As discussed, the issuance of bonds has to be registered with the TBMA. All trades in bonds also have to be reported to the TBMA within thirty minutes.21
3 The main regulators: the SEC and the TBMA
The SEC is an independent state agency22, established under the promulgation of the Securities and Exchange Act B.E. 2535 (“SEA”) Section 5, as a single unified supervisory agency, and as the regulator of the Thai capital market.
Under the SEA, the TBMA is a securities business related association. The main objectives are to work as a self-regulatory organization (“SRO”) for a fair and efficient operation of the bond market, as well as to be the market information center.23 TBMA provides a forum, where market participants; especially industry professionals, can partake their opinions for shaping the overall market structure.
The SET, established by the SEA Section 153, has primary roles to serve as the center for the trading of listed securities, and to provide the essential systems needed to facilitate securities trading.24 It also undertakes any business relating to the Securities Exchange, such as a clearing house, securities depository center, securities registrar, or similar activities.25
III Investor Protection in the Thai Legal Context
A Existing legal arrangement for the protection of bondholders
There are a number of legal mechanisms related to the protection of bondholders. Although, these mechanisms are not explicitly codified, they are fragmentally incorporated into several laws, for instance, the SEA, insolvency law, and civil law. A number of mechanisms could be analyzed as follows:
1 The roles of regulators in shaping corporate bond market
Overall, Thai authorities has emphasized the importance of promoting sound bondholders protection. Thai regulatory policy substantially restricts institutions from investing in longer-term notes or diversifying portfolio among a wider range of issuers and interest rate. Existing corporate debt funds are restricted to own fifteen percent or less of total assets in below investment grade or non rated debt or long-term debt (maturities longer than three years).26 In contrast, there are no specific rule governing retail investors.27 All retail investors have to obtain services through financial institutions – or securities firms, in order to buy or sell bond; therefore, most of rules will govern the activities of financial institution more than directly control retail investors’ activities. Similarly, there are no restrictions on foreign investors in Thai securities. Direct portfolio investments are freely permitted. Authorized banks can receive transferred capital and deposit in foreign currency account freely. The repatriation of profits gained from dividend, or interest payments can occur freely. There are also no restrictions on the transfer of securities, promissory notes, and bills of exchange.28
Various SEC’s regulations require financial institutions involving in security business to maintain systems of books and records of all aspects of business and suitability files for all client investors, having retention periods for five years. Phone records between firms and their customers are required to be taped, where SEC will conduct a thematic inspection in series of firms.29 Furthermore, SEC regulations required securities firms and asset management companies to develop their internal system for monitoring their good compliance with related laws. In this regard, the company’s structure must be separated between their sale, trading and analysis functions, as well as internal auditing.30
In order to ensure the forgoing requirements and reasonable investor treatment, according to Section 264 of the SEA, the SEC has full powers to conduct surveillance, inspection and investigation, which relevant information could be obtained without going through formal process.31 In this regard, real time surveillance mechanism will be conducted by SET if there is a reasonable ground, such case will be referred to the SEC for further actions. In terms of inspection activities, the SEC annually undertakes twelve or fifteen routine inspections, three or four for cause inspections, and two thematic inspections, where risk-based approach (for instance, operational risk and prudential risk) will be used for these inspections on four-year cycle.32
In terms of legal enforcement with respect to the violation of the SEA, for instance, fraud, and unfair practice which could have negative effect to bondholders, SEC may impose administrative sanction against any “entity or person registered with the SEC”. The sanctions include a reprimand, suspension, license revocation or imposition of a limitation on business activities, wherein these sanctions could be reviewed by the Administrative Court.
2 Transparency and disclosure
In primary market, bondholder protection is emphasized by the SEC through the strict regulations on issuance of bond: who can issue and what type can be issued. In order to issue bond, the SEC’s permission needs to be obtained before such issuance.33
For private placement, there is a limitation to the ability of issuers to use private placement for maximum benefit. As discussed, private placement must contain the value not exceeding THB 100 million, and can be offered to no more than ten non-institutional investors, where filing with the SEC and TBMA is required.34 Mutual funds and insurance companies have limit amount of purchase in private placement offering since the securities law categorizes private placement as the illiquid securities.
In terms of general public offering (including initial public offering), regulatory framework on public offering in Thailand is based on a "merit-based approach" or “firm commitment basis”; however, the SEC claims itself that it relies on "disclosure basis".35 In order to ensure the quality of debt offering and to protect the rights of investors, all offerings have to undergo a full review by SEC, where an examination of documentations from independent auditors and a visit to the company’s headquarter will be conducted to review the internal control procedure of the company.36 The rules are further focusing on the “disclosure obligation”37, where every public company must file quarterly reports, and annual reports.38 These reports must contain certain information including the discussion on the company’s compliance on corporate governance principles set by the SEC, as well as the analysis on any shortcomings with respect to the company’s internal control system.39
In relation to the secondary market, according to Notification of the Capital Market Supervisory Board No. TorDor. 67/2552 Re: Rules, Conditions and Procedures for Dealing of Debt Instruments, all dealers are required to report any debt trading to the TBMA within half an hour, either electronically or by facsimile The publication with respect to bond trading will be publicly reported twice daily.40 There is daily last reporting list, containing fair value pricing of bond issues that were not traded.41 This means that any transaction in OTC market must be reported by bond dealer.
See the Notification of the Capital Market Supervisory Board No. TorDor. 67/2552 Re: Rules, Conditions and Procedures for Dealing of Debt Instruments
, clause 15.
23. The Thai Bond Market Association , Background of the Thai Bond Market Association (2010) < http://www.thaibma.or.th/aboutus/aboutus.html> 21 December 2010
25. See Pongpen Ruengvirayudh and Sakkapop Panyanukul, above n3, 158.
26. Capital Market Department, IMF and Financial and Private Sector Development, The World Bank, above 20, 25.
27. Asian Development Bank, Investment Management – Thailand (2010) AsianBondOnline
< http://asianbondsonline.adb.org/thailand/structure/rules/investment_management.php> 22 December 2010
30. See the Notification of the Capital Market Supervisory Board No. TorDor. 67/2552 Re: Rules, Conditions and Procedures for Dealing of Debt Instrument, Clause 4-23.
32. See Capital Market Department, IMF and Financial and Private Sector Development, above n29, 11.
33. Bond Electronic Exchange - the Stock Exchange of Thailand, above n6, 3.
34. See the Notification of the Capital Market Supervisory Board No. TorChor. 9/2552 Re: Application for and Approval of Offer for Sale of Newly Issued Debt Securities, Clause 32
35. The Stock Exchange of Thailand, Laws Relating to Securities and Derivative (2010), 82.
36. See the Notification of the Capital Market Supervisory Board No. TorChor. 9/2552 Re: Application for and Approval of Offer for Sale of Newly Issued Debt Securities, Clause 7-10.
37. See Capital Market Department, IMF and Financial and Private Sector Development, above n29, 16-17.
38. See SEA, s56. and see ibid, 17.
39. Capital Market Department, IMF and Financial and Private Sector Development, The World Bank, above n20, 26.
40. See Capital Market Department, IMF and Financial and Private Sector Development, above n29, 31.
41. See the Notification of the Capital Market Supervisory Board No. TorDor. 67/2552 Re: Rules, Conditions and Procedures for Dealing of Debt Instruments, clause 15.