Logo of Phnom Penh Post newspaper Phnom Penh Post - Firm poised to be first licensed derivatives broker

Firm poised to be first licensed derivatives broker

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

Firm poised to be first licensed derivatives broker

Six months since Cambodia’s market regulator officially launched derivatives trading in Cambodia, Phnom Penh Securities Plc is poised to become the first local securities firm to legally trade the complex and little-understood financial instrument.

The company said yesterday that it received two letters of approval from the Securities and Exchange Commission of Cambodia (SECC) last Friday – one aimed at forming a central counterparty licence, which acts as a clearing house for derivative trading, and the other to expand its existing brokerage activities to include derivatives.

The approvals come after the SECC launched derivatives trading in November based on rules defined in a prakas issued last July and aimed at reigning in unregulated and illegal trading of the inherently risky financial instrument.

Ong Sopheak, senior officer for Phnom Penh Securities, said the move will help build investor confidence in trading derivatives under the umbrella of a licensed brokerage firm.

“Derivatives trading is not new to Cambodia – it has been happening for at least five years – but most of the firms operating are unlicensed,” she said. “A lot of companies have built a bad reputation for the derivatives market, and a licensed brokerage firm can mitigate risk.”

Derivatives are financial contracts between two parties based on the future price fluctuations of an underlying asset, such as a commodity, currency or stock. The financial tool offers investors a chance to speculate on the asset’s price movements, or protect their investment against unwanted risk.

Phnom Penh Securities said it initially traded derivatives tied to foreign currencies, as gold and silver prices in overseas commodity markets.

After two months of operations, the company hopes to guide investors into global stock markets by establishing financial derivatives, such as a contract for difference (CFD). The company will also expand into global commodities, such as oil futures.

Regarding plans for foreign currency (forex) derivatives, Sopheak said Phnom Penh Securities will charge $30 per lot, with one lot equalling 100,000 units of currency, while charging a minimum of $10 on smaller quantities. Prices will be based on the respective currency markets for the US and Australian dollar, as well as the euro, Japanese yen and Chinese yuan.

Alex Yong, vice general manager of Phnom Penh Securities, said forex derivatives will give investors a chance to profit from volatile foreign exchange rates.

“With forex trading, investors can make money on a currency when it either goes up or down, and by knowing the right time when to buy and sell,” he said.

As for risk control, he said investors can put in place maximum earnings and loss thresholds that will stop trading once reached, providing safeguards in a volatile fast-paced financial platform.

According to SECC regulations on derivatives trading released last November, the minimum capital requirement for a central counterparty is $5 million, and $250,000 for a brokerage firm. Both entities are required to have a security bond equivalent to 15 per cent of their capital.

While Phnom Penh Securities, which claims to have $15 million in capital, said it was ready to begin derivatives trading immediately, an SECC official said that the securities firm still needs to fulfil its capital requirements.

Sok Dara, deputy director-general at the SECC, said the two letters it sent to the company cleared the way for it to trade derivatives, but it must put up a security bond before receiving the actual licence.

“They have approval in principle, but they must first meet the minimum requirements before they can operate,” he said. “I am not sure when they will begin trading, but we have given them some time before they receive an official licence.”

MOST VIEWED

  • Seven positive for Covid-19, Hun Sen confirms local transmission

    Prime Minister Hun Sen announced that there has been local community transmission of Covid-19. However, he urged the people not to panic even though the Ministry of Health announced the discovery of seven new cases on Sunday. Among the victims are Chhem Savuth, the director-general

  • Cambodia at ‘most critical moment’, Hun Sen warns

    Prime Minister Hun Sen said the first community transmission of Covid-19 in Cambodia has led the country to the “most critical moment” that warranted urgent, large-scale operations to contain the pandemic. Hun Sen, who confirmed the first local transmission on November 28, said the source of

  • PM confirms community transmission, calls for unity

    Prime Minister Hun Sen has called on the public to stay calm, unite and follow the Ministry of Health guidelines after the wife of a senior official tested positive for Covid-19 in the Kingdom’s first case of community transmission. The case has drawn criticism

  • Over 110 garment factories close

    A government official said on November 22 that at least 110 garment factories had closed in the first nine months of the year and left more than 55,000 workers without jobs – but union leaders worry those numbers could be much higher. Ministry of Labour and Vocational Training undersecretary

  • Singapore group seeks $14M in damages from PPSP over ‘breach of contract’

    Singapore-based Asiatic Group (Holdings) Ltd is seeking a minimum of $14.4 million relief from Cambodia Securities Exchange (CSX)-listed Phnom Penh Special Economic Zone Plc (PPSP) for allegedly breaching a power plant joint venture (JV) agreement. Asiatic Group’s wholly-owned Colben System Pte Ltd and 95 per

  • PM vows to protect Hun family

    Prime Minister Hun Sen has vowed to continue his fight against opposition politicians who he said intend to smash the Hun family. Without naming the politicians but apparently referring to former leaders of the Supreme Court-dissolved Cambodia National Rescue Party (CNRP), Hun Sen said there