The Securities and Exchange Commission (SEC) is asking the Stock Exchange of Thailand (SET) to study and consider whether to review the use of trading programs, including high-frequency trading (HFT), to determine the current trading volume and whether they are appropriate for the Thai bourse.
SEC secretary-general Pornanong Budsaratragoon said in an interview with the Bangkok Post some investors are concerned over whether such programs, including HFT, are linked to short selling or naked shorting orders.
The SEC asked the SET to submit the results of a study on trading programs, which account for 35-36% of the total trading value, while HFT accounts for 10%-15% of the trading value.
The volume generated via trading programs on the SET has greatly increased from previous years, though it is lower than in other regional exchanges and developed markets in the West, said Ms Pornanong.
"We cannot compare the levels with other markets because each market has different business conditions and fundamental factors," she said.
"We have to find out what is the most appropriate rate for the Thai stock market."
Market regulators need to ensure fairness for all investor groups as well as securities companies, which have different business models, said Ms Pornanong.
Research indicates HFT is beneficial for derivative warrants (DWs), which is a type of product issued by securities companies.
Typically a DW has an underlying single stock that is listed on the SET's main board, with the price movement of the DW moving in the same direction as the underlying share.
The issuer of a DW must appoint a market maker who may assess the most appropriate price or appoint another broker to manage the price to be consistent with the price of the stock listed on the main board.
Most market makers tend to use DW risk management by using trading programs or conducting arbitrage using HFT.
In this regard, HFT is useful in helping to make DW prices more efficient.
Ms Pornanong said several Thai investors like to trade DWs, estimated to represent roughly 5% of the total market value.
Fair management of DW pricing means no group of investors would be able to take advantage, which would allow the industry to grow steadily in the long run, she said.