The proposal by the Securities and Exchange Commission (SEC) that the Stock Exchange of Thailand (SET) contribute 90% of its net profit each year to the planned Capital Market Development Fund (CMDF) could blunt the stock market's competitiveness and stall attempts to become a leading equity market in Asean.
Moreover, open-ended or unclear objectives on how to use the proceeds from the SET's contribution is making stakeholders jittery, due to fear that politicians could step in and use the fund for their own benefit.
The proposal has reopened a large divide between the SET and the Finance Ministry, which has tried to meddle in the SET's finances before. Previous failed attempts may have been a source of frustration, since the country's sole stock exchange operator now has a net profit in excess of 1 billion baht.
Tracking back to 2009, a report that the ministry had its eye on billions of baht set for the planned incorporation of the CMDF occupied the headlines of several newspapers. But the SET resisted the move and, with the backing of stockbrokers, the idea was eventually killed off.
But as the ministry refused to stop pressing the attack, the SET opted to start paying corporate income tax last year. The bourse believed that the change would suffice to sate the ministry's appetite and put the problem to bed.
But the latest proposal by the SEC suggests that this was a case of wishful thinking. The proposal complies with a Finance Ministry order requiring the SET to provide 8 billion baht in initial funding and contribute 90% of its annual net profit to the CMDF.
That would leave the SET with 100 million baht a year, putting it at risk of lacking the financial means to cover technological upgrades in a fast-changing world.
Additionally, the SEC plans to permit blockchain-based securities trading, a move that could see the stock exchange lose its monopoly advantage. The technology lets any party execute securities trading orders. The cryptocurrency bitcoin famously uses blockchain technology to function.
The initial funding and contribution requirements to the CMDF are part of the Market Development Plan for 2017-22, which aims to separate market development functions from exchange functions.
The SEC's public hearing on the issue runs until today, and the body said it would gather feedback and relay this to the ministry later.
Pattera Dilokrungtirapop, chairwoman of the Association of Securities Companies (Asco), voiced concern that the SET would no longer be able to afford to develop its own system or invest in sufficient information technology if its money were taken away.
"Separating the capital-market-development functions from those of the SET is merely aimed at making the situation clearer," she said. "Both functions already run separately.
"The government should consider what would be an appropriate amount for the SET to contribute to the fund, but I disagree that the SET must also give 90% of its annual profit to the fund. The fund should be invested to run its operations. The [proposed] initial capital should be sufficient to create long-term returns."
Ms Pattera went on to say that, in principle, the fund's board should comprise figures related to the capital market, as such people have valuable insight into the stock market's system and development.
She expressed misgivings about how disciplined the fund would be in terms of its spending behaviour, adding that the money "should be used in a proper manner".
SET president Kesara Manchusree said that if the CMDF were to collect almost all of the body's net profit, it would inevitably become less competitive.
"Without funding, the SET cannot upgrade its trading platforms -- worth about 1 billion baht -- and cannot pay for the proper system maintenance, which represents 10-15% of its investment each year," she said. "In addition, the SET has to support the SEC -- that money comes from the 600 million baht in fees the SET collects from its brokers every year."
The SET has about 25 billion baht in capital reserves and 39 billion baht in total assets, including fixed assets such as office buildings, a reserve fund for clearing and settlement of 7-8 billion baht, plus cash flow of 7-8 billion baht. The bourse posted a profit of 1.2 billion baht last year.
Voravan Tarapoom, chairwoman of the Federation of Thai Capital Market Organisation (Fetco), said she agreed that the SET's functions should be separated.
But she worried that the objectives regarding how the fund's money should be used were not clear enough. As such, she said, money could be siphoned off for purposes other than capital market development.
"The SET was established by stockbrokers, and it has already begun paying corporate income tax," she said. "Its 25-billion-baht capital has been built up over 42 years, and these reserves shore up investor confidence, as the SET now has the top trading turnover in the region with an average value of 40 billion to 50 billion baht a day."
Prinn Panichpakdi, managing director of CLSA Securities Thailand, said the SET chairman should assume the duties of CMDF chief so that both organisations can cooperate smoothly. The fund's board members should come from the capital market and not be state officials, he said.
"The fund's money should be utilised in an appropriate and accountable manner," Mr Prinn said. "With its monopoly, the SET can accrue a large amount of money."
The SEC said in a statement that the Finance Ministry, the SET, Fetco, the SEC and other relevant associations do not see the SET as a corporation liable to pay dividends to shareholders. But its contributions to the CMDF could help develop the capital market, it said.
The SEC said the SET's capital reserves are still big enough to allow it to develop operations after the initial 8 billion baht in funding for the CMDF is subtracted.
Krisada Chinavicharana, director-general of the Fiscal Policy Office, rushed to allay concerns, saying the CMDF's money must be used in compliance with the fund's objectives.
He said the SEC and Finance Ministry may choose to discuss whether the size of the proposed contribution is appropriate, but that does not necessarily mean the sum will be amended.
"The SET is being restructured to give it greater flexibility in the long run," he said. "The CMDF's board members will be experts selected from both state and private sectors to create a good working balance."