SEC revises net capital regulations

SEC revises net capital regulations

Move supports rising trading volume

The Securities and Exchange Commission (SEC) has revised its net capital rules to bolster securities firms and derivatives brokers' liquidity management, support soaring trading of Thai bourses and accommodate digital asset trading.

Trading on the Stock Exchange of Thailand (SET) and Thailand Futures Exchanges (TFEX) has increased sharply in recent weeks, especially after the US election, which saw SET trading value hit 166 billion baht in one day and futures contracts on TFEX increase to 1 million contracts per day.

On both exchanges, trading increased nearly threefold from regular trading volume this year.

To support the rising trading volume, the SEC revised its net capital (NC) rules for securities and derivative brokers to increase liquidity management in case of emergencies and adjust the risk value to be in line with the current market conditions and support digital business.

The revised NC rules are expected to help free up liquidity for securities firms that plan to enter new business such as open digital or cryptocurrency exchanges.

Some securities companies consulted with the SEC to launch a cryptocurrency exchange.

The SEC has adjusted the NC requirement after the expiration of the public hearing with business operators and related parties on June 17, 2020.

The revised criteria include increasing the use of subordinated loans to replace the maintenance of net capital funds for when securities or futures transactions increase dramatically in a short time, and adjusting the risk value of cash account receivables for risk from underwriting securities guarantee businesses and risk from investment in debt instruments.

The new rules will also count digital assets as capital funds.

According to an inside source, the SEC currently maintains a minimum NC requirement of 7%. A survey by the SEC found that all securities firms have an average NC holding of 2,045%, much higher than the requirement.

In addition, the SEC will allow securities companies that operate digital businesses capable of carrying digital assets in various forms such as cryptocurrency and other digital assets to calculate the NC funds with the value of these digital assets. But a haircut or deduction would be required according to the quality of the assets. The maximum amount calculable for digital assets to a firm's NC is 50% of the asset value, the source said.

In cases where securities companies operate digital asset businesses and stores digital assets for its customers, the NC rules require the firm to maintain more than 1% of the cold wallet's capital funds (offline system) and 5% of the client's assets stored on another system (hot wallet or online system).

In the case where a securities company also operates a digital asset business but without the maintenance of digital assets of customers, the NC requires shareholders' equity to be over 500,000 baht.

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