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Securities firm puts options on the table

Cambodian Securities Exchange's office.
Cambodian Securities Exchange's office. Heng Chivoan

Securities firm puts options on the table

Phnom Penh Securities is offering put and call options to its clients after becoming the first securities firm in the country to sell options on equities through a new partnership with US-based electronic brokerage Interactive Brokers.

Ong Sopheak, deputy general manager of Phnom Penh Securities, said that the company has made options available for stocks traded on over 100 foreign exchanges, providing a new tool to mitigate risk and one that could eventually be offered to investors trading stocks on the Cambodian Securities Exchange (CSX).

“Phnom Penh Securities is the first securities company to bring stock options for international stocks to Cambodia,” she said. “We started options trading for our clients when we partnered with Interactive Brokers early this year, but we only began promoting [equity options] this month.”

Sopheak said Cambodian investors may be unfamiliar with options as they are not yet available on the local market, but the securities firm is aiming to educate its clients on the benefits of using puts and calls to hedge their investments.

A put option gives its owner the right to sell shares of a stock at a specified price for a limited period of time, even if the stock falls below that price. A call option is the reverse, giving its owner the right to buy stock at a strike price until the option expires.

Investors pay a small premium to purchase these options, which can be used to protect the underlying stock from adverse price movements.

“If a customer purchases a stock, we will advise them to purchase a put option too,” said Sopheak. “If they buy the put option, they will have the right to sell their shares at a high price even if the price is going down.”

The Securities and Exchange Commission of Cambodia issued a prakas on the “Licensing and Supervision of Derivative Trading” in 2015 that covers the licensing of derivatives firms and the trading of derivatives. However, the regulations provide no details on specific derivative instruments, such as options, futures and forward contracts.

“We don’t have detailed laws about options, futures and forward contracts, just a general law to support the existing derivatives market like foreign exchange,” Sopheak said. “So we use international laws and practices from other countries.”

Lamun Soleil, deputy director of market operations at the CSX, said the exchange has no immediate plan to provide options on local stocks due to the limited number of listed companies and the exchange’s low turnover.

“For put or call options on Cambodian [stocks], I think it’s still far away since we have only [four] stocks and limited liquidity,” he said. “It is not suitable for the current market situation and investors given their limited knowledge.”

Sopheak added that options trading might not yet be viable for Cambodian stocks as there could be many investors prepared to buy a put option, but none to sell it.

“It is quite difficult to help someone sell the put option,” she said. “I bet there will be a lot of buyers for a put option, but none who will sell the option.”

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