In 2004, The Thai Securities and Exchange Commission participated in the International Organization of Securities Commissions (IOSCO) self-assessment pilot program, in which IOSCO sent experts to assist pilot jurisdictions in assessing their levels of implementation of the IOSCO Principles. The findings indicated that the overall rules and regulations in Thailand are "in line with IOSCO Principles." Currently, the principal laws governing the capital market are the Securities and Exchange Act (SEA) and the Public Limited Companies Act (PCA). The Thai Capital Market Master Plan II (2006-2010) aims to raise the standard and size of the capital market and necessitates amendments to the relevant laws to allow and develop an information exchange system among local and foreign regulators. A 2006 World Bank progress report notes a lack of progress in revising relevant laws such as the PCA and the SEA. In 2007, a joint International Monetary Fund/World Bank team visited Thailand under the Financial Sector Assessment Program, which included an assessment of Thailand against the IOSCO Principles. The findings have not been published as of January 2008.

General Overview

The Thai authorities, most notably at the Securities and Exchange Commission (SEC), have been very active in preparing the Thai capital market to conform to the International Organization for Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation in recent years. In order to evaluate the compliance of Thailand's securities regulation, in 2004 the SEC participated in the IOSCO self-assessment pilot program, in which IOSCO sent experts to assist pilot jurisdictions in assessing their levels of implementation of the IOSCO Principles. The findings were published on the SEC website. According to a summary of those findings, published in the January 2005 issue of the SEC's "Capital Thailand," the "overall rules and regulations in Thailand are in line with the IOSCO Principles" (p. 3). The summary mentioned a few areas where legislative amendments were still needed, however. For example, the securities law has to be amended to improve the information exchange system among local and foreign regulators. In October 2006, the findings were updated in preparation of Thailand's participation in the Financial Sector Assessment Program (FSAP), a joint initiative of the International Monetary Fund (IMF) and the World Bank. The assessment process started with a team of experts visiting Thailand in January 2007. The April 2007 issue of "Capital Thailand" anticipated the official release of the FSAP findings in the second half of 2007. As of January 2008, the FSAP has not been released.

The principal laws governing the capital market are the Securities and Exchange Act (SEA) and the Public Limited Companies Act (PCA). The SEA mainly governs issues in connection with the capital market, the secondary markets, the issuance and offering of securities, unfair securities trading practices, takeovers, and the undertakings of securities businesses. The PCA is administered by the Ministry of Commerce. It deals with public limited liability companies in general, including provisions on shareholder rights and protections. The SEA is enforced by the SEC. The Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI) are the only stock exchanges in Thailand. The SET is the main exchange, whereas the MAI is the exchange for small and medium sized companies. Both the SET and MAI are under the supervision of the SEC.

The Thai Capital Market Master Plan II (2006-2010), which is the follow-up to Master Plan I (2002-2005), was introduced by the Federation of Thai Capital Market Organization (FeTCO) and related government agencies to the MoF in February 2006. The proposed Plan II aims to raise the standard and size of the capital market and has various components, such as strengthening the capacity and financial stability of market intermediaries and developing derivative instruments as hedging tools for market players and investors. However, the 2006 World Bank report notes a lack of progress in revising relevant laws including the PCA and the SEA.

The institutional and market structure section of the SEC self-assessment explains that Thailand's only authorized secondary securities market is the SET. The SET was established by a specific law in 1974 and began trading operations on April 30, 1975, long before the SEC came into existence. Per the Securities Exchange Act, the SET's primary roles are to serve as a center for trading of listed securities, to provide essential systems needed to facilitate securities trading, and to undertake any businesses relating to the securities exchange; such as a clearinghouse, a securities depository center, a securities registrar, or similar activities as approved by the SEC. In 1998, the MAI was established as a business unit of the SET, with an objective to open up fund-raising opportunities for small and medium-sized enterprises (SMEs) as well as to provide a greater range of investment alternatives for investors. A 2006 World Bank program assessment of the Country Development Partnership with Thailand notes that the market infrastructure of the Thai capital markets has been reformed considerably in recent years. The SET is consolidating all securities and financial-derivatives trading activities under its umbrella. The 2006 self-assessment reports that at the end of April 2006, there were 468 companies listed on the SET and 36 companies on the MAI.

In May 2002, IOSCO endorsed a comprehensive multilateral memorandum of understanding (MMoU) to facilitate and reinforce international cooperation among securities regulators. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMoU will be invited to become signatories to Annex B of the IOSCO MMoU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories The IOSCO website lists the SEC as a signatory to Annex B.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

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The 2004 SEC self-assessment against the IOSCO Objectives and Principles of Securities Regulation notes that the authority for regulating the securities market rests solely with the SEC. According to the 2005 World Bank assessment of corporate governance in Thailand, the 1992 reforms resulted in sound legal, institutional, and regulatory frameworks that govern the Thai capital market. The main laws enacted in 1992 were the PCA and the SEA. Together, these laws establish the market's foundation, structural framework, supervisory framework, and enforcement rules. The SEC regulates every activity relating to the securities business. The SET, originally established in 1975 and currently operating under the authority of the SEA, is a non-profit legal entity and the main exchange in Thailand. The MAI is a wholly owned SET subsidiary established on June 21, 1999 as an exchange for Small and Medium-sized Enterprises. The SET is governed by a Board of Governors, under the supervision of the SEC. Neither the SEC self assessment nor the World Bank assessment directly addresses Thailand's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

EN

The SEC consists of a policy-setting board, and a policy-implementing office. The board is chaired by the Minister of Finance. The 2005 World Bank assessment criticized that "although the Minster does not attend board meetings, this governance structure gives the appearance that the SEC is not a fully independent regulatory body, consistent with international good practice" (p. vii). The arrangement diminishes the authority of the SEC, and threatens the public perception of market integrity. An amendment has been proposed to the SEA that would address this problem, replacing the Minister with some other qualified person as board chair. This World Bank suggests that this amendment be expedited to ensure the SEC's independence from political interference. The 2004 SEC self-assessment notes that it is accountable to the Minister of Finance, thereby ensuring that it operates in harmony with the policies of the government and cabinet. The SEC is subject to the Official Information Act, which stipulates transparency of its operations and use of resources and requires it to publicize its regulatory actions.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

EN

According to the 2004 SEC self-assessment against the IOSCO Objectives and Principles of Securities Regulation, the SEC "has sufficient powers and authorities under the SEA and the [Derivatives Act] to regulate all aspects of the securities/derivatives market." This includes the power to grant or recommend licensing, grant permission for offering of securities/derivatives, make rules, inspect, investigate, and enforce compliance with the laws and regulations.

4. The regulator should adopt clear and consistent regulatory processes.

EN

The 2004 SEC self-assessment (updated in 2006) notes that the SEC procedural rules and regulations are laid out in the provisions of the SEA, the Derivatives Act, and other laws concerning administrative procedures, information, and the duties of government officers. The assessment explains that the SEC uses a variety of public consultation mechanisms, including regular meetings with industry associations, sub-committees, circulation of draft rules for comments, discussion groups, and consultative papers. Also, in January 2006, the SEC launched its web-based public hearing procedure in an effort to obtain wider and deeper inputs on draft rules and regulations from all interested parties.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

EN

The 2004 SEC self-assessment (updated in 2006) reports that the staff code of conduct clearly establishes requirements regarding the avoidance of conflicts of interest, restriction on the use of information obtained in the duties, observance of confidentiality, data protection, and procedural fairness. Senior staffers are prohibited from trading in securities other than government securities and mutual funds.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

EN

According to the 2004 SEC self-assessment (updated in 2006), the SET establishes and enforces rules of market conduct for members who engage in the securities brokerage business and have direct trading access. It also establishes disciplinary rules and conduct disciplinary proceedings, including fines, suspension, or termination of membership. Under the MoU between the SEC and the SET, the SET is responsible for Self Regulatory Organization (SRO) functions related to the supervision of trading in the marketplace, but the responsibility of supervising market intermediaries' capital and conduct when dealing with customers, remains with the SEC and is not delegated.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

EN

According to the 2004 SEC self-assessment (updated in 2006) the "SET, including its subsidiary derivatives exchange (TFEX), has demonstrated its capacity to carry out supervision of trading in the marketplace." The assessment highlights the fair and transparent manner in which the SET applies its regulations, and notes that the SEC conducts regular inspections of the SET, including TFEX, to assess its arrangements in market surveillance and trading supervision.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

EN

The SEC is entitled to inspect and request information from all regulated entities without prior notice and even in the absence of suspected misconduct, notes the 2004 SEC self-assessment. It can also supervise all matters concerning securities business and market, including exchanges and any organized trading centers.

9. The regulator should have comprehensive enforcement powers.

EN

The 2004 SEC self-assessment (updated in 2006) asserts that the SEC has a "wide range of administrative powers it can use to ensure compliance with regulation, such as the power to order regulated entities to do or refrain from doing any act or suspend their businesses, the power to approve or reject exchange rules, the power to approve or remove directors of regulated entities, the power to grant or deny permission to offer securities to the public, the power to order the issuer to amend its disclosure documents and restate its financial statements, the power to approve or disqualify external auditors of listed companies and financial advisers certifying offering documents, and the power to freeze assets".

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

EN

The SEC has an inspection program that covers regulated entities on a routine, periodic basis, based on risk assessments from previous inspections and reports. It also conducts inspections upon complaint, according to the 2004 SEC self-assessment. The assessment also explains that inspections are followed by a full inspection report, discussion session with management of regulated entities, and notice of findings to their directors, which include SEC orders to rectify problems where necessary and to report to the SEC.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

EN

Under the SEA, the 2004 SEC self-assessment explains, the SEC can release confidential information if such disclosure is made in the performance of duty or for the purpose of investigation. No external approval is necessary.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

EN

As a matter of administrative practice, according the 2004 SEC self-assessment, the SEC can enter into information-sharing agreements with other domestic and foreign authorities, since the act of information sharing is expressly permitted under the SEA. In addition, assistance is also given without formal arrangements, subject to the same criteria as previously stated. The SEC has bilateral MoUs with 12 jurisdictions (as of August 2006) and can demonstrate that it shares information with other authorities. It has developed formal information-sharing mechanisms in the form of bilateral MoUs with other foreign regulators.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

ID

In May 2002, IOSCO endorsed a comprehensive MMoU to facilitate and reinforce international cooperation among securities regulators. The IOSCO MMpU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMoU will be invited to become signatories to Annex B of the IOSCO MMoU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories The IOSCO website lists the SEC as a signatory to Annex B.

The 2004 SEC self-assessment explains that under the SEA, the SEC has the power to obtain information for the purpose of discharging its duties under the Act, but cannot, unless the information requested is already in its possession, give further investigative assistance to foreign regulators. The law limits the actions only to violation of Thai laws, and not foreign laws. The SEC has proposed an amendment to the securities law to confront this issue.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

EN

The 2004 SEC self-assessment notes that the SEA, SEC rules, PCA, and SET rules "together provide for clear, comprehensive and timely disclosure requirements for all public offerings, offering documents and advertising outside prospectuses, listing documents, annual and other reports, documents in connection with voting decisions, and the events that are material to securities price."

15. Holders of securities in a company should be treated in a fair and equitable manner.

EN

The 2005 World Bank assessment on Thailand's compliance with the Organization for Economic Cooperation and Development's (OECD) Principles for Corporate Governance rates Thailand's observance with the sub-principles of Principle III concerning the "Equitable Treatment of Shareholders" as follows. "Prohibit Insider Trading," and "Board/ Management Should Disclose Interest" are "Largely Observed," indicating that only minor shortcomings are observed which do not raise questions about the authorities' ability and intent to achieve full observance in the short term. The sub-principle "All Shareholders Should Be Treated Equally" is rated as "Partially Observed," indicating that, while the legal and regulatory framework complies with the Principle, practices and enforcement diverge.

The World Bank assessment notes that, nominally, Thai law grants all shareholders of a class the same legal rights. However, the report adds that "in most companies the board is controlled by the major shareholders, and minority shareholders are not always treated fairly" (p. 6). The assessment also noted that it was difficult for minority shareholders to propose additional agenda items for Annual General Meetings (AGMs).

The 2005 Word Bank report states that proposed amendments to the SEA and PCA constitute important efforts to increase the protection of minority shareholders. Ratification of the SEA amendment would clarify and strengthen the fiduciary duties of board members while proposed PCA amendments would strengthen shareholders' rights and give them more voice in the conduct of AGMs. The 2006 World Bank report does note a lack of progress in revising relevant laws, including the PCA and the SEA, and in drafting laws concerning class action lawsuits.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

EN

The SEC and the Federation of Accounting Professions (FAP) have announced their intent to adopt International Financial Reporting Standards (IFRSs) as the accounting standards for the Thai capital market, and the FAP was planning to "substantially adopt" IFRSs by the end of 2006. However, according to PricewaterhouseCoopers' Quarterly Financial Reporting Update, published in August 2007, the FAP had published a total of 28 draft Thai Accounting Standards, the final adoption of which was still pending. The World Bank stated in the Completion report that the FAP "should be encouraged to continue to bring Thai Accounting Standards in line with those accepted internationally" (p. 59). The SEC's April 2007 issue of "Capital Thailand - Corporate Governance Updates" reports that, in January 2007, the SEC, the BoT, and the FAP signed an MoU "to support the FAP's roles in developing the Thai accounting standards and auditing standards in line with changing international standards" by providing a loan in the amount of 4 million baht (approx. USD114,285).

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

EN

According the 2004 SEC self-assessment (updated in 2006), "the regulatory framework set high standards of eligibility and on-going operational requirements for operators and marketers of a collective investment scheme which emphasize fit and proper criteria, control system, record keeping, competence, financial capacity, and integrity. Violations may result in a wide range of criminal and administrative sanctions, which are consistently applied according to a predetermined guideline."

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

EN

Under the SEA, mutual funds are regard as separate legal entities and thus independent from the mutual fund management company. According to the 2004 SEC self-assessment, "the legal form and structure as well as implication for the nature of risks are required to be disclosed to the investors. Changes made to investor rights generally require prior resolution of the unit holders with subsequent report to the SEC within 15 days".

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

EN

SEC regulations require mutual funds products to provide full disclosure in the offering document of all information necessary to evaluate suitability of the mutual fund products, according to the SEC self-assessment. This included key product features and investment policy, associated risks, expenses, investment limits, and a cautionary note that mutual fund units are not deposits and are subject to investment risk.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

EN

The 2004 SEC self-assessment reveals that SEC rules require that the net asset value be calculated daily in accordance with standards set by the Association of Investment Management Companies and approved by the SEC. Suspension and deferral of routine valuation and regular redemption are limited by rule to such situations as incorrect pricing, inability to sell the securities in the fund, or other reasons to protect the interest of investors, and must be reported to the SEC immediately.

21. Regulation should provide for minimum entry standards for market intermediaries.

EN

According to the 2004 SEC self-assessment, under the SEA, operators of securities business have to be licensed by the Minister of Finance upon recommendation of the SEC. Similarly, under the Derivatives Act, a derivatives business operator shall be allowed to undertake a derivatives business only after a license from the SEC has been obtained.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

EN

Any securities firm that operates as a dealer or underwriter, acts as a custodian of client assets, holds a proprietary investment portfolio, or has an obligation to the clearing and settlement system, is required by the Securities and Exchange Act to have a minimum initial capital of 100 million baht, according to the SEC self-assessment. The SEC also imposes an ongoing capital requirements using the "net capital" approach, which specifically addresses market, credit, and liquidity risks, and with additional cushion to cover other risks generally. The SEC reviews the net capital levels at least monthly, according to its 2004 self-assessment.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

EN

According to the 2004 SEC self-assessment, intermediaries need "management and organization structures and internal control structures that include clear lines of responsibility, proper check-and-balance and segregation, a Chinese wall, a risk management system, and a compliance function".

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

EN

The 2004 SEC self-assessment notes that its rules enable the SEC to take various actions should an intermediary's financial position show high risk of failure. These measures include restricting and suspending operations and requiring client assets to be transferred to other intermediaries. The SEC has an early warning trigger built into the daily net capital computation, and the Thailand Securities Depository (TSD) conducts financial surveillance on a monthly as well as daily basis. The self-assessment notes that both the TSD and the Thailand Clearing House (TCH) have a clearing fund and a reserve fund which is intended to minimize systemic risk, as well as an investor protection fund intended for client compensation.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

EN

The SEA stipulates that, with the exception of the SET, the establishment of any other organized securities trading center requires a license from SEC. The 2004 SEC self-assessment states that, at present, the SET is the only organized securities market in Thailand. The SEC also requires the SET and its subsidiary, the TSD, to have sufficient financial resources and risk management systems. SET listing rules must be approved by the SEC. All securities admitted to listing and trading must already have been approved by the SEC for offering.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

EN

According to the 2004 SEC self-assessment, the SET performs the "front-line, self-regulatory function in the day-to-day monitoring of trading activities through a market surveillance program and preliminary investigation of unfair trading practices, subject to oversight by the SEC." The SEC can impose a range of actions on the SET.

27. Regulation should promote transparency of trading.

EN

According to the 2004 SEC self-assessment, the SET's "pre-trade and post-trade information are provided to all market participants on a real-time basis." Reuters and Bisnews, alternative sources of market information, are also under control by the SET to ensure the equal access to trading information for all market participants.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

EN

Under the SEA, the SEC rules, and the rules of the SET, market manipulation, insider trading, front running, and other market abuses are explicitly prohibited. According to the 2004 SEC self-assessment, the SEC and SET employ a mix of surveillance and inspections by the SET, subject to SEC oversight, to detect violations of regulations.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

EN

The 2004 SEC self-assessment explains that "apart from SEC net capital rules regularly monitored to assess the risk of market intermediaries' unsettled positions or credit exposures, TSD including its subsidiary TCH, also put in place the settlement cap and early warning mechanism measures to identify, monitor, and evaluate large exposures." TSD/TCH is the primary market authority surveilling the risk of unsettled positions to the system.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

EN

The TSD is a wholly owned subsidiary of the SET. It is the only clearinghouse and central securities depository in Thailand. The TSD is a central securities depository for government bonds, shares, debentures, investment units, warrants on shares, warrants on debentures, warrants on investment units, Treasury notes, bills of exchange, other debt instruments issued by state agencies, transferable subscription rights, derivatives warrants, and depositary receipts. A 2007 Self-Assessment Report on the Observance of the Recommendation for Securities Settlement Systems by the SEC notes that the SEC is authorized by the Securities Exchange Act to be the oversight regulator of securities settlement systems. Under the present SEA, the SET board has the authority to make policies requirements for its subsidiaries, including the TSD, subject to SEC approval. According to the 2007 SEC self-assessment, the "laws, regulations, rules and procedures, and contractual provisions governing the operation of the TSD are clear and publicly accessible" (p. 5). The report also notes that the TSD's system is subject to audit by the internal audit department of the SET and external audit from PricewaterhouseCoopers and has contingency plans and back-up facilities.