Controversial rules scrapped

The Stock Exchange of Thailand yesterday an-nounced that it would scrap its controversial regulations that prohibit investors from net settlement, or intra-day trading, and margin loans for trading particular stocks.

The lifting of this tough rule, which has long been used to slow speculative trading activities, will be replaced by less tough "turnover list" measures, though the SET claimed the new rule would be more transparent and provide earlier warning signs to investors than the old regulations.

Investors that wish to trade stocks to be announced by the SET in the turnover list must do so via cash balance only. According to Supakit Jirapraditkul, senior vice president of the SET, the change will take effect on July 1.

The prohibition of net settlement and margin loans several years ago triggered International Engineering to take legal action against the SET. The company said that due to the prohibition of net settlement and margin loans imposed by the SET, the firm had faced difficulties in the capital-increase process.

The turnover list is not new to the Thai market, as the Securities and Exchange Commission has used similar regulations for several years. A stock being put on the SEC's turnover list implies that it is the subject of highly speculative trading by investors.

The SET has its own version of the turnover list, which will be implemented on July 1. Stocks on that turnover list must meet three criteria.

First is stock with a turnover ratio equal to or higher than 50 per cent of its free-float shares. Second, stock with a price-to-earnings ratio equal to or more than 50 times, or stock of a company that makes a loss. Third, stock with an average daily trading value equal to or more than Bt100 million.

The SET's criteria also include warrants. First, warrants with a turnover ratio equal to or more than 100 per cent of their free-float units. Second, warrants with a spread between share price and exercise price, or warrant price higher than exercise price, equal to or more than 20 per cent of the share price. Third, warrants with trading value equal to or more than Bt100 million.

According to the SEC version, the criteria include stocks and warrants with a turnover ratio equal to or more than 20 per cent of the free-float shares or units and a price-to-earnings ratio equal to or more than 100 times, or stock of a company that posts a loss.

According to the SET, once stocks are announced on the turnover list, to be released every Friday, their names will remain for three weeks. Then, after a review, if they still meet the criteria, they will remain for another week.

Supakit said that with the new rule, investors would be warned earlier of stocks that traded irregularly.

In addition, as the new rule has clearer criteria, the SET would be able to reduce the pressure from the market of the need for transparency when selecting stocks to be prohibited for net settlement and margin loans.