Securities companies to provide market liquidity
Securities companies to provide market liquidity
A new initiative aimed at encouraging more trading on Cambodia’s persistently quiet stock exchange will allow securities underwriters and dealers to become liquidity providers who can hold and trade shares in listed companies.
The Securities and Exchange Commission of Cambodia (SECC) announced the initiative on Tuesday in a bid to encourage more investors to trade on the local bourse, which has just four listed companies and rarely sees more than a few thousand shares traded daily.
Liquidity providers (LPs) – also known as market makers – facilitate trading in securities by providing a pool of shares so that buyers and sellers can trade even when other individual traders are not available or willing to deal.
Sok Dara, deputy director general of SECC, said yesterday that in the absence of active buyers and sellers, a liquidity provider can trade shares using its own account.
“Liquidity providers will play an important role to boost trading in the market,” he said, adding that this will help correct the current mismatch between buyers and sellers in the market as LPs would be obligated to engage in trading.
“We hope that the new initiative will compliment what we need for [active] trading,” he said.
Dara added that liquidity providers will be required to hold a minimum of 100 shares of a stock they make a market in, while their transactions will be capped at 2,000 shares per trade.
Currently, there are six securities underwriters and one securities dealer eligible for approval, he added.
Lamun Soleil, director of market operations department of the Cambodian Securities Exchange (CSX), said that the liquidity provider’s role would ensure that continuous trading sessions flow more smoothly. He added that LPs will benefit from the waiving of certain trading, clearing and book-entry fees.
“They can also make profits from buying at lower prices and selling at higher prices, just like a currency exchange dealer,” he said.
Han Kyung Tae, managing director of Yuanta Securities (Cambodia), the underwriter for the Phnom Penh Autonomous Port (PPAP), said his firm was interested in the role that liquidity providers will play and plans to seek SECC approval for a licence. However, he said that it would make sense that underwriters represent the listed firms that they are most familiar with.
“It would be ideal for an LP to be responsible for one or a few stocks within the [liquidity provider’s] specialty,” he said.
Han said if the initiative is successfully executed it will increase the liquidity in the stock market, which would make investing in the Cambodian capital market more attractive to investors.
“It is expected that the improved market liquidity will alleviate one of the major concerns of investors concerned with exit and entry strategies,” he added.
