SET to enact uptick rule as of July 1
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SET to enact uptick rule as of July 1

The Stock Exchange of Thailand (SET) has confirmed it will proceed with implementing the "uptick rule", a measure aimed at regulating short-selling transactions across all securities.

Effective from July 1, the rule is designed to curb market volatility and prevent abrupt declines in stock prices.

The SET index rebounded slightly on Tuesday following the rule announcement. While short-term political uncertainties have eased somewhat, the medium-term market outlook remains gloomy, according to analysts.

Rongrak Phanapavudhikul, senior executive vice-president of the SET, said the uptick rule had a public hearing process and was approved by the Securities and Exchange Commission (SEC), labelling it as a strategy to stabilise prices for listed securities.

The uptick rule stipulates that all securities can only be short-sold at prices higher than their last traded price. This differs from the current criteria, which allows short sales at the zero plus tick price, where the share is traded at the same price as the previous time it traded.

For instance, stock A last traded at 10.00 baht. Under the current criteria, investors could initiate short-selling transactions at 10.00 baht (zero tick). The new criteria mandates an uptick, meaning investors must trade the stock at 10.10 baht or higher.

The intention of this rule is to prevent rapid declines in stock prices, unless market makers opt to utilise zero plus tick for liquidity management in each securities, said the bourse. However, those market makers (brokers) must register to comply with this regulation, according to the SET.

"This is an urgent measure," Mr Rongrak said, acknowledging some members are concerned about readiness, but it is necessary to rebuild investor confidence. "While some members may not be fully prepared for the uptick measure system, it's crucial to rebuild market and investor confidence."

Stocks eligible for short selling include those listed on the SET100 index, those with a market cap of at least 7.5 billion baht, and those with a trading turnover ratio in the past 12 months of at least 2%. A list of eligible stocks will be announced on June 24, he said.

SEC secretary-general Pornanong Budsaratragoon said another measure to enhance supervision of the stock market and reduce volatility is regulation of program trading, particularly high-frequency trading (HFT), scheduled for implementation by the end of the second quarter.

SET chairman Kitipong Urapeepatanapong said the bourse wants to exert tighter control over trading programs, while setting dynamic price bands to stabilise the stock market.

Mr Kitipong said the SET's primary responsibility is to foster market confidence. To achieve this goal, initiatives were introduced calling for a minimum time for trading orders before they can be cancelled, and increased penalties for members that break the rules.

Measures scheduled to take effect in the third and fourth quarters this year include "auto halt" mechanisms for individual stocks, auctions, and the establishment of a centralised platform for brokers. This platform will verify whether investors possess stocks before order placements, aimed at preventing incidents similar to the More Return debacle.

Boonporn Boriboonsongsilp, chief executive of Yuanta Securities (Thailand), expressed readiness to comply with the uptick rule, but said these measures do not address the pressing issue of low trading volume on the Thai bourse. In fact, she said the uptick rule could potentially delay trading activities.

"In a bullish market, this measure may not be essential. However, during bearish market conditions, investors seeking to hedge risks through short selling, including institutions and major players, may find this measure restrictive, dissuading them from further investments," said Mrs Boonporn. "The challenge facing the Thai stock market is the lack of liquidity and trading volume. The big question is how to lure back foreign investors."

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