SOK CHAN
The Kingdom’s fledgling derivatives market is attracting new players and the Royal Financial Corporation Ltd. (RFC) – a subsidiary of local conglomerate Royal Group – on Friday became the fifth company in the country to be granted a license by the Securities and Exchange Commission of Cambodia (SECC) to operate as a central counterparty and a derivatives broker.
“The SECC granted RFC a license because of the growth of the company, its sound management and financial transparency. Our fundamentals are good,” said Kith Thieng, RFC’s director-general.
Mr. Thieng said the government has been encouraging the development of the derivatives market to attract more investment in the new market, and added that RFC will expand its trading services to provincial cities across the country, as well as to neighboring countries.
“We are trying our best to attract local and international clients, and hopefully the financial sector will expand accordingly so that more jobs are created for Cambodians,” he said.
Central counterparties place themselves between the buyer and seller of an original derivatives trade and effectively guarantee the obligations under the contract agreed between the two counterparties. If one counterparty fails, the other is protected through the default management procedures and resources of the central counterparty.
According to RFC, foreign exchange, which includes US dollars, the British pound, the euro and the Japanese yen, is available for trading on the derivatives market. Also included are gold and silver, and other commodities on the spot markets.
“Trading in derivatives is not difficult to understand. Derivatives are financial contracts that derive their value from an underlying asset. These could be stocks, indices, commodities, currencies, exchange rates, or the rate of interest,” said Mak Channdara, general director of FUGI Investment. FUGI just received a license from the SECC last month.
“These financial instruments help you make profits by betting on the future value of the underlying asset. So, their value is derived from that of the underlying asset. This is why they are called derivatives,” Mr. Channdara told Khmer Times.
Hang Chansophea, RFC’s executive director, said the company will also focus on the derivatives markets in neighboring countries to attract more international clients and foreign big-players.
“For reasons of confidentiality, we cannot disclose the identities of our foreign clients. All I can say is that at least 10 percent of our customers are internationals,” said Mr. Chansophea.
He added that RFC had a good client base and there were some derivatives brokers who wanted the company to act as a central counterparty to bear most of the credit risk of buyers and sellers when clearing and settling market transactions.
According to SECC, there are five companies licensed to operate as central counterparties and seven licensed as derivatives brokers.
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