SECC stops derivatives licenses

KHMER TIMES
SOK CHAN

The high volatility of gold prices makes it a valuable commodity for trading on derivatives markets. Reuters

The Securities and Exchange Commission of Cambodia (SECC) will on February 28 stop issuing any new trading licenses to central counterparties, or clearing houses, in the kingdom’s fledgling derivatives market.

The SECC decision was made last week, but only made public yesterday.

Sok Dara, SECC’s deputy director-general, told Khmer Times that the commission wanted to gauge the effectiveness of the country’s derivatives market, which he said was still very new.

Mr. Dara added that the suspension of licenses did not apply to derivatives brokers.

“There are currently four central counterparties and six derivatives brokers who have received licenses to trade from the SECC,” he said. “I think the number of counterparties, now, is optimal for a small market like ours.”

“We will wait to see how the derivatives market performs before issuing new licenses again to central counterparties,” said Mr. Dara.

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 the SECC, 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.

The kingdom’s fledgling derivatives market is attracting new players and in December, the Royal Financial Corporation Ltd. (RFC) – a subsidiary of local conglomerate Royal Group – became the fourth central counterparty in the country to be granted a license by the SECC.

“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.

According to Mak Channdara, general director of FUGI Investment, 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 Mr. Channdara.

“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,” he added.

FUGI received a license from the SECC to be a derivatives broker a few months ago.

“Technology has transformed the way of doing business. It’s now all done in real time with markets monitored round the clock. You can buy low in one market and sell high in the other market. Simply put, you are taking advantage of differences in prices in the two markets,” said Mr. Channdara.