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Derivatives licensing capped by regulator

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

Derivatives licensing capped by regulator

Cambodia's capital market regulator announced yesterday that it would suspend the issuance of new central counterparty licences to derivatives trading firms, claiming that capping the market at four was sufficient to serve current demand.

The Securities Exchange Commission of Cambodia (SECC) said in an announcement signed on March 20 and published yesterday that it would no longer accept applications for companies that act as clearing houses for derivative brokerage firms. However, it would still accept derivative brokerage applications to boost trading activity in the inherently risky sector.

“With the current situation of the derivatives market, the four licensed [central counterparty] companies are enough to handle all the trading activity,” said Sok Dara, deputy director-general of the SECC.

“We will consider reopening applications for central counterparties when trading activity is bigger than this and when it is suitable in the future.”

The SECC officially granted its first round of derivatives trading licences last August, nearly 10 months after it vowed to formally regulate the financial instrument to provide investors with more options to earn profits. In addition to four licensed central counterparties, the government has handed out six brokerage licences.

Under the SECC’s minimum capital requirements, central counterparties are required to put down at least $5 million, while brokerage firms must put down $250,000.

Dara said he did not know the actual number of derivative investors in Cambodia or the number of account holders, but claimed only a small amount traded foreign currencies, gold and silver.

According Svay Hay, CEO of Acleda Securities Plc, the temporary cap on new central counterparty licences for derivatives trading reflected the current demand for the financial product.

“At the current situation we have little trading,” he said. “If we allow more to operate, it will cause problems as companies will not be able to cover the cost of operation or earn profits.”

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