The Capital Market Master Plan | Other important policies and measures of the SEC

To consider the government policy towards Thai capital market, it is inevitable to understand the policy and other important measures issued by the Securities and Exchange of Thailand since it is directly responsible for regulating the capital market. Its duty is, therefore, different from that of the Bank of Thailand, who mainly supervise the money market as well as all the financial institutions. Ministry of Finance is acting more as a macroeconomic policymaker. SET …

The rationale behind the SEC’s policy toward the capital market comes from the fact that Thailand had been too dependent on the bank-based economic system before the 1997 crisis, the result of which was no other source of fund for businesses available when banks couldn’t perform their function normally during the crisis.

The policymakers saw the need to diversify the sources for fundraising and the capital market seems to be one of the alternatives. The idea was initiated and formulated by the Deputy Prime Minister and Minister of Finance in 2001 Dr. Somkid Jatusripitak in collaboration with other relevant parties. The result was the Capital Market Master Plan. The draft was completed in November 2001 and was agreed by shareholders in January 2002. The Capital Market Master Plan can be seen as the main policy framework for Thai capital market until the present day.

The Capital Market Master Plan

• Vision

  “To become a capital market that is supportive of the economic development of the country and is able to compete in international markets”

• Strategic Objectives

  • To become an efficient and attractive source of fundraising

  • To create a conducive environment for investors and enlarge the investor base

  • To raise the Thai capital market’s infrastructure to international standards so as to reduce transaction costs

  • To create strong and quality market intermediaries

  • To develop the regulatory structure to international best practice and to be supportive of financial innovation that will serve all investors’ needs

• Important Measures

  1. The Promotion of Good Governance

  2. Enlarging the Investor Base: Demand Strategies

     • a) Developing professional standards and the quality of institutional investors and encouraging individuals to invest through institutional investors

     • b) Promoting foreign investors by encouraging their confidence and providing more privileges and other incentives for their investment in Thailand and its stock market

  3. Increasing the Number and the Diversification of Financial Instruments Supply Strategies

     • a) Increasing the number and diversifying market instruments by giving companies incentives for doing so

     • b) Government to clarify its fundraising plans and policies

     • c) The establishment of a Derivative Market

  4. Enhancing the Efficiency of the Infrastructure to Reduce Transaction Costs

     • a) An exchange trading system for general investors

     • b) The dealing system for large investors

     • c) The market making system for trading securities with thin trading volumes or lack of liquidity

  5. Reforming the Structure of the Supervision System

     • a) Steering committee appointed but MOF to handle policy coordination between supervisory bodies

     • b) The restructuring of SEC board

     • c) SET to set up a steering committee for corporatization

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Other important policies and measures of the SEC

• SEC strategic plan 2004-2006

• The announcement of 2004 policy by SEC Secretary-General Mr.Thirachai  Phuvanatnaranubala

  Mr. Thirachai has become the Secretary-General of the Office of the Securities and Exchange Commission, Thailand (SEC) on 28 December 2003. He announced the policy for Capital Market Supervision and Development..

• Preventive Measures on Siphoning Money out of Listed Companies

  On 22 January 04, SEC revealed preventive measures on siphoning money out of listed companies that after studying listed companies’ behaviors in the past, it was found that there were many inappropriate cases with the purpose to take benefit from listed companies.

• Derivatives Act B.E. 2546

  The Derivatives Act B.E. 2546 has come into effect on 6 January 2004, which aims to create a legal certainty for derivatives contracts, provide regulatory framework for derivatives markets and intermediaries and to allow regulators to oversee the financial market effectively as well as to prevent any adverse effects on the system.

• Non-Voting Depositary Receipts

  An NVDR or Non-Voting Depository Receipt is a new trading instrument issued by the Thai NVDR Company Limited, a subsidiary wholly owned by The Stock Exchange of Thailand (SET). It aims only to stimulate trading activities in the Thai stock market, but also to help eliminate foreign investment barriers, such as the foreign investment limits and the impediments for institutional investors who previously could not trade in the existing Thai Trust Fund. Investors will receive all financial benefits except the voting rights. Check the website http://www.set.or.th/nvdr for more details.

• Net Settlement Regulation

  On 14 November 2003, the Securities and Exchange Commission (SEC) has ordered the Stock Exchange of Thailand (SET) to issue an additional rule on net settlement regulations aimed at limiting risks arising from investor’s aggressive short-term speculative behaviors. The rule, taking effect by 1 December 2003, will require investors to pledge asset worth at least 10% of credit line in the cash account with the brokers prior to making a transaction. The percentage of the required asset will be increased to no less than 25% beginning 1 January 2004.
  
  
  However, after the meeting with the Minister of Finance, the decision to increase the percentage of required asset to no less than 25% is postponed to 1 May 2004 in order to provide sufficient time for securities brokers to adjust their systems to accommodate the calculation of listed shares collateral values.

• Policies to promote mutual funds

  In 2003, SEC emphasized the necessity to promote investments through mutual funds as a mean to diversify investment channels for investors. With the aim to enhance transparency and corporate governance within Thai capital market, SEC believed that investment though mutual funds will equip those individual investors with professional advices and services, which should help investors to accurately evaluate their investment capability and reduce the chance of excessive exposure to risks.

  Measures to be taken to promote investment through mutual fund included:

  • a) Promoting the launch of new type of mutual fund including unit link

  • b) Cooperating with Family Know How, SET, AIMC and other agencies to conduct public relations and education about the benefit of mutual fund as an alternative investment in securities

  • c) Advocating the correction of existing rules to allow members of contractual saving fund to transfer money from fund to another and still gain tax benefit thereby encouraging long-term saving

  • d) Proposing ministerial notification to license more mutual fund business operators in order to increase number of mutual fund business operators and attract saving deposit into capital market

• Policies to promote debts market

Other policy and measure from the Security Exchanges of Thailand

• SET’s business plan 2004-2006

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