(...) Securities and Exchange Commission of Cambodia (SECC) Overview of Cambodia Capital Market Kao Thach, LLB (F.L.E), LLM (Bond) Deputy Director General Securities and Exchange Commission of Cambodia 1

Present Financial System in Cambodia

Present financial system in Cambodia Players in Financial Sector: ● Banking system:  The central bank, that is the National Bank of Cambodia with its 21 provincial branches;  31 commercial banks (22&9), 7 specialized banks;  31 (MBIs 7) Licensed Microfinance Institutions; 28 Registered MFIs  International Reserve: Bil  Loan to Deposit: 88.3% (2011) ● 6 General Insurance Co., & 1 Re-Insurance ● No inter-bank/money market ● 15 securities Firms and 1 Cambodia Securities Exchange ● Active foreign exchange markets due to high degree of dollarisation ( more than 90% of banks transactions in US$, large volume of USD cash in circulation).

Bank-based system VS. Market-based system?

Alan Greenspan ’ s Pumping Philosophy

Sequencing to create Securities Market in Cambodia 6

Feature of Cambodia Capital Market

8 Primary Market“Supply”“Supply”“Demand”“Demand” “Intermediary” “Infrastructure”“Infrastructure”

Secondary Market Intermediaries CSX Cambodian Securities Exchange CSX Cambodian Securities Exchange Issuer Investor Transfer Agent Transfer Agent Cash Settlement Cash Settlement Registrar Law Firm Law Firm CRA Appraiser Firm Appraiser Firm Accounting Firms Accounting Firms Others Clearance and Settlement Operator1919 Clearance and Settlement Operator1919 Securities Depositories CSD Securities Depositories CSD Intermediaries Paying Agent Paying Agent

Capital Requirements Securities Underwriter Securities Dealer Securities Broker Investment Advisor Minimum Capital40 billion riels (~ USD 10 million) 25 billion riels (~ USD 6.25 million) 6 billion riels (~ USD 1.5 million) 400 million riels (~ USD 100,000) Net Capital2 billion riels1.25 billion riels 300 million riels Non required, but: -Proper location with equipped office - Licensed Adviser Securities Bond4 billion riels2.5 billion riels 1 billion riels80 million riels (~ USD 20,000) Capital Requirements for intermediary 10

Human Resource requirement for intermediary Human ResourceOther Requirements  CEO and director or partner  Head of securities representatives  Head of operations  Compliance officer  Other qualified staff  Physical facilities  A 3-year business plan  Comply with requirements for risk management and internal controls  A risk management plan  Satisfy other requirements stipulated 11

to make a public offering shall fulfill the following requirements: – Shareholders’ equity shall not less than KHR 5,000,000,000 (five billions) at the date of filing the application; – Issue size shall not be less 20 % of shareholders’ equity at the latest balance sheet (shareholders’ equity < KHR 20,000,000,000 (twenty billions)) and; – Issue size shall not less 15 % of shareholder’s equity at the latest balance sheet (shareholders’ equity is > KHR 20,000,000,000 (twenty billions) or more); – Net profit shall not be less than KHR 500,000,000 (five hundreds millions) for the latest full financial year prior to the date of logging application – Aggregate net profit shall not be less than KHR 1,000,000,000 (one billion) for the latest 3 financial years prior to the date of filing application; Public Limited Company or SOEs 12

 obtain eligible listing from the Stock Exchange  approval from the SECC and register the disclosure documents with the SECC (Law: Art. 12, Anukret: Art. 9, 10, 11 & 13).  fully responsible for accuracy, adequacy and reliability of information containing in the disclosure document (as well as securities firm and any expert).  Have the signature of the Chairman of Board of Directors, Directors, CEO and CFO on disclosure. Public Limited Company or SOEs 13

The Board shall be composed of at least 05 and not more than 15 members. At least 1/5 independent directors (ID). foreigner as independent directors, those shall have working experiences in Cambodia at least 06 months before becoming ID Corporate Governance of PLCs 14

The Board shall constitute committees to assist and ensure good corporate governance: – Audit committee, – Risk management committee, – Nomination committee and other. Risk management committee for public listed company has asset from KHR 200,000,000,000 (two hundred thousand million) and over. The public listed company had asset less than KHR 200,000,000,000 (two hundred thousand million) may consider to have Risk management committee if necessary. The public listed company has asset less than 200,000,000,000 (two hundred thousand million) Riel, the duties of the risk management committee may be carried out by the Audit Committee. Corporate Governance of PLCs 15

Securities Investors: Individual or Institutional We believe that  To attract investments, genuine market transparency and efficiency must be firmly established  For individual investors, investor protection and education are critical  For institutional investors and foreign investors, legal and regulatory impediments must be mitigated in phases. Individual Investor: Cambodian Savers, foreigners, any investing public Institutional Investor: Banks, Social Securities Fund, Insurance Company, Investment fund… 16

17  CSX is a joint stock company : RGC 55%, KRX 45%.  The CSX should take on a for-profit organizational form.  KRX take part in the management of CSX.  For efficiency: to integrate trading, clearing/settlement, and depository functions in the CSX.  Electronic auction mechanism: CSX is equipped with electronic systems that can cover all functions related to trade flow.  Adopt a dematerialized form.  Establishment of DvP and T+2 Feature of the Cambodia Securities Exchange

18 Feature of the Cambodia Securities Exchange  How many times do investors trade a day?  Twice a day, at 9:30 am and 11:30 am  Execute orders use a periodic call auction after collecting orders for an hour. − Later, may adopt the periodic call auction more frequently, then eventually, adopt the continuous call auction. − When adopting the continuous call auction, the CSX will equip with block trading facility, various order types, etc  Price limit system : Apply very tightly price limit around 5%  The implementation of a tight price limit system and the establishment of a T+2 settlement system are pre-requisite mechanisms to prevent the Cambodian securities market from possible market turmoil arising from the pre-maturity of the securities market in the Introduction Stage

 Operator of Securities Market: A company incorporated and registered in Cambodia Capital is not less than KHR 40, 000 millions Suitable trading system and floor Enough human resource  Operator of clearance and settlement facility A company incorporated and registered in Cambodia Capital is not less than KHR 20, 000 millions Suitable clearance and settlement system Enough human resource  Operator of securities depositories A company incorporated and registered in Cambodia Capital is not less than KHR 20, 000 millions Suitable and secured depositories system and place Enough human resource  Possible 3 in 1: A company incorporated and registered in Cambodia Capital is not less than KHR 80, 000 millions Suitable and compatible system for each operator Clear and Firm Firewall or Chinese wall between 3 operators Enough human resource Requirements for Operators 19

Insurance Sector Premium=USD2.3 million in 2000 and 8.8 millions in 2003 to USD million in (3 folds from 2003 and 11 folds from 2000)