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Derivatives licences handed out

A man drives past the offices of the Securities and Exchange Commission of Cambodia (SECC) in Phnom Penh in 2014.
A man drives past the offices of the Securities and Exchange Commission of Cambodia (SECC) in Phnom Penh in 2014. Hong Menea

Derivatives licences handed out

Cambodia's capital market regulator officially granted its first round of derivatives trading licences this week, nearly 10 months after it vowed to formally regulate the inherently risky financial instrument and provide investors with more options to earn profits.

Sok Dara, deputy director-general at the Securities Exchange Commission of Cambodia (SECC), said that Golden FX Link and Phnom Penh Derivate Exchange have both been granted licences to operate as central counterparties and brokerage firms, while Phnom Penh Securities was granted a brokerage licence.

“The companies can now legally trade derivatives in Cambodia and have three months to launch trading operations,” he said yesterday, adding that it was up to the individual companies to garner interest in the relatively unknown instrument.

“I am not sure what type of investors will be interested in this type of trading, but we have provided the mechanism in which to regulate operators and ensure that people are confident in the market,” he said.

He added that four other companies – Royal Financial Corporation, Gold Financial Global, FUGI Gold and Gold FX Investment – have been given approval in principle to begin the licensing process that requires them to have a minimum capital requirement for a central counterparty of $5 million, with $250,000 for a brokerage firm and a security bond equivalent to 15 per cent of a firm’s capital.

Lawrence Kook, director for Golden FX Link, said that the company would begin offering services as soon as possible, while the firm continues to enhance its systems and human resources.

“The SECC has approved our products that include foreign currency trading, precious metals like gold and silver, and oil derivatives,” he said, adding that forex and gold would likely be the most popular.

“The advantage that our company has is that it has a regional network and will be able to verify that commodities prices are up to date by checking with three to five international banks,” Kook said. “Sometimes, in unregulated markets, derivative companies would not update their trading system to reflect global prices.”

He added that as the company grows and attracts clients, it will focus on safeguarding client’s data through a network of digital protections.

While he welcomed future competition in the market with more companies applying for licences, Ong Sopheak, senior officer of Phnom Penh Securities, was less optimistic.

“Four to five companies will be very competitive because derivative trading is nothing new and previously operated outside the law,” she said, adding that even with the SECC safeguards, illegal competition is rife.

Nevertheless, she said that while the company has partnered with its derivatives-trading sister company for a central counterparty, the advantage of operating solely as a brokerage firm allows it handle all products approved by the SECC.

“So when they are ready, we are ready to begin trading,” she said.

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