The Stock Exchange of Thailand (SET) has announced a series of measures to enhance trading supervision and adjust the listing criteria for companies in an effort to restore investor confidence.
The measures are meant to rebuild trust and confidence in the Thai bourse, but whether they can be implemented is uncertain, say analysts.
The stock exchange posted a negative return of 15.5% last year, the worst outcome globally among bourses, with foreign investors net sellers of 192 billion baht worth of Thai shares.
The outflows continued in the first two months of 2024, while average daily trading by retail investors declined significantly as several internal factors affected market confidence.
Retail investors have complained about the use of program trading, especially the use of high-frequency trading (HFT) programs by foreign investors. They believe there is naked short selling, the practice of short selling shares that have not been affirmatively determined to exist, which is against SET rules.
The bourse has repeatedly stated it could not find any evidence of this practice.
Average trading value has decreased to 35-50 billion baht per day from more than 50 billion in previous times.
Since late last year the SET has worked with Oliver Wyman, an international consultancy, to study and find solutions to strengthen its supervision, aiming to restore market confidence.
The study was finished in early February and approved by the SET board and the Securities and Exchange Commission (SEC).
After a series of public hearings, the new measures are expected to be gradually implemented from today.
STRONGER RULES
The new measures have several details, covering upgrading supervision of short selling and program trading, as well as stricter information disclosure and listing rules:
Upgrading eligible securities by increasing the size of market capitalisation from 5 billion baht to 7.5 billion.
Increasing the liquidity of stocks by requiring the proportion of monthly turnover compared with the volume of listed stocks must be greater than 2% to control the impact of short selling.
For short selling, if the stock price has decreased by more than 10% from the previous day's closing price, the short sale price must be higher than the latest price (called the "uptick rule").
Setting a daily limit or maximum ceiling for short selling of each stock to control risk. Daily disclosure of the accumulated short selling volume that has not yet been repurchased (outstanding) for each security will be published to provide investors more information.
Increasing supervision of brokers by tripling penalties and fines, similar to penalties of leading stock exchanges overseas. The bourse also plans to ask regulatory agencies to consider amending laws to allow direct punishment of investors who commit crimes.
Develop a central system for members to check information of securities and verify the existence of investors' securities in order to make short selling supervision more efficient.
Program trading
To ensure orderly trading of securities on the exchange, prevent abnormal price fluctuations, and stop inappropriate securities trading behaviour by creating a balance among investor groups, the SET plans to upgrade regulatory measures for program trading as follows:
Add measures to control fluctuations in stock prices during the day, in addition to ceiling and floor prices that are currently in use. The intra-day price ceiling (dynamic price band) will use a narrower price movement framework for the ceiling and floor by specifying a percentage, namely +/- 10%, from the last traded price. If it reaches that price level, trading will be temporarily suspended.
If the stock price is very volatile, the SET may consider changing the stock's trading method to a call auction system.
To improve the criteria regarding inappropriate buy/sell orders, a central system will be set up for screening inappropriate orders (order screening), preventing orders from being placed and withdrawn too frequently by specifying a minimum resting time for incoming orders before they can be cancelled.
Use measures to automatically stop trading on a particular stock if the share is being bought or sold together in an amount that exceeds the specified level. This is to prevent abnormal trading orders.
Tighten the supervision of HFT investor groups, such as requiring notification or registration as well as providing relevant information to the exchange.
DISCLOSURE CRITERIA
A major pillar of the updated measures is enhancing the SET's disclosure criteria.
The bourse requires the names of investors with inappropriate trading order behaviour to be disclosed to all of its member brokers so they can use the information to consider action against those investors, such as reducing the credit limit or requiring trading through an investment advisor (trader) to increase efficiency and prevent inappropriate trading orders.
The criteria for disclosing the names of shareholders, including those holding non-voting depository receipts (NVDRs), will require Thai NVDR Co Ltd (the issuer) to disclose the names of NVDR holders with at least 0.5%, but not less than 10 persons.
This is meant to better regulate NVDR holders and provide investors with more information.
SET president Pakorn Peetathawatchai said the bourse collaborated with the SEC on studying and amending various criteria to ensure timely implementation.
The SET plans to expedite the implementation of these measures, especially those it can do on its own, he said.
Some changes require detailed consultation with relevant parties, including member companies, and may need preparation and adjustment of operating systems, said Mr Pakorn.
LISTED COMPANY SUPERVISION
The SET recently updated certain criteria related to the listing process, the maintenance of status, and de-listing, aiming to enhance the quality of listed companies by increasing information disclosure, reinforcing confidence and stability in the Thai capital market, said the bourse.
On Feb 19, the SET adjusted the disclosure rule for securities holders to provide investors with more information. Four areas were adjusted:
1. Companies wanting to list on either the SET or Market for Alternative Investment (MAI) have increased requirements for profits and shareholder equity. Effective from Jan 1, 2025, the measures are aimed at strengthening both the financial position and operating results of the companies.
2. New symbols will be displayed, replacing the current C (caution) sign, to warn investors. The symbols are meant to be more explanatory, and are as follows:
For circumstances that may affect a listed company's financial position, operating performance, financial liquidity, continuous losses, default on payment to financial institutions or debt instrument;
If the auditor's report contains a disclaimer opinion on the financial statement;
If a listed company's qualifications do not meet the specified criteria, consisting of: being a cash company, having an insufficient audit committee, or free float not meeting the criteria.
3. The SET is adding causes for de-listing, such as no business operations for several years or inability to rectify the free-float requirements within a specified period. This is to ensure companies are of suitable quality to be listed.
4. Regulations for back door-listed companies and trading resumption qualifications will be enhanced to be on par with new listings to ensure listed companies are of high quality, regardless of the listing channel.
With the stricter listing rules set to take effect in early 2025, there may be a burst of companies rushing to register under the less stringent criteria this year, said Prapan Charoenprawatt, executive vice-president of the SET and president of the MAI.
Investors and companies need to monitor factors that affect firms being listed, such as market conditions as well as positive and negative factors affecting investments this year, said Mr Prapan.
ANALYST OVERVIEW
Analysts said the SET's increased supervision of listed companies should improve market confidence.
Koraphat Vorachet, head of the research department at Krungsri Capital Securities, said the SET's new measures could raise market sentiment.
"If the new measures are really enforced, they could significantly boost confidence in the Thai stock market," he said.
The measures regarding short selling, in particular, could reassure investors the securities actually exist and eliminate the possibility of naked short selling, said Mr Koraphat.
"If the measures can help reduce naked shorts, they can create more transparency in short selling transactions and ease investors' concerns about such practices," he said.
The measures to control program trading, if they can be enforced, could reduce market volatility and trading speculation, allowing investors to focus on stock fundamentals rather than tracking daily fluctuations, said Mr Koraphat.
If stock prices truly reflect the value of the business, investors will choose them for medium- to long-term investments, he said.
Measures to enhance information disclosure and transparency should also strengthen investor confidence, driving the SET index to exceed 1,400 points and possibly test 1,440 in a month, said Mr Koraphat.
An analyst from Aira Securities who requested anonymity agreed greater market supervision should improve investor confidence and reduce market volatility.
The measures can help limit the market downside, especially through supervision of HFT systems, which requires investors to register their names with the authorities before they can trade, said the analyst.
"It could make the market more transparent and give retail investors more confidence to invest," said the analyst.
Kitpon Praipaisarnkit, vice-president at UOB Kay Hian Securities (Thailand), agreed the supervision of short selling and program trading should boost investor confidence.
"The shift should bring positive sentiment to the stock market," said Mr Kitpon.
"We have to see how investors react to the new measures."
Mr Pakorn says the SET collaborated with the SEC on studying and amending various criteria to ensure timely implementation. Varuth Hirunyatheb