Making capital market vibrant

The PNG Securities Commission is keen on ensuring that the PNG Capital market becomes vibrant and able to contribute positively to the country’s economy. Business Editor SHIRLEY MAULUDU discusses with the Commission’s acting executive chairman ROBERT MINAK on the roles and plans for the commission going forward.

Question: Tell us briefly about the Securities Commission of PNG (SCPNG).
Minak: The SCPNG supervises the conduct of companies and individuals who participate in the capital market.
There are usually three participants:

• CORPORATIONS who offer shares for sale to the public, including companies publicly listed on the PNG National Stock Exchange;
• INVESTORS, who buy, sell or trade pieces of the corporations through their shares; and,
• INTERMEDIARIES – professional outfits such as stock brokers, banks, accounting firms and stock exchanges who actually assist facilitate transactions.

The three securities laws (Securities Commission Act 2015, Capital Market Act 2015 and Central Depositories Act 2015) we enforce are based on a very simple idea.
Corporations who offer shares for sale to the public must tell the truth about their business, the securities they are selling and the investment risks involved when money passes from those who have it (investors) to those who need it (corporations).
We require public companies, asset managers, investment professional, stock brokers and other market participants to regularly disclose important financial and other related information to the public so that investors have timely, accurate and complete information so that they make informed investment decisions.
Ultimately, through our efforts, if we make a positive impact on our economy through our capital markets then hopefully, we can affect people’s lives positively.

What significant role does the Commission have to play in terms of contributing to the country’s economy?
The financial sector is the lifeblood of any country’s economy.
PNG’s financial market is divided into two types – money market and capital market.
Money market securities are short-term in nature while capital market pitches long-term investments.
SCPNG regulates the capital market.
The capital market reflects the condition of the economy.
Because it’s a vehicle for resources allocation from those who have surplus capital to those who require capital, capital creation through the capital market can increase when the economy is growing.
In the capital market, you invest money by buying shares in publicly listed companies whose shares are traded on the stock exchange.
As an integral part and indicator of the nation’s development, the capital market represents a vital part of the financial market infrastructure which, together with the banking sector, supports the economic growth of the country.
The success of our capital market contributes to the overall strength of the economy.
A fair, efficient and liquid capital market facilitates the mobilisation and allocation of funds within the economy.

What are the main challenges of securities commission?
The SCPNG’s ultimate desire is to see the growth of the market and to ensure PNG migrates out of being an outlier and be an emerging market.
Since the capital market is closely associated with the economic performance of the economy, it will take concerted effort and a multi-sectoral approach.
However to get there we need to have our fundamentals set right.
And we have a simple, yet do-able three-pronged approach;

• BRINGING to closure the establishment of administrative capacity and capabilities;
• BUILDING regulatory infrastructure and systems that will provide the governance regime to guide us in regulating the capital market. Regulations to support the securities legislations, guidelines, take overs code, etc.
• ESTABLISHING market interface systems and initiatives to ensure we create a regulatory backbone infrastructure and governance system that support the growth of our capital market, capital market registry systems, etc.

As of May, we have gained traction and momentum in our work.
The National Executive Council’s corrective action, (thanks to Prime Minister James Marape and Deputy Prime Minister Sam Basil’s foresight) led to organisational stability, stakeholder confidence, operational efficiency and market confidence.
We are now putting a blue print together to set up a taskforce to develop a 10-year capital market development plan.

How robust is PNG’s capital market?
Presently, PNG is an outlier – frontier market.
We must transition to an emerging market within the next 20 years.
That’s our vision. Our market base, trade volumes and trade velocity are low.
However, thanks to recent legislative reforms to our securities laws by Parliament, the SCPNG is tracking within expectation in finalising its administrative, regulatory and market interface infrastructure and systems into place.
The market’s potential is there.
The fundamentals are taking shape.
SCPNG is working with key stakeholders to address key issues.
All genuine stakeholders are putting in the effort necessary to ensure the fundamentals are strong.
We are working with PNGX, stock brokers and other participants as a going concern.

Tell us about the 10-year plan the commission is working on?
Let’s look at this strategic concept within the context of our vision.
SCPNG envisions for Port Moresby to be the financial capital of the Pacific by 2040.
It’s a big ask, especially on account of where we are now, both as a country and as a market for the kind of things we do in that space.
So, what we want to do for the capital market, we need to translate that raw thinking into a strategic blueprint with an academic framework built around.
So, the master plan basically is intended to be a comprehensive plan charting the strategic positioning and future direction of the PNG capital market for the next 10 years.
It seeks to provide market participants with strategic precision as to the vision and objectives for the capital market in the midst of the evolving marketplace.
It is also intended to ensure that the capital market is well positioned to play its part in supporting national growth needs and aspirations, as well as meeting the challenges of relevant externalities such as regional competition, the emerging post-Covid global order and increasing globalisation of securities.
Over the last two decades, the PNG capital market was stagnant when the world underwent significant change and development.
The capital market plays a significant role in the overall financial sector.
This segment needs to grow to where it needs to be.
Substantial efforts needs to be made collectively by the SCPNG, other relevant government authorities and market participants to actively foster the development of the market and its continued growth.
So the vision is to formulate a comprehensive vision and programme for the development of the PNG capital market going forward, a framework for the orderly and effective sequencing of deregulation and liberalisation of certain sectors and migrating segments of those to the capital market by legislative mandate, identifying and mapping the direction for the strategic positioning of the PNG capital market both domestically and externally.
The blueprint should guide efforts towards ensuring that PNG’s capital market is efficient, competitive, financially sound and responsive to global trends.
The consolidated framework would need to be comprehensive enough to ensure the balanced development of each core component or sector in the overall capital market, and to facilitate the greater integration of different capital market services and products where appropriate.
It would also need to address prevailing weaknesses in the capital market, and lay the groundwork for it to play an even stronger and more effective role in supporting further economic development.
With these principles in mind, the SCPNG will begin in earnest next year by undertaking a comprehensive review of all key segments of the capital market to analyse existing structural deficiencies and impediments.
A process of extensive consultation subsequently will take place involving a wide range of parties including various government authorities, capital market participants and institutions, independent consultants, local and foreign experts, regulators and market participants, and the public.
This collective input, combined with the SCPNG’s own internal work and research, will form the basis for the development of a blueprint for the effective development and continued competitiveness of the PNG capital market. We expect to frontload this work for the first half of 2022.

From the commission’s view, how receptive are Papua New Guineans towards idea of investing in the capital market?
Our people are as curious and that’s a good thing.
Curiosity is the energy for knowledge, for progress, for entrepreneurship.
Once people are informed, they respond. In the early years, mums and dads, civil servants, the spine of this country, bought shares in what is now the Pacific Balanced Fund.
Back then it was known as the Investment Corporation Fund of PNG. The interest is always there.
It’s just that in the last two decades, the SCPNG took a passive approach to its mandate and the market stagnated.

How would you compare PNG’s capital market to other markets within the region?
Capital market regulators come in a stacking order based on the market they oversee.
There are frontier markets, emerging markets and developed markets.
Regionally (Asia Pacific), we have a melting pot of mixed markets.
For example, Australia is a developed market, Malaysia is emerging and PNG is a frontier market. A frontier market is at the lowest end of the run.
Work needs to be done to progress our position.