Securities regulators worldwide have voiced concern over a rapid increase in algorithmic trading volume, as it could further pressure local markets and prompt volatile trading in immediate response to market movements.
Vorapol Socatiyanurak, secretary-general of the Securities and Exchange Commission (SEC), told yesterday's annual meeting of Asia-Pacific market regulators that all are in agreement about the seriousness of algorithmic trading.
Also called automated or black-box trading, algorithmic trading is the use of an electronic platform to enter trading orders with algorithms deciding aspects such as timing, price and quantity of the order or in some cases initiating the order without human intervention.
Mr Vorapol said the Thai stock market will use automated trading soon, in line with global trends, but the SEC remains unable to find a solution to the problem of rapid reaction towards market movements.
"Including us, the Thai SEC is still seeking a solution to prevent the problem," he said.
Charamporn Jotikasthira, president of the Stock Exchange of Thailand (SET), said the Thai stock market is attracting many foreign funds that are urging it to be open to high-frequency trading (HFT), which is a part of algorithmic trading.
But Mr Charamporn said the SET has already installed a high-speed trading system, trading 60 times faster than the previous system.
The high-speed system can work with the HFT system, and the SET plans to open up to HFT trading next year, with a trading volume cap at no more than 20% of total market trading.
Mr Vorapol said automated trading is popular among hedge funds, and the HFT system has helped to increase market liquidity, but the risk is high volatility.
"With the nature of the market itself, since the programme reacts to market movements very quickly, it could damage the market greatly with heavy automatic trading orders to either the upside or the downside. Hence, prevention should be installed," he said
Mr Vorapol said the world's market regulators are working together on appropriate solutions to resolve any potential problems. One measure that can be used is to halt trading, but details remain under study.
Yesterday's meeting of the International Organization of Securities Commissions Asia-Pacific Regional Committee (IOSCO-APRC) also heard discussions about the role of the capital market in aiding the growth of small and medium-sized enterprises and the opportunities, challenges and options for SMEs seeking financing through the capital market.
Mr Vorapol said the Thai capital market is focusing on the SME issue for a year and will continue its "Pride of the Provinces" programme offering support to SMEs in the listing process, as it thinks there are many operators that could benefit from fund-raising through the capital market.
He dubbed the scheme a success, with more than 100 companies having applied for listing on one of the bourses and three becoming listed.
"SMEs are the backbone of the country's growth, employing 70-80% of the total labour market, but their access to financial resources is quite limited," said Mr Vorapol.
As for the asset management sector, the IOSCO-APRC is focused on educating and encouraging people to be more conscious of their savings and investments, as Thailand and many other countries look set to become ageing societies in the next decade.