‘The stock market is picking up’

The Chief Executive Officer of the Royal Securities Exchange of Bhutan Limited (RSEBL), Dorji Phuntsho talks to
Business Bhutan’s reporter Dechen Dolkar on the status of the stock market exchange in Bhutan and how it has picked up gradually despite being the smallest stock market in the world.

Q. At one point of time, Bhutan’s stock market was described as one the most inactive in the world. How has the stock market picked up over the years?
A. The concept of investment stock and trading of shares has remained a fairly new concept to every one of us. Prior to the establishment of the stock exchange, the government diversified four companies, the shares were given to the public and there were no platforms to sell the shares so as a result they felt the need for a market platform and that’s how the stock market was established. Since then there were only a handful of investors and everybody was holding shares back and they were treating them as long term assets. The companies were also declaring huge dividends.
After the stock exchange market was established in 1993 trading was done only twice a week. We had a crude trading engine but it served the purpose. Brokers had to enter orders manually but again brokers were confined in Thimphu only since the volume of the business was low and opening offices in other dzongkhags was not possible.
With the auto machine system in the stock exchange in 2012, in terms of outreach as well as because of technology, the presence of the stock market through online systems was pervasive. Gradually, trading was done thrice in a week.
In 2016, the company started developing an in-house system and was launched in 2018 and trading was done five days a week.


Today, if we see on an average every day we trade about Nu 5mn, which means our market is picking up. In 2017 our secondary market transaction was about Nu 217mn in a year and in 2019 and 2020 the company crossed Nu 1bn.
Q. There is still a lot of illiteracy when it comes to how stocks are traded. Can you please explain how the stock market functions in simple words?

A. We are a provider of a platform where the investors who have excess income come with the intention to buy shares in an efficient and transparent manner which is an organized market. A share is the underlying asset that is ownership of the company. From those investors who want to cash out liquidity from their assets.
Stock market ensures that only qualified companies based on their criteria are given that market place. Not all companies qualify for the stock exchange market


The brokers who are involved in channeling the orders are institutional brokers and certified brokers. Through its brokers representatives should ensure risk management is taken care of. Brokers ensure that the buyers’ money to buy shares and the seller has shares worth to sell.

Q. Why does the value of the shares fluctuate? When does the value of shares increase or decrease?
A. The market price of the shares is the reflection of performance of the companies, the present performance as well as future prospects. It is a public sentiment based on their perspective towards the companies’ performance. Since price is driven by demand and supply, what forces them to sell and what encourages them to buy will determine the price.
Stock market is based on speculation and not on luck.


Secondly, in terms of value per shares, it will depend on the authentic and intrinsic value of the company. Intrinsic value is a company’s net asset value. For instance companies’ book value will be Nu 15 and if we look at the market this book value is selling as Nu 60 because there is market price increase, there is wealth creation because shareholders’ net worth has gone up.

Q. The RSEBL has been at the forefront of innovating capital markets in the country. What are some of the major initiatives it has taken over the years to promote stock trading and capital markets in the country?
A. Biggest worry was when the system was not automated. We were maintaining the records of shareholders list in excel format. There is a lot of room for manipulation and discrepancies even though all checks and balances were there. But the only fear was that in case the data gets corrupted, we are wiping off close to worth of Nu 20bn information.


Our biggest achievement in terms of maintaining record with automates, secured and dematerialized. We have backup in any form.
Since 2012, we have emphasized technology innovation, because our system is little different from other financial provider systems. We have five different systems which talk to each other.
Trading engine is the platform which helps in price discovery, central depository system which is a volt where ownership of shareholders are maintained, clearing and settlement system for taking care of settlement in terms of ownership and payment through the bank, broker back office for risk management and IPO engine which gets connected to other systems.


We have a system at par with other worlds just now in terms of all processes.
We have also built a mobile app for trading called m-CaMs, we are also a licensed crowd-funding platform and the company is also working on tokenization. Exploring how this platform can take on block chain technology. With tokenization, we don’t need a centralized system.


Biggest accomplishment was the auctioning of rights issues. Before when a company floated rights issues, people subscribed to it and people who did not subscribe to it got left out. We develop a system for rights issue auctions, when it is in public domain the prices increase. The face value is given to the company and rest is deposited to the shareholders’ account. It is beneficial for the shareholder. This is not practiced anywhere in the world.
So far the RSEBL has auction rights issues for DrukPNB, Tbank, Dungsum polymer, GIC-Bhutan Reinsurance and RICB which was started in 2018.

Q. Since two companies, Jigme Mining and Eastern Bhutan Coal Company got delisted, how has it affected the stock market?
A. Immediately in terms of market capitalization will go down because when we delist two companies corresponding values will go down. Availability of choices of stock has also gone down.

Q. Since some of the companies have decided not to declare the dividend though they have made profit in 2020, how will this affect the stock market?
A. The practice is that the companies who are performing should always try to give a return to their shareholders if possible above the inflation rates. At the same time when you invest in the stock market, you should understand certain elements of risks and their assured return.


The return will depend on the performance of the companies. But there is wealth creation. The prices are shooting up. The fact that they declared the dividend is also a good sign because those profits can be ploughed back to the reserve which will become strong. Instead they can reinvest. I would say that those companies who declare the dividend, the prices should go up.

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