Market regulators are urged to consider cancelling cash account stock trading because the method often creates artificial trading and exposes brokers to distorted share prices.
Chanchai Kultavarakorn, executive chairman of ASL Securities, said the stock market trading value had dropped significantly since the fraud cases involving More Return Plc and Stark Corporation Plc, causing damage to many retail investors.
Speculative trading has decreased significantly, resulting in a lower trading value on the Thai bourse, he said.
Market regulators have yet to impose effective measures to prevent damage from the More Return case, in which many securities firms suffered losses because those who placed buys through brokers did not pay for the orders.
As a result, brokers had to pay for the purchase orders on behalf of their clients.
According to Mr Chanchai, the problem happened because investors had cash account stock trading with many securities companies. They placed orders many times, exceeding the cash in their accounts.
For example, if investors have cash of 10 million baht in their account, they can buy shares five times the amount insured, or 50 million baht, while some securities companies offer leverage of up to 10 times, or 100 million baht.
When investors place a purchase order, they must pay the amount in full within two business days, known as T+2.
If the purchase order is not paid within two business days, the broker must pay on behalf of the client to Thailand Clearing House or its credibility would be negatively affected.
"I suggest the Stock Exchange of Thailand [SET] or the Securities and Exchange Commission [SEC] abolish cash account stock trading and only allow cash balance accounts, where investors can trade stocks only up to the capital available in the investor account, without leverage," he said.
"The cash account method is risky, but regulators still allow investors to use it and brokers have to pay for their clients [if something happens]. That is not right."
However, Mr Chanchai disagrees with regulators barring investors who have cash balance accounts from sending trading orders frequently.
"Investors with this type of account do not have any risk of default. Although it looks like a price stipulation, when they send orders many times, it does not cause a problem in the trading system," he said.
According to the SET, the average daily trading value was 77.8 billion baht in 2022. The figure dropped to 56.9 billion baht for the year-to-date, and fell to 46 billion in July.
Mr Chanchai advised the SET and SEC to carefully examine the quality of newly listed companies as many of them have caused damage to investors.
In several cases, shares traded on the SET or Market for Alternative Investment had prices drop significantly to below the initial public offering (IPO) price after the first or second day of trading, he said.
"This is mostly caused by unfair pricing determined by a financial advisor to attract small investors to IPOs, but later these low-quality stocks suffered losses," said Mr Chanchai.
"If the quality of listed companies does not improve, stock trading volume will remain thin and value will continue to decline over the long term. Retail investors will gradually disappear, causing the market to lose its balance."