Regulators support privatisation
of Thailand's stock exchange
By Jon Fernquest |
The issues involved in privatising the Stock Exchange of Thailand (SET) were discussed in a Bangkok Post article yesterday.
"Demutualisation" means that SET, currently owned by member brokerage firms, would become a profit making public company owned by shareholders.
SET's stock would be traded on a stock exchange just like any other stock (kind of like "practicing what you preach")
The SEC supports privatisation but there is apparently resistance to the idea among the member brokerage firms that currently collectively own SET. A previous move to privatise SET was shelved eight years ago after similar resistance.
Privatisation may reduce costs as it has at other exchanges as well as increase SET's market capitalisation and the free float of listed stocks (free float = the percentage of a company's stock not held by long-term investors and therefore freely tradable on the stock exchange).
Here is the article in full:
Regulator supports SET privatisation
But stock market must avoid special interestsNUNTAWUN POLKUAMDEE
Tuesday April 01, 2008
The Securities and Exchange Commission has thrown its support behind a plan to privatise the Stock Exchange of Thailand.
The SET wants to transform itself from a quasi-public organisation into a private company under a process called demutualisation. The exchange could then be listed on the stock market, similar to numerous other markets in the region.
But the SET has yet to gain full support from the 39 member securities firms or outline how brokerage seats would be converted into shareholdings after demutualisation.
Tipsuda Thavaramara, an SEC assistant secretary-general, said regulators and the Finance Ministry first considered demutualisation eight years ago, but the idea was shelved due to resistance from the SET at the time.
Proponents of demutualisation say it will improve efficiency and performance. A 2005 survey by the International Federation of the Stock Exchanges noted that exchanges that had demutualised had a cost-to-income ratio of 58%, compared with just 91% for non-demutualised exchanges.
Three regional markets - Australia, Singapore and Hong Kong - all are very profitable since having demutualised over the past several years.
Ms Tipsuda said the SET's market capitalisation had risen more slowly than that of other markets, while trading liquidity was hampered by low free floats for a majority of listed stocks.
The SET's weighting in the regional MSCI index is a meagre 1.5%, compared to as much as 10% a decade ago. Return on equity for the exchange was just 2% compared with 19% to 56% for other markets.
"The SET faces a decline in its competitiveness of listing costs and fees, while the market premium is low," Ms Tipsuda said.
"We cannot avoid demutualisation, and there is a need to establish a genuine ownership. Otherwise, the direction for management will remain unclear."
She said that the SET also needed to change its mindset and establish a mission and objective that "did not benefit certain groups".
She declined to offer specifics, but the comment likely alluded to member brokers.
In any case, after demutualisation, the role of the SET would shift as it becomes a profit-oriented organisation.
Ms Tipsuda said some SET units, such as the SET Research Institute, Family Know-How or the CSR Institute, could be shifted from the exchange to work instead under a new market development fund.
The SET itself would continue supervising subsidiaries such as the Thailand Securities Depository, the Thailand Futures Exchange, Siam DR, the Thai Trust Fund Management and Thai NVDR Co.
Market supervision and surveillance standards also need to be maintained post-demutualisation, Ms Tipsuda said. Issues such as potential conflicts of interest between the SET and listed companies also needed to be clarified, she added.
The SEC would impose limits on the exchange, such as how much it could charge for listing fees. It would also set shareholding limits to a maximum of about 5% per party, with exceptions allowed only with approval from the finance minister.
Ms Tipsuda declined to offer projections on how much the SET could grow after demutualisation.
(Source: Bangkok Post, business section, page B2, 01-04-08, NUNTAWUN POLKUAMDEE, temp-link)
Vocabulary:
practicing what you preach - actually doing what you say that others should do
collectively - do as a group
the Securities and Exchange Commission (SEC) - the government agency that regulates financial markets
throw its support behind a plan - start supporting the plan
privatise - change a government agency or company into a privately owned company
quasi-X - similar to X but not actually X
quasi-public organisation - similar to a public organisation but not actually a public organisation
demutualisation - when a mutual society, owned by its members, becomes a profit making public company owned by its shareholders (See Wikipedia on demutualisation)
a stock brokerage - a qualified and regulated company that buys and sells (trades) shares (stocks) for investors on a stock exchange (See Wikipedia)
brokerage seats - the fixed number of stock exchange memberships for stock brokerages that allow them to trade stocks on the stock exchange (a seat is owned and can be bought and sold for money)
the idea was shelved - they stopped trying to get the idea adopted as policy
proponents of Y - people who want Y to happen, advocates for Y
market capitalisation - the total value of all stocks traded on the stock exchange
liquidity - the ease (speed, low transaction cost) that an asset can be converted into cash (See glossary item1 and item2)
trading liquidity - the degree to which trades in a market make it easy to convert an asset into cash (if there are very few trades in an asset, a "market maker" steps in and makes the trade for a fee providing the necessary liquidity)
a market maker - a trader who helps to create a liquid market by always being willing to buy or sell (even when there are no people who really need to buy or sell, See Wikipedia)
X hampered by Y - factor Y made it difficult for X to do what it needed to do
free float, the free float of a stock - the percentage of a company's stock not held by long-term investors and therefore freely tradable on the stock exchange (See Google's definitions)
a listed stock - a stock publicly traded on the stock exchange (this makes it easier for the company to raise money for business expansion by issueing new stock to the public)
a majority of X - most of X, 50% or more of X
a majority of listed stocks - most of the stocks on the stock exchange
MSCI Index - Morgan Stanley Capital International Index, a stock index that includes stocks from all the developed markets in the world (See Wikipedia on MSCI World and )
a stock index - a weighted average of stock prices used to measure the average value of stock prices in a certain group, for example from a country, an industry, or a region of the world (See Wikipedia and a list of stock market indexes)
weighting in a stock index - what percentage of a stock index's total value is contributed by a single stock or stock exchange, weighting usually determined by market capitalisation
MSCI EAFE - Morgan Stanley Capital International Index (Europe, Australasia, and Far East) excludes the US and Canada, the weight of securities in the index is determined based on their respective market capitalizations, the most common benchmark for foreign stock funds (See Wikipedia)
SET's weighting in the regional MSCI index - the percentage contribution of SET to this index
meagre - a very small amount, not enough
Return On Equity (ROE) - a financial ratio that measures the rate of return on the ownership interest (shareholders' equity) of common stock owners (See Wikipedia)
market premium - the amount paid above the normal market price
change its mindset - change the way it thinks about certain issues
a mission - a long-term goal or purpose, usually included in a company's mission statement
declined to Y - refused to do Y, did not do Y
specifics - details
declined to offer specifics - did not give details
alluded to Y - mention or refer to Y indirectly (sometimes out of politeness, sometimes out of fear of being sued for defamation)
alluded to member brokers - refer to member brokers indirectly
a conflicts of interest - a situation in which someone in a position of trust, (such as a when personal gain conflicts with what is best for the public in a decision or action made by people in positions of public trust such as lawyers, politicians, executive and directors of a corporation, or a medical research scientist or physician) (See Wikipedia)
listing fees - the payments for a company to have its shares traded publicly on the stock exchange
projections - what you expect in the future, forecasts
