The Securities and Exchange Commission (SEC) is preparing to revise the liquidity risk management criteria by adding at least five redemption conditions to prevent panic selling and liquidity shock as additional protection for mutual funds.
The revision is aimed at improving the liquidity risk management standards of Thai asset management firms in accordance with international standards, protecting investors' benefits and reducing the likelihood of mutual funds creating a systematic risk, the SEC stated.
The outbreak of the pandemic in March 2020 caused severe volatility in global debt and equity markets, triggering outflows of investment from mutual funds and in effect destabilising the global financial system.
The phenomenon drove market regulators in many countries to issue liquidity measures.
In Thailand, four fixed-income funds from TMBAM Eastspring were closed last year after panic selling caused over 400 billion baht of outflows from the funds.
On March 5, the SEC met with the chairmen and chief executive officers of asset management firms to share views on business development and discuss the SEC's role in risk governance to make asset management businesses more sustainable.
As a result of the discussions, the regulator opened a public hearing on March 12 covering two key issues.
The first issue is concerned with the design of mutual funds that are in compliance with the government's investment policy with constant risk monitoring and the addition of a wide range of liquidity management tools including the development of a "stress test" to examine the funds' ability to endure liquidity strains which is in line with international guidelines.
The second issue is concerned with the upgrade of Thai liquidity risk management standards through the implementation of redemption conditions such as redemption fees, which would be charged when investors withdrew a large amount of funds, a notched period and redemption gate to limit the percentage of assets in mutual funds that can be sold to master funds, and the temporary suspension of dealings in case of massive sellouts.
According to the SEC, these measures would also protect investors by reducing the likelihood of a systematic risk and stability risk that will affect the market as a whole.
The public hearing will last until April 10.
Kasikorn Asset Management's chief investment officer Chajchai Sarit-apirak said that these risk management tools would allow managers of mutual funds to delay or halt the sale of assets during times of crisis.