Tuesday, 29 March 2011

Currency risk in CSX two-day settlements


via CAAI

Tuesday, 29 March 2011 15:01May Kunmakara and Jeremy Mullins

THE Securities and Exchange Commission of Cambodia is set to require trades on the new stock exchange to be settled after two days, as experts said the timeframe ought to be kept as short as possible.

Although analysts widely supported the timeframe, called ‘T + 2’ in a draft prakas, or edict, obtained yesterday, they said a shorter settlement period will minimise the impact of currency fluctuations on transactions.

Companies are set list on the Cambodia Securities Exchange in riel, but settlements are allowed in either local currency or dollars for the first three years of operation.

Asian Development Bank’s Principal Economist at the Office of Regional Economic Integration Jayant Menon wrote yesterday that it was the settlement period where exposure to currency risk really exists, given the currency of listing and the currency of settlement could differ.

“Therefore, the shorter the better,” he said. “… T+2 is quite short, especially for an emerging market.”

The main challenge for the clearance system was the legal and regulatory framework, he said.

“These need to be strengthened, and the National Bank of Cambodia needs to be actively involved in ensuring this,” he wrote.

ACLEDA Securities Director Svay Hay said he supported two-day time frame.

“It is acceptable for us because we will have enough time to [complete] operations,” he said. “Using T+2 is very good – we don’t aim to use T+3 or more, which takes too much time.”

Svay Hay allowed that there would be some exchange rate risk for investors with capital in United States dollars if the riel fluctuated – but he added the riel had remained relatively stable over the last few years.

“We don’t have large fluctuations [in the value of the riel],” he said. “This is good, as it will draw investors to the market.”

Cambodia Securities Exchange Chief Executive Officer Hong Sok Hour said the SECC continued to work on the more complex regulations to ensure a successful exchange, which is set to launch in July.

“We are a new market, we will have some difficulty with the first step – that is why we want to develop simple [regulations],” he said.

ACLEDA Bank, CANADIA Bank, and the Bank for Investment and Development of Cambodia have been licensed as cash settlement agents by the SECC earlier this month.

Operators of a clearing facility will also be obligated to set up accounts under the oversight of the CSX, according to the draft parkas obtained yesterday.

Trading hours will initially be set from 8:00 am to 11:30 am, and trades are scheduled to be executed twice daily, at 9:00 am and 11:30 am.

Trading days are slated to be Monday to Friday, except public holidays.

Members who failed to settle a trade may see their trade cancelled, or have their trading suspended for a fixed period of time.

The SECC will hold public consultations on the timeframe – termed “T+2” – today and Wednesday, as well as the other provisions included in the draft “Rules on Securities Market Operations” prakas.

No comments: