Friday, November 5, 2010

Cambodia’s new stock exchange: not just a numbers game

ALTHOUGH the number of licences issued to firms to act on behalf of the long-awaited Cambodian stock exchange represents an important consideration, the experience of the companies approved is perhaps more significant. So too critical factors that remain unresolved, such as the currency of operation.

In terms of numbers of licensed firms, seven underwriters would seem excessive during the opening phase of trading as there will almost certainly only be three firms listed. That means some will see no underwriting business from the outset and will have to bank on the exchange’s early success in attracting new IPOs.

What the Security and Exchange Commission of Cambodia announcement did not make fully clear on Tuesday is that many approved underwriters are licensed to perform multiple roles. OSK Indochina Securities has been approved to act as a dealer, broker and adviser as well as an underwriter, it announced on October 21. Similarly, SBI Phnom Penh Securities has received a “full licence” to operate as a securities firm.

In terms of the number of firms licensed, the SECC appears to have approved a total that is more than adequate to start out with spare capacity for the expected rise in IPOs once the exchange gains momentum. As noted by SECC Director General Ming Bankosal in March, approving the 22 companies that applied for licences would have been too many.

More important is the level of expertise brought in to operate with the exchange. With little or no experience of securities markets, Cambodia has rightly approved companies with a wealth of experience overseas.

The SECC approved licences for two majority Malaysian firms along with Vietnamese companies, a South Korean firm and CAB Securities of India – all of which have invaluable securities market expertise. Cambodia Capital Securities is expected to play a key role following years of experience connecting businesses to foreign investors.

None of this expertise will necessarily guarantee the success of the stock exchange though. The key to a solid start has to be a strong foundation based on well-considered regulations, some of which remain unclear and incomplete. A decision on listings in riel, United States dollars or both is just as critical. Should the exchange launch prematurely, confidence at the opening bell would most certainly be undermined.

In terms of the quality and quantity of licensed operators within the market, the SECC has established the necessary foundations based on setting aside national pride for practicality purposes.

In relation to the start date and choice of currency, the commission would be well advised to follow in a similar vein – a rushed launch with listings in riels would only lead to a critical lack of confidence in a market many investors still consider overly risky.

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