Mongolia Bourse, Asia's Smallest, to Add Derivatives

Sept. 12 (Bloomberg) -- Mongolia's stock exchange is studying plans to offer derivative products within two to three years to boost trading at Asia's smallest bourse.

Margin trading, where investors take out loans to buy shares, will also be introduced, Tsendmaa Tsedev, head of the listing and surveillance department at Mongolian Stock Exchange, said in an interview in Ulan Bator yesterday. The bourse is working with the Korean Exchange to improve its trading systems, she said.

``The infrastructure of the stock market is under- developed,'' Tsedev said. ``We want to upgrade our trading process to international standards.''

The value of Mongolia's stock market jumped fivefold in 2007 to $612 million as burgeoning economic growth fueled by mineral exports to China, the country's biggest market, lured investors. Mongolian first-quarter growth of 12.5 percent was the fastest since 2002, according to the Asian Development Bank.

Trading still lags behind Asia in spite of the stock market's growth. An average of MNT245.6 million ($213,472) in shares changed hands on the Mongolian bourse each day last year, the exchange's 2007 fact book shows. That compares with Vietnam's 989 billion dong ($60 million) and Hong Kong's HK$92.1 billion ($11.8 billion). The Mongolia Stock Exchange is open for trading for an hour, between 11 a.m. and noon, from Monday to Friday.

Mongolia's exchange has 36 member brokerages approved for trading, a total that has increased by 10 in the past two years, Tsedev said. Indonesia, southeast Asia's third-largest stock market, has 122, while Thailand has 40. Hong Kong, Asia's third- largest market, has 448 firms approved to trade.

Online Trading

The Mongolian exchange has set up an information center for the public to boost participation from individual investors, Tsedev said.

The first stage of the system upgrade that the bourse is working on with the Korea Exchange is expected to be completed in September 2009, Tsedev said.

Margin trading will be allowed in coming months, a change from the current system where investors have to deposit money in order to trade, she said. The bourse will also introduce online trading as part of the reform, Tsedev said.

Four companies debuted on the Mongolian Stock Exchange this year, with two more applying for initial public offerings, Tsedev said. If the two IPOs proceed, that will make the number of initial share sales this year higher than last year's five, according to the exchange's fact book 2007.