on securities;

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60.1.2 to determine the state policies for the Securities Markets in harmony with the

overall financial and economic policies and to provide the Government with

policy advice;

60.1.3 to cooperate with the Commission and to assist its activities;

60.1.4 other functions as set out in the law

Article 61 Organization Implementing the State Regulation in the Securities Markets

61.1 The Commission shall exercise the powers of the State to regulate and supervise the

securities operations.

61.2 Securities market participants are obliged to implement the decisions made by the

Commission for the purpose of implementing the securities legislation.

Article 62 Powers of the Commission

62.1 The Commission shall exercise the following powers:

62.1.1 To prepare proposals for the development of legislation on securities and to

ensure enforcement of respective legislation.

62.1.2 To approve and enforce regulations that set the norms and standards to be

followed by market participants in order to enforce the implementation of the

securities legislation;

62.1.3 To determine the state policies for the securities market development and seek

authorization from the authorized organization;

62.1.4 To take measures deemed as necessary for promoting fair, efficient, competitive,

and transparent practice in the securities market;

62.1.5 To specify the operational criteria and requirements for regulated persons; to

issue, renew, suspend or revoke a license;

62.1.6 To register and de-register legal persons to provide auditing, appraisal, and

legal services in the securities market;

62.1.7 To set the standard terms of the agreement made between the regulated person

and its client;

62.1.8 To oversee the operations of regulated persons, to impose corrective actions and

orders to remedy breaches found during the inspection, and to impose sanctions;

62.1.9 To check the eligibility of candidates for managing positions at regulated

entities, to grant working permissions to them, or to discharge the persons not

suited for the position;

62.1.10 To register the securities and derivative instruments of foreign and domestic

issuers that shall be offered to public in Mongolian territory, to grant the

permission for trading those securities, to suspend the trading temporarily, to

terminate and revoke transactions related to those securities, and to de-register

the securities;

62.1.11 To grant permission to approve the rules and regulations that shall be followed

by self-regulatory organizations and regulated persons;

62.1.12 To monitor and oversee the investment fund operations;

62.1.13 To regulate voluntary and compulsory bidding for acquisition of a company;

62.1.14 To create a condition necessary for protecting the legitimate rights and interests

of the investors based on the principle that securities market clients shall take

responsibility for their investment decisions;

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62.1.15 To appeal to the court on behalf of the client without his/her proxy for the

client‟s own benefits, if necessary;

62.1.16 To cooperate with authorized regulators of foreign countries or international

organizations, to exchange information and to provide mutual assistance;

62.1.17 To make a proposal to decrease commission rate set by the market participants,

if the participant does not accept the proposal, to invalidate decision with

commission percentage, to publicly announce if such action has been taken

62.1.18 To exercise other functions as permitted in the law.

Article 63 Cooperation with Authorized Regulators of a Foreign Country or

International Organizations

63.1 The Commission may sign a memorandum of cooperation and an agreement with

authorized regulators of foreign countries and international organizations, to provide

mutual assistance, to promote their operations and to exchange information on

conducting effective surveillance and monitoring.

63.2 The Commission shall take into account the following items when providing assistance to

authorized regulators of foreign countries and international organizations.

63.2.1 If a memorandum of cooperation or an agreement has been signed with the

organisation requesting assistance;

63.2.2 If a reciprocal, assistance has been or could be received in response to a

comparable request.

63.2.3 If it ensures confidentiality of information.

63.3 An authorized regulator of a foreign country or an international organization shall specify

the objective, intended purpose and the confidentiality of the information, when

requesting assistance from the Commission.

63.4 The Commission may request clarification on the requested information from the

authorized regulator of a foreign country or an international organization.

63.5 The Commission may refuse to provide assistance if no reply has been received to the

request stated in 63.4 of this Law.

63.6 The information provided by the Commission shall only be used for the purpose specified

in the request or prescribed by the Commission; and using information for other purposes,

disclosing and transferring the information to a third party without the consent from the

Commission is prohibited.

63.7 The information provided by the regulator of a foreign country or an international

organization shall only used for the purpose specified in the request of the Commission; it is

prohibited to use the information for other purposes, disclosing and transferring the information

to a third party without the consent from the regulator of a foreign country or an international

organization.

Article 64 Recommendations

64.1 The Commission shall be entitled to issue recommendations to market participants with

respect to the following:

64.1.1 to protect the investors‟ rights and interests;

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64.1.2 to ensure fairness, transparency and efficiency of the securities trading, clearing,

settlement and depository operations;

64.1.3 to reduce the systemic risk of the securities market;

64.1.4 to create fair and proper management structure for regulated persons;

64.1.5 to enforce the implementation of the securities legislation;

64.1.6 to enforce the performance of responsibilities set out in agreements, by regulated

persons; and

64.1.7 other matters provided in this Law and as deemed necessary by the Commission.

64.2 The Commission shall deliver its recommendations in writing, to inform to the

public by public news or other tools, if deemed necessary.

Article 65 Orders

65.1 In the following circumstances, the Commission shall be entitled to give orders to the

self-regulatory organizations, regulated persons and issuers:

65.1.1 if the lawful interest of a client, or an investor needs protecting;

65.1.2 if an official is found that s/he does not satisfy the eligibility criteria;

65.1.3 if a circumstance is detected that might breach the securities legislation and the

acts that set out the publicly accepted norms and standards prescribed by the

Commission;

65.1.4 if the person provided false, misleading, inaccurate and contradictory

information and disclosed such information to public.

65.1.5 other circumstances as prescribed by the Commission necessary for the

protection of investor rights.

65.2 The Commission‟s order may include the following requirements:

65.2.1 to terminate the operations in breach of laws and to remedy the consequences of

any breach;

65.2.2 to refrain from entering into specific types of transactions;

65.2.3 to refrain or restrict from engaging in specific types of activities;

65.2.4 to refrain or restrict from disposing of specific assets and/or to demand not to

dispose the assets for purposes other than those permitted;

65.2.5 to require to place certain amount of funds at a bank specified by the

Commission for the purpose of ensuring the performance of a duty arising from

regulated operations, and protecting the rights of the investors;

65.2.6 other actions as prescribed by the Commission as necessary for preventing

market risk.

65.3 The orders referred to in Article 65.1 of this Law shall be valid for such period as

specified by the Commission.

65.4 A person shall be obliged to comply with the orders given by the Commission within the

specified period and report the performance in accordance with due procedures.

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Article 66 Registration of Regulated Persons

66.1 The Commission shall conduct the registration of regulated persons, and such registration

shall be publicly disclosed.

66.2 The Commission shall approve the regulation on registering the regulated persons and

such registration shall include detailed information about each of the regulated person

and any changes to such information.

Article 67 Determination of “Fit and Proper”

67.1 The Commission shall regard the Regulated Person satisfying the following requirements

as “fit and proper”:

67.1.1 financial position or solvency is sufficient for the operation;

67.1.2 the person is able to carry on a regulated operation competently and honestly;

67.1.3 in case of an individual, the individual‟s profession, expertise, experience,

previous employment, and whether the person had been imposed with sanctions

in the previous employment, financial status and integrity are considered as

proper for the position;

67.1.4 whether the Regulated Person has established effective internal control

procedures and risk management systems; and

67.1.5 additional requirements as prescribed by the Commission.

67.2 The Commission shall base on the following information when determining „fit and

proper‟.

67.2.1 Application and other documents received from the person;

67.2.2 Information on the authorized person of the regulated entity and any other

person(s) representing the entity;

67.2.3 If a regulated person is a member of an association of legal persons, information

on the members of the association, the influential shareholders, related and

authorized persons of the members.

67.2.4 information concerning operational rules and regulations set by the regulated

person and proper internal control procedures and risk management systems in

place;

67.2.5 additional information deemed as necessary by the Commission.

67.3 The Commission may demand necessary information from other members of the

association, if the regulated person is a member of legal persons‟ association.

Sub-chapter Two

Self-Regulatory Organizations in the Securities Markets

Article 68 Self-Regulatory Organizations

68.1 Powers of a self-regulatory organization in Mongolian securities market shall be exercised

by a legal entity registered with the Commission.

68.2 The self-regulatory organizations indicated in article 68.1 of this law shall be professional

associations, the Stock exchange, Securities clearing, settlement and depository

organization that aims to protect the rights of its members, set professional and ethical

standards, enhance the capacity of its members, and to develop and stabilize the securities

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market; and shall admit regulated legal entities and professionals holding a license

specified in Article 35.1 of this law as members.

68.3 A regulated person holding a license shall maintain membership with a self-regulatory

organization registered with the Commission.

Article 69 Powers of Self-Regulatory Organizations

69.1 A self-regulatory organization shall exercise the following powers:

69.1.1 to submit proposals to government organizations for advancement of securities

legislation and to comment on draft laws, rules, and regulations prepared by

them;

69.1.2 to conduct professional training and re-training;

69.1.3 to enact general regulation, professional ethical standards, guidance and

recommendations to be followed by members in their operations upon the

Commission‟s approval; to internally enforce their implementations, and to

resolve complaints and disputes associated with members‟ ethics.

69.1.4 to demand information from members, that is not confidential pursuant to the

Law;

69.1.5 to conduct research and analysis in members‟ operations; to assign ranking and

disclose the information to public;

69.1.6 to inspect the members‟ operations within the limits set out in its own

regulations, to give orders to remedy a violation, to propose the suspension and

revocation of a member‟s license to the Commission depending upon the

criticality of the violation, and to report the violation to relevant organizations;

69.1.7 to protect the lawful interests of its members;

69.1.8 to take measures to reduce the risks associated with the members‟ operations;

69.1.9 other powers as approved by the Commission within the Law.

69.2 A self-regulatory organization is obliged to immediately deliver the information with

respect to the members‟ operations received from the Commission and other authorized

organizations to each member.

69.3 A self-regulatory organization is obliged to perform the orders given by the Commission.

Article 70 Registration of Self-Regulatory Organizations

70.1 The Commission shall register a self regulatory organization on the basis of the following

criteria:

70.1.1 admitted membership to more than 50% of the regulated persons holding a

license;

70.1.2 is a legal person incorporated in Mongolia;

70.1.3 has a charter or rules that comply with the requirements stipulated under Article

711 of this Law.

70.2 If a self-regulatory organization fails to meet the requirements set out in Article 70.1 of

this Law, the Commission shall refuse to register such institution.

70.3 The powers of a self-regulatory organization shall cease upon deregistration of the self-

regulatory organization by the Commission or the organization ceases to satisfy the

requirements set out in 70.1 of this Law.

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Article 71 Rules and Regulations of Self-Regulatory Organizations

71.1 The rules and regulations of a self regulatory organization shall contain provisions on the

following:

71.1.1 criteria for membership admission, membership fees, and regulation on

suspending and terminating membership;

71.1.2 code of professional ethics of its members and officials to be followed in their

operations;

71.1.3 supervision of members‟ operations and regulation on resolving complaints and

disputes;

71.1.4 management, organization, and operational regulations of the self-regulatory

organization;

71.1.5 regulation on training the members and organizing other measures to improve

the professional skills of the officials;

71.1.6 regulation on coordination of actions to promote fair trading practices such as to

prevent market manipulation and insider trading;

71.1.7 such other matters as stated in legislation.

71.2 Rules and regulations of a self-regulatory organization shall be approved by All-

Members meeting and shall enter into force once registered with the Commission.

71.3 Rules and regulations effective as indicated in 71.2 of this Law must mandatorily be

followed by members.

Article 72 Management and Organization of Self-Regulatory Organization

72.1 The ultimate authority of a self-regulatory organization excluding securities central

depositary and trade organization shall be All-Members meeting.

72.2 All-Members meeting shall exercise the following powers:

72.2.1 To approve the rules and regulations stated in 71.1 of this Law and make

amendments;

72.2.2 To discuss and approve the operational and financial reports of the organization.

72.2.3 To select and to remove the Board members, to set the validity term of their

power, and to decide whether to compensate for the fulfillment of their duties as

members;

72.2.4 To select and to remove the Supervisory members, to set the validity term of

their power, and to decide whether to compensate for the fulfillment of their

duties as members;

72.2.5 To approve the annual budget of the organization and to determine the

membership fees;

72.2.6 Others indicated in the Law.

72.3 The Board shall announce and hold a regular All-Members meeting once a year. A

special session may be held if proposed by more than 10% of the members or upon the

initiation by the majority of the Board members.

72.4 The ultimate authority of the self-regulatory organization shall be a Board consisting of at

least nine members, when All-Members meeting is off-duty.

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72.5 The Board shall exercise the following powers:

72.5.1 To approve organizations‟ long term operation and strategy, to appoint or

remove the organization‟s executive management; to determine the salary and

bonuses to be paid to them;

72.5.2 To oversee the operations of the executive management;

72.5.3 To make a decision within the limits of the power granted by the All-Members

meeting.

72.5.4 Others indicated in the organization‟s charter.

72.6 Daily operations of the organisation shall be managed by the executive management and

the validity term of his power shall be three years. The executive management may be re-

elected once.

72.7 Rights and powers of the executive management shall be determined by the charter of the

self-regulatory organisation.

72.8 The executive management shall report its work to the Board each year and discuss it

during All-Members meeting. Subject to their performance, the executive management

may be removed before the term indicated in 72.6 of this Law.

Article 73 Communication between the Commission and Self-regulatory Organization

73.1 A self-regulatory organization is obliged to immediately report on members‟ activities

that breached the laws and internal rules, and of the follow-up measures to the

Commission

73.2 If the Commission deems it necessary, it may seek the opinions of the self-regulatory

organizations, independent experts, and specialists before making any decision on any

matters concerning the self-regulatory organizations and/or their members.

73.3 Self-regulatory organization shall inform the Commission of any changes to its rules and

regulations, and such changes shall take into effect upon the approval of the Commission.

73.4 The Commission may order the self-regulatory organization to amend or repeal all or part

of the rules and regulations that are in breach of laws or rules or regulations.

73.5 The Commission shall be prohibited from interfering with the internal operation of a self-

regulatory organization on matters other than those provided in the legislation and

prescribed by the regulations of the Commission.

Article 74 Supervision on Operations of a Self-Regulatory Organisation

74.1 A self-regulatory organization shall submit to the Commission and disclose its financial

statements and operational reports to the public within a specified period;

74.2 The Commission shall conduct inspection on operations and financials of the self-

regulatory organisation. The self-regulatory organisation is obliged to provide necessary

documents to a person designated by the Commission pursuant to this Law and shall

immediately provide relevant commentary in accordance with the respective regulations.

74.3 In the event that a self-regulatory organization or its authorized person or an employee

has breached this Law, relevant rules and regulations, the Commission shall take the

following actions and report to public accordingly:

74.3.1 deliver a notice;

74.3.2 give orders or assignments;

74.3.3 restrict the activities and functions of the self-regulatory organization;

74.3.4 suspend or revoke the registration; or

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74.3.5 charges other liabilities provided in the laws.

74.4 The self-regulatory organisation shall resolve the issue by the Board or All-Members

meeting and report to the Commission, within 60 days after the action specified in 73.3.1-

73.3.3 of this Law was taken.

74.5 If the power of a self-regulatory organisation is revoked, its members shall be transferred

to another authorised self-regulatory organisation. The Commission shall approve the

regulation with respect to transferring the membership of self-regulatory organisation.

CHAPTER EIGHT

PRACTICES SUBJECT TO PROHIBITION IN THE SECURITIES MARKETS

Sub-chapter One

Practices Prohibited for an Insider

Article 75 Insider Information

75.1 Any information about the Financial Instruments or the Issuer‟s management, finance and

operations, which is not publicly available and would create an advantage in trading and

which might materially affect the Financial Instruments‟ price and volume, shall be

construed as insider information.

75.2 Analysis based on publicly available information shall not be construed as insider

information even if it has the potential to affect the Financial Instruments‟ price and

volume noticeably.

Article 76 Possession of Insider information

76.1 The following persons shall be construed as possessing insider information:

76.1.1 Influential shareholders, authorized persons and employees of an Issuer and

their related persons;

76.1.2 Persons who obtained the information in the course of performance of one‟s

official duties and during preparation, ratification and implementation of an

agreement and their related persons.

76.2 Whether or not the persons referred to in Article Error! Reference source not found. constitute a direct or indirect source of information, such persons shall be deemed to be

possessing insider information.

Article 77 Prohibition to Trade Using Insider Information

77.1 A person possessing insider information is prohibited to conduct the following.

77.1.1 to participate in a trade of any securities and its derivatives, whose prices and

volume may fluctuate due to such information.

77.1.2 to suggest or to convince others to participate in a trade of any securities and its

derivatives, whose prices and volume may fluctuate, regardless of whether the

person is aware or unaware of the fact that it is insider information.

77.1.3 to disclose insider information to others unless the person is responsible for such

disclosure due to his position or work duties.

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77.2 If a person possessing insider information or his related person(s) participated in a trade

of registered securities and its derivative instruments using insider information, this shall

be deemed to have breached Article 77.1 of this Law.

Article 78 Public-Disclosure of Insider Information

78.1 The Issuer is obliged to immediately disclose the information stated in 75.1 of this Law to

public. The issuer shall notify the Commission and the trading organisation when

disclosing such information to the public.

78.2 Insider information shall be disclosed to public by the following means.

78.2.1 through the websites of the Issuer, the Commission and the Trading

organisation;

78.2.2 through publication pursuant to regulations prescribed by the Commission.

78.2.3 other means allowing free access to this information by any interested person.

78.3 The Commission shall determine the list of information referred to in 75.1 of this Law

and shall set the regulation on its public-disclosure.

Sub-chapter Two

Market Manipulation

Article 79 Prohibition to Market Manipulation

79.1 It is prohibited to conduct a sham trade, to set an artificial price, to make the participant

to trade or not to trade by deceiving them, or to manipulate the market by other means.

79.2 Any trade which is intended to give the market participants a false impression as to the

Financial Instruments trade is being actively conducted whereby the holders were not

changed or to give buy or sell orders simultaneously for similar number of Financial

Instruments giving similar prices and to trade by plotting shall be considered a sham

trade.

79.3 Where there is a participation in two or more transactions aimed to increase, decrease or

to keep the price at a certain level, in order to prevent other persons from buying, selling,

ordering, or trading the Financial Instruments, it shall be construed as artificial price-

setting.

79.4 The following means shall be considered to have driven or kept the participants from

trading by fraud.

79.4.1 issued or published unreal, misleading or false statements, representations or

assumptions or by concealing important facts.

79.4.2 the other party to the transaction was misled or confused by a false statement

which contradicts the actual event.

79.4.3 used deceptive device or means to mislead the other party to the transaction;

79.5 The term „securities‟ in this Article shall refer to the securities and its derivatives.

Article 80 Recovery of Damages

80.1 Any person who has traded using insider information, who has not disclosed the insider

information to public in accordance with the regulations, or manipulated the market, shall

be obliged to compensate any damage caused to others due to such action.

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80.2 Profit generated by manipulating the market or using insider information may be claimed

pursuant to the Civil Law.

CHAPTER SEVEN

SECURITIES MARKETS INSPECTION AND SUPERVISION

Article 81 Demanding Release of Information

81.1 The Commission shall be entitled to demand information/documents from an Issuer, a

Regulated Person, their related persons and any other person involved in the situation, in

written to provide information necessary for the Commission to exercise its power, or to

fulfill requests made by the foreign commissions and other international organizations,

within a specified period of time through the means prescribed.

81.2 The person stated in 81.1 of this Law is obliged to provide the information requested.

81.3 Clauses 81.1 and 81.2 of this law shall be applicable to a bank, if such bank is a stock

company or a related person of a regulated entity.

81.4 Matters with respect to demanding release of information specified in this Article, shall

be regulated by this Law, if other laws state otherwise.

81.5 Documents, materials, and information found by the power stated in 81.1 of this Law are

prohibited to be disclosed or transferred to a third party without the consent of the

Commission.

Article 82 Regular Control

82.1 The Commission shall regularly examine a Regulated Person with the purpose of

determining whether the person complies with this Law, rules and regulations set by the

Commission in conformity with the Law and the terms, conditions and requirements of a

license.

82.2 The persons referred to in Article 82.1 of this Law shall be obliged to furnish the

documents and materials required within a specified period.

82.3 Clauses 82.1 and 82.2 of this law shall be applicable to a bank, if such bank is a stock

company.

82.4 If the bank is a member of an association of regulated persons, the Commission shall

inform the Mongolbank before exercising its power stated in 82.1 and 82.2 of this Law

and conduct the inspection independently or jointly.

Article 83 Inspection on Operation of Regulated Person

83.1 The Commission shall conduct an inspection on a Regulated Person or an Issuer with the

purpose of determining whether the person complies with this Law, other relevant

legislation, and rules and regulations set by the Commission in conformity with the Law.

83.2 The Commission may conduct an inspection at any time by its own initiative if deems as

necessary or following the request or information received from individuals, legal

persons, or a similar regulatory organization of a foreign country.

83.3 Clauses 83.1 and 83.2 of this law shall be applicable to a bank, should the bank be a stock

company.

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83.4 If the bank is a member of an association of regulated persons, the Commission shall

inform the Mongolbank before exercising its power stated in 83.1 and 83.2 of this Law

and shall conduct the inspection independently or jointly.

Article 84 Inspector’s Rights

84.1 An inspector of the Commission shall exercise the following powers.

84.1.1 to enforce compliance with the securities legislation and other regulations

prescribed to be publicly followed in conformity with the legislation, to present

the necessary issue to the Commission‟s meeting;

84.1.2 to demand release of information, research, commentary, reference and other

relevant documents that are necessary for the inspection, free of charge from an

Issuer, a regulated person or their related party and ask for commentary;

84.1.3 to suspend the securities trading or to segregate the securities, if the issuer is

found or suspected to have violated the securities legislation;

84.1.4 to impose an act based on the results of the inspection and to enforce its

implementation; to assign timely orders and tasks to remedy the violations found

and to enforce its performance;

84.1.5 to impose sanctions prescribed by the Law, to suspend part or all of the

operations and to inform the public accordingly, to propose to the Commission

to suspend or revoke the license if necessary, if a regulated person or an issuer

has not complied with the official order stated in 84.1.4 of this Law, or found

during the inspection to have seriously violated or may violate the legislation.

84.1.6 to temporarily suspend the transactions of the person‟s account at the central

depository, if such person is found to have breached or have attempted to breach

the securities legislation by evidence.

84.1.7 to enter the workplace of a person holding or has held the controlling interest of

the regulated person, or workplaces of a regulated person and its related persons.

84.1.8 To demand photocopies of relevant documents free of charge.

84.1.9 To inquire and demand responses to questions with regard to the inspection;

84.1.10 To submit the relevant documents to a respective authority, if the violation

found during the inspection is of criminal nature;

84.1.11 The inspector is obliged to strictly comply with the legislation, to conduct

inspection devoid of any external influence, to respect the lawful interests and

reputation of the market participants and their relevant persons or clients, to

refuse to conduct the inspection if it is related to family members and relatives,

and to conduct full inspection;

84.1.12 To maintain responsibility for the accuracy of the grounds and evidence of the

inspection, its conclusion, report, official order, documents and data.

84.1.13 To impose administrative punishment pursuant to the Law;

84.1.14 Other powers indicated in the legislation.

84.2 The State inspector-general and state senior inspectors of the Commission shall exercise

the following powers in addition to the common powers set out in 84.1 of this Law.

84.2.1 To involve a professional organization into the inspection process upon the

agreement with the respective organization; and to have them conduct an

examination to ascertain necessary matters.

46

84.2.2 To have relevant decisions made pursuant to regulations with regard to

compensating for any damages caused to the investors and clients by the issuer,

the regulated person and their related persons;

84.2.3 Unless otherwise stated in the law, to forcibly implement the state inspector‟s

decision by authorization of the court if the decision specified in 84.1.4 of this

Law has not been complied, or to have the decision made by a relevant authority

regarding a proposal to permanently terminate the issuer‟s production and

services.

84.2.4 To file an appeal to a court to in order to have the person liquidated pursuant to

relevant laws, if the Commission considers that the liquidation of such regulated

person shall align with the client‟s interests.

84.2.5 To approve the directives for scheduled and unscheduled inspections;

84.2.6 Other powers as prescribed by the Law.

84.3 The Inspector shall conduct the inspection in accordance with the directive, and shall

present the directive to the regulated person or the issuer in advance.

84.4 The scheduled inspection shall be conducted on regulated persons and issuers at least

once in two years, without interfering in their daily operations.

84.5 The person, whom the state inspector considers as possessing documents related to the

inspection, is obliged to provide such documents within the specified period by the

requested means to the inspector and must provide assistance in other means such as

providing commentary and explanatory notes.

84.6 The state inspector shall be provided with a guarantee to exercise his powers as a state

inspector, in accordance with the Legislation on Civil Service and the Law on State

Inspection.

Article 85 Prohibition against Hindering Inspection

85.1 It is prohibited to hinder the inspection stated in Article 82 and Article 83 of this Law, by

the following means.

85.1.1 To avoid the inspection;

85.1.2 To hinder the operations of the inspector; to attempt to influence the conclusion

and the decision of the inspection;

85.1.3 To refuse to provide the relevant documents for inspection without any grounds,

to refuse to provide the information temporarily, to damage, forge, fix, destroy,

or avoid such documents or create false documents;

85.1.4 Others.

85.2 If the situation referred to in Article 85.1 of this Law is established, it shall constitute a

ground for revocation of the license of the given Regulated Person by the Commission.

Article 86 Arise of Special circumstance

86.1 Following cases shall considered as special circumstance:

86.1.1 If regulated party related bankruptcy case arises

86.1.2 If regulated party is in the situation of possible close-down

86.1.3 If authorized entity decides to reform the company based on the articles

reflected in the law

86.2 Commission shall take following actions against Special circumstances specified in the

Article of this law.

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86.2.1 To separate the assets of regulated party from the balance and financial

statements until it fully complies with clients‟ requirements.

86.2.2 To assign a entitlement receiver of regulated party who cannot afford its

financial responsibilities.

86.2.3 To change the management of regulated party, invalidate its decisions, and limit

the authority to manage capital and other assets.

86.2.4 To revoke, suspend regulated party‟s operation party, or as a whole.

86.3 Regulated party shall hand all related accounts, documents and materials that are

necessary for protecting clients‟ asset to an entitlement receiver.

86.4 Entitlement receiver shall exercise following duties:

86.4.1 To submit a request to transfer clients to another regulated party to the

Commission;

86.4.2 To terminate unfilled orders;

86.4.3 To terminate labor contracts of regulated party, to hire necessary employees;

86.4.4 To disclose information to the public.

86.5 Commission shall make its decision based on entitlement receiver‟s request as reflected

in the Article 86.5.1 of this law.

86.6 Regulations reflected in the Article 86 of this law shall not be effective to the party who

runs operation reflected in the Article 24.1.16-24.1.18 of this Law.

86.7 Commission shall enact/approve related enforcing regulation to this article.

CHAPTER EIGHT

MISCELLANEOUS

Article 87 Dispute Review Board

87.1 The Commission shall have a Dispute Review Board authorized to settle disputes

between the regulated persons, issuers, investors and clients, and the Commission shall

determine the methods of operation and composition of the Board.

87.2 The Dispute Review Board shall review the dispute and present the relevant proposed

decision to the Commission‟s meeting. The Commission shall decide on one of the

following.

87.2.1 To approve the decision;

87.2.2 To change the decision;

87.2.3 To return the case to the Dispute Review Board for re-examination.

Article 88 Liabilities upon Infringement of Legislation on Securities Markets

88.1 If a violation of the legislation on the Securities Markets does not constitute a

criminal liability, the Commission‟s inspector shall impose the following

administrative penalties to persons who infringed the legislation on securities

markets:

88.1.1 The conduct of a regulated operation without a license, registration and

permission from the Commission, shall result in a confiscation of the

proceeds from such operations, and in a fine of 100-150 times the

minimum wage for a legal person and 50-70 times the minimum wage for

its authorized person;

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88.1.2 If the person provided incomplete, inaccurate, or misleading information

in the prospectus and presented to the public accordingly in violation of

the requirements set out in Article 10 of this law, made false promises,

made changes to the prospectus without the consent from the Commission,

and presented and advertised the securities to public that is not registered

with the Commission in violation of Article 11.2 of this law, such

violations shall result in a fine of 300-350 times the minimum wage for

the legal person, 100-150 times the minimum wage for the chairman of the

Board of Directors and each executive management official and 150-200

times the minimum wage for the regulated person who conducted

underwriting services for such issuer;

88.1.3 Failure to comply with the respective regulations associated with issuing

depository receipts as set out in Article 14 and Article 15 of this Law,

shall result in a fine of 300-350 times the minimum wage for the legal

person and 150-200 times the minimum wage for the authorized person;

88.1.4 Breach of the regulations for brokerage, securities dealing and

underwriting operations set out in this Law, shall result in a fine

equivalent to 400-450 times the minimum wage for the legal person and

100-150 times the minimum wage for the authorized person;

88.1.5 Breach the regulations set out in 12.9, 21.3, 23.3, 31.3, 41.5, 44.3-44.5,

44.7, 46.8, 49.3 and 50.2 of this Law, shall result in a fine equivalent to

100-150 times the minimum wage for the legal person and 50-60 times the

minimum wage for the authorized person;

88.1.6 Failure to perform the common duties as an issuer set out in Article 20 of

this Law shall result in a fine equivalent to 50-70 times the minimum

wage for the issuer and 20-40 times the minimum wage for the authorized

person;

88.1.7 If a legal entity or its related person did not provide the information and

notices referred to in 22.2, 41.9, 51.1, 51.2, 52.1, 53.1, 53.2, 54.1, 55-57

and 69.2, 73.1, 74.1-74.4, 81.2, 82.2, 84.5, 85.1 of this Law, to the

relevant person pursuant to the regulations, such violations shall result in a

fine equivalent to 120-150 times the minimum wage for the legal person

and its related person and 50-60 times the minimum wage for its

authorized person;

88.1.8 Breach of the regulations set out in , 79.1, 78.1, and 78.2 of this Law, shall

result in a fine equivalent to 400-450 times the minimum wage for the

legal person and 100-150 times the minimum wage for the authorized

person;

88.1.9 Breach of the regulations set out in 48.1, 61.2, 65.4, and 67.3 of this Law,

shall result in a fine equivalent to 100-130 times the minimum wage for

the legal person and 40-60 times the minimum wage for the authorized

person;

88.1.10 The legal person, who purposefully refused to release information set

out in 59.1, 81.1 and 82.2 of this Law, shall be fined in such amounts

equivalent to 100-130 times the minimum wage And 40-60 times the

minimum wage for the authorized person.

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88.2 The expenses incurred by the Commission in relation to the confiscation of illegal

proceeds and inspection on the breaches shall be recovered by the person at fault.

88.3 Any damage incurred to others in relation to any violation of the legislation on the

Securities Markets or any property obtained without grounds shall be recovered as

provided in the Civil Law.

88.4 Limitation period for administrative penalty stated in this Law shall be 3 years,

thus the limitation period specified in the Administrative Penalty Law of Mongolia,

shall not be applicable.

88.5 A complaint may be filed under an administrative or court procedure if a fine

imposed as provided in Article 88.1 is deemed unsupported.

89 Entry into Force

89.1 This Law shall come into force on … … 2012.

PARLIAMENT SPEAKER OF

MONGOLIA .......................................