The Thai capital market is destined to become more investorfriendly due to a combination of several factors by NUNTAWUN POLKUAMDEE

The Thai capital market will enjoy greater balance and stability over the next several years, thanks to growth in the bond market, regulatory reforms and the introduction of new instruments such as derivatives and assetbacked securities.

Thirachai Phuvanatnaranubala, the secretarygeneral of the Securities and Exchange Commission, said low interest rates, trade liberalisation and the introduction of a new limited deposit insurance programme would be additional drivers for capital market development over the next several years.

He said the objective was to give the Thai public greater options for investment to bank deposits. A liquid capital market also benefits issuers, who gain access to risk management tools and lower cost of funds than bank loans.

"The bond market right now is just half of the country's gross domestic product, quite small when you compare the number with other countries.

"But we see rapid growth for the domestic bond market over the next several years as the market's infrastructure develops."

By the end of the year, clearing and settlement for the bond market will be fully integrated with the Thailand Securities Depository, including government bonds that to date have been handled by the Bank of Thailand.

Bond trading, meanwhile, will be centred around the Bond Electronic Exchange, using a realtime electronic trading platform transferred from the Thai Bond Dealing Centre. The Bond Electronic Exchange, a unit of the Stock Exchange of Thailand, began trading government bonds in June.

"In the future, the BEX will be the centre for bond trading, while the Thai Bond Dealing Centre will be a selfregulating organisation and information centre," Mr Thirachai said.

"This year is a very important year for the Thai bond market," says the SEC's Mr Thirachai.

"The Bank of Thailand will ask all primary dealers who trade with the central bank to offer both bid and offer quotes through the electronic trading platform to build liquidity for benchmark bonds."

While transactions exceeding 10 million baht can continue to be made overthecounter, the results will have to be reported to the BEX immediately. The TSDl, meanwhile, has introduced new services to facilitate securities borrowing and lending among fixedincome investors.

"In the beginning, bond trading on the BEX was not very active. But I think that it will become much more active in the future once the market matures, similar to what happened in the United States where [bond] trading turnover exceeds that of the stock market by around 1415 times," Mr Thirachai said.

The local bond market should also receive a boost as regulations ease for foreign investors under a regional policy aimed at encouraging crossborder investment and development of the Asian bond markets.

Mr Thirachai said the SEC also planned to revise the securitisation law to help encourage more issues.

"Once the SEC revises the law and the capital market master plan, the result should be better liquidity in the bond market," he said.

"Investors will more easily be able to shortsell securities and issue and trade derivatives. The settlement system will be fully up to international standards and ready to integrate with other markets."

The Thailand Futures Exchange, set to be launched later this year with the introduction of SET50 index futures, would be the first exchangetraded derivatives in Thailand, Mr Thirachai said.

More derivative products are expected to follow in the future, giving investors an important new tool to manage risk.

Mr Thirachai said securities companies are likely to take advantage of the new opportunities by building up their portfolio trading desks and expanding investment banking services.

Whereas most brokers now depend on brokerage fees for as much as 80% of income, this could fall to just a third or a quarter of revenues as bond trading, futures contracts and investment banking opportunities _ and revenues _ increase.

"This year is a very important year for the Thai bond market. It is the first year where it hopefully will develop and grow, and come together with the changing environment in the money market and capital market," Mr Thirachai said.

He said the SEC was also looking down the road to eventual liberalisation of the capital market and the entry of more foreign players.

Local companies needed to improve their human resources, business networks, foreign partnerships and product capabilities in anticipation of growing competition, Mr Thirachai said.

For the SEC, the move toward a crossborder market in the future makes improving local standards critical. Mr Thirachai said market standards, particularly those related to accounting, would be raised to international best practices, with the SEC preparing to implement IFRS (international financial reporting standards) and other changes to improve corporate governance over the next several months.

Other key changes will include regular reviews and revisions of local rules to harmonise standards with regional standards and also take steps to prepare for crossborder trading, where Thai investors will gain greater leeway to invest abroad and brokers can place products in the overseas markets.