Emerging markets are continuing to gain interest from investors and financial firms worldwide. As these markets continue to evolve, it is essential that emerging markets have stable and robust financial infrastructure in place, such as exchanges and clearing and settlement institutions. In order to support the future growth of these emerging sectors, there is a need for domain and IT knowledge transfer, client management, local support capability and proper disaster recovery and business planning continuity (BCP).We recently discussed this NRI initiative and trends in the Mongolian market with Arun Mitra, NRI FT India Vice President, Head of Business Development.
Emerging markets are continuing to gain interest from investors and financial firms worldwide. As these markets continue to evolve, it is essential that emerging markets have stable and robust financial infrastructure in place, such as exchanges and clearing and settlement institutions. In order to support the future growth of these emerging sectors, there is a need for domain and IT knowledge transfer, client management, local support capability and proper disaster recovery and business planning continuity (BCP)
Currently in Mongolia, the London Stock Exchange Group has taken a significant role in helping to shape the future of the capital market. The citizens and government continue to provide strong support for the region’s growth and demonstrate willingness to work with foreign investors and entities to further their position in today’s global marketplace. With this infrastructure and community support, Mongolia is an interesting area gaining the attention of many firms around the globe.
In November, NRI announced that its subsidiary, Nomura Research Institute Financial Technologies India Pvt. Ltd. (NRI FT India), entered into a collaboration agreement with Omnesys Technologies Pvt. Ltd. (a Thomson Reuters company) and Global Investment Initiative (GII); the primary goal of which is to build and modernize the trading, and post-trade lifecycle management infrastructure of the Mongolian broker/dealer community. The first client of the triumvirate is Ulaanbaatar-based corporate finance advisor ResCap Securities LLC, a firm eager to streamline its operations, from front- to back-office.
We recently discussed this NRI initiative and trends in the Mongolian market with Arun Mitra, NRI FT India Vice President, Head of Business Development.
Q: What were the drivers leading to NRI to expanding its reach into the Mongolian market, and how long had you considered partnering with a firm in Mongolia?
A: There were a few different drivers that guided our measured decision to get involved with firms in Mongolia. On my first trip to Mongolia in 2011, I saw that many brokerage firms were in need of not only our back-office software, but also front-office software, internet trading capability, general IT knowledge, knowledge of international broker automation best practices, project management, change management and data center capabilities, among others. We decided that we should align ourselves with suitable partners that would complement our solution scope and that would help us on the ground with local support, customer relationship management, data center management, disaster recovery and business continuity planning (BCP) and with the language barrier. Among our primary strategic objectives in entering the market were:
• Becoming a trusted and essential part of the basic capital market infrastructure of a completely new (for us) country and helping them achieve the maturity that will eventually lead to good profitability – for them and for us
• Training NRI FT India to independently adapt and implement NRI Financial Solutions for Broker Dealers from start to finish, and to transfer the requisite knowledge
• Building the capability to replicate this model in other emerging markets
• Creating a new revenue stream for NRI FinTech and a new reference for NRI Financial Solutions for Broker Dealers – the first in a non-Japanese context
• Positioning ourselves to win future opportunities to engage with local Mongolian banks for custody operations automation
• Fostering goodwill with the London Stock Exchange Group
• Enriching NRI Financial Solutions for Broker Dealers by adapting it to a retail context and a software-as-a-service deployment model
Q: How does the market in Mongolia compare with other emerging markets?
A: Mongolia’s GDP growth is among the best in the world. Fueled by its mining boom (Mongolia sits on top of trillions of dollars in mining reserves) the economy grew at a record 17.5% pace in 2011, according to the World Bank. That pace slowed after the country implemented measures to increase government oversight of the mining industry, which spurred disputes with various firms and discouraged foreign investments. These issues are being sorted out. The World Bank still is predicting double digit growth; on the order of 12.3% for 2013.The Mongolian Stock Exchange (MSE), established in January 1991 by the decree of the Mongolian government to privatize state-owned assets, was the world's best performing stock market after an increase of 121% in 2010. In 2011, MSE was ranked the second-best performing stock exchange in the world, with a 57.8% increase.
Q: What were some of the challenges NRI faced – and how were they conquered – when entering the market in Mongolia?
A: There were many initial challenges – a lack of understanding of the value that we were offering in terms of straight-through processing (STP) in the back-office, how technology change is managed, language barriers and winters of minus-30 degree Celsius, to name a few. Our greatest challenge now is to continue to reinforce and demonstrate through actions, our commitment to the region. With these efforts, we want to ensure that businesses know we are here to help their firms grow – through both lean times and boom times – as they move up the chain of sophistication in functionality with more asset classes, more functionality like central counterparty, stock lending and borrowing, etc. and, of course, handling larger transaction volumes. Standing solidly behind our technology and supporting them is crucial.
Q: As a facet of this partnership, what are some of the “best practices” NRI is seeking to implement?
A: The alliance aims to modernize the Mongolian financial securities brokerages’ trading, clearing and settlement capabilities. Some of the “best practices” we are seeking to implement are:
• Bringing a high degree of STP automation in real time to current and future broker operations in Mongolia, while enabling exception-based manual interventions as necessary
• Facilitating quick, cost-effective compliance to existing and changing regulatory requirements
• Having a modern solution that is modularized with ready-made business components to accelerate time-to-market as the market moves up the chain of sophistication, and as it scales up in terms of transaction volumes
• Enabling brokers to focus on their core business competencies by offering them standardized and sophisticated pay-as-it-is-used software deployed in an ASP (Cloud) mode
Q: With the increasing number of natural disasters occurring in the region over the past decade, how can NRI’s business continuity planning (BCP) and disaster recovery (DR) solution help firms there?
A: BCP/DR is one of the prime reasons we are partnered with a local Mongolian firm. We have shared our suggested procedures and checklists with them and are able to provide guidance based on our experience in other regions.
Q: Now that NRI has entered the Mongolia market, are there other emerging markets that the firm is considering? If so, which ones?
A: We are looking at several markets where we believe we can have an impact. For instance, the model that we have crafted in Mongolia, NRI Financial Solutions for Broker Dealers as an ASP offering, an integrated front-office system with internet trading capability, a local partner to manage the data center, provide L1 support and handle local language and client management issues, is one that can be replicated in other markets. We are currently considering “advanced emerging countries,” such as South Africa and Brazil; “secondary emerging countries,” such as Thailand, Indonesia, Chile and Colombia; and “frontier market countries,” such as Vietnam, Sri Lanka, Bangladesh and Kenya. India, for obvious reasons, is of tremendous interest to us, and we are currently doing the necessary research and due diligence as it relates to conducting business in India.
Q: Can you give us a brief update on the ResCap project?
A: The ResCap project is complete, the system is running live and the users have accepted it. Now, along with Omnesys and GII, we must ensure that the client receives a superior, proactive level of service. As the region continues to confidently adopt our solution, it will gain momentum as users endorse it to the other brokers in the market, resulting in more firms seeking support from NRI as their functional needs and transaction volumes increase.
Q: How will this move into Mongolia market enhance NRI’s global presence and stature?
A: Making a commitment in a frontier market such as Mongolia requires strategic foresight, self-belief and the appetite and resourcefulness to endure a long haul. In these days of quarterly analyst reports, not many publicly traded companies can afford to have such a long term vision, let alone the financial capacity. NRI has successfully proven its long term staying power in Japan and is ideally suited to do exactly that in Mongolia. This initiative resonates with our tagline, “Dream up the Future.”
Q: How long do you anticipate it will take financial market in Mongolia to catch up with markets in more developed regions – Europe, Japan and the United States, for example – in terms of sophistication?
A: Today, Mongolia is on the London Financial Times Stock Exchange’s (FTSE, a subsidiary of the London Stock Exchange) “pre-frontier watch list.” A number of criteria have already been met, and those that still remain to be addressed are being done so by the authorities and this will soon lead to classification as a FTSE “Frontier Market” which is very likely to bring in significant new investment. There are more milestones to be reached, but I believe that as Mongolia continues to sort out its regulatory framework and institutional ecosystem, it will be well on its way. With its vibrant multiparty democracy and booming economy, Mongolia is at the threshold of major transformation driven by its vast mineral resources. We will likely see Mongolia develop a unique sophistication, which will create even more opportunity there in the years ahead.