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Capital Market Development
The foreign direct investment also started to flow into the country.  But these financial sources are not adequate for domestic capital requirement which will be a medium and a long-term fund for industrialization and modernization.  That capital requirement would be huge amount when country is striving towards sustained economic growth.  Therefore, formation and development of a capital market is a prerequisite for an emerging and transitional economy like Myanmar, as capital market plays a vital role in mobilization and allocation of domestic and foreign resources.  This process alleviates the inflationary impact because it mops up excess liquidity from the public.
          At a capital market, as a source of fund-gathering, variety of financial instruments such as shares and bonds can be traded or transacted between fund-raiser (borrower) and investor (buyer) with an intermediary (Securities Company) in between and by this way the investor accumulated his assets.  Sometimes a public company may find difficulty to raise fund for expansion and development of its business.  The capital market is a place where the public company can tap funds by floating its equity (share) in it.

Vision: Creating Myanmar Securities Market
With the objective of creating a Myanmar Securities market in view, series of seminars were conducted co-sponsored by Ministry of National Planning and Economic Development, Ministry of Finance and Revenue, the Central Bank, UNDP, and Daiwa Institute of Research (DIR), Japan.  At those symposiums, the leaders conceived an idea of forming a capital market, based on some justifications such as number of public companies, privatization, sound legal system, and accounting professionals.
          Subsequently a MOU was signed between Ministry of National Planning and Economic Development, and Daiwa Securities Co in November 1994.  DIR, a subsidiary of Daiwa Securities became an adviser to the project as well as a partner.

The Birth of a Securities Company
An agreement signed on 5 April 1996 between Myanma Economic Bank (MEB) and DIR on a basis of fifty percent equity share, US$3.4 million as paid up capital, ushered in a new era of capital market development.  Thus Myanmar Securities Exchange Centre Co Ltd (MSEC) came into being in June 1996.

First Local Mini-Stock Exchange
The first mini-stock exchange can be traced back to 1930 before the Great Depression period.  A very small Yangon (then Rangoon) stock exchange with limited trading activity had existed.
          A few British and European stocks were traded by seven European firms.  A European firm established a stock exchange and issued price quotations of Bombay (now Mumbai) and Calcutta (now Kolkata) exchanges.  The majority of stockbrokers were Indian merchants.  There were no Myanmar companies listed in stock exchange.  It came to an end when the Second World War broke out.

Functions of MSEC
To state some salient functions of the MSEC, viz.
(1) to assist company which want to go public,
(2) act as broker, dealer and underwriter of securities,
(3) provides consultancy service,
(4) publish investment information and research work on national economy and on the company,
(5) act as agent of the Central Bank of Myanmar to sell Treasury Bonds and act as agent of company to sell its shares,
(6) assist in privatization process.

The Role of MSEC
The role of MSEC is to help develop an organized capital market.  For this purpose MSEC set out its objectives in a step by step approach in the following order:
(1) Primary market development
(2) Listing of public companies which meets criteria
(3) The over-the-counter (OTC) market for selected public companies
(4) Bond market development
(5) Formation of securities company
(6) Secondary market development for trading on Yangon stock exchange.

First company to float its share
As a securities dealer, the initial step taken by MSEC is to float shares and bonds at a primary market.  DIR, after due scrutinization and analysis, recommended MSEC to select the Forest Products Joint Venture Corporation Ltd (FPJVC) as the first company to sell its shares to the general public.  The response from the public was encouraging.  The MSEC began its sale in December 1997 and within a year it had sold over 20,000 shares.  At that time some JVCs were in the pipeline to raise funds, but regrettably, JVC (1) to (9) were voluntarily liquidated as such agreement could not proceed further.

Sellers' Market
In fact, it is a sellers' market where demand is heavy.  But MSEC regulates spot price of share from time to time, in order that a buyer pays a fair and equitable price.  Surprisingly, well off peasants from rural areas like Kawhmu and Kungyangone townships (in Yangon Division) placed buying orders with MSEC which is now being flooded with numerous orders.  Therefore one can assume that the public have now aware of securities investment idea.  Interest and yield or return on investment are the inducements for potential investors.  Interest rate should be attractive otherwise the investor may consider an opportunity cost - i.e. return on alternate investment.  The OTC market development is not speculation but for shares to be more liquid.  In case of need, an investor can turn his shares into cash easily.  It is advisable that public companies and banks should use MSEC as an intermediary for primary and OTC market trading.

Purchase and Sale Commissions

Bond Market Development
Issuance of bond is a method of borrowing of government, local authority and financial institution from the public.  In a broader sense, it is to secure financial resources needed for fiscal management, curbing inflation and easing fiscal burden of the State.  Bond is a debt security, the issuer, in return for bond, promises to pay a specified rate of interest during the life of the bond and to repay the face value of the bond when it matures.  Market participants are individual investors and institutional investors (insurance companies, pension funds, mutual funds, banks).
          The Central Bank of Myanmar (CBM) has issued three-year and five-year Treasury Bonds with effect from 1 December 1993 on behalf of the government.  MSEC, appointed as agent of the Central Bank of Myanmar, sold K 4 million worth of Treasury Bond and now started OTC trading of bonds by buying K 3 million worth of bonds and sold to the investors.
          In order to disseminate the function of bond, issuing, refunding policy and primary and secondary market a seminar was held under the sponsorship of CBM, DIR and Daiwa Securities, on 17 December 1996, for the officials from financial sectors.
          The Minister for Finance and Revenue at his opening address expressed that Myanmar's banking financial sector was being liberalized through a step by step approach for ultimate integration into the global financial system.  The existence of a sound capital market, comprising bonds and securities, is a prerequisite for the development of a financial system.
          Another seminar on Bond Market was jointly held by Ministry of Finance and Revenue, MSEC and Tokyo Stock Exchange on 29 May 2000, which was attended by private entrepreneurs and economic organizations.  Interesting and informative topics such as (1) Debt Management Policy of Japan, (2) Debt Ceiling, (3) Primary Market Issuance Procedure, (4) Clearing Procedure, (5) Bond Market Business Operations of Japanese Securities Companies, and (6) the Role of Securities Market in National Economy were discussed by resource persons.  Dissemination of knowledge on securities and bond is necessary to educate the general public by holding seminars and media publication.

Interest Rate Structure of Government

Problem and Pitfall
Former Managing Director of MSEC Mr. Zuzuki had noted that he had meeting with many private company owners and discussed for going public but the owners did not want to share profit and others did not like to give away ownership and management.  Private companies were not keen to go public.  In fact there are only fourteen public companies and seven local joint ventures (public) companies.  More companies which meet criteria are needed for public listing and so also more public companies should be formed for raising fund and stock exchange listing (when stock exchange emerges).  A stamp duty levies on share registration poses a barrier.  The rate 2.5 % should be reduced to a lowest minimum or abolished as is being practiced internationally.  As the market becomes active, the frequency of changing of shares also increases.  A high stamp duty would ultimately discourage investment.
          The Myanmar nationals should be trained both at home and abroad to become dealers in securities.  Local companies should be formed to become securities companies, because at least five securities companies are required for a stock exchange.

          Most important of all is regulatory and legal framework for (1) securities market and stock exchange development and (2) protecting the interest of the investors.  A draft on Securities and Exchange Law has been exhaustively and thoroughly discussed by respective officials and scrutinized by Attorney General's Office.  The draft would become law in due course.
          Taking the past experience of capital markets of other countries, and lessons from Asian currency turmoil, a regulatory body is needed to monitor, to oversee and enforce strict financial discipline to safeguard national interest.
          A seminar entitled Financial Resources for Development in Myanmar: Lessons from Asia jointly organized by the Institute of Southeast Asian Studies, the Myanmar Institute of Strategic and International Studies (MISIS) and Sasakawa Peace Foundation held on 17 December 1999 was comprehensive and thought-provoking.  Myanmar researchers contributed four papers and other researchers from ASEAN member countries, viz. Thailand, Indonesia, Malaysia, the Philippines, recounted their countries' experience.  A Japanese researcher contributed an article on preparation of a capital market in transitional economy.  Researchers discussed widely and touched on interest rate structure, inflation rate, percentage of savings to GDP, establishment of capital market, exchange rate regime, capital inflow, legal framework, public knowledge regarding securities and stock market.  One researcher advised to take gradual and cautious step in formation of capital market mechanism.  The same researcher called for combating inflation as an immediate task and also highlighted the maintenance of macro-economic stability with sustained economic growth as a fundamental task for macro-economic management.
          All in all, MSEC's endeavour at this point in time is to keep the ball rolling.

Maung Hla Thaung (Bank)

Ref: Establishment of Capital Market: Perspectives and Problems; by U Kyaw Sein, Executive Director, Myanmar Securities Exchange Centre Co., Ltd.