The Securities and Exchange Commission (SEC) is expected to tighten its regulations on bills of exchange (B/E) by limiting the number of entities in which funds can be privately placed to no more than 10 deep-pocketed investors.
"The new regulation is expected to take effect in the middle of next year as a way to encourage companies to rely more on short-term bonds instead of B/Es," said Tada Phutthitada, president of the Thai Bond Market Association.
Mr Tada said there are two types of B/E placement: the first, in which private placement is limited to 10 investors, and there can be no more than 10 B/Es at any point in time; and the second, in which they are placed with institutional investors or high net worth individuals.
The new regulation will limit B/E placement to only 10 related investors. If any of the 10 investors has a high net worth, intermediaries are required to inform investors regarding the details of the product.
Mr Tada said the new regulation will prevent B/Es from changing hands.
"It is reasonable to not allow B/Es to change hands because that takes away the mechanism to resolve issues when they arise," he said.
"We want to encourage companies to issue short-term corporate bonds instead of B/Es, and we will design short-term bonds to include more detailed investor protection mechanisms."
Mr Tada said the SEC wants companies to be able to issue short-term bonds during their annual general shareholders' meetings, which usually take place in April.
Listed companies need the approval of the shareholders to issue short-term corporate bonds, while B/Es only require the board's approval, said Mr Tada.
"For other companies that have different fiscal years, I believe the SEC will allow the regulation to be effective in later periods," he said.
He said the SEC is in the process of drafting the regulation and setting up related hearings.
Separately, Mr Tada said he expects a rise in the US Federal Reserve's policy rate later this year, which he does not forecast will have strong effects on the Thai bond market as domestic demand for Thai bonds remains strong.
Insurance companies, long-term funds, retirement mutual funds and cooperatives demand 600 billion baht worth of Thai bonds each year, he said.
"Foreign investors currently hold 800 billion baht [or less than 8% of the total 11.2 trillion worth of Thai bonds]. Even if they pull out all of their money, the excess demand should be able to absorb the bonds in the market," said Mr Tada.