A challenging market to grow
Five years since it launched operations, the Cambodia Securities Exchange (CSX) continues to struggle to attract investors while trading activity remains low. The Post’s Hor Kimsay sat down with Lamun Soleil, director of market operations at the CSX, to discuss what is holding back the exchange’s development as well as some of the ideas posited for boosting its growth.
It’s been about a year since CSX announced the listing criteria for a separate board for small- and medium-d enterprises (SMEs). To date, no SME has listed and there have been no announcements of companies in the pipeline. Why is it so quiet?
We have been contacting representatives of many business associations as well as many SME owners. Many enterprises have shown interest, even though they are not yet ready or prepared to list. So we have created a team that provides consulting services for SMEs to prepare them to list.
But many SMEs owners are young entrepreneurs and they know better than the older generation about the standards for financial reporting. And those SME owners have an intention to list because they want access to capital to expand their business operations. These companies are now preparing their financial statements and conducting internal audits, which are basic criteria to list.
But this takes time, usually one to two years. So if they are starting to do these things now, I think next year we could see some SMEs become listed companies.
Is the CSX considering additional incentives to encourage SMEs to list?
No, we don’t have much more to offer. SMEs are offered the same incentive as a large listed company on the main board, which includes a 50-per cent tax reduction on the profit tax.
What has been the single biggest obstacle stopping the stock market from taking off?
The main issue is that not many companies are willing to release their business information to the public. They might think that by not releasing that information, they can cheat and avoid paying taxes. But whether they list or not, the government is reforming the tax collection process, so it is better for them to prepare for the future and operate transparently.
Last week, the Sihanoukville Autonomous Port announced that it would delay its IPO until February 2017. Does this mean that we won’t see any more IPOs this year?
It doesn’t seem like there will be any more companies listing this year, and other companies that are interested have also delayed their listing schedule.
Does the CSX have any plans to change or expand trading sessions?
No, we do not have any plan for that yet. We need to wait for more active trading before we would consider adding an afternoon trading session.
CSX currently operates on a T+2 basis, which means that traders have to wait two days until the payment and securities certificates are exchanged. Will the CSX consider offering same-day settlement?
T+2 is already the fastest form of settlement for a stock. We cannot do same-day settlement and it is a general practice worldwide that stock markets cannot offer same-day settlement. Derivatives or government bonds could be settled on the same-day, but for stock trading, we can’t offer that.
Has there been any consideration for allowing companies to cross-list so that they can be on two stock exchanges at once?
We are studying the possibility to of doing cross-listing with the Stock Exchange of Thailand (SET). However, by doing this, we would need to fulfil many tasks that include technical processes and regulation. Cross-listing involves many parties and local commercial banks, and the central bank would need to develop regulations. We would need time to do that.
Recently, the Securities and Exchange Commission of Cambodia has allowed for underwriters to become liquidity providers. How do you expect this will affect the market?
We believe it will help our market. Liquidity providers (LPs) will facilitate trading regularly. Previously, there was a mismatch between buyers and sellers, especially when investors where looking to sell shares.
So now a liquidity provider can trade shares using their own account. LPs will provide a pool of shares so that buyers and sellers can trade even when other individual traders are not available or willing to trade.