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There will be an acceleration in the market’s size from increasing the supply of small, medium, and large enterprises through more listings on The Stock Exchange of Thailand (SET), and by boosting the number of local institutional investors from 10% to 20% of the total number of investors, making the number of local institutional investors roughly similar to that of their foreign counterparts. This will help adjust the ratio of institutional to retail individual investors towards 40 : 60, which will help create a balance in both market liquidity and stability of share prices. Thus, the market value of securities when compared to the market’s P/E will rise.
Five important measures are planned:
Measure 1: This includes a push for voluntary as well as compulsory savings policies amongst the public. There will be a promotion of Long Term Funds (LTFs), as well as clarifying regulations and methods for listed companies and employers to set up their funds. All of these activities are to attract more institutional investors to the market.
Measure 2: Increase the minimum free float, by offering more incentives for companies included in the SET 100, those with the government as their major shareholder, companies planning to list on the SET, and all other listed companies. This is to boost liquidity in the stock market and give more weight to the international stock indices as well as attract more foreign investors.
Measure 3: Create a system of venture capital and private equity within the structure of both SMEs and large business systems, by amending regulations and conditions on privileges as well as by developing operational flexibility. The venture capital firms should be able to set up venture funds, and retain major tax incentives in spite of their growing size. The SET will also create a consultation team to visit companies or projects that show potential for growth, in order to enable them to list on the stock exchange in the future. The accounting standards of general companies will also be upgraded to be comparable to listed firms, which should be encouraged to make their systems to attain International Financial Reporting Standards; IFRS.
Measure 4: Collaborate with SET 100-listed companies with lower-than-normal P/E ratios in order to help increase their P/Es, with the help of the Listed Companies Association and the Thai Investors Relations Club (TIRC), which will provide clarification and a better understanding of stock splits so that more shares will be distributed among investors. Quarterly meetings with investors and stock analysts will be organized, and more investor relations sessions will be encouraged to help expand the companies’ information distribution channels. There is also a plan to bring medium and small-sized listed firms on overseas roadshows.
Measure 5: Enhance business efficiency by promoting greater use of the scripless system and reducing the payment and settlement period from T+3 to T+2, while seeking to reduce operational costs of market participants so that they can perform cross-margin and cross-collateral trading between different markets.
Bond Market
There will be an expansion of the market’s size to equal that of the financial institution sector through an increase in the supply of both state and private-sector bonds as well as retail investor promotions. Six measures have been planned:
Measure 1: Break up large-denomination bonds of both the government and private sectors into smaller units in order to encourage more public investors to access the market.
Measure 2: Encourage cross-listings of bonds within the ASEAN region and improve of Thailand’s standing with credit ratings agencies to attain international standards.
Measure 3: Impose guidelines to encourage widely-accepted institutions to join those with less recognition to help enhance their creditability in issuing bonds. Measure 4: Provide adequate numbers of market makers to cover all types of instruments.
Measure 5: Stimulate those looking for capital to securitize, as well as create demand for such securities.
Measure 6: Offer attractive tax incentives programs to enable ordinary persons to trade instruments more conveniently.
Derivatives Market
This is a financial innovation in Thailand’s capital market, and is beneficial in helping reduce risks faced by both entrepreneurs and investors in the capital market. Related measures include:
Measure 1: Further facilitate understanding and increased public relations work using all forms of media to help clarify the benefits of derivatives and how they can be implemented as a risk-management tool, fostering a more positive attitude towards this product.
Measure 2: Improve people’s understanding of derivative market-building, by using knowledgeable marketing officers and wide media coverage of the market’s activities, including in-depth knowledge of the market so that the public can better understand both the benefits and risks of derivatives.
Measure 3: Introduce exchange linkages between local and foreign derivatives markets to accommodate inflow investments, and provide investors with the means to invest in overseas derivatives markets.
To reduce the limitations associated with and better to cope with problems faced while undertaking transactions, there must be a strong collaboration between the Bank of Thailand, the Securities and Exchange Commission and the SET. These institutions will all need to amend their rules and regulations governing local derivatives transactions to enable them to meet international standards, as well as establish a comprehensive network for trading, formulating regulatory agreements and exchanging information with foreign markets and regulators. These projects are planned to be completed by 2008.
Measure 4: Introduce a provision to encourage the greater use of Securities Borrowing and Lending (SBL) by developing better understanding of the benefits and rules related to borrowing and short-selling securities, as well as using a central work system for securities borrowing, thus cutting the costs currently held by entrepreneurs.
Measure 5: Develop the benchmark market by lessening the obstacles facing potential users in this market, including making Thailand’s short-term benchmark interest rates more acceptable to industry players.
Developing the market and reducing obstacles to its growth can also be done through the continued issuance of benchmark bonds in the primary market with an annual volume that could run of as high as THB50 billion, as well as the comprehensive and timely distribution of all rates for the secondary bond market and short-term interest rates.
Intermediary Institutions In The Capital Market
These are to focus on improving and strengthening the market’s service potential by enlarging the size of such institutions to better cope with all types of transactions and help ensure free price competition before the liberalization of the industry. Measures to take are:
Measure 1: Categorize the intermediary license as restricted and universal licenses. The business operators will also be required to have sufficient paid-up capital by 2009.
Measure 2: Amend existing regulations to be more flexible and better able to cope with the complexities of mergers without losing benefits. Adjust the licensing process to accommodate internal restructuring and transfers of licenses.
Measure 3: Systematic adjustment of fees to attract entrepreneurs for the upcoming market liberalization.
Listed Companies
They are to encourage good governance, thus creating trust among investors and other stakeholders as well as enabling the listed firms to get special tax privileges.
Measure 1: Create and encourage special consideration of privileges for listed firms with high operational standards, e.g., companies that invest in research by coordinating with the relevant agencies to obtain “Fast Track” privileges.
Measure 2: Encourage mergers and acquisitions by amending obstructing regulations in order to accommodate issues related to tax permission and status of listed firms.
Measure 3: Require all presidents and at least half of the total number of board members and the board chairmen of all listed firms to go through a basic training within 2006, while requiring the balance of directors to be trained by end-2007. Furthermore, require that all presidents and at least half of all board members and the board chairmen of all listed firms to receive advanced training by 2009.
Measure 4: Encourage all institutional investors and intermediary institutions to play key roles in creating good governance in the capital market.
Measure 5: Consider and formulate regulations governing the number of listed companies to help them grow in line with the overall economic situation.
Enhancement of Capital Market Understanding
The level of understanding of capital and financial markets in all provinces, all levels of education and at medium and large-sized enterprises, will be increased with the cooperation of those concerned with the Federation of Thai Capital Market Organizations (FeTCO). FeTCO and the other organizations will agree upon a clear division of labor, to better enable them to cover the whole country, with a focus on enabling learning about investment risks, including diversification and new financial products.
These organizations will provide more education in financial literacy to young students, and in investment understanding to high school, vocational, and university students; the general public and professionals in the capital market. The plan should commence in the provinces with higher savings rates from 2006 to 2008, and cover the whole country by 2010.
Regulatory Agencies
Even though strict regulations may bring about greater credibility, they may result in delays and obstacles for competition. The higher level of competition to be faced by the Thai capital market which will require greater flexibility in its operations. Thus, all agencies, especially the SEC and SET, must adjust their roles to help achieve the required needed quality and clarity in their work. Key measures include:
Measure 1: Consider and review securities offering procedures to be on a merit or disclosure basis, while upgrading investors’ overall understanding about the securities sold. To achieve this, the period required by the SEC to review an IPO application, securities issuance, or new business application should be reduced. Furthermore, the investment-banking club could collaborate to publish analyses on quality IPO shares, to be released before the subscription and trade dates, to disseminate as much essential information as possible to investors. The Listed Companies Association, Association of Securities Companies, SET and the SEC will help draft such procedures by end-2006.
Measure 2: The SET and SEC will set up a joint committee to review all regulations concerning listed and member companies to make them up-to-date, with the SEC chairman and representatives from the Federation of Thai Capital Market Organizations taking part
