Source: The Independent                     Date: 13 April, 2011

Mongolia Stock Exchange is the prettiest pink-and-white, neoclassical fairytale affair, once a children's cinema, across the road from the parliament in Ulaanbaatar. It was founded by Naidansurengiin Zolzhargal, a descendant of Genghis Khan, some 20 years ago and, although it is the smallest exchange in the world by market value, it is also the best-performing. Mineral-rich Mongolia is bursting with resources, including hectare after hectare of forests, tons of fish, gold, iron ore, fluorite, uranium and coal, and foreign direct investment is growing at 30 per cent per annum and likely to hit USD11 billion in a few years.

So it's no wonder that Mr. Xavier Rolet, the boss of the London Stock Exchange, has jumped at the chance to set up a new partnership with the Mongolian exchange. He visited the capital last week to celebrate the deal, which is a great one for both parties. For Mongolia, it brings the stamp of London's approval and its reputation for transparency, which is so vital in a fast-growing economy such as this. One of its biggest companies, Tavan Tolgoi, a USD8-billion state-owned coal mine, is already on its way to a London listing (although it's likely to head for Hong Kong as well), and there are many more companies seeking new capital and investors. It's a full-on partnership, with London providing the new technology, new rules, new regulations and everything else it takes to build a modern stock market; it will also help with the privatization of the exchange.

As London is showing with Mongolia, exchanges move to where capital is needed and the Far East is going to be gobbling up a lot for a long time to come. Mongolia is an exotic first step, but the longer journey for Mr. Rolet should be to go further east.

This brings me to the latest tie-ups of exchanges elsewhere in the world. As predicted, the Americans have reacted with what you might call naked protectionism to Deutsche Börse's bid for the NYSE Euronext. There's no doubt in my mind that the Americans have encouraged a rival offer from the hi-tech Nasdaq and the Intercontinental Exchange to trump the Germans. So, bar divine intervention, it looks as if they will succeed in creating one of the world's biggest exchanges. Deutsche's bid is just one in a long line of foreign takeovers that America has managed to rebuff.

This opens up a wonderful opportunity for Mr. Rolet: he should make Frankfurt his next pit stop, to chat to Deutsche's Reto Francioni about a possible merger. And, even though the German exchange is worth three times as much, there's no reason why London shouldn't emerge as at least an equal. The last time the two tried to walk to the altar it ended in disaster, but memories are short and the people at the top very different, so there seems no reason why they shouldn't get the structure right now.

There's another stopover that Mr. Rolet should make in his travels and that's Hong Kong, which recently expressed interest in talking to partners. Hong Kong is still the best way into mainland China, certainly until it opens its own market, and would give London the eastern leg of the golden triangle. Most of the new listings out of China and Asia are looking at dual listings in London and Hong Kong anyway, so it is logical the two should share more than a common language.