The state should consider the role of "lender of last resort" for Thailand's capital market to ensure sufficient liquidity in case of a financial crisis, says the Stock Exchange of Thailand (SET).
Pakorn: Safeguarding bourse in emergency
"The [capital] market must have liquidity [when a crisis occurs]," said SET president Pakorn Peetathawatchai. "While the money market has the Bank of Thailand as the lender of last resort, the capital market has no state agency responsible for this duty."
According to the Bank of Thailand Act of 1942, amended in 2008, the central bank is to provide banking facilities for financial institutions by acting as the lender of last resort and custodian for them, along with ordering financial institutions to report or explain assets, liabilities or contingent liabilities.
Appointing the lender of last resort is one of the three approaches suggested by Mr Pakorn to minimise effects from a hypothetical financial crisis.
A second suggestion is to communicating information rapidly to investors in order to eliminate cases of information asymmetry.
Eruption of a financial crisis tends to induce rapid movement in share prices, Mr Pakorn said, and information asymmetry could exacerbate such movement.
A rapid and wide range of information dissemination can help solve information asymmetry among different types of investors, he said.
In the event of falling asset prices taking a toll on commercial banks' capital adequacy ratio, the capital market should be able to help banks raise funds because their capital reserves are affected by lower asset prices, Mr Pakorn said.
He cited shelf registration of the Securities and Exchange Commission as an example of raising funds to beef up capital adequacy.
Shelf registration is a method for publicly traded companies to register new stock offerings without having to issue them immediately. Instead, the securities can be issued at any time within a given period, allowing a company to adjust the timing of the sales to take advantage of more favourable market conditions should they arise.
Regarding the recent rate hike by the US Federal Reserve, foreign capital outflows from Thailand's capital market have declined because of the country's strong economic fundamentals and the sound state of SET-listed companies, robust export growth and lesser tensions in domestic political developments, Mr Pakorn said.
The SET index closed yesterday at 1,752.95 points, up 3.02 points or 0.2%, in trade worth 63.4 billion baht.