The Stock Exchange of Thailand supports an idea by the Association of Securities Companies (Asco) to raise the collateral value for margin loans to 20% from 15% to clamp down on speculation in the bourse.
With a stock market in free fall, volatile capital flows and some negative factors affecting the local market, the SET agrees with a higher rate, noting several other countries require 25% collateral.
The Thai bourse has surged almost 10% this year, although it has taken a nosedive of 4.29% the past four sessions to close at 1,529.52 points yesterday in trade worth 61.9 billion baht.
SET regulators will meet with all brokerages next Tuesday, with the effective date to be announced later.
SET president Charamporn Jotikasthira said fund inflows to Asia including Thailand continued following uncertainty over Cyprus's debt problems, with the baht gaining rapidly this week.
The baht is Asia's strongest currency against the greenback this year, raising concern that the authorities may impose draconian measures to curb its rise.
However, total margin loans stand at 40 billion baht, considered small compared with the peak of more than 100 billion before the country's financial collapse in 1997.
The SET's current market capitalisation is 13 trillion baht, while daily average trading volume is 60 billion.
"Asco's idea could help to reduce potential damage for both brokers and investors, although most brokers can manage risk when the market has no clear direction after their experience with the downturn in 1997,"said Mr Charamporn.
He said as a preemptive measure, brokers now call on more collateral assets when the maintenance margin drops to 35%.
Mr Charamporn suggested new investors avoid using margin loans to buy speculative stocks, as they could end up with a loss.
Kavee Chukitkasem, assistant managing director at Kasikorn Securities, said the recent sell-offs in the stock market are attributed to a liquidity shortfall following the Cypriot deposit tax turmoil.
Thai brokers that limited their margin loans for high-risk stocks also exacerbated market liquidity, he said.
About the author
- Writer: Nuntawun Polkuamdee
Position: Business Reporter