Cambodia Securities Exchange (CSX) has decided to suspend the membership of SBI Royal Securities Plc to act as a liquidity provider for the Sihanoukville Autonomous Port (PAS) stock because of the company’s failure to fulfill the obligations set forth in the Operating Rules of Securities Liquidity Providing of the CSX. The suspension is the first of its kind for the exchange and is valid from May 13 until further notice.
A liquidity provider is an individual or institution who or which acts as a market-maker in a given asset class. This means that the liquidity provider will act as the both the buyer and seller of a particular asset, thus making a market.
According to the exchange, a liquidity provider performances will be assessed monthly based on three criteria: Timely Order Placement (within the five minutes from the occurrence of the spread greater than 10 tick-sizes), Spread Improvement (lower than 10 tick-sizes) and Trade Contribution (liquidity provider trading value as compared with the total trading value of the covered stock). For example, under the obligations a liquidity provider is required
to place a bid and/or ask orders so as to reduce the spread to 10 tick-sizes or lower within five minutes from the occurrence of the “excessive” spread.
When the spread exceeds 10 tick sizes (from 5,800 to 6,200 for instance), the liquidity provider must decide to produce an allowed spread which lies between 5,800 and 6,200. In the below example, the spread is five tick sizes, from 6,000 to 6,100. “SBI Royal Securities Plc, which signed up to become a liquidity provider in 2017, has constantly failed to carry out its duties in a timely and effective manner despite multiple notifications and warnings from the CSX.
Therefore, the CSX has decided to suspend the liquidity provider membership of SBI Royal Securities Plc until the company can prove its ability to comply with all of the liquidity provider related obligations,” said the CSX. Importantly, the CSX advised that the suspension of the liquidity provider membership is only applicable to the liquidity providing activities of the company.
SBI Royal Securities Plc will be able to continue to operate as a CSX member who is authorised to trade securities for its proprietary account and its clients’ account.
The securities liquidity providing programme was first implemented in 2016, with the Golden Fortune Securities Plc as the first securities member firm that was approved to act as a liquidity provider for the Phnom Penh Water Supply Authority (PWSA) stock, followed by Yuanta Securities (Cambodia) Plc covering the Phnom Penh Autonomous Port (PPAP) stock and, finally, SBI Royal Securities Plc covering the PAS stock.
Since the CSX’s establishment in 2011, liquidity enhancement has been an important decision-making factor in the development of the securities market, hence the significance of the liquidity providing programme.
The CSX currently has 11 companies, 5 equity firms and 6 corporate bond firms with total capital collected recorded at $223 million.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.