Overview of Cambodia Securities Market

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Sam GHANTY May 23 & 26, 2018 1 Presenter

1 5/26/18 Overview of Cambodia Securities Market Presented by Dr. Sam GHANTY May 23 & 26, Presenter appreciates the information provided by the SECC for the Presentation

2 Dr. Sam GHANTY, Ph.D., CFP Dr. Sam GHANTY was the head of the finance program and professor of Finance, Investment and Banking at the University of Wisconsin (USA) from 1977 to He worked for ADB and the World Bank from 1996 to 2004 as advisor and training coordinator at the National Bank of Cambodia and Ministry of Economy and Finance. He served as an independent member of the Board of Directors at the Foreign Trade Bank of Cambodia ( ), Canadia Bank ( ), Arial Global Group of Singapore ( ), and Cambodian Public Bank (2014-Present). He currently serves as advisor at the National Accounting Council (NAC) of the Ministry of Economy and Finance, a member of the Board of Directors at the Securities and Exchange Commission of Cambodia (SECC), a member of Board of Directors at the Parliamentary Institute of Cambodia (PIC), and a chairman of Board of Director at CamEd Business School. Presenter appreciates the information provided by the SECC for the Presentation. 3 3 I. The Relationship Between Financial Assets and Liabilities The financial system is the mechanism through which funds available for lending are made available for borrowers. Operation of the financial markets: Money exchanged for financial claims, such as stocks, bonds, and other financial securities. Transforms savings into investments. Permits the Cambodian economy to grow and create new employment

3 Two Types of Financial Markets Money Market Short-term securities Financial asset used for short-term investment: treasury bill, negotiable certificates of deposits, commercial papers, etc. Capital Markets Long-term securities 1. Equity securities or stocks: Ownership shares in a business firm Claims against the firm s profits Claims against receipts from the sale of its assets Example: common stock and preferred stock 5 5 Types of Financial Markets 2. Debt Securities (Bonds) Priority claim over the assets and income of a company Can be negotiable or nonnegotiable Priority claim over the holders of stocks to the assets and income of a company Example: bonds, mortgage instruments. 3. Derivatives (special securities) Market value of a derivative is connected to the value of a financial asset Example: futures contracts, options, and swaps 6 6 3

4 Importance of The Financial System A strong financial system can help a country by Increasing its external financing Lowering its cost of borrowing and lending Accelerating its economic growth Countries with more fully developed financial systems Tend to grow faster Tend to enjoy a higher standard of living. 7 7 Major Sources of Financing The Assets Examining the Balance Sheet of a Company Short-term Assets Long-term Assets Property Plant Equipment Short-term debts Banks Long-term debts Bonds (External Financing) Equity Common Stock (External Financing) Retained Earnings Internal financing 8 8 4

5 Business ownership Most companies are created by entrepreneurs: individuals or small set of partners. They may be members of family. Some firms may choose to sell shares to the public through an initial public offering or IPO. 9 9 Separation of Ownership From Management: Readiness for entering the financial markets The change in ownership from 100% privately held toward an increasing offering of publicly traded shares of stocks This means that a firm may be managed by hired professionals and not just the owners. Implication: A new problem occurs: owners and management may not be perfectly agreed on their business and financial objectives

6 Difference in Business Ownership and the Transformation Process 11 Transformation from Private Companies to Listed Companies Sales (Profit) Equity/Debt Financing Private Companies Bank Loans IPO IPO Public Companies Stocks Bonds Time

7 A Financial System Depending On Only Banking Presently, the banking sector plays a primary role in providing credit to the economy. Balanced Financial System Increase in efficiency Competition raises benefits to borrowers A Financial System Combining Both Banking and Securities Markets Since 2010, the banking sector and the securities markets have developed concurrently to serve the need of the economy. Balanced Financial System Banks Securities Markets Increase access to the long-term capital Public access to own shares in companies

II. The Securities & Exchange Commission of Cambodia (SECC) In Cambodia, the Securities industry is regulated by the Securities

of the following: - One Representative from the Ministry of Economy and Finance - One Representative from the National Bank of

8 II. The Securities & Exchange Commission of Cambodia (SECC) In Cambodia, the Securities industry is regulated by the Securities and Exchange Commission of Cambodia (SECC) which is established in 2008 under the Law on the Issuance and Trading of Non-Government Securities. 15 SECC Board of Directors SECC chaired by Minister of Economy and Finance and 8 Members with the mandate of 5 years, consists of the following: - One Representative from the Ministry of Economy and Finance - One Representative from the National Bank of Cambodia - One Representative from the Ministry of Commerce - One Representative from the Ministry of Justice - One Representative from the Cabinet of Council of Ministers - The Director General of SECC - Two Experts in Securities sector 16 8

9 Steps of SECC Development 17 Steps of SECC Development 2001: Financial Sector Blueprint : Financial Sector Development Strategy Jan. 2007: Law on Government Securities Oct. 2007: Law on the Issuance and Trading of Non-Government Securities 18 9

Conduct and Organization of the SECC Director General Deputy

Securities Intermedi aries Supervisi on Dept.

10 Conduct and Organization of the SECC Director General Deputy Director General Deputy Director General Deputy Director General Administrat ion and Finance Dept. Securities Market Supervisio n Dept. Securities Intermedi aries Supervisi on Dept. Research, Training, Securities Market Development, and International Relations Dept. Securities Issuance Supervisio n Dept. Legal Affairs Dept. 19 Securities Industry System in Cambodia Valuation Companies As of December 2017 *for the updated data, please see the next slides 20 10

11 Listed Companies Symbol Companies Name Date PAS Sihanoukville Autonomous Port 08-Jun-2017 PPSP Phnom Penh SEZ Plc. 30-May-2016 PPAP Phnom Penh Autonomous Port 09-Dec-2015 GTI Grand Twins International (Cambodia) Plc 16-Jun-2014 PWSA Phnom Penh Water Supply Authority 18-Apr-2012 Other companies are in the process of IPOs. 21 Central Counterparties Central Counterparties Website 1. Cambodia Derivative Exchange 2. Phnom Penh Derivative Exchange Plc Royal Financial Corporation 4. Gold Financial Global Investment

, Ltd 9. Richwill Japan Co., Ltd. 10. Alpha Gold Futures Co.,Ltd. 11. SKY PRECIOUS METALS CO.,LTD. 12. Golden Fx Links Capital Co., Ltd 13. Goldwell Capital Co., Ltd 14.

12 Derivative Brokers ក រ មហ នឈ ម ញជ ងស ឧបករណ ន ស សន ទ 1. Cambodia Derivative Exchange 2. Phnom Penh Securities Plc. 3. Royal Financial Corporation 4. Gold Financial Global Investment 5. GoldFx Investment 6. Phnom Penh Derivative Exchange Plc. 7. Askap Asset Management Co., Ltd 8. Blackwell Global Investment (Cambodia) Co., Ltd 9. Richwill Japan Co., Ltd. 10. Alpha Gold Futures Co.,Ltd. 11. SKY PRECIOUS METALS CO.,LTD. 12. Golden Fx Links Capital Co., Ltd 13. Goldwell Capital Co., Ltd 14. Golden Fortune (Cambodia) Securities Plc. 23 III. Market Segment Development Commodities Derivatives FinTech RegTech Collective Investment Scheme 2016 Launching Corporate Bond Equities - Main board - Growth board 24 12

13 Achievements From 2009 to Continuous Trading and Trading Before settlement Securities Firms SECC CSX Main Board and Growth Board 02-០ Derivative Adopted Regulations related to debt issuance Liquidity Provider Negotiated Trading Method 2. Market order 3. Daily price limit 10% Associate Member of the IOSCO 1. listed companies: 5 2. Securities Firms: Acc Firms: 8 4. Law firms: Valuation Com: 4 6. Cash Settlement Agents: ៣ 7. Transfer, Registra, payment agent: 3 8. CCP: 4 9. Derivative brokerage: 14 As of April 30, IV. Main Issues Relating to The Slow Progress of Our Securities Sector Securities sector is still new to Cambodians Market development has been slow Key obstacles to take into account Tax issue Legal issue Accounting issue In need of securities sector as a funding source for future economic development Private business sector; investment expansion Banking sector; new capital accord Public sector; infrastructure projects Efforts to develop market by the RGC and private sector 26 13

14 V1. New Developments Needed to Energize The Securities Markets A. Our securities markets need an introduction of new concepts and products that can attract Cambodian investors. In 2017, the BOD of the SECC has introduced the following: 1. Attract small and medium enterprises (SMEs) to raise their capital by entering into the securities markets. 2. Revise the requirement of CIFRS (accounting standards) from the full standards to CIFRS for SMEs 3. Revise the tax obligation for SMEs that plan to enter into the securities markets. 27 V2. New Developments Needed to Encourage SMEs to Consider the Use of The Bond Markets B. Offering education and encouragement to all SMEs to consider the issuance of bonds to finance their middle and needs of capital for improvement and expansion 1. Attract small and medium enterprises (SMEs) to raise their capital by entering into the bond markets. 2. Revise the requirement of CIFRS (accounting standards) from the full standards to CIFRS for SMEs 28 14

15 V3. New Developments Needed to Energize the securities markets C. Very recently, the SECC s BOD has introduced another concept to energize our securities markets by introducing the concept of Collective Investment Scheme under the Prakas approved by the BOD of the SECC on May 8, The Prakas covers the following: (See Appendix 1-4) 1. Fund management (!"មហ%&ន(ប(ងម+លន-ធ-) 2. Distribution companies (!"មហ%&ន/ក1យលក3ទ-ញមក6ញ) 3. Collective investment scheme (!"មហ%&ន6ន-7គរ:ម) 4. Investment trust properties(;ព=សម?តa-បរធន6ន-7គ) 29 V4. New Developments needed to energize the securities markets 5. Real estate investment trust (បរធន6ន-7គអចលនវតE") 6. Crowdfunding representatives (FGក3HរIដKLន3ឌNង) 7. Fund selling representatives (FGក3Hរ/ក1យលក3ម+លន-ធ-) 8. Fund management representative (FGក3Hរ(ប3(ងម+ល ន-ធ-) 9. Public fund (ម+លន-ធ-PQរណS) and Private fund (ម+លន-ធ- Tឯកជន) 30 15

31 Quotations from Buddhist Reverent Dalai Lama About what is that makes you better: Whatever makes you more compassionate, more sensible, more

16 31 Quotations from Buddhist Reverent Dalai Lama About what is that makes you better: Whatever makes you more compassionate, more sensible, more detached, more loving, more humanitarian, more responsible, more ethical. The religion that will make do that for you is the best religion

17 Quotations from Buddhist Reverent Dalai Lama The direction in your life: Take care of your thoughts because they become words, Take care of your words because they will become actions, Take care of your actions because they will become habits, Take care of your habits because they will form your character, Take care of your character because they will form your destiny, Take care of your destiny because they will be your life, 33 17

SECURITIES MARKET: MORE THAN JUST A SOURCE OF FUNDING WEDNESDAY MAY 18, 2016

SECURITIES MARKET: MORE THAN JUST A SOURCE OF FUNDING WEDNESDAY MAY 18, 2016 Contents Introduction of the CSX Brief about the CSX Market Operations Cambodia Securities Listing Main Benefits of Securities