Self-regulation without political influence
the ideal under Thailand's new SEC law
By Jon Fernquest |
The future direction of Securities and Exchange Commission (SEC) policy under new laws coming into effect is outlined in a Bangkok Post interview today with Thirachai Phuvanatnaranubala, secretary-general of Thailand's SEC.
Market supervision and regulatory enforcement will be independent of political influence (Read about past problems in this area).
Regulation will move in the direction of the self-regulating securities exchanges pioneered by London's AIM and Singapore's Catalist.
In a self-regulating exchange close regulatory oversite is provided by an advisor appointed for each firm listed on the exchange.
This advisor collects a fee from the firm it advises and is also liable for damages if the company it supervises violates regulations.
Performing these two functions at the same time poses a conflict of interest risk and the jury is still out on whether this system of low-cost regulation can work, even with AIM in Great Britain (Read Wikipedia on AIM's self-regulation system, Singapore Catalist's system, read a formal academic paper on the subject).
Ideally, self-regulating exchanges provide a "low-cost listing venue" with the cost of regulation reduced significantly, "imposing low compliance costs on firms" while "ensuring adequate disclosure and transparency levels."
Such a system would allow attract more investment money to Thailand, allowing more companies to be listed in Thailand.
Read a previous article on financing for Thai start-ups from London's Alternative Investment Market (AIM) and an article on self-regulation in Thailand's bond market.
Also read about how demand for the services of asset management companies may increase as deposit insurance is phased out for large depositors in Thailand.
Here is the article in full:
SEC adapting for future competition
Regulator will become a facilitatorDARANA CHUDASRI
Monday September 15, 2008
Thailand's capital market will face increasing pressure over the next few years from the trends toward regionalisation and globalisation, says Thirachai Phuvanatnaranubala, the secretary-general of the Securities and Exchange Commission.
Moves toward market integration and consolidation worldwide will challenge policymakers to consider the direction Thailand should follow, he said. Plans for an Asean Economic Community by 2015 also represent both an opportunity and threat to the local market.
Given these trends, Mr Thirachai said, the SEC itself also had to change.
Over the past several years, the market regulator had focused on strengthening information disclosure and investor protection. Looking ahead, the priority will shift more toward encouraging product development, business innovation and building up the competitiveness of the capital market.
Self-Regulating Organisation (SRO) model
Mr Thirachai pointed to London's AIM and Singapore's Catalist as two self-regulating exchanges that offered greater flexibility and lower regulatory costs for companies and investors alike.
The SEC also aims to help businesses regulate themselves and adhere to established codes of conduct. The shift will help reduce regulatory costs, which in turn will strengthen Thailand's competitiveness and benefit businesses and investors.
"We plan to decentralise some parts of our three duties - enforcement, standards and licensing - to self-regulated organisations, similar to other developed markets. But surveillance will still be maintained with the SEC," Mr Thirachai said.
The Thai Bond Market Association has already been given SRO (self-regulating organisation) status, with asset management and securities firms likely to follow.
Mr Thirachai said the SEC would also ease the restraints placed on businesses under its supervision. It would adopt a "negative list" approach, under which operators could conduct any business except those explicitly prohibited or restricted. This is in contrast to the "positive list" now used.
But while market intermediaries would gain greater leeway in developing new products and services, change could only come once investors themselves understood the importance of protecting their own rights, rather than depending on regulators to do so on their behalf.
"We have to consider where we are in relation to other markets. Capital markets today compete based on efficiency and operating costs," Mr Thirachai said.
Speed of globalisation should be decided by the public
But how quickly and to what extent Thailand's markets integrate and open to the global market are not necessarily questions for the SEC.
"I think these questions, which relate to how resources and opportunities are allocated among different groups, are best left to the political sphere," he said.
Various policy choices would present opportunities to some groups at the expense of others, he acknowledged.
"For instance, if we want to focus on investors or those seeking to raise funds from the capital market, we should allow free investment abroad as well as open up restrictions to foreign investment. But if we want to protect local brokers, then we must limit the number of foreign players. This is a question of policy, of resource allocation, that is the essence of politics."
Market supervision independent of political influence
But Mr Thirachai said that actual operations and market supervision must remain independent of political influence. "Regulatory enforcement must be one hundred percent free from politics. No, one million percent."
Recent changes to the SEC Act are aimed in part at ensuring independence.
The SEC chairman, previously the finance minister in practice, now is elected. Both the chairman and the secretary-general will also be selected by a search committee, rather than appointed by the finance minister.
The SEC board, meanwhile, will have its duties limited to setting broad development policy, while rules will be set by a new Capital Market Supervisory Board composed of SEC executives and private-sector representatives.
The first SEC chairman under the new structure is Vijit Supinit, a former chairman of the SET and a former Bank of Thailand governor.
(Source: Bangkok Post, 15-09-08, DARANA CHUDASRI, page B2, temp-link)
Vocabulary:
Securities market vocabulary
Securities and Exchange Commission (SEC) - the government agency that protects the public from malpractice in securities and financial markets
market supervision - making sure a financial market operates fairly according to rules and regulations (for example, no insider trading or price manipulation)
independent of political influence - powerful politicians cannot prevent their cases from being investigated
ensuring independence - acting and taking measures to make certain that politicians cannot interfere with securities regulation (as they have done in the past)
a regulator - a creator and enforcer of rules
a facilitator - a helper
a self-regulated organisation, self-regulating organisation (SRO) -
self-regulating securities exchanges, self-regulating exchanges -
London's AIM, London's Alternative Investment Market (AIM) - a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the main market (See Wikipedia)
Singapore's Catalist - new securities exhcange in Singapore using the self-regulation model pioneered by AIM (See website)
a Nominated Adviser (nomad) - the advisors and low-cost regulators of companies listed on AIM, provide continuous oversight and advice, can be held financially responsible if there is a problem (underwriter)
a Sponsor - the name chosen for regulatory advisors on Singapore's Catalist exchange (See explanation)
a conflict of interest - when personal gain conflicts with the duties of your job (See Wikipedia)
a listing, stock listing - when a company's stock is publicly traded on a stock exchange (when this happens the company is required to make a lot of information public)
a venue - a place where something happens
a listing venue - a place where stock listings happen
close regulatory oversite - when someone is watching everything you do to make sure you don't break any rules
compliance costs - the cost to a business of following detailed rules and regulations (need to hire extra people and install computer systems, slows business operations down)
imposing low compliance costs -
transparency levels - how visible the companies operations and finances are (in ever company some information has to be private and unavailable to the competition (proprietary information))
disclosure, information disclosure - making information available (to the authorities and public)
adequate disclosure - making enough information available
investor protection - protecting investors from being cheated by companies selling stock (for example, by providing false information about the company to the public)
enforcement, regulatory enforcement - checking to make sure firms follow the rules and regulations and then punishing them it they do not
surveillance - the careful wathching of what someone is doing (usually by the police)
Thai Bond Market Association (ThaiBMA) - "in 1994 started as the Bond Dealers Club (BDC) under the Association of Securities Companies, played roles as the first and only organized secondary market for bonds, introduced an electronic bond trading system called 'Bondnet' for the first time in the history of the Thai bond market" (See website)
asset management, investment management - companies such as mutual funds that take money from many people and invest it for them (See Wikipedia on investment management)
a negative list approach - listing all the things you can't do (the list can grow long and complicated, requiring lawyers and lengthy legal cases)
a positive list - a list of all the things you can do
Capital Market Supervisory Board - the SEC committee that will set the rules for capital markets
General vocabulary
an ideal - a high goal you wish to achieve if possible
X pioneered by Y - Y was the first to do X
liable for damages - have to pay money to someone for harm that you caused them
the jury is still out - still not sure whether it works or not yet
formal academic paper on the subject - a study and analysis by an expert professor at a university
integration - become a part of a system closely linked with other parts in the system (See glossary)
consolidation - join together many small things into one larger thing, and thus strengthen to become more secure, powerful, and effective (See glossary)
Asean Economic Community - a plan for zero tariff trade by 2015 between ASEAN states
adhere to X - follow rule or regulation X (do not violate X)
a code of conduct - a list of rules for behaving correctly and fairly with others
decentralise - move some departments away from the center and give them more decisionmaking independence
gain greater leeway - have more flexibility and choice in action
efficiency - waste as little time, energy and resources as possible in doing a task (See glossary)
a search committee - a grou of people are given the job of finding the right person for a position (instead of being appointed by one powerful person, to whom the person appointed would have to return the favour in the future)
setting broad development policy - creating goals and guidelines for achieving the goals (not creating detailed rules about what or what not to do)
