SET chief says prospect of foreign competition is a powerful incentive to lift standards and build a stronger, faster trading platform. 9/08/2011

The Thai capital market has improved considerably in recent years, whether in terms of market liquidity, products, governance or investor education.

‘If w‘e don’t improve, and once we liberalise the market, if another player comes to open an exchange to compete, we and our 39 [brokerage] seats will not survive

CHARAMPORN JOTIKASTHIRA
SET President

But in other areas, the market remains woefully behind. While mutual and provident funds have grown rapidly, the active investor base remains tiny relative to the country's population. The Stock Exchange of Thailand is still disproportionately led by energy and banking stocks, and all too many companies still pay only lip service to investor relations, governance and corporate social responsibility.
SET president Charamporn Jotikasthira warns that time is running out for Thailand to play catch-up to best international standards, particularly in areas such as information technology, a critical element in today's world where computers move billions of dollars in less than an eyeblink.
"The global exchanges are faster than ours by a factor of 500. Or to put it another way, the SET's trading platform and IT infrastructure underperform that of the world's best by 500-fold," he told the Bangkok Post.
"If we don't improve, and once we liberalise the market, if another player comes to open an exchange to compete [with the SET], we and our 39 [brokerage] seats will not survive."
Thailand's capital markets are due to be liberalised starting next year, with commission fees made freely negotiable and brokerage licences open for new applicants.
The SET will also lose its long-time monopoly as the country's securities exchange, and the move toward regional integration means that global investors will soon be able to trade Thailand's top stocks from their own brokers in Singapore or Kuala Lumpur.
Mr Charamporn said the prospect of new foreign competition in the Thai capital market was a powerful incentive for the SET to reform or face a declining market share in the future, adding that London's stock exchange saw its market share fall by as much by half with the entry of new competition.
The SET has already set a target of July 2012 for the launch of a new, modernised trading structure, putting pressure on brokers to adjust by the end of the year.
"Regardless of whether demutualisation moves forward or not, we have to do business as normal. You need to continuously adjust to remain competitive," Mr Charamporn said.
"The main difference is that if we don't demutualise, it will be more difficult, since we will have to raise the funds [for reforms] somewhere else."
Regionalisation and the continued growth of the Asian economies is another trend pushing the SET to evolve.
Thailand's capital market has over the past four decades evolved steadily from a vehicle to raise domestic capital for domestic investment then later to attracting foreign capital to invest in local companies.
More and more, companies are tapping the Thai exchange to facilitate overseas investment, although numerous obstacles remain.
Mr Charamporn said that ultimately, the capital market must evolve to consider supporting "out-out" investment, playing the role as a truly international financial hub similar to Hong Kong or Singapore.
But achieving this goal would require the establishment of supporting infrastructure, such as investor-friendly banking and foreign-exchange regulations.
Transaction costs in Thailand remain uncompetitive for global investors. An investor in Singapore, for instance, might pay a spread of 50 basis points and a brokerage fee of 10 points for a cross-currency investment, or perhaps half the cost of the same transaction in Thailand.
"We have never really considered what is needed to support out-out transactions, where foreign investors use the local market as an intermediary to invest elsewhere," Mr Charamporn said.
"We have a large expatriate community here. The potential for private banking and wealth management is quite high. But we need a clear policy and action plan."
Policymakers looking to the future need to "raise the flag" today and consider the taxation, settlement, legal and reporting obstacles currently impeding growth of the market, he said.
"You need the political will to support change. And we need a clear action plan," he said.
"Right now, Hong Kong and Singapore are dominant in the region. But actually, Thailand has a lot of advantages already. Our banking and securities sectors just need to move in the same direction to help facilitate services for the customers."