CSX chief executive Hong Sok Hour explains how the exchange will function on its first day of trading and into the future.
The way to begin trading on the CSX is to open an account with any one of a dozen securities firms which are licensed by the SECC and are members of the CSX. Traders need to have some money in their brokerage accounts to buy shares, says Hong Sok Hour, CEO of the Cambodia Securities Exchange.
During the process of opening an account, traders will receive an investor ID issued by the SECC.
“Before you start trading, you need to have some money. You also pay brokerage fees for each trade,” Hong says.
For the first stage of trading, the CSX will start with two trading sessions in the morning, the first one running from 8am to 9am.
“At 9am, there will be matching between sell and buy orders, and we will have an opening price. One millisecond after 9am, the second session will begin. Orders that are not executed in the first session will be included for an execution in the second session,” Hong says.
At 11:30, there will be a second matching of buy and sell orders, he says.
Under way now is the “book building” process by the state-owned Phnom Penh Water Supply Authority, which will be the first IPO in Cambodia and the first listing on the CSX.
“There is a long process for fixing an IPO price and there is a book building process which is intended to establish an IPO price. People will buy at that IPO price, then on the first day of trading, those who succeeded in buying those IPO shares can place sell orders, and those who want to buy can place buy orders ” Hong said.
The people who participate in the book building or subscription process and succeed in buying IPO shares can later sell those shares, even on the first day of trading, Hong said.
“Many people are interested in buying IPO shares. I often receive guests from abroad, from China, Japan, Korea and some other countries. They came and told us they were interested in IPO shares.”
On the first day of trading, the CSX will set a limit on how much the price is allowed to change, which is common practice at stock exchange IPOs, Hong says. The limit will be somewhere between 90 per cent and 150 per cent.
During the first morning trading session between 8 and 9 am, the CSX will be looking for enough buy and sell orders to match.
“The above limit rule will be applied to this morning session at the start of the IPO shares trading. That means the price will only be allowed to increase 50 per cent during the first morning session.”
In the second session on the first day of trading, after the buy and sell orders of the first session are matched, the five per cent rule will be applied and the stock prices won’t be allowed to rise more than five per cent.
“This is the common practice for stock exchanges to do this, some have 5 per cent, some have ten or fifteen per cent or more, but this is a general practice, so there is some kind of limit on the fluctuation of prices,” Hong said.
“For the first day we allow the price to change between 90 per cent and 150 per cent.That is the limit for the first session of the first day, and there will be a limit of plus or minus five per cent for the next session after the first price is established, and for the follwing days of trading,.”
In general, the price of IPO shares are expected to increase dramatically.
“That is general knowledge. We notice that will happen almost all the time. Some people will not even want to sell, because they can get more, five per cent each day, so they will think: ‘Why not hang on to the shares?’ ” Hong says.
Both short-term speculators and long-term stockholders are necessary for the market to function, he says.
“There must be a combin-ation for the market to function. The speculators will be necessary for the market activity. The longer-term holders will be needed for market stability,” he said.
While the first company to list will be the Phnom Penh Water Supply Authority, widely recognized as a good choice because of sound management, infrastructure and continuing demand, companies to follow with IPOs can be both state-owned and private, according to Hong.
“The first IPO will be state- owned and the next one can be a private company, or a state-owned company like Telecom Cambodia. Underwriters are now working with some private companies already and they need to come to the market and the SECC regulator for approval. Up until now a few of them have approached the SECC,” Hong says.
The CSX index will be a market cap weighted average index.
Hong says once companies are ready to list on CSX and approved by the SECC, “the more the better.”
“We don’t have any policy to space them out, the more the better. Once they are ready, why not one per month,” he said. “No one knows exactly how we will evolve in the future. It depends on the investors, whether they are domestic or foreign.
“It also depends on the SECC and CSX, about our approach, whether we will adopt a more careful approach or more liberal approach. It also depends on the underwriters and how hard they will work. If they bring more listed companies there will be more market activity. It depends as well on the market trend. If the trend is upward, many people will be more interested and it will be a cumulative success.”
The CSX employs 40 people and operates under a set of rules approved by the SECC and under the supervision of the SECC.
“We have the Ministry of Economy and Finance which is our supervisory institution. The CSX is a public enterprise and partly state-owned enterprise,” Hong said. “In that perspective sometimes people refer to the market operator as front-line regulator, managing the activity of the market among members and market participants.”
The CSX’s IT system does the matching of the buy and sell orders, Hong says, and is a duplicated system in which all software and hardware are backed up by identical “redundant” systems.
“If one part is not functioning, the other part will replace it automatically.”
The CSX has six departments and employs five Korean stock exchange experts in each of those departments: listing, market operations, clearing and settlement, depositing, IT, and the administration and finance department.
The CSX is owned by the Royal Government of Cambodia, represented by the Ministry of Economy and Finance. The Korea Exchange holds 45 per cent of the CSX.
Hong says the CSX is working with the SECC for a decision to reduce trading fees to give market participants a better deal.
“We make money by collecting trading fees. We have some trading fees already in place. Since the inauguration ceremony, we are considering lowering our trading fees so that it is rather attractive for investors, but we need to get approval from the SECC. We have made the decision to reduce our fees already, but we need to get an approval from the SECC.”
Hong is optimistic about the CSX and happy about new connections to the settlement banks.
“We ran a communication line between three settlement banks: ACLEDA, BIDC, and Canadia, all of whom are connected to CSX. There is a functional connection already and we have had a few tests already,” he says.