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The benefits of securities markets

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People stand near a stocks graph during a launch ceremony at the Cambodia Securities Exchange in Phnom Penh on April 18, 2012. AFP

The benefits of securities markets

Securities markets have been around for centuries and have been integrated into the lives of many people around the world, whereas for the majority of Cambodians they are a brand new phenomenon. So what is a securities market?

Securities refers to financial instruments issued to raise funds, which encompass equities – stocks – bonds and derivatives. You might have heard about securities markets before.

Things like stock trading are often portrayed on television and in movies, and are often depicted as risky deals.

But there is in fact a lot more to then than this. The primary function of a securities market is to provide channels for transferring idle resources from those who have them to those who have a productive need for them. In other words, securities market helps in converting savings into investments – using money to create a greater amount of money.

A win-win situation

In Cambodia, one of the key players in the securities market is the Cambodia Securities Exchange (CSX), Cambodia’s first organised securities exchange, which started trading operations in 2012 with a state-owned enterprise (SOE), Phnom Penh Water Supply Authority (PWSA).

It was then followed by two other SOEs – Phnom Penh Autonomous Port (PPAP) and SihanoukVille Autonomous Port (PAS), and two private companies – Grand Twins International (GTI) and Phnom Penh Special Economic Zone (PPSP).

The five listed companies have all raised funds to grow their businesses through CSX, while creating opportunities for the public to benefit from investing in their stocks – a win-win situation.

Apart from enhancing the efficient flow of financial resources, how else could a functioning securities market be beneficial to Cambodia’s economy?

Job creation: A functioning securities market creates job opportunities, especially in the area of financial expertise, including securities regulators and operators, investment analysts and advisors, securities traders and investors, and more.

This pool of professions is con-sidered highly skilled and thus a productive labour force to benefit the economy.

Increased tax revenue: Developing the securities industry means making room for more players like securities firms, fund management companies and many other participants to enter the market, along with existing ones including the CSX.

These companies then pay taxes to the government, and therefore contribute to the country’s fiscal revenue.

Wealth sharing: Investing in a securities market is accessible to everyone because it can start with a small investment.

Other investment options like running a business or investing in real estate need relatively large capital to begin with. However with a securities market, small individual investors can own parts of large corporations and get a share of the profits through buying their stocks.

Simply put, investors use their money to do business indirectly. While many corporations and big businesses are benefiting from Cambodia’s rapid economic growth, for them to go public means small investors can also benefit from the profits they generate.

Raising capital: Not only can small and medium-size enterprises raise funds through securities market to build their businesses, large corporations can also enter the market to access various financing options – for example, issuing stocks to fund projects or business expansion.

Sometimes, getting loans from traditional banking is not sufficient and can subject a company to excessive interest payments, so offering stocks to the public can be a solution.

Improved corporate governance: In listed-company terms, other than raising capital for business growth, going public on a stock market can help improve the overall performance of a company, for instance, by requiring it to adopt standard accounting practices and strengthen corporate governance.

With sustainable and standard management, a company can be able to generate revenue more efficiently and distribute it more equitably.

Standing at this early stage of development, more attention should be given and efforts made towards achieving an active and sound securities market in order for Cambodia’s economy to grow even more rapidly, in alignment with one of the policy aims of the Royal Government of Cambodia in developing the non-banking sector of the financial industry.

Cambodia Securities Exchange

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