The Securities and Exchange Commission (SEC) is conducting a public hearing on allowing securities companies to extend credit to investors to buy mutual fund units and debt instruments and also place those securities as collateral, aiming to enhance investors' purchasing power for margin accounts.
The market regulator also wants the expansion of a securities category for brokerage firms to offer investors with margin accounts to borrow for margin trading. Those interested in commenting or making suggestions can contact the SEC until July 24.
Buying on margin is borrowing money from a brokerage firm to purchase listed securities. Margin trading allows investors to purchase more listed securities than they are able to on a regular basis. Opening a margin account is needed to engage in related trading.
Besides listed securities, expansion of the securities category covers debt instruments registered with the Thai Bond Market Association, government bonds or debt instruments rated at investment grade and mutual fund units which are structured to be daily redeemed, with no limit on transfers and pledges.
These securities are also permitted to be used as collateral to enhance investors' purchasing power.
"The idea is to provide investors with a wide range of investment options, whereby they can use these securities to increase their purchasing power. Securities companies can respond to investors' needs, helping increase financial liquidity and developing the secondary bond market along with the mutual fund market," said the SEC statement. "But securities companies will have to improve their work system and risk management to accommodate additional types of securities."
Regulations associated with lending for securities purchase or a margin account, which have been in place since 1997, allow securities companies to lend money only for the purchase of listed securities.
Investors have to initially place cash or listed securities as collateral with securities companies and they are not able to put debt instruments or mutual funds' units as collateral to increase their purchasing power.
Cash or registered securities placed as collateral must be no less than 50% of the initial margin rate, while listed securities will be immediately collateralised.