Thailand Securities Depository To Adjust Collection Rate For Damage Compensation Fund To Reflect Members Level Of Risk

The President of the Thailand Securities Depository Co., Ms. Nongram Wongwanich, has announced that the TSD Board passed a resolution to amend the regulations covering monthly fees collected jointly from members for the Damage Compensation Fund. There will be an additional condition stating that a special collection rate will be imposed on specific members if there is any damage caused to the system. A special rate will be also imposed to those members who trade derivative warrants and cause damage to the system. This new approach will strengthen participants discipline in the undertaking of such transactions which should help to reduce risk as well as defaults in clearing and settlement.

Presently the funds collected from members on a monthly basis are based on a flat rate of 0.008 percent of the net payment and collected value. However, the new rate will be increased for members with higher risks than a specified level.

"In terms of this new approach, members who generate higher risks will pay at a higher rate proportionately. The TSD has classified three levels of risk: high, medium and normal. The rates members have to pay will, hence, vary according to these levels. These will be: 0.016, 0.012, and 0.008 percent of the net settlement value respectively.

In regard to the criteria for determining these levels of risk, four factors will be considered: clearing default, settlement default, plus actions when submitting collateral or when trading that is likely to cause damage (such as investing in high-risk stocks), a lack of diversification in a portfolio, or investing in shares that are known to fluctuate widely. Different weighting will be given to these factors, with clearing default the riskiest, followed by settlement default and trading actions that are likely to cause damage, and lastly, actions when submitting collateral," Ms. Nongram said.

The TSD will collect data on the times there is risk caused by these four factors and then calculate the risk value. This will be undertaken every three months starting from January 2003 onwards. During the year 2002, it was found that members' practices were associated with normal and medium levels of risk only. No member's practices were associated with high levels of risk. Nevertheless, establishing the aforementioned approach will help make the collection rate clear, if such a case occurs.

Furthermore, members who trade derivative warrants will be required to use the clearing-rate calculation method of the TSD as derivative warrants bear higher risk in terms of clearing and settlement than other securities.

"These are established so as to prevent risks to the clearing and settlement system and help create discipline amongst members. As for the funds collected, the TSD will use them to enhance the efficiency of clearing and settlement, hence eventually returning the benefits to members," MS. Nongram concluded.