The Thai stock market is unlikely to encounter a similar situation to the market frenzy around GameStop (GME) shares thanks to regulators' tighter grip on market volatility, says Pakorn Peetathawatchai, the president of the Stock Exchange of Thailand (SET).
GameStop, the US video game retailer, saw shares rise to stratospheric levels after retail investors flocked to buy the company's shares and stock options to spite hedge fund managers, who had long been shorting the shares.
The price surges incited a short squeeze -- the phenomenon where investors who short sell are forced to close their positions before the option ends in fear of losing more money, which in effect drives the price even higher.
The unprecedented case saw individual investors band together to beat large investors on Wall Street at their own game inspiring a ripple of imitations in other capital markets like Malaysia and other assets such as silver, which are also heavily bet against.
The same tactics are unlikely to succeed in the Thai stock market, which imposes relatively stricter rules to prevent such market manipulation, said Mr Pakorn.
Short selling is restricted to members of the SET100 Index with large market capitalisation of over 5 billion baht of a three-month average market cap. The maximum volume of shares that brokers can offer for short selling are already capped by the companies' capital funds.
According to the SET, the volume of stocks that can be short sold must also not exceed the percentage the exchange specified for the stock.
Moreover, the derivative products in the Thai stock market that could create a double-leveraged position are still limited.
The only stock options available in the Thai market are the SET50 Index Put and Call Options, which are traded on the Thailand Futures Exchange (TFEX), the derivative exchange of the SET Group.
The single stock option impacting the price of an underlying share is not yet available in Thailand.
Pichet Sithi-Amnuai, president at Bualuang Securities, said the size of the US stock market is also much larger than the Thai market with a relatively higher proportion of retail investors, allowing them to unite and influence the market.
He said due to the small size, retail investors in Thailand are unlikely to be able to join forces and make any great impact on the market.
Thailand's Securities and Exchange Commission (SEC) said this phenomenon reflects regulatory gaps in the global markets' trading mechanism, allowing groups of investors to manipulate the stock market to bend to their will.
Apart from the gaps in market trading mechanisms, other interesting things to note from the phenomenon are the increasing role of social media in stock trading and the role of brokers to advise customers against inappropriate investment behaviours.
Natapon Khamthakrue, vice-president of Yuanta Securities, said the share that is most often sold short contributed only 11% of normal trading volume in January.
Average trading volume of short selling remains low at 2.9% of the normal trading volume. The average free-float of short-sold shares is only around 45% unlike GameStock, whose volume of short-sold sales is similar to its free float.
Mr Natapon said the market prices of some shares that have been short sold would be pushed up when the market price drops lower than 5% of the average cost of short selling.
The drop in market prices will stimulate short covering, in which investors buy the stocks they are short selling to make profits, driving the price to possibly rise further.
Win Phromphaet, chief investment officer at Principal Asset Management, said this investment model may be imitated in the Thai stock market.
GameStop is similar to Delta Electronics (Delta) as both saw their share prices rise on the back of high demand and low liquidity, but Delta has better fundamentals and was driven up by the manipulation of high-net-worth retail investors.