Skepticism on Liquidity Providers

KHMER TIMES
MAY KUNMAKARA

The Cambodian Securities Exchange invited all licensed underwriters and securities dealers to apply to be liquidity providers. Unfortunately, there were no takers. KT/Chor Sokunthea

Almost two weeks after the Cambodia Securities Exchange (CSX) announced that it was accepting applications for the newly approved liquidity providers (LPs) option, it admitted yesterday that no one had yet applied, as insiders said they were still unsure of the program.

The CSX invited all licensed underwriters and securities dealers to apply, promising exemption from trading fees, in the hope that it would increase the liquidity of Cambodia’s securities exchange. A liquidity provider connects many brokers and traders together, increasing the liquidity of the joint market. LPs also help to reduce the cost of trading by lowering the stocks’ spread – the difference between the highest asking price, and lowest bidding price.

Lamun Soleil, director of CSX’s market operations department, said that while the plan had existed since 2014, it had taken time to implement.

“Since it was new to us, it took us nearly one year to establish, especially in terms of technical function and regulations. Work with the [Securities and Exchange Commission of Cambodia] also consumed further time,” Mr. Soleil said. “LP was just launched, we haven’t yet received application.”

He stressed however that this was not a sign that the LP idea not proving popular with financial institutions, but rather that they were still assessing the benefits and risks, and that applications were expected soon.

“We expect to have at least one this week, and a few later in the next few weeks.”

LPs would allow smaller investors to buy stocks, as they can enter and exit whenever they wish, likening it to international currency trading. He said it was also hoped to boost confidence in the CSX, as prices stabilize and trade volume increases.

Svay Hay, president and CEO of Acleda Securities, agreed that LPs could be a boost to trading.

“With the current level of trading and activation rate in the market, it shall be the right time to have LPs to boost the transactions volume and give value added to the contribution of investors trading in the market.”

However, potential applicants are still reviewing the idea.

Han Kyung Tae, managing director of Yuanta Securities (Cambodia) – which underwrites state-owned Phnom Penh Water Supply Authority and Phnom Penh Autonomous Port, said that they were still reviewing the application.

“We haven’t applied for one yet. We are currently reviewing the regulations and guidelines on it.”

He agreed that LPs had the potential of increasing trading volume and lowering spread, but suggested that the CSX had a long way to go before it was able to compete regionally.

“Although I don’t expect any immediate and dramatic surge in trading volume by this new function, this is certainly a productive move toward a more liquid and active market. It is part of the steady progress that the local market has been making although we still have a long way to go to compete with overseas stock markets in the region,” he added.