In 2016, Yangon Stock Exchange Joint-Venture Company Limited was formed as a joint venture between state-owned Myanma Economic Bank (51%), Daiwa Institute of Research (30.25%) and the Japan Exchange Group (18.75%) with a total paid-up capital of MMK 32 billion. YSX has a scripless trading platform, using book-entries. YSX is the Central Securities Depository, at least in the initial years. Due to low trading volumes, it operates just two daily auctions instead of continuous trading. YSX was launched on December 2016 and it has been a major milestone in the development of Myanmar’s financial markets. Even before it was launched, it had received so much interest from local companies planning for IPOs and listing. In January 2015, the SECM invited interested parties to submit their application for one of four types of securities licenses. Joint ventures with foreign partners would be allowed as long as the local shareholders have a controlling stake. Currently there are 4 local companies listed on YSX and 5 underwriting licenses were approved and given. The majority of local companies are still family-owned, self-funded or highly leveraged with bank loans. The development of strong capital markets in the country will allow companies to fund themselves easier and at a lower cost and risk and give investors access diversified investment portfolios.
There is a huge skills gap to create overall efficient trading systems since most people in Myanmar do not have experience working at a stock exchange or securities company. Moreover, Myanmar currently lacks institutional investors. Foreign investors are not allowed to participate in the initial phase and the market is a playground for local retail investors only. Most investors use basic information or follow what other investors do. Stock market volatility could be high due to the speculative nature and the short holding period of investments. Foreign institutional investors tend to invest in stocks of companies that are better known internationally, while local investors typically prefer to invest in companies that pay out higher dividends and show a high growth potential. The local investor base is not strong enough, allowing foreign investments into the stock market can boost growth. Moreover, two main concerns often heard in Myanmar when it comes to allowing foreign investments into the stock market: hot money and foreign dominance.
According to the Securities and Exchange Law 2013, a stock exchange can run clearing business without any further licensing. The Securities and Exchange Law does not limit the number of stock exchanges that can be established in the country but it is currently unlikely that another stock exchange will be opened while the first one is not succeeding yet. The Securities and Exchange Commission of Myanmar (SECM) oversees the Yangon Stock Exchange and operations of public companies in Myanmar. The Yangon Stock Exchange selects and regulates listed companies and other participants. The Securities and Exchange Law actually prohibits conducting any securities business without having a proper license. Unlicensed OTC trading floors were shut down some time after the opening of YSX. On the other hand, the law allows three securities companies to apply for a license to jointly operate an OTC market. Such regulated OTC market could become an alternative for public companies that do not want to get listed or do not meet the listing criteria of YSX but still want to offer their shareholders a secondary market.
Collection of Papers on Myanmar’s Financial Sector, A joint publication of GIZ-Myanmar and Thura Swiss, January 2016
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