Papua New Guinea’s Securities Commission, has gazetted a new levy on all transactions on the PNGX, the country’s stock market. The move has raised concerns that it will impede the growth of PNG’s capital markets.

Credit: Pixabay

A levy of 0.75 per cent of the value of any PNGX transaction was announced by Securities Commission Acting Chairman Alex Tongayu in a National Gazette on 10 February and is due to become effective on 8 March.

The levy is to be paid by a purchaser or seller of securities and collected by their stockbroker or participating organisation. It will then be remitted to the PNGX before being passed on to the Securities Commission.

‘It is not the principle of the levies being imposed – which we understand and accept – that we are concerned about, but rather the quantum at which they are imposed.’

Potential impediment

According to figures from the PNGX, the total value of trades in the 2020 calendar year was about K145 million. If the levy had been applied that year, it would have raised over K2.2 million.

David Lawrence, Chairman of PNGX Markets, tells Business Advantage PNG the levy is likely to suppress market activity.

‘PNGX is concerned that the increase in charges will discourage investors from investing in PNG. It has the potential to disincentivise activity in the market at a time when we are trying to build it up from its existing low base.’

Alex Tongayu. Credit: BAI

Lars Mortensen, Managing Director of stockbroker JMP Securities Limited, agrees that the levy potentially represents an impediment to the continued growth of PNG’s capital markets.

‘It is not the principle of the levies being imposed – which we understand and accept – that we are concerned about, but rather the quantum at which they are imposed,’ says Mortensen.

‘All market participants need to mobilise resources to grow their ability to participate in and develop the local market. This includes the Securities Commission as the industry and market regulator.’

Having a well-funded and functioning regulator can ‘enhance the operations of the market, protect investors and issuers and at the same time facilitate the continuation of the path of innovation and development on which we have embarked’, Mortensen tells Business Advantage PNG.

But he questions the rate of the levy.

‘At 0.75 per cent of the transaction value on both buy and sell transactions, the levies are potentially prohibitive and represent a possible deterrent to the growth in trading activity and volumes.

‘I am concerned that at the current levels, we will find the levies being imposed may act to slow this growth.’

‘In a low-volume market like PNG, the pressure is always on each part of the value chain to make its ends meet by imposing charges and levies on the limited transactions that they facilitate or regulate.

‘Nevertheless, we encourage all participants to take a longer-term view and ensure that transaction costs are maintained at levels that facilitate the development and growth of the market. This is the only path that guarantees the viability of the market in the long term. I am concerned that at the current levels, we will find the levies being imposed may act to slow this growth.’

Mortensen says he looks forward to ‘continued fruitful and ongoing discussions with the Securities Commission’ and says he remains ‘confident that the markets will grow and develop in the long term.’

Legal status

As an added complication, Alex Tongayu’s status as the market regulator is in question, due to his involvement in a court action with Oil Search (2020 Oil Search Limited v Alex Tongayu & Ors).

In June 2020, Tongayu briefly suspended trading in Oil Search shares, following an Oil Search capital raising, which had been authorised by the Executive Chairman of the Securities Commission, Christopher Hnanguie.

Business Advantage PNG understands the case, which is expected to determine which of the two chairman has the legal status of market regulator, has yet to be resolved.