Reforming The Thai Capital Markets: The Master Plan To Focus On Reinforcing The Strengths Of The Market, Making It A Key Driving Mechanism Of The Economy And Becoming A Full-Fledged Competitor In The World Markets

Deputy Prime Minister and Minister of Finance, Dr. Somkid Jatusripitak, commenting at the brainstorming session held to conclude the 'Thai Capital Market Master Plan' held between 5-6 January 2002, said that, "The Thai capital market does not belong to any specific individuals, but instead belongs to all Thai people. While the prosperity of the country in the past was partly a result of the growth and development of the capital market, we have to accept that fact that the capital market itself was one of the factors in the 1997 financial crisis. This meeting, therefore, focuses on establishing the direction and strategies for long-term development of the Thai Capital Markets in a systematic manner, so as to transform the Capital Market into a key driver in the development of the Thai economy. A clear emphasis is essential in the systematic strengthening of key aspects of the Capital Market, including an improvement in the potential of the mechanisms, the efficiency of the organizations, the internationalization of standards, as well as the promotion of market-wide transparency and good corporate governance. To successfully achieve these objectives, active cooperation among all related parties, both in the public and private sectors, is crucial."

The Thai Capital Markets need to strengthen its demand and supply structures through the steady expansion of the investor base in conjunction with the enlargement of quality investment choices, continued development of strong intermediary institutions, and a standardized structure of supervision. To this end, this Thai Capital Market Master Plan has been formulated to cover all facets in the development of the Thai Capital Markets: the equity market, debt market, and the derivatives market. Practical measures to resolve fundamental problems and to develop roadmaps are clearly determined and proposed.

"Providing clear strategic development targets, this Capital Market Master Plan takes into account the needs of all related parties, such as the fundraisers, the investors, the intermediaries, plus the market's supervisory bodies. Moreover, it stipulates that every responsible organization regularly and continually follow up and evaluate the results to ensure that the implementation of the plan is efficient and practical, thus truly benefiting the public and the economic development of the country." Dr. Somkid concluded.

Proactive Measures to Enhance the Potential of the Thai Capital Markets

1. Progress towards becoming a Capital Market incorporating Good Corporate Governance
   • Announcing the year 2002 as the start of 'The Good Corporate Governance Campaign'. As a key part of the national agenda, the campaign will be actively promoted in a systematic manner. Driving the Good Corporate Campaign will be a steering committee led by the Ministry of Commerce, and including the SEC, the SET, the Listed Companies Association, and all the associations of securities practitioners. The Committee aims to complete the campaign work plan by March this year.
   • The SEC shall be responsible for the evaluation and ratings for good corporate governance in all market-related organizations and to provide investors with relevant information. In addition, the ratings will provide incentives for the implementation of good corporate governance within these organizations. To reinforce and promote the practice of good governance, certain privileges for those gaining good ratings will be considered.
   • The Association of Securities Companies (ASCO) shall establish a guideline on prudence to aid corporate compliance officers in their effort to promote efficient corporate governance practices.
   • In support of the establishment and enforcement of the company accounting standards in line with internationally accepted practice.
   • Accelerating and improving the enforcement of the laws related to capital market activities.
   • Support the establishment of a 'Shareholder Association'
   • Accelerate the issuance of laws in support of the 'Class Action' suits.
   • Adjust the law to clarify the roles of directors and executives of issuing companies and intermediaries in cases where they may be guilty of either criminal and commercial misconduct.
   • The Ministry of Commerce and the SEC shall hold discussions to resolve outstanding issues concerning an amendment to the Public Company Act to provide the SEC with a more effective and integrated regulatory coverage of listed companies.
   • Support collaboration between different private sector groups, such as the Thai Chamber of Commerce, and the Federation of the Thai Industries, to promote implementation of good corporate governance.
2. Enhancement of the Quantity and Quality of Securities
   • The SET shall establish a steering committee to select qualified companies to list on the SET or the MAI. This committee will include representatives of organizations such as the Board of Investment (BOI), the Thai Chamber of Commerce, the Federation of the Thai Industries, the Thai Bankers' Association, the Industrial Finance Corporation of Thailand, and the Small Industry Finance Corporation, to convince potential companies to list on the SET or the MAI. To this end, the SET shall establish a "Fund Mobilization Center" to aggressively market the Thai Capital Markets.
   • Support fundraising for both the privatization of State-owned Enterprise as well as convincing qualified SMEs to list on either the SET or the MAI. This policy aims to support both listed companies and public companies to raise more funds.
   • In this economics situation where private sectors need more funds, SET will facilitate their corporate restructuring efforts before get listed.
   • BOI will consider granting appropriate privileges to encourage large multinationals to list their Thai subsidiaries on the Thai bourse.
   • Accelerate and facilitate the establishment of Property Funds.
   • Actively support ongoing corporate restructurings through close coordination with the TAMC and the Thai Bankers Association.
   • Accelerate the establishment of a derivative market and laws governing derivatives to support its future transactions.
   • Shortening the process, time, and reduce expenses related to transactions in the primary market and listing on the secondary market.
   • The SET shall produce a Market Capitalization Index and sectorial indices as the basis for alternative investment vehicles for mutual funds.
   • The Government has to clearly define it's fund raising plan and policies so as to make private sectors work according to the Government's plan on both creating demand and supply.
3. Size Enlargement and Strengthening of the Investor Base
   • The Stock Exchange of Thailand (SET) act as a core coordinator to establish a steering committee comprising both public and private sectors (e.g. the Thai Chamber of Commerce, the Federation of the Thai Industries, the Government Pension Fund, the State-owned Enterprises, and the Thai Bond Dealing Center, etc) responsible for encouraging the participation of domestic and international retail and institutional investors in the Thai market.
   • The Securities and Exchange Commission (SEC) and the SET shall be jointly responsible for short- and long-term educational activities aimed at target groups of investors. They will collaborate with the various associations of securities practitioners, the Ministry of Education (MOE) and the Ministry of University Affairs (MOUA) to include saving and investment lessons in the curriculums in both the short- and the long-term.
   • The Meeting agreed in principle to enable privatized SOEs to give incentives to long-term retail investors who want to hold SOE shares, such as offering a lower selling price than the IPO price, or offering other benefits.
   • A commitment to improve the standards of and the confidence in investing through investment intermediaries by establishing both promotional and quality assurance schemes (such as the evaluation and rating of both local and foreign investment management companies).
   • The Meeting agreed in principle to enable those employees who contribute to company-based retirement funds to in future be able to keep their savings over the long term, even though they may change companies. They will be able to switch provident funds, or transfer their savings to the Retirement Mutual Fund (RMF).
   • Provide greater incentives to lure foreign investment e.g. establishing a comprehensive database for the analysis of investment opportunities in the Thai market, the promoting foreign investment through Non-Voting Depository Receipts (NVDR), studying the implementation of the voting trust system, and expanding the principle of free-float distribution.
   • Encouraging foreign institutions to invest in the Thai Stock Market.
4. Strengthening the Intermediary Institutions
   • Encourage intermediaries to operate more effectively by focusing on competition in terms of quality and increasing their competitiveness in the international Capital Markets.
   • The SEC, the SET, the Association of Securities Companies (ASCO), and the Association of Investment Management Companies (AIMC) shall hold discussions to resolve the guidelines on the rating of intermediaries and promote the acceptance of these ratings.
   • The Bank of Thailand and the SEC shall study the extension of the scope of the business operations of the financial intermediaries in the securities business.
   • The Bank of Thailand shall consider allowing the appropriate fund size according to the current situation for overseas investment of the investment management companies. This is to help distribute risks and extend the opportunities to reap the return on investment.
5. Reforming the Structure of the Supervision System to enhance the Development of the Capital Markets
   • The Ministry of Finance shall be responsible in establishing a permanent steering committee to handle policy coordination between the supervisory bodies to ensure greater efficiency in the supervision of the financial markets. The committee shall comprise senior executives from the organizations concerned, such as the Ministry of Finance, the Ministry of Commerce, the Bank of Thailand, the Securities and Exchange Commission, and the Department of Insurance.
   • The SEC Board will be restructured to suit the changing environment.
   • The SET shall set up a steering committee to determine guidelines for corporatization, to be chaired by the Chairman of the SET and comprising representatives from the organizations concerned. This corporatization shall be completed as soon as possible.
6. Enhance Efficiency of the Infrastructure to Reduce Transaction Costs
   • Develop a trading system that responds well to every investor groups:
     1. An exchange trading system for general investors
     2. The dealing system for large investors
     3. The market making system for trading securities with thin trading volumes and/or which lack liquidity.
   • Study both the advantages and the feasibility of a combined or integrated system for all kinds of securities to share the available pool of resources. Not only will efficiency increase but transactions costs will be also reduced. The initiatives include, for example, the use of common front-end loading via shared trading gateways, supported by common back-office and an integrated clearing and settlement center.
   • Studying the advantages and the feasibility of the combined or integrated market to reap the advantages of economies of scale in both operational expenses and in management efficiency.
   • Developing an 'Information Portal' that connects the information of the SEC, the SET, as well as other public and private organizations, and promoting it to be widely used.

Short-Term Measures

• The SET shall support Listed Companies to split their par values, so that the par value may be reduced below 10 baht per share, which will allow these shares to be more affordable for investors.
• Encourage Listed Companies to pay with stock dividends, issue warrants or preferred shares, to provide more choices for providing returns to investors.
• Support the setting up of the "Thailand Opportunity Fund" worth 30,000 million baht in collaboration with the Government Pension Fund, the Krung Thai Bank, and the SET. The fund will initially invest between 8,000 - 10,000 million baht in the market
• Support the establishment of venture capital funds through the collaboration of the Industrial Finance Corporation of Thailand (IFCT), the Small Industry Finance Corporation, and the Government Pension Fund (GPF), to support investment in small- and medium-sized companies with potential.