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Derivatives trading inches closer to reality

Derivatives trading inches closer to reality

Cambodia’s stock exchange is edging closer to derivatives trading, with a draft prakas governing the exchange of the financial instruments near completion, Sou Socheat, newly appointed director general of Securities Exchange and Commissions of Cambodia (SECC), said yesterday.

According to Socheat, the New Prakas on Licensing and Supervision on Derivatives Trading has been in the works for more than a year, and a workshop to seek input from industry experts will be held on January 8, which Socheat hopes will pave the way for approval in the coming months.

“Derivatives, which are a future contract of difference, are one of the products for the development of our capital market, and we see that many public and [private] operators are very interested in trading these kind of products,” he said.

“When we collect more input from the stakeholders, experts, we will submit the prakas to the chairman of the SECC for final checking and approval. I do hope that it will get approval at the end of January or early February,” Socheat added. 

Derivatives offer the buyer the opportunity to hedge against the risk of price fluctuations for an underlying financial instrument. Instruments linked to such contracts are commonly bonds, currencies, stocks or commodities.

ANZ Royal Bank transacted Cambodia’s first commodities hedging deal – often referred to as over-the-counter derivatives trading – with a local oil importer in September 2013. The deal allowed the importer to lock in an agreed future price with the bank, thus protecting against the risk of a fall in oil prices.

Socheat at the SECC declined to disclose what type of derivatives would eventually be traded on the CSX, as this was still part of the ongoing feedback with the new prakas.

Svay Hay, director of Acleda Securities Brokerage Firm, said that derivatives trading would attract investors interested in short-term trading options.

“It is pretty good because it will serve as the complement for the development of our capital markets – this means that investors can have more options, whether to buy shares from listed companies or going to buy derivative products,” he said.

In 2011, the Securities and Exchange Commission of Cambodia cracked down on unlicensed firms trading derivatives, while regulators around the world have made greater attempts to control the complex instruments since the build up of risk that led to the 2008 global financial crisis.

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