Text messages, in which a broker at an unlicensed derivatives trading firm purportedly informs one of Prime Minister Hun Sen’s daughters that her trading account had been “topped up” with over half a million US dollars, were leaked yesterday. The texts raised questions about the government’s resolve in clamping down on unregulated derivatives brokerages, which cater largely to the country’s wealthy elite.
The Securities and Exchange Commission of Cambodia (SECC) has made slow progress in reining in unlicensed operations since issuing its first derivatives trading licence nearly a year ago. To date, only six licences have been issued, while at least as many unlicensed firms continue to openly advertise forex and metals trading services.
Some have deceptively masked their legal status, while others have partnered with licensed local derivatives firms – a move that provides temporary shelter from regulatory scrutiny and allows them to continue to chalk up high-profile clients, despite the illegality of their operations.
Among these is Askap Gold Investment Co Ltd, a derivatives brokerage mentioned in a series of alleged leaked text messages distributed to the local media last week by former opposition leader Sam Rainsy.
In correspondence dated November 11 and 23, Askap Gold informed Hun Maly, the youngest daughter of Prime Minister Hun Sen, via SMS, that the company had made two deposits of $300,000 each into her account. The number within the log was saved under the name “Adam”.
Contacted yesterday, Adam, whose real name is Cheng Jin Chuen, the chief information officer of Askap Gold, confirmed the transactions and the authenticity of the text messages.
“We processed two transactions of $300,000 each on November 11 and 23 to Maly,” he said. “She is one of our main clients.”
When contacted yesterday, Maly hung up on a Post reporter and did not respond to follow-up calls and messages.
Chuen admitted that Askap Gold continues to operate without SECC approval, but said the company was in the process of applying for a licence.
“We are currently in the last stage of getting our licence and we have fulfilled all the paperwork and met the requirements,” he said. “The licence could come as soon as next month because we have partnered with Golden FX Link to help us.”
In January, Askap signed a memorandum of understanding (MoU) with Golden FX Link, the first local firm licensed by the SECC as a derivatives brokerage and central counterparty, to be one of its recognised partners in derivatives trading.
The agreement allows Askap to use Golden FX Link as a licensed clearing house for its trades once it meets SECC compliance.
Meanwhile, Interactive Futures, another yet-to-be-licensed derivatives trading firm, appears to have piggybacked on Askap’s association with Golden FX Link.
Chhor Sokethya, a manager at Interactive Futures, said that since SECC regulation of the derivatives market came into effect in November 2015, the field has narrowed from 40 to 50 illegal operations to “maybe six or seven” that were still operating fully outside of government oversight.
“The government has yet to successfully regulate all the players, but the regulation really needed to happen because Cambodia had too many companies trying to manage funds that can spoil the market for investors,” he said.
He added that market regulation was good for business because it narrowed the players and pooled resources.
“While we have yet to be licensed, SECC regulation has helped bring in more business for us as the market consolidates and partnerships for asset management are formed,” he said.
According to Sokethya, derivatives trading in Cambodia is primarily geared toward the wealthy elite who are prepared to risk money speculating on the volatility of derivatives tied to metal prices and currencies.
“The benefits of derivative trading is that it can be done 24 hours a day, five days a week, and we can put in stop-loss measures for clients,” he said.
Lawrence Kook, director for Golden FX Link, said he believed the capital requirements set out by the SECC were adequate safeguards to weed out irresponsible firms.
According to SECC regulations on derivatives trading released in November 2015, the minimum capital requirement for a brokerage firm is $250,000 while also placing down a security bond equivalent to 15 percent of their capital. For a central counterparty – the clearing house for derivatives trading – there is a minimum capital requirement of $5 million as well as the security bond.
“At this moment, I believe this is a right amount for companies to join,” he said. “If the requirement was set too high, I am afraid there may not have that many companies willing to join in.”
While Kook said more needed to be done to bring derivatives brokers into the regulatory fold, he also cautioned about a swift crackdown that could simply send these firms further underground.
“One of the risks for an unregulated company is that they can disappear irresponsibly overnight without any trace,” he said. “However, with a registered company, it is easier for us to trace it back with all the records.”
Kook said his company was supporting unlicensed derivatives firms in their application for a trading licence.
“We have a special team especially focused on how to get companies to apply for a derivatives brokerage licence successfully in a legal and legit way,” he said.
“If a company can pass through our self-regulated policy, we are pretty sure they can also reach the requirements of SECC.”
Vin Pheakday, director of the SECC’s securities intermediaries supervision department, said the government would not allow any companies to operate outside of the law.
“We do not allow any company to do derivative business without a licence from the SECC in accordance with existing law and regulations,” he said. “We have called the unlicensed companies for warning and asked them to stop operating business without a licence. Otherwise, we will take further actions.”
“From the regulator perspective, we still need more regulations to protect the interests of investors and to make the market function in a fair manner,” he said, declining to address what action the government would take for those continuing to operate without a licence.
Among the stragglers is Sky Precious Metals, a derivatives trading firm established in 2013 and owned by well-connected businesswomen Lim Chhiv Ho.
A receptionist at the company’s office confirmed to The Post that the company was fully operational despite not having a licence, though said it was planning to apply for one. Numerous requests for comment from the company’s management went unanswered.