SET Group, the organisation operating the Stock Exchange of Thailand and other local bourses, has ambitious plans for the digital future of finance by making considerable structural changes in preparation for the launch of its own digital asset exchange.
The group is splitting into two parts: one managing the traditional exchanges like the SET and Market for Alternative Investment (MAI), while the other will be devoted wholly to the digital exchange projected to launch this year.
The digital exchange is a pivotal part of the organisation's plan to drive Thai capital markets into a new era and open the bounds of trading opportunities from the narrow scope of Thai businesses to a growing selection of asset types tied to digital tokens.
Its traditional exchange section covers three local bourses: the SET for large firms; the MAI for mid-sized firms; and LIVE platform, a new exchange for small and medium-sized enterprises as well as startups to list and raise funds.
The group also operates the Thailand Futures Exchange (TFEX), providing derivative instruments for businesses looking for risk hedging tools and attracting speculative investors.
A CALL FOR CHANGE
Since its establishment in 1975, the SET has weathered several transitions in the global economic environment, which in turn drove the exchange to implement regulatory changes to adapt to the transforming ecosystem.
"There is no set of regulations that can stand the test of time. They need to constantly be revised and amended to match changes, as there are a lot of new players coming in, influencing the market to change," said the SET's president Pakorn Peetathawatchai.
While in the past local retail investors were the most significant category in the Thai stock market, institutional traders have now taken up this position with the highest trading volume and frequency. Foreign investors have also stepped up and become leading players.
"The Thai capital market ecosystem has changed. Everything has changed. If we don't change, we will miss the trend," he said.
"Sometimes we will find regulatory gaps in some areas that are not going with the flow, such as the calculation methodology of free-float shares, which is now ineffective. In order to regulate the market during this changing environment, we need to constantly make changes to our institution as well."
To transition to a digital society, the SET underwent a transformation and ushered in operational changes such as moving to paperless services.
Another growing trend is interest among investors in alternative assets such as bitcoin, a cryptocurrency that gained popularity as a hedge against highly volatile global assets.
Mr Pakorn said while investors should diversify their asset allocation to balance risk and reward in their portfolios, they need to make sure that alternative assets are liquid and convertible into money that can be used in real life, rather than a speculative asset without any fundamentals supporting its value.
In addition to alternative assets, futures and derivatives are on the rise as TFEX, which has been in operation for 15 years, has grown rapidly thanks to its increasingly diverse product range that caters to the needs of investors.
In 2020, TFEX saw daily turnover of 494,624 contracts, or about 70-80 billion baht per day, surpassing the daily trading value of the SET, which was 67 billion baht last year.
The SET has played a crucial role in driving TFEX's growth by being the source of underlying products for the futures exchange, as well as other global products traded on the TFEX.
"The derivative market has become larger than its predecessors. This development is similar to what happened in other global markets," Mr Pakorn said.
THE FUTURE IS NOW
In 2020, the SET partnered with the Thai Bankers Association and the Association of Securities Companies to develop a decentralised digital financial infrastructure using distributed ledger technology (DLT), which will allow all market players to connect to the platform through their own application programming interface (API) and mutually monitor transactions on the market.
In the new digital ecosystem, the SET and the Securities and Exchange Commission will be among several other players that connect their API to the decentralised infrastructure to regulate market players.
Mr Pakorn said there will be four services provided on the platform: the issuance and public offering of digital tokens, digital wallet services, trading services, and customer services.
"Today we provide 3.5 services through the existing exchanges, namely public offering of traditional assets, trading services and customer services, while the Thailand Securities Depository offers a scripless system for the deposit, withdrawal and transfer of traditional assets," he said.
The scripless system can be considered a half-service because it is only a wallet for traditional assets and cannot store digital assets, said Mr Pakorn.
As a self-regulatory agency, the SET sets general guidelines and lists regulations for market participants, in addition to adopting DLT to create an open database that every participant can access. These moves aim at promoting transparency and encouraging market competition, as well as to function as a sanctioning mechanism.
"These steps are the SET's efforts to become a fully digitalised and decentralised platform, adjusting to the changing business environment," he said.
Mr Pakorn believes traditional and digital markets will continue to co-exist in the future.
"While the digital exchange will certainly grow fast because digital assets are garnering interest from new generations of investors, it will not eclipse traditional markets as the most attractive assets with strong fundamentals are in those markets," he said.
The traditional markets have been upgraded several times to improve their efficiency.
The country's economic competitiveness still lies in traditional businesses such as tourism, food and agriculture, and logistics, which are listed on traditional markets, said Mr Pakorn.
"The sexiest assets still exist in traditional markets. Both will converge, eventually," he said, preferring not to guess what lies ahead.