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Overview of Cambodia Securities Market

Presented by Dr. Sam GHANTY

May 23 & 26, 2018

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Presenter appreciates the information

provided by the SECC for the Presentation.

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Dr. Sam GHANTY was the head of the finance program and professor of Finance, Investment and Banking at the University of Wisconsin (USA) from 1977 to 1996. He worked for ADB and the World Bank from 1996 to 2004 as advisor and training coordinator at the National Bank of Cambodia and Ministry of Economy and Finance. He served as an independent member of the Board of Directors at the Foreign Trade Bank of Cambodia (2001-2005), Canadia Bank (2006-2007), Arial Global Group of Singapore (2004-2007), and Cambodian Public Bank (2014-Present). He currently serves as advisor at the National Accounting Council (NAC) of the Ministry of Economy and Finance, a member of the Board of Directors at the Securities and Exchange Commission of Cambodia (SECC), a member of Board of Directors at the Parliamentary Institute of Cambodia (PIC), and a chairman of Board of Director at CamEd Business School. Presenter appreciates the information provided by the SECC for the Presentation. 3

Dr. Sam GHANTY, Ph.D., CFP

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I. The Relationship Between Financial Assets and Liabilities

 The financial system is the mechanism through which funds available for lending are made available for borrowers.

 Operation of the financial markets:

 Money exchanged for financial claims, such as stocks, bonds, and other financial securities.

  Transforms savings into investments.

  Permits the Cambodian economy to grow and create new employment.

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Two Types of Financial Markets

 Money Market Short-term securities   Financial asset used for short-term investment: treasury

bill, negotiable certificates of deposits, commercial papers, etc.

 Capital Markets Long-term securities 1. Equity securities or stocks:   Ownership shares in a business firm   Claims against the firm’s profits   Claims against receipts from the sale of its assets Example: common stock and preferred stock

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Types of Financial Markets

2. Debt Securities (Bonds)

  Priority claim over the assets and income of a company   Can be negotiable or nonnegotiable   Priority claim over the holders of stocks to the assets

and income of a company   Example: bonds, mortgage instruments.

3. Derivatives (special securities)

  Market value of a derivative is connected to the value of a financial asset

Example: futures contracts, options, and swaps

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Importance of The Financial System

 A strong financial system can help a country by   Increasing its external financing   Lowering its cost of borrowing and lending   Accelerating its economic growth

 Countries with more fully developed financial systems   Tend to grow faster   Tend to enjoy a higher standard of living.

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Major Sources of Financing The Assets

Short-term debts Banks

Long-term debts Bonds (External Financing)

Equity Common Stock (External Financing) Retained Earnings Internal financing

Examining the Balance Sheet of a Company

Short-term Assets Long-term Assets Property Plant Equipment

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Business ownership

 Most companies are created by entrepreneurs: individuals or small set of partners. They may be members of family.

 Some firms may choose to sell shares to the public

through an initial public offering or IPO.

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Separation of Ownership From Management: Readiness for entering the financial markets

 The change in ownership from 100% privately held toward an increasing offering of publicly traded shares of stocks

 This means that a firm may be managed by hired professionals and not just the owners.

Implication: A new problem occurs: owners and management may not be perfectly agreed on their business and financial objectives.

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Difference in Business Ownership and the Transformation Process

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IPO Time

Sales (Profit)

Private Companies Public

Companies

Bank Loans

Stocks Bonds

Equity/Debt Financing

Transformation from Private Companies to Listed Companies

IPO

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A Financial System Depending On Only Banking

Presently, the banking sector plays a primary role in providing credit to the economy.

Balanced Financial System

Increase in efficiency Competition raises benefits to borrowers

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Banks Securities Markets

A Financial System Combining Both Banking and Securities Markets

Since 2010, the banking sector and the securities markets have developed concurrently to serve the need of the economy.

Balanced Financial System

Increase access to the long-term capital Public access to own shares in companies

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In Cambodia, the Securities industry is regulated by the Securities and Exchange Commission of Cambodia (SECC) which is established in 2008 under the Law on the Issuance and Trading of Non-Government Securities.

II. The Securities & Exchange Commission of Cambodia (SECC)

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SECC Board of Directors

SECC chaired by Minister of Economy and Finance and 8 Members with the mandate of 5 years, consists of the following:

- One Representative from the Ministry of Economy and Finance

- One Representative from the National Bank of Cambodia

- One Representative from the Ministry of Commerce

- One Representative from the Ministry of Justice

- One Representative from the Cabinet of Council of Ministers

- The Director General of SECC

- Two Experts in Securities sector

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Steps of SECC Development

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Jan. 2007: Law on Government Securities

Oct. 2007: Law on the Issuance and Trading of Non-Government Securities

2001: Financial Sector Blueprint 2001-2010

2006: Financial Sector Development Strategy 2006-2015

Steps of SECC Development

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Director General

Deputy Director General

Administration and Finance Dept.

Securities Market

Supervision Dept.

Deputy Director General

Securities Intermedi

aries Supervision Dept.

Research, Training, Securities

Market Development,

and International

Relations Dept.

Deputy Director General

Securities Issuance

Supervision Dept.

Legal Affairs Dept .

Conduct and Organization of the SECC

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Securities Industry System in Cambodia

Valuation Companies

As of December 2017 *for the updated data, please see the next slides

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Listed Companies

Symbol   Companies Name   Date  

PAS   Sihanoukville Autonomous Port   08-Jun-2017  

PPSP   Phnom Penh SEZ Plc.   30-May-2016  

PPAP   Phnom Penh Autonomous Port   09-Dec-2015  

GTI   Grand Twins International (Cambodia) Plc   16-Jun-2014  

PWSA   Phnom Penh Water Supply Authority   18-Apr-2012  

  Other companies are in the process of IPOs.

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Central Counterparties

Central Counterparties   Website    

1. Cambodia Derivative Exchange   www.goldenfxlink.com  

2. Phnom Penh Derivative Exchange Plc.   www.ppdexchange.com  

3. Royal Financial Corporation   www.rfccambodia.com  

4. Gold Financial Global Investment   www.gfg88.com  

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Derivative Brokers

ក្រុមហ៊ុនឈ្មួញជើងសាឧបករណ៍និស្សន្ទ  

1. Cambodia Derivative Exchange  

2. Phnom Penh Securities Plc.  

3. Royal Financial Corporation  

4. Gold Financial Global Investment  

5. GoldFx Investment  

6. Phnom Penh Derivative Exchange Plc.  

7. Askap Asset Management Co., Ltd  

8. Blackwell Global Investment (Cambodia) Co., Ltd  

9. Richwill Japan Co., Ltd.  

10. Alpha Gold Futures Co.,Ltd.  

11. SKY PRECIOUS METALS CO.,LTD.  

12. Golden Fx Links Capital Co., Ltd  

13. Goldwell Capital Co., Ltd  

14. Golden Fortune (Cambodia) Securities Plc.

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•  Equities

- Main board - Growth board

•  Corporate Bond

•  Collective Investment Scheme

•  Commodities •  Derivatives

Launching

2016

2019

2022

III. Market Segment Development

•  FinTech | RegTech

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Achievements From 2009 to 2017

28-07-2008 SECC

11-07-2011 CSX

02-11-2010 Securities Firms

10-09-2015 Main Board and Growth Board

02-02-2015 Continuous Trading and Trading Before

settlement 02-០7-2015

Derivative

17-08-2016 Liquidity Provider

1. listed companies: 5 2. Securities Firms: 12 3. Acc Firms: 8 4. Law firms: 13 5. Valuation Com: 4 6. Cash Settlement Agents: ៣ 7. Transfer, Registra, payment agent: 3 8. CCP: 4 9. Derivative brokerage: 14

01-08-2017 Adopted Regulations

related to debt issuance

15-08-2017 Associate

Member of the IOSCO

26-12-2017 1.  Negotiated Trading

Method 2.  Market order 3.  Daily price limit 10%

As of April 30, 2018

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IV. Main Issues Relating to The Slow Progress of Our Securities Sector

 Securities sector is still new to Cambodians  Market development has been slow   Key obstacles to take into account

Tax issue Legal issue Accounting issue

  In need of securities sector as a funding source for future economic development Private business sector; investment expansion Banking sector; new capital accord Public sector; infrastructure projects

  Efforts to develop market by the RGC and private sector

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V1. New Developments Needed to Energize The Securities Markets

A. Our securities markets need an introduction of new concepts and products that can attract Cambodian investors. In 2017, the BOD of the SECC has introduced the following:

1. Attract small and medium enterprises (SMEs) to raise

their capital by entering into the securities markets. 2. Revise the requirement of CIFRS (accounting

standards) from the full standards to CIFRS for SMEs 3. Revise the tax obligation for SMEs that plan to enter

into the securities markets.

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V2. New Developments Needed to Encourage SMEs to Consider the Use of The Bond Markets

B. Offering education and encouragement to all SMEs to consider the issuance of bonds to finance their middle and needs of capital for improvement and expansion

1.  Attract small and medium enterprises (SMEs) to raise

their capital by entering into the bond markets.

2. Revise the requirement of CIFRS (accounting standards) from the full standards to CIFRS for SMEs

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V3. New Developments Needed to Energize the securities markets

C. Very recently, the SECC’s BOD has introduced another concept to energize our securities markets by introducing the concept of “Collective Investment Scheme” under the Prakas approved by the BOD of the SECC on May 8, 2018. The Prakas covers the following: (See Appendix 1-4)

1. Fund management (!"មហ%&ន(ប(ងម+លន-ធ-) 2. Distribution companies (!"មហ%&ន/ក1យលក3ទ-ញមក6ញ)

3. Collective investment scheme (!"មហ%&ន6ន-7គរ:ម) 4. Investment trust properties(;ព=សម?តA-បរធន6ន-7គ)

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V4. New Developments needed to energize the securities markets

5. Real estate investment trust (បរធន6ន-7គអចលនវតE") 6. Crowdfunding representatives (FGក3HរIដKLន3ឌNង) 7. Fund selling representatives (FGក3Hរ/ក1យលក3ម+លន-ធ-) 8. Fund management representative (FGក3Hរ(ប3(ងម+លន-ធ-) 9. Public fund (ម+លន-ធ-PQរណS) and Private fund (ម+លន-ធ-

Tឯកជន)

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About what is that makes you better: Whatever makes you

 more compassionate,  more sensible,  more detached,  more loving,  more humanitarian,  more responsible,  more ethical.

The religion that will make do that for you is the best religion”.

Quotations from Buddhist

Reverent Dalai Lama

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The direction in your life:   Take care of your thoughts because they become words,

  Take care of your words because they will become actions,

  Take care of your actions because they will become habits,

  Take care of your habits because they will form your character,

  Take care of your character because they will form your destiny   ,   Take care of your destiny because they will be your life,

Quotations from Buddhist

Reverent Dalai Lama