SET-listed AEC Securities has clarified its failure to maintain net capital as required by the Securities and Exchange Commission (SEC), attributing the shortage to the calculation of its debenture holding.
The calculations of net capital and net capital ratio require listed companies to include the large exposure risk (LER) second method, as per the SEC's requirement.
"The company needs to calculate the LER second method for all these debentures, which have exceeded the company's net capital for risk to be adjusted to as high as 100%," said AEC in its statement.
"As a result, the debentures became 'worthless' for calculation purposes, even though the issuers of the debentures have strong financial standing, high credit rating and high redemption possibilities."
AEC Securities has invested in debentures issued by several listed companies such as Thai Airways International Plc (THAI), PTT Global Chemical Plc, Siamgas and Petrochemicals Plc, Bangkok Commercial Asset Management Plc, BTS Group Holdings Plc and Energy Absolute Plc.
As the credit rating for some companies, such as THAI, has been downgraded by several notches, this affects the calculation process.
On Monday, AEC Securities shares were posted with halt (H) and suspended trading (SP) signs as its net capital was lower than zero for more than five consecutive business days, resulting in a halt to business operations in line with the SEC's regulation.
The Stock Exchange of Thailand yesterday lifted both signs, but advised investors to carefully study information before making investment decisions.
The SEC applies the net capital rule approach, where securities and derivatives businesses are required to maintain net capital -- liquid assets less liabilities and risk haircuts -- to ensure there are sufficient liquid assets to absorb losses, maintain stable financial status and, in the event of insolvency, prevent damage to clients' assets and the financial system.
In the case of a shortfall, the operator is required to observe whether its net capital or net capital ratio are less than or equal to 1.5 times of the minimum requirement of 10.5% or 22.5 million baht, respectively, for securities companies operating only securities or derivatives business.
If a securities company experiences negative net capital for five consecutive days, all operations must be ceased, while risks associated with proprietary trading must be reduced and client positions are to be transferred.
AEC engages in securities brokerage, trading and underwriting as well as investment advisory and is a sales and derivatives agent. It will raise capital through subordinated loans, divest common shares held by the company and decrease the amount in debentures to resolve the issue.