News analysis A London team will run the bourse, say Jeremy Grant and William MacNamara. This week Xavier Rolet, chief executive of the London Stock Exchange could be found not in Canada -where a proposed LSE merger with its counterpart in Toronto is being scrutinised by regulators - but in Mongolia. Ulan Bator, the capital, may seem an unlikely destination for the man running an exchange whose future may well depend on the successful completion of its merger with TMX Group. But Mr Rolet was there to sign a deal with the Mongolian Stock Exchange. The British bourse is providing advice to the Mongolians as they try to modernise their 20-year old exchange. But this is no standard deal involving one mature western exchange and a relatively undeveloped minnow in a remote emerging market. The LSE is also sending a team from London to take over the management of the Mongolian exchange and to "oversee its development and privatisation" under a two-year contract. For the LSE, the bet is that getting involved early in the development of Mongolia^s nascent market structure will put it in pole position to capitalise on the country^s emergence as a mining and natural resources hot spot, amid what economists are calling the commodities "supercycles". Mr Rolet will be hoping that big initial public offerings coming from Mongolia in the future will choose London over Hong Kong or New York. Next could come dual listings of Mongolian companies in Ulan Bator and London. One Mongolian company is already listed on the LSE: Petro Matad, an oil and gas explorer quoted on Aim since May 2008. Asked why Mongolia would go as far as handing the management of its national exchange to foreigners, Oyun Erdenebulgan, deputy chairman of the Mongolian government^s State Property Committee -which owns the exchange -said: "If you have a new Ferrari and you are not a good driver, how can you drive it? We want to put a Formula One driver in here." Mongolia is watching as China, eager for Mongolia^s commodities such as coal and copper, is becoming increasingly active in extractive industries. Mr Erdenebulgan said Ulan Bator hopes to use London as a gateway through which to channel inward capital flows. "We need to diversify our sources of investment," he said. That is one reason why a representative from the Mongolian exchange will be based at LSE headquarters. Sukhbaataryn Batbold, prime minister of Mongolia, said at a signing ceremony with Mr Rolet on Thursday. ^If you have a new Ferrari and you are not a good driver, how can you drive it?^ that the LSE was "the best possible partner" to support the country^s ambitions for its bourse. His government has tried to harness the boom in foreign-led mining and metals investment to national development goals. One example is the scheme for privatising Tavan Tolgoi, an enormous coal deposit in the Gobi desert. Dozens of global investment banks and mining companies are in control of different pieces of the Tavan Tolgoi privatisation. The government has stipulated, however, that 20 per cent of the new company is owned by Mongolians through shares floated on the Mongolian exchange. But until then liquidity remains thin and the exchange is relatively rudimentary. "The distribution of shares in Erdenes Tavan Tolgoi and other announced privatisation initiatives involving local capital market listings require as a precondition a relatively liquid and reasonably functioning stock exchange," said James Passin, principal at Firebird Management, a New York-based fund that is one of the country^s largest foreign investors. Mr Erdenebulgan said: "We are expecting much from the T.SR. After two or three years we want to have a ^mini LSE^ in Ulan Bator." Source: Financial Times April 9th 2011, p14, 379707 Precise Coverage is reproduced under licence from the NLA, CLA or other copyright owner. No further copying (including t printing of digital cuttings), digital reproductions orforwarding is permitted except under licence from the NLA, http://www.nla.co.uk (for newspapers) CLA, http://www.cla.co.uk (for books S magazines) or other copyright body. +44 (0) 20 7264 4700 info@preciseco.uk www.precise.co.uk