Role of Securities Regulation in the Development of
They are designed to protect the investor, prevent systemic crises and
promote the market they govern . ... This latter type of regulation where
the government regulator acts as a gatekeeper to the markets, only allowing
firms that display some indicia of stability and good quality to issue
securities to the investing public, is known as merit-based securities
regulation . ... The securities regulation reform effort in Thailand can
be viewed in the context of the larger debate over how best to create
effective legal institutions in a developing country . ... In assessing
the role of the new standards in Thai securities regulation in economic
development, we must look for evidence of how investors are pricing this
legal risk . ... An investigation into the ongoing reforms in Thailand has revealed the attitude of
Thai regulators toward securities regulation and corporate governance
to be one of long-term evolution . ... Thailand has clearly had limited
success in implementing an effective market-driven, disclosure-based system
of securities regulation . ... Higher standards for disclosure and wider
application of anti-fraud provisions are the main goals of reform in this
area . ... So, as a retail investor, if most everyone else is speculating
and you are engaging in fundamental analysis and buying and holding, you
are taking an unreasonable risk and your expected outcome is the poorest
[*305] I. INTRODUCTION
markets have the potential to be powerful engines of economic growth in
developing nations. An efficient stock market provides the public with
investment opportunities and mobilizes their savings, as well as international
capital, for productive corporate financing. Market forces serve to discipline
management and public ownership improves the accountability of the business
sector. But developing a robust and efficient capital market is a difficult
task for many emerging economies. One of the many challenges they encounter
is creating an effective securities regulatory regime.
a mature capital market, securities regulations form the framework within
which the market operates. They are designed to protect the investor,
prevent systemic crises and promote the market they govern. But in what
capacity do securities regulations operate in smaller, developing capital
markets? The purpose of this paper is to analyze the role of securities
regulation in the development of the Thai stock market. The first half
of this paper provides some basic background information on the Thai legal
system, stock market and economy, and then offers an analysis of the role
of securities regulations in the 1997 financial crisis and subsequent
process of recovery. The second half addresses the future of securities
regulation in Thailand. It begins with an examination of the obstacles
that face effective oversight by securities regulators and the regulators'
efforts to overcome these obstacles. The paper concludes with an evaluation
of the current reform initiative and a proposal for an alternative strategy.
In short, this paper seeks to analyze the role that securities regulation
has played, will likely play and could play in the development of the
Thai stock market.
The Legal System
the year 1292, the legal system of the Kingdom of Sukhothai, a progenitor
of the Thai state, was described in a royal inscription: n1
If any commoner in the land has a grievance which sickens his belly and
gripes his heart, and which he wants to make known to his ruler and lord,
it is easy; he goes and strikes the bell which the King has hung there;
King Ramkhamhaeng, the ruler of the kingdom, hears the call; [*306] he
goes and questions the man, examines the case, and decides it justly for
characterization of the justice system in ancient Thailand, although undoubtedly
idealized, bespeaks a tradition of highly personalized application of
justice. n3 This characteristic of Thai law has proven
durable despite enormous population and territorial growth of the Kingdom
over the years, which necessarily served to encourage a more impersonal,
rule-based legal system. The personalized element of Thai law was preserved
in the Law of Civil Hierarchy, promulgated by King Borornmatrailokanat
(1448-88), which instituted an extremely complex system of points based
upon one's station in life. n4 Royalty had 100,000 points,
slaves had 5, and everyone else was somewhere in between. n5 Crimes against one's superiors were viewed as far more serious than those
committed against one's inferiors, and thus the justice system reinforced
the societal pecking order while simultaneously keeping the peace. n6 Critics of the current Thai legal system believe that this naked bias
favoring the elite classes remains to this day, undermining the principles
of equality embodied in the current Constitution. n7
the latter half of the 19th century, Thailand had come under enormous
pressure from Western powers to open economic and diplomatic contact,
but inequitable treaty provisions left the country at a great disadvantage.
The need to legalistically counter these treaties, modernize local laws
to keep up with European powers, and assuage European merchants and dignitaries
in Thailand-who feared the arbitrary and cruel Thai legal system-provided
the impetus for reform. n8 King Rama V was instrumental
in instituting legal refonns to centralize the court system, abolish trial
by ordeal, and create the first legal codes of Thailand, based upon an
amalgamation of European legal models. n9 The Thai legal
system is thus a civil law system, although it does incorporate some elements
of common law due to British and American influences, as we shall see
below. n10 In 1932, the members of a successful coup
persuaded King Rama VIl to become a Constitutional monarch and bolster
democracy in Thailand. Unfortunately, Thai democracy has not [*307] proved
stable. Between 1932 and 1999, there have been 16 Constitutions and 17
coups or attempted coups. n11
The Stock Exchange of'Thailand and Securities Regulation
instability, however, has had relatively little effect on either the Stock
Exchange of Thailand or its attendant regulatory apparatus due to their
short histories. Another aspect that sets these apart from other economic
and legal institutions in Thailand is their distinctly American flavor.
While the political system and civil code were largely borrowed from Europe,
the Stock Exchange of Thailand and Thai securities regulations were based
largely upon a model from the United States.
1963, a private company called the Bangkok Stock Exchange Co. (BSE) began
to trade shares in Thai stocks. This first attempt to create a stock market
in Thailand proved abortive, however, as it was largely ignored by the.unenthusiastic
Thai government as well as by a public that seemed both ignorant of and
uninterested inequity investing. n12 After the failure
of the BSE, the Thai government began to explore options for forming a
stock exchange as a quasi-governmental agency. With the assistance of
the World Bank and Professor Sidney M. Robbins of Columbia University,
who had been Chief Economist at the U.S. Securities and Exchange Commission,
the Thai government passed a law in 1974 which created the Securities
Exchange of Thailand (SET, later renamed the Stock Exchange of Thailand). n13 Trading began the following year. In addition to
being the sole exchange, the SET was also the main regulator of securities
markets until legislation introduced in 1992 created a separate regulatory
Securities and Exchange Act of 1992 (the '92 Act) centralized responsibility
for securities regulation in a new entity, the Thai Securities and Exchange
Commission (SEC), and charged it with promoting and developing the Thai
securities markets. n14 Two American legal scholars,
John Fiorenz and John O'Brien, assisted a team of Thai regulators, including
current SET Senior Vice President Suthichai [*308] Chitvanich, in drafting
the '92 Act. n15 Predictably, the resulting legislation
owed much to the U.S. securities regulatory system. Specifically, it clarified
the role of the SET as the regulator of the secondary market and formed
the SEC to oversee securities offerings, IPOs, investment companies, takeovers
and tender offers, as well as to prevent market manipulation and insider
trading. n16 However, there remained three significant
differences between the U.S. and Thai systems. First, the primary mode
of securities regulation employed by the SEC was qualitative in nature,
as opposed to the more strictly disclosure-based U.S. system. n17 In other words, the Thai SEC would evaluate disclosures by companies and
use its discretion in choosing which firms posed acceptable risks for
investors. A typical analysis would cover such things as debt to equity
ratio, operational track record and business sector trends. n18 Those meeting the criteria applied by the SEC were allowed to issue shares
into the market. This was fundamentally different from the disclosure-based
model of the U.S. where the responsibility for evaluating companies and
investment risk is left to the investors (i.e. left to the market) after
an acceptable level of information has been made available to them by
the issuer. In this system, the SEC oversees the level and quality of
information instead of making discretionary judgements based upon that
information. Second, the makeup of the board of governors of the SEC and
SET was unlike that found in the American model. The Thai system allowed
these institutions less independence from the government than their U.S.
SEC is comprised of 1) ex-officio commission members who are representatives
from government agencies, namely, Governor of the Bank of Thailand, Permanent
Secretary of the Ministry of Finance, Permanent Secretary of the Ministry
of Commerce, and 2) not fewer than four and not more than six experts
appointed by the Cabinet upon the recommendation of the Minister of Finance,
among whom there shall be at least one legal expert, one accounting expert
and one financial expert. The Minister of Finance is the Chairman of the
SEC. Commission members do not work full-time for the SEC. The Secretary-General
of the Office [of the SEC] is [*309] appointed by the Cabinet upon the
recommendation of the Minister of Finance, and serves as the chief executive
officer of the Office, a commission member and the secretary of the SEC. n19
SET Board of Governors is comprised of a maximum of eleven people, five
of whom are appointed by the SEC, and five who are elected by SET members.
The SET President, appointed by the Board, is an ex-officio member of
the Board. The Board is also responsible for formulating the SET policies,
and supervising the Exchange's operations; however, certain rules and
regulations prescribed by the Board must also be approved by the SEC. n20
the SEC's enforcement options for violations of securities rules and regulations
in Thailand were limited to criminal and administrative sanctions. In
the U.S. model, civil cases brought by the SEC are a very common form
of securities law enforcement. The ramifications of these three main differences
will be discussed in further detail below. The SEC Act of 1992 created
the securities regulatory fiamework within which the Thai capital markets
experienced one of the greatest booms and most shocking busts in history.
Thailand's Boom and Bust
story of Thailand's economic rise and fall is familiar to many, so I will
only offer a brief review. Thailand posted a real annual average GDP growth
rate of 8.4% from 1985 to 1995, making it the fastest growing economy
in the world over that decade. n21 Apparently in response
to the '92 Act, portfolio investment in the SET from overseas jumped to
more than ten times the average rate over the previous five years. n22 Between 1991 and its peak in 1994, the SET rose from 600 to 1750. n23 The Economist magazine estimated that, at the rate it was going, Thailand
would become the eighth richest country in the world by 2020. n24 [*310] It was not to be. By 1997, export growth had collapsed and the
SET had plummeted by over 65% as investors scrambled to sell their holdings.
Speculators, including George Soros, began to short-tell the baht in anticipation
of a devaluation, which finally took place in late June after a strenuous
and costly defense by the Bank of Thailand. n25 As
of this writing, more than five years after the fact, Thailand has not
come close to a full recovery from this economic disaster. Uncompleted
buildings still loom over Bangkok, shaky banks are unable to lend due
to the burden of non-performing loans n26 and the SET
now is hovering around 400 n27. There has been some
recent improvement but Thailand's economy seems to be a shadow of what
it once was.
SECURITIES REGULATION AND THE THAI FINANCIAL CRISIS
Asian values to Crony Capitalism
on the roots of the Thai financial crisis abound. The IMF, which took
responsibility for the bailout and rescue of Thailand, identified a lack
of transparency as one of the primary causes. Washington-based institutions
such as the IMF and the World Bank, as well as the U.S. government, generally
agreed on this point, as did many commentators. But these ex-post facto
criticisms stood in contrast to the prevailing wisdom inside these institutions
during the years of Asia's decade-long financial winning streak. n28
meteoric rise of the East and Southeast Asian economies through the 1980's
and most of the 1990's created many believers in the power of so-called
Asian values as an engine of economic growth. This system of Asian business
ethics was centered on a supposedly Confucian concept of rigid hierarchy,
emphasizing loyalty to the company, to the company's chairman and officers
and to one's fellow workers. n29 The importance of
hard work and success, from school to corporation, (in other words, the
building up on one's human capital) were also brought [*311] under the
rubric of Asian values. n30 Perhaps the most outspoken
champion of this Asian values thesis was Lee Kuan Yew, whose authoritarian
style of "Confucianism" steered Singapore to prosperity throughout
the 1980's and 1990's. n31
Asia's boom, many Western businessmen and academics lauded the Asian business
model, and it was certainly difficult to argue with the results, until
the Asian financial crisis. Already, Japan had been experiencing a prolonged
economic slump and had endured periodic recessions since its bubble economy
burst in 1989. Now, with the rest of Asia melting down before the world's
eyes, the erstwhile champions of Asian values fell silent as the critics
found their voices. The Asian business model, now tarred as "crony
capitalism," came under heavy fire. n32 No longer
did one hear about the educational standards of Asian nations or the strong
work ethic of the employees. The focus had shifted to the lack of transparency
in business dealings, the abuse of minority shareholders, the sloppy or
even fraudulent accounting and disclosure practices, the cozy relationship
between business and government that coddled fundamentally uncompetitive
businesses, the prevalence of nepotism, and the lax enforcement standards
of the Asian judiciary. All of these factors, it was claimed, contributed
to widespread misallocation of resources and unproductive investments
that proved to be a fatal drag upon economic expansion. n33 Furthermore, the collusion and opacity engendered by the Asian business
model naturally favored a small group of elites and the fruits of the
economic boom disproportionately fell to them. n34 The boom also failed to translate into a proportionate rise in the stock
of human capital due to lack of emphasis on education and training. n35 As a result, worker productivity stagnated and the labor needs of the
newly high-tech economy were not met. n36 The Washington
Consensus claimed that the Asian business model might have spurred massive
economic growth, but that it contained fatal flaws that made its success
unsustainable in the long term. The IMF, World Bank and other [*312] Washington-based
institutions were called upon to assist Thailand's policymakers in finding
Enter the Washington Consensus
of these groups' prescription for recovery was for Thailand to reform
its laws and institutions governing the securities market to conform to
what they deemed international best-practice standards, which are based
primarily on the U.S. financial regulatory system. This set of standards
championed by the IMF, World Bank and the U.S. has come to be known as
the Washington Consensus. The Washington Consensus, like U.S. securities
and financial regulation, is built on a belief in the efficiency of the
free market. The investors themselves, out of self-interest, will invest
their money where they believe it will produce the maximum value. Free
market advocates hold that this is the most effective method of allocating
resources and disciplining corporate management. However, it requires
that informaticn be provided to the market players so that they may make
rational decisions on where and where not to invest. Thus, in the area
of securities regulation, the Washington Consensus favors disclosure-based
regulation. For a set of disclosure-based regulations to function in Thailand,
the quality of accounting and disclosure had to be improved through tighter
regulation and better oversight by regulators, independent company directors
and auditors. In short, with disclosure and transparency standards heightened
and enforced, the markets would have a better institutional framework
within which to stage a sustainable economic recovery.
it is rarely claimed even in Washington that the free market is perfectly
efficient, the Washington Consensus views the market, imperfect as it
is, as being able to achieve greater efficiency than a government regulator
who is charged with deciding in which firms it is appropriate to invest.
This latter type of regulation where the government regulator acts as
a gatekeeper to the markets, only allowing firms that display some indicia
of stability and good quality to issue securities to the investing public,
is known as merit-based securities regulation. As mentioned in Section
Il, above, this was the style of regulation employed by the Thai SEC throughout
the boom and bust.
The Role of Thai Securities Regulation in the Financial Crisis
the Washington Consensus correct in identifying substandard transparency
in securities markets as among the areas in need of reform [*313] after
the Thai economic crisis? Securities regulation standards are designed
to protect shareholders, prevent systemic crises, and promote the markets.
In the case of Thailand, they failed to achieve these goals as shareholders
suffered substantial losses without any viable legal recourse, and the
securities markets collapsed under the weight of investor panic and mistrust.
But the fact that this catastrophe was not prevented by these laws does
not prove their culpability in spawning the crisis. It does not even necessarily
prove that they were inadequate laws. Although they may be designed to
protect investors and the securities market, one can expect that even
reasonably effective securities and corporate legal regimes will periodically
fail to do so in the face of extreme circumstances. This is true because,
aside from the fact that perfection is sadly unattainable in all human
endeavors, legal systems that attempt to reduce risk to the very minimum
will often prove too restrictive and costly. Even good laws cannot hope
to reduce wrongdoing to insignificance. The securities regulatory system
of the U.S., which is highly sophisticated, still did not prevent Enron
and many other companies, such as WorldCom, from engaging in fraudulent
it is widely known that many of the primary causes of financial crises
exist primarily beyond the boundaries covered by corporate governance
and securities regulation. Examples include widespread bank failures due
to imprudent lending practices, such as in Japan n37,
and reckless macroeconomic policies by the government, which could be
observed in. Argentina prior to its collapse n38. Indeed
lax prudential standards in bank lending were certainly a factor in the
Thai economic meltdown as the weight of non-performing loans on banks'
balance sheets is proving a drag on the economy even five years later. n39 Since Thailand's main source of corporate funding
is bank lending, it follows that lack of oversight in that area would
have played a far greater role in Thailand's meltdown than weak securities
regulations. And perhaps, as one financial advisor in Bangkok has suggested,
the real cause of the Thai financial meltdown was simply bad business,
not bad law. n40 It is impossible to regulate away
poor decision-making, lax investment research and greed.
then, it is too ambitious to claim that poor securities regulation was
a main cause of the Thai financial meltdown. However, [*314] there seems
to be evidence to support the view that there was sub-optimal performance
of these laws. Fist, the qu ality of disclosure received by investor in
Thailand had been poor, as attested to by the fact that so many investors
were taken completely by the meltdown. Had disclosure standards worked
properly, with aviable threat of enforcement, perhaps investors would
have been better able to assess the risks in the Thai market and the asset
bubble that proved so destructive to the economy would not have materialized.
Second, there is also substantial anecdotal evidence of insider trading
and even outright fraud by managers during the boom years. n41 Well functioning securities laws ought to have served to significantly
deter this behavior, preventing it from becoming a systemic flaw, but
it appears that this did not occur. Finally, and most convincingly, there
were no successful prosecutions for securities fraud or insider trading
after the meltdown and investors had no viable legal recourse to seek
compensation. n42 An effective securities regulatory
regime needs a threat of prosecution in order to perform its deterrence
function and to push for compliance with its rules. Furthermore, where
deterrence fails, securities laws must provide some means of compensating
inves tor who have been damaged by the wrongdoing. Where there is widespread
belief, if not the actual fact, of misuse of corporate funds, insider
dealing and creative accounting, a well working securities regulatory
regime would necessarily yield a robust effort to punish wrongdoers and
compensate their victims. This was not the case in Thailand after the
crisis. In sum, it is difficult to believe that Thai securities regulations
in any way served to discourage or punish the kind of corporate behavior
that contributed to the financial crisis. It must be noted, however, that
the positive role they could have played would likely have been marginal
in terms of mitigating the severity of the overall crisis.
SECURITIES REGULATIONS AND THE POST - CRISIS ECONOMY
One Way or Many?
securities regulation reform effort in Thailand can be viewed in the context
of the larger debate over how best to create effective legal institutions
in a developing country. The most simplistic view of this [*315] debate
asks the question "one way or many?" n43 "One way" refers to the single best-practice system of regulation
offered by the Washington Consensus. The basic thesis espoused by the
Washington Consensus is that "good law is good law." n44 If it works in the U.S., it will operate wherever it is implemented-perhaps
not as well as where it originated, but comparatively better-than any
other system that a nation might come up with on its own. Taken at face
value, this thesis would seem to suggest that developing nations should
scrap their afforts at legal reform and simply cut and paste U.S. law
on to their books. In certain cases, that is exactly what has been suggested.
In his paper entitled "Selective Incorporation of Foreign Legal Systems
to Promote Nepal as an International Financial Services Centre,"
Harvard Law School Professon Howell Jackson concludes that it would be
advantageous for Nepal to wholly incorporate laws from other, more developed,
jurisdictions to govern international financial transactions conducted
within its borders. n45 But Professor Jackson concedes
that considerations of politics and sovereignty render such a case of
outright adoption as a highly unusual. n46 The Washington
Consensus posits that emerging markets should institute laws that are
in conformity with the principles of free market efficiency they espouse
but recognizes that practical considerations will require something less
than wholesale adoption of U.S. laws.
alternatives to the Washington Consensus are swept under the broad rubric
"many." While far from distinet, "many" can be characterized
as a system of local experimentation with legal forms, ideally through
a democratic process, through which a legal system [*316] emerges which
is responsive to the unique local conditions and values. n47 Clearly, this nebulous concept of "many" is too vague to be
much use to legal development consultants and policymakers. In the second
half of this paper, I will analyze Thailand's efforts to identify what
"many"' might mean for their country.
B. Post-Crisis Reforms
the years that followed the Asian financial crisis, Thai government officials
pursued a strategy of legal reform that was consistent with the Washington
Consensus prescriptions (i.e. "one way"). n48 In the realm of securities regulation, the most significant step occurred
in 1999 when the SEC and SET moved from a qualitative to a more disclosure-based
system of regulation. n49 Their new role was "less
that of a judge, more that of a policeman." n50 This has the advantage of being a more efficient deployment of the regulators'
resources, as investors themselves will have to take responsibility for
the conclusions based upon the information. n51 Also,
the previous merit-based system was often mistaken by investors to be
a government guarantee of good stock performance. n52 The SEC has been striving vigorously to see that it fulfills its new role.
In its first year of heightened disclosure scrutiny, it required 38 listed
firms to revise their financial statements, penalized 79 companies for
late or faulty disclosure and fined 14 securities companies a total of
15.5 million baht. n53 Since that time, the SEC has
routinely fined securities companies and issuers found in violation of
its administrative rules. n54 The SET has followed
suit, refusing to accept financial statements that do not comply with
Thailand's general accounting standards. n55 The SEC
also required listed companies to form independent audit committees by
the beginning of 2000 to scrutinize company disclosures and accounting
procedures, and pushed firms to appoint at least two independent directors
to their boards. n56 In order to ensure that [*317]
Thai directors are getting the message about the heightened expectations
for their performance in the post-crisis era, the SET, SEC and Bank of
Thailand have established the Thai Institute of Directors (IOD). This
body organizes a curriculum for directors regarding their duties, the
principles of good corporate governance, transparency and their responsibilities
to their shareholders, while stressing that good governance is good business. n57 The IOD also holds classes for independent directors
and audit committee members so that they better understand their roles
and responsibilities. n58 So far, this program has
proved quite popular with directors, independent directs, and audit committee
members, boasting 70-80 director attendees at its forums and numerous
The More Things Change...
much has been done in Thailand to institute the best-practice standards
of securities regulation and transparency in accordance with the Washington
Consensus. This in itself is an impressive display of political will and
bears witness to the enormous efforts of Thai legislators and regulators
in attempting to develop their legal institutions. But how effective have
these reforms been so far? It is important to note that these efforts
are ongoing, and their more recent initiatives will be covered in Section
VII, below. A final consideration while evaluating the role that these
reforms have played in the post-crisis laws is the short time that they
have had to operate. The most significant of these reforms, the move to
a more disclosure-based system of shareholder protection, was only put
in place in 1999. Thus, it may be difficult at this stage to gauge the
true effect these reforms have had on the quality of issuer disclosures
and shareholder protection.
begin our evaluation process, we must first briefly outline what sort
of economic development there has been since the inception of these reforms.
Since dropping 10.78% in 1998, the real GDP per annum has grown by a respectable
4.23% and 4.3% in 1999 and 2000 n60, with 2% growth
estimated for 2001, n61 3.3% for 2002 and 4.1% for
2003. n62 The SET has been climbing as well, with the
SET index going from 269.19 in [*318] 2000 to 303.85 in 2001. n63 As of August 17, 2002, the SET had posted 29% growth (in dollar terms)
since the start of the year, making it the second best performing bourse
among Asia's developing nations, after Indonesia. n64 One may point to the rather encouraging performance of the economy and
stock market as evidence that, at worst, the new laws cannot be a great
hindrance to economic growth and at best they have helped investors regain
their confidence in the soundness of the Thai markets. Further evidence
of investor confidence is the enormously successful initial public offering
of the Petroleum Authority of Thailand (PTT), which "ranks as the
most successful in history, with 220 million shares placed with retail
investors in just 85 seconds." n65 How could such
positive developments occur if there exists significant uncertainty over
whether Thai law would be able to meaningfully protect shareholder interests
in the case of fraud, insider trading or the like (this uncertainty will
hereinafter be referred to as "legal risk")?
most likely answer is that legal risk is, consciously or intuitively,
priced into every decision to purchase shares, but will not necessarily
be large enough to preclude every purchase. Thus, despite the fact that
there may be significant legal risk due to poor transparency and ineffective
securities regulation, a share still may be worth its price. Perhaps some
of these investors are in agreement with Rapee Sucharitakul, the Assistant
Secretary-General of the SEC who is of the opinion that the great majority
of businesspeople in Thailand are honest and run their businesses in accordance
with diligence and prudence. n66 But even if the legal
risk from such things as fraud or misappropriation of shareholder value
by management is not high enough to deter every investor, even in the
face of sub-optimal regulation, it will deter those with a lower appetite
for risk. Also, because assessing the value of this legal risk is extremely
subjective and information is highly imperfect, two investors with identical
appetites for risk may arrive at different values for this legal risk,
leading one to buy and one to abstain. Inevitably, however, some investors
who would otherwise participate will be priced out of the market by this
legal risk if it is at all significant. In assessing the role of the new
standards in Thai securities regulation in economic development, we must
look for evidence of how investors are pricing this legal risk.
growth of the economy and stock market, there seems to be evidence that
pricing-out of investors due to legal risk continued [*319] throughout
this period, to the detriment of the Thai markets. First, the general
public is wary of the equity market and prefers, overwhelmingly, to leave
its money in the banks. This low participation may be due in part to the
public perception that the SET is an entity that far too closely resembles
the capital-market-as-casino, which Keynes described in his General Theory
of Employment, Interest, and Money, and that the legal system does not
adequately protect the rights of shareholders. Of the retail investors
who do participate, relatively few are long-term investors. n67
there are very few institutional investors, international or otherwise.
85.3% of SET investors are local retail investors, whereas the Hong Kong
Stock Exchange has 77.08% institutional investors. n68 Institutional investors in general tend to care more about shareholder
rights, to take far larger positions and to be far better informed about
the market and its risks than retail investors. Very often, they will
also have a greater capacity and willingness than retail investors to
venture away from their "home" bourse in search of higher profits.
After all, profit is their raison d'etre. Thus, when the ambivalence of
institutional investors toward Thailand is placed against the backdrop
of more than 20% gains in the SET in 2002, the resulting inconsistency
seems show that there is significant risk that is serving to price them
out of this market.
part of this risk is the volatility of the SET, but also significant appears
to be the legal risk. In February 2002, at a time when the SET was surging
upward, Calpers, the enormous California public employee pension fund,
pulled their money out. n69 Although the Calpers managers
did not specifically state the reasons for their exit from Thailand or
any of the other emerging markets they divested, they did publicize their
new risk matrix, along with the scores that led them to their decision.
On a scale of one to three, with one being the worst and three the best,
Thailand was rated as a one in the categories of transparency, legal systems
and investor protection, as well as market liquidity, volatility and transaction
costs. n70 Had it scored a combined five points in
the categories of transparency and market regulations instead of the combined
two points, it appears that Thailand would have come in above the cut-off
score and Calpers would not have withdrawn its money from the SET. Thai
government officials and SET officers came out in force in the media to
play down the negative consequences of the Calpers [*320] decision on
the Thai markets but the SET promptly dropped almost 4%. n71 The officials were vindicated when the downturn did not prove lengthy
and the SET once again moved upward, although its pace had slowed from
earlier in the year. n72 Despite the studied indifference
of the Thai officials and the buoyancy of the SET, the Calpers episode
clearly illustrates the pricing-out effect of high legal risk. And Calpers
is not alone. Mark Mobius, the emerging markets investment guru and director
of the Templeton Strategic Emerging Markets Fund has said that transparency
and shareholder rights are routinely ignored in Asia n73 and that Templeton, for one, seeks deep discounts on stocks of firms with
bad corporate governance n74. An investment banker
at Merrill Lynch in Bangkok confirms that such views are the norm among
his institutional investor clients, and that they are concerned about
the lack of shareholder protection in Thailand. n75 Finally, a survey by McKinsey of pension funds, money managers, banks,
and private equity managers has concluded that international investors
would pay an average of 26% more for shares of Thai companies that are
transparent, protect shareholder rights and in general follow principles
of good corporate governance. n76 Presumably, then,
those surveyed would agree with Mr. Mobius that they would only purchase
shares in corporations with poor corporate governance at a significant
above evidence tends to support the proposition that the perceived failure
of securities laws to adequately protect investors in Thailand is costing
the SET some valuable business. In addition, the difficulties with securities
regulation appear to be reducing the quality of the business the SET already
has. Retail investors, feeling that they are unable to rely upon the law
for protection, or for compensation if they are swindled, have to guard
their interests in other ways. The most common strategy they employ is
to invest little, buy and sell in a very short space of time and not waste
precious resources on fundamental analysis of stocks. This damages liquidity
and leads to a shallow and volatile market that rises and falls more on
rumors and trends than sound stock evaluation.
Perhaps the institutional and retail investors are wrong and securities
regulations, and compliance therewith, have improved without them fully
realizing it. After all, it is difficult to gauge the progress of a broad,
evolutionary reform process like this one. In the absence of any clearer
indicators, it is reasonable to look to the number and success rate of
securities cases in the courts. In recent years, as before, there have
been no successful prosecutions for violations of the securities laws
prohibiting fraud and insider trading. n77 Obviously
this could be taken as evidence that there are no cases with any merit
in this area, or the wrongdoing has gone undetected, but the experiences
of regulators and market practitioners do not support this view. One fund
manager stated that fraudulent practices are common knowledge to minority
shareholders who attend annual shareholders' meetings or who bother to
inform themselves of a company's activities. n78 And
many Thai regulators I spoke with were keen to discuss the recent cases
of shareholder abuse that have gone unpunished. A recent case that has
caught the public attention and upset the SEC was the dropping of a case
against foreign-run boiler room operations within Thailand used to swindle
overseas investors. n79 Prosecutors cited a lack of
evidence, but the SEC has requested an official account of their reasoning.
Even PTT's shining moment of IPO glory was sullied by allegations of unfair
allocation of shares to well-connected parties through fraudulent sales
procedures. n80 Although the SEC has found no wrongdoing,
this scandal did nothing to help the perception that fairness and transparency
are now the standards insecurities dealings in Thailand. n81
lack of prosecutions tends to show that the new laws did little to force
those corporations that disregard securities laws and shareholder rights
into compliance. But laws can have a role beyond frightening potential
wrongdoers to toe the line by the threat of prosecution. To refer back
to the quote of Mr. Rapee of the SEC, most Thai businesspeople are honest
and want to remain in conformity with laws. So if a country improves its
disclosure standards but does nothing to enforce them, this point of view
suggests that many will conform with the law anyway. Their motivation
would be some combination of desire to be law-abiding, belief in the value
of proper governance of their company, and regard for [*322] the democratic
process that put the law in place. Similarly, a law may place too high
a requirement on people at a certain stage, but provides them with a standard
to aspire to. This aspirational role may be another way for an unenforced
law to still be an engine for positive change. But the hortatory and aspirational
roles of law, however, can only come into play when people are aware of
what the law is. Unfortunately, as I shall discuss in greater specificity
below, ignorance and confusion over the securities laws are widespread
in both the Thai business and investment communities. The extent to which
Thai business people behaved ethically toward their minority shareholders,
as I believe most did and continue to do, is most likely attributable
to a general sense of fairness and good business sense as opposed to the
threat of prosecution, the wish to be law abiding, or other such primarily
legal justifications. The hortatory and aspirational effects of the reformed
securities laws are marginal and unpredictable, making them of little
value to the investor.
reformed securities regulatory regime of Thailand represents a positive
step toward the creation of an efficient equities market. It appears,
however, that this regime still has a way to go before it can meet its
goals of effectively protecting the investor and promoting the use of
the SET. As a result, it appears that pricing-out of potential investors
has continued, as has the high rate of short-term speculation among retail
SECURITIES REGULATION IN EMERGING CAPITAL MARKETS: LESSONS FROM THAILAND
Nice but Not Necessary?
one become discouraged by the above appraisal of the performance of the
securities regulations in Thailand, it bears repeating that the SET has
been perfonning quite well (as mentioned above, in 2002 it had posted
29% growth in dollar terms as of August 17). The first lesson, therefore,
is that possessing an effective regime of securities law is not a precondition
to market growth. If there is enough money to be made, fewer investors
will be priced out by this legal risk, although some, like Templeton and
Calpers, will remain on the sidelines. Also, as discussed above, people
will price the legal uncertainty from poorly enforced securities regulations
differently, and when the market is looking more robust, investors may
be tempted to place a lower price on [*323] this risk. According to Mr.
Mobius, "as the markets recover the problem will be ignored." n82
Mobius believes that without good investor protection, which he places
under the more general heading of "good corporate governance,"
the overall quality of economic growth is suspect. n83 A market recovery built without a framework of effective securities laws
in an environment of insider dealing, weak disclosure and ever. fraud
is a dangerous one for the investor, and may contain the seeds of a systemic
crisis like the one observed in 1997. Whether or not the recovery will
be unsustainable due to the inadequacies in the rule of law is unclear,
but there is little doubt that it would be more stable, and to some extent
more robust, if the laws were functioning effectively. But ultimately,
the case of Thailand clearly illustrates that economic development can
happen without practicable securities regulation. Thus, policymakers must
take care to ensure that the cost and priority of securities regulatory
reforms be commensurate with the reasonably perceived benefits the economy
can derive therefrom.
Beyond the Washington Consensus
second lesson that can be drawn from the case of Thailand is that, whatever
other strengths it possesses, the Washington Consensus is short on ideas
of how to make its free-market laws work in practice in the developing
world. This is not an indictment of the soundness of its principles, nor
of the ability of its sponsors, like the World Bank, who plainly acknowledge
that writing the laws is the easy step compared with actually operational
izing them. n84 The Washington Consensus simply states
that its standards are superior to whichever system you may invent to
replace them. This is based in a belief in the free-market, which, in
its view, has proved itself to be the most effective engine of economic
growth that the world has ever known. I suppose in the case of Thailand
they might contend that Thailand is better off with a good set of laws
that doesn't work right than a bad set of laws that doesn't work right
either. The Washington Consensus view is that once the state reaches the
stage where they are able to properly enforce these laws, they will have
the best legal regime available.
The real question, then, is when and how will a state be able to attain
the ability to truly operationalize these laws? A study [*324] commissioned
by the Asian Development Bank in 1998 concluded that market-oriented economic
laws in Asia were successfully implemented when they were "embedded
in the culture" and "in the overall economic policy framework." n85 The authors describe market-based legal and market-driven
economic development as being mutually supportive, steered by the economic
policy of the government. n86 After the free market
economic policy is set by the government, the market begins to develop
and laws are reformed. n87 Then, as the market grows,
so does demand for effective regulation. With support from the government,
market regulations are operationalized, and in turn stimulate more growth
by reducing risk to investors. n88 The cycle leads
to tandem economic and legal development. But does this mean that legal
reformers and market regulators must accept a passive role and wait until
the government has come to fully support market-based securities regulation
and the level of market development has reached a stage where there is
significant demand for enforcement`?
third lesson from Thailand is that legal policyinakers and regulators
in emerging markets can take some proactive interim steps that may facilitate
the functioning of the free-market securities regulations, with the goal
of full operationalization of the laws in the fixture. Thailand's regulators
have not regarded the free-market prescriptions of the Washington Consensus
as an on-off switch. An investigation into the ongoing reforms in Thailand has revealed the attitude of
Thai regulators toward securities regulation and corporate governance
to be one of long-term evolution. Their efforts combine a commitment to
free-market ideologies with a pragmatic strategy to overcome factors it
their legal, political and social spheres that currently obstruct the
effective regulation of Thai securities markets. Out of perceived necessity,
Thailand has moved beyond the narrow boundaries of the Washington Consensus
prescriptions, while staying committed to its central tenet of market-based
regulation. It is this third lesson that will be analyzed in more depth
through the rest of this paper. I will begin by laying out some of the
challenges that Thai regulators have encountered, and then will detail
the measures that they are undertaking to meet these challenges. Next,
I will offer my analysis of these new reform measures and discuss how
the majority of them will serve to greatly enhance the effectiveness of
securities regulations in Thailand. Finally, I will argue [*325] that
a realignment of the government's reform initiative priorities may result
in more effective operationalization of the securities regulatory regime.
OBSTACLES TO EFFECTIVE SECURITIES REGULATION IN THAILAND
has clearly had limited success in implementing an effective market-driven,
disclosure-based system of securities regulation. But why? Thanks to a
hard-won culture of free expression, policymakers, regulators, market
players and academics have been able to be candid in their assessments
of the difficulties facing Thai securities regulators. I have attempted
to present these challenges as discrete factors despite the fact that
there is not only some overlap, but also causal relationships between
some of them. The challenges have been placed into four broad categories:
institutional, enforcement and governance and market forces.
has long been some confusion in the securities community over the jurisdictional
boundaries between the SEC and SET. n89 This problem
stems from the relatively recent founding of the SEC and the resulting
split in regulatory responsibility between the two entities. The SEC is
the central regulator, charged with overseeing the primary market and
the issuing companies, as well as market manipulation and insider trading. n90 Whereas the SEC carries out the regulations of
the Securities Act of 1992 and the 1997 amendments, the SET employs its
listing criteria and trading rules to police the secondary market. n91 However, the SET still retains full regulatory control over the firms
that listed with it between the time it was founded in 1974 and 1992 when
the SEC was established, unless these firms have issued new shares after
1992. n92 This regulatory overlap not only causes confusion
among the business community over which regulator they must answer to,
but also requires redundancy in the regulatory capabilities of the SET
and SEC. Although [*3261 there is a Memo of Understanding seeking to clarify
the jurisdictional boundaries, some measure of confusion and inefficiency
engendered by this situation remains. n93
structure of regulatory institutions in Thailand has resulted in their
lack of independence from political pressures. The primary factor in this
politicization has been the structure of the Cabinet of the SEC and the
relation of the SEC to the SET, as detailed in Section II, above. The
Minister of Finance is the Chairman of the SEC, and as such, wields significant
power in appointing other members of the Office of the SEC. Furthermore,
all proposed legislation drafted by the staff of the SEC must pass committee
in the Ministry of Finance before being voted on at Parliament. n94 The SEC also appoints five of the ten members of the board of the SET,
which then appoints the SET president. When the SEC proposes legislation,
drafts must be sent to the Ministry of Finance for approval, which is
an extremely lengthy process. Clearly, the Ministry of Finance holds a
dominant position over the SEC and SET, rendering them less than independent
from Thailand's turbulent politics. n95
can be an impediment to effective securities regulation because of its
distortion of regulatory priorities. n96 The regulators'
dilemma of regulation versus promotion is always a fine line to walk even
for a fully independent body. Securities regulators cannot be so zealous
as to destroy their own markets, as that would be even more harmful to
shareholders than not regulating at all. In emerging markets like Thailand,
where corporations and markets are not as robust as in more developed
countries, the balance may have to be skewed somewhat toward promotion,
particularly during downturns. n97 But when there is
the added pressure from the politicians to push for promotion over regulation,
the risk that securities enforcement will be rendered sub-optimal is increased.
is evidence that politics in Thailand have exerted such pressure on regulators.
Some of the regulators 1 spoke with complained [*327] that there is, politically,
no good time to begin enforcing securities regulations on wayward companies. n98 If the economy is in a downturn, a great cry goes
up among the business community that they are suffering terribly already
and that higher legal costs will drive them into bankruptcy. If the economy
is in an upswing, the business community will argue that the laws must
be doing their job if the economy is humming so why fix what isn't broken'?
As in most other countries, the business community wields a great deal
of political power in Thailand. Furthermore, there is a great deal of
overlap between the Thai business and political communities, with no better
example than the current Prime Minister, Thaksin Shinawatra, who is the
head of the family-owned telecommunications conglomerate and the richest
man in Thailand. It is not surprising, therefore, that the current administration
has, from the outset, emphasized promotion and deepening of the securities
market over improving securities regulation. n99 I
do not claim that the current administration has succumbed to a conflict
of interest due to its business entanglements but merely that it has manifestly
pro-business tendencies. Only after Calpers pulled its money out of Thailand
did the administration come out in force to support the push toward greater
transparency and shareholder protection in Thailand. n100 Instead, the administration has focused heavily on its initiative to deepen
the Thai securities market by wooing investors, adding tax incentives
to list and beginning to privatize a long list of state industries. Prime
Minister Thaksin's stated goal has been to increase the size of the SET
to 700 billion baht, an increase of 50%, over the next three years. The
administration's reticence on the subject of improved transparency and
regulation has been in sharp contrast to the great attention paid to this
issue by investment professionals, SEC and SET officials and institutional
investors. I believe that their lack of independence from this pro-business
political climate has made the Thai securities regulators' task of walking
the line between regulation and promotion more difficult.
current system of securities enforcement in Thailand is primarily criminal
in nature. The SEC has the power to bring criminal cases against those
responsible for fraud, market manipulation and insider [*328] trading
under Sections 238-244 of the Securities and Exchange Act (the '92 Act).
However, as of yet, there have been no successful prosecutions for any
of these crimes despite efforts by the SEC to bring cases. Why have criminal
penalties for violations of securities laws been so difficult to enforce
primary reason is that their criminal justice system has acted as a barrier
to effective securities enforcement. In Thailand's civil law system, criminal
cases, like those for fraud and market manipulation outlined in the '92
Act, must be assembled through police investigation and then brought by public prosecutors. Most securities cases never
make it past the investigation phase since most police investigators are unfamiliar with securities, not to mention the laws governing them. n101 As one regulator put it, "First we have
to explain to them what a stock is." n102 Prosecutors
tend to be similarly unversed in equities and the crimes involving them.
Given the limited resources available to the police force and the prosecutors,
it stands to reason that they would be hesitant to spend the time and
effort required to investigate a crime whose elements they may not fully
if the cases do come to trial, in a civil law country such as Thailand,
the standard of proof required for criminal convictions is extremely rigorous. n103 There must be proof beyond a reasonable doubt
of all elements, including scienter, and, barring confession by one of
the parties, hard evidence is difficult to come by in securities fraud,
insider trading and market manipulation cases. n104 Also, unlike their common law counterparts in the U.S. and England, Thai
judges are proscribed by civil law procedure from basing their rulings
on past decisions or applying their personal knowledge and discretion
to a case. n105 Considering these facts, it is unsurprising
that there have been no successful criminal prosecutions for fraud, market
manipulation or insider trading.
less direct impediment to enforcement of criminal sanctions is the lack
of demand for enforcement. This will be discussed in greater length below
in Section VLBA, Public Demand for Enforcement.
2. Civil Cases and Class Actions
its U.S. counterpart, the Thai SEC does not possess the right to engage
in civil litigation on its own behalf against violators of its regulations. n106 Private citizens may bring a civil suit against
a company or an individual for securities violations, but the plaintiff
is required to be in possession of the relevant securities at the time
she brings the case in order to have standing. n107 Derivative suits are an option, although, like in the U.S., any winnings
accrue to the company, not the shareholder and the shareholder must reimburse
the company for legal expenses if he does not win the case. Currently,
class actions are not available in securities law cases. n108 A final consideration is the extremely long time a plaintiff in a Thai
court can expect to wait before the verdict is handed down. Obviously,
a civil suit by an investor will entail fairly high costs. Given this
fact, it is easy to see why many investors opt to simply vote with their
feet (i.e. sell the shares) and cut their losses instead of attempting
to seek legal relief. n109 Below, in Section VI.B.4,
Public Demand for Enforcement, I will explore further reasons why civil
suits may be so rare.
SEC is empowered by the '92 Act to levy fines against issuers and broker-dealers
for administrative violations. For issuers, these violations include late
or incomplete disclosures and for broker-dealers, improper trading supervision
and license problems. These fines are typically not very large, and cannot
be levied for the criminal violations of insider trading, fraud and market
manipulation. In short, the administrative actions available to the SEC
are not significant deterrents to the more serious violations of the '92
administrative actions available to the SET contain somewhat more bite.
These include suspension of the trading, fines and delisting and can be
for any violation, including potentially criminal acts such as insider
trading and fraud. The SET will suspend trading of a stock if officials
suspect wrongdoing, but such remedies are very rarely invoked because,
according to one SET official, the sanctions tend to hurt the shareholders
more than the violators. n110 This unfortunate result
is [*330] attributable to the fact that civil remedies that would be available
to compensate shareholders in a wellworking regulatory system are not
a viable option in Thailand. Furthermore, I believe that political pressure
to emphasize promotion over regulation has discouraged zealous application
by the SET of its administrative enforcement options.
Public Demand for Enforcement
to the study commissioned by the Asian Development Bank, referred to in
Section V.B. above, public demand for enforcement of a law has been a
driving force in legal institutional development in Asia. n111 Public demand for enforcement signals that social practice is in line
with the law, and encourages politicians, regulators and the judiciary
to properly implement it. n112 In the case of securities
regulation, this demand would come from activist investors bringing civil
suits or militating for more criminal prosecutions. With 600,000 investors,
it is reasonable to assume that Thailand's markets contain the potential
for significant demand for enforcement of securities regulations. n113 But as of yet, little such investor activism has been in evidence. The
pressure that has been applied has come primarily from Western institutional
investors such as Calpers and the Templeton Funds, who carry less weight
than the local retail investors, who hold over 80% of the stocks on the
SET. These Thai retail investors have not taken an activist stance toward
shareholder rights and have not militated for more prosecutions the way
one might expect in the wake of the Thai financial meltdown. One could
argue that Thai investors are simply unaware of their rights and the nature
of securities violations. Although this is certainly true, Thai investors
do not seem particularly interested in learning about their rights. When
the SET and SEC sponsored a fair designed to teach about shareholder rights
and empower the investors, the turnout was below what they had expected. n114 In other markets, such as Hong Kong, Malaysia
and Singapore, investors have formed their own activist NGOs. n115 No such group has appeared in Thailand.
problems with civil remedies detailed above clearly discourage some investors
from pursuing their rights in court, but that does not explain why so
few of them have shown any interest in getting [*331 ] these problems
fixed. Investors' attitude toward ineffective criminal and administrative
remedies appears similarly apathetic. Clearly there is more to the problem
than imperfect laws and sub-optimal enforcement. Some claim that there
is a bias rooted in Thai culture against relying on the legal system for
protection and compensation. n116 One oft cited example
is the Thai saying that "it is better to eat dog shit than to go
to court." n117 This general anti-litigious saying
is Chinese in origin. The underlying sentiment is that resorting to judicial
proceedings evidences a shameful failure to work out a dispute through
the more honorable route of personal negotiations, compromise or even
sacrifice. Conflict and confrontation are to be avoided at almost any
cost. Most of the people I spoke with dismissed this as nonsense and believe
that, if a viable legal option exists, Thais would readily resort to it.
Given the presence of activist shareholder groups in Hong Kong, Taiwan
and Singapore, it seems unlikely that a Chinese cultural legacy is the
root of the problem.
Another possible explanation is that Thais simply have no faith in their
justice system. Sadly, they seem to have a point. There has been a traditional
reluctance in Thailand to prosecute elite members of society, such as
business or political leaders, for any crimes whatsoever, let alone a
crime so difficult to prove as securities fraud. n118 This is supposedly a legacy of the highly personalized legal system of
ancient Thailand described in Section II, above. A widely cited example
of this bias was the acquittal of now Prime Minister Thaksin Shinawatra
by the Constitutional Court from charges of misstating his assets on required
electoral disclosures. n119 Another example is the
case of a powerful politician's son who has been accused of committing
a murder in a nightclub filled with witnesses late last year. Despite
the highly public circumstances of the crime, almost no one seems to believe
that he will be convicted of the murder. The existence of this pro-elite
bias in the courts is certainly debatable, but what is certain is the
strong belief among the general public that the courts are unwilling to
give them justice over a business leader or a member of an elite class.
is likely that the lack of demand for securities law enforcement results
from a combination of perceived inequity in the legal system and high
costs to potential plaintiffs. The result is an unfortunate cycle where
investors don't rely on the securities laws because they won't be [*332]
enforced, and they remain unenforceable because investors do not rely
on them. This appears to be a very difficult cycle to break.
Corporate Governance Difficulties
economy of Thailand has been primarily agrarian for all but the most recent
stages of its history. n120 Traditionally, Thais worked
the land or were government administrators and Chinese immigrants comprised
the bulk of the merchant class. n121 As in other countries
in Southeast Asia, the merchant Chinese immigrants tended to structure
their businesses around one dominant family group, with the patriarch
having near total control of the decisions of the company and its subsidiaries.
This so-called Confucian business culture has proved quite durable throughout
Thailand's history despite the relatively successful assimilation of the
ethnic Chinese into Thai society. The result is that business in Thailand
is still dominated by ethnic Chinese family-owned businesses. A study
by Andersen Consulting in September 2000 found that despite comprising
14% of the population, Chinese businesses command 81 % of the market capitalization
in Thailand. n122
concept of shareholder ownership of the company is not widely accepted.
Thai companies, therefore, have a tendency to operate as a vehicle to
secure profits for the family and its insiders often at the expense of
minority shareholders. n123 Minority shareholders
are commonly considered to belittle more than a distraction and are not
trusted to have any say in the running of the company. n124 Predictably, insider trading and poor disclosure are the unfortunate by-products
of this insular corporate culture. Surely in the great majority of cases
there is no willful defrauding of investors, but standard operating procedure
has always been to take care of one's own.
seems odd to say that an obstacle to the proper enforcement of a law is
that few people follow it. Forcing people to comply is what laws are supposed
to do. But in reality, it is not that simple. Jerome Cohen, a noted scholar
in the area of legal development, has stated that "governance can't
improve faster than legislation, but legislation can't [*333] move faster
than social practice." n125 While this is may
be a bit of an overstatement, it is certain that conformity with social
mores is an important source of a law's moral force. Having support in
social practice is particularly important in the case in securities regulation
where regulators are forced to walk a fine line between regulation and
promotion. If nonconformity is widespread, zealous enforcement may seriously
weaken investor confidence and do more damage to the market than the behavior
it seeks to punish. This sort of argument against over-regulation has
been made in the current case of Arthur Andersen, where some allege that
Justice Department's aggressive legal tactics have served to effectively
ruin a firm of 85,000 mostly blameless employees worldwide. n126 In an emerging economy, where investors are more jittery and firms are
less robust, the risk of disrupting the market would be even higher.
insular business culture has survived the latest round of reforms. Independent
directors have often proven to be somewhat less independent than required
for them to make disinterested judgments. It is often the case that independent
directors in Thailand are in fact close associates of majority shareholders,
or are unclear as to what their role should be, or both. n127 Audit committees are another means by which directors and majority shareholders
are supposed to be held accountable. But similar to the case of independent
directors, they are often influenced by the dominant family in the company
or are uncertain about what their proper function should be. n128 Some companies that were traditionally family-run have been hiring professional
management but this trend is not yet widespread. Despite the best efforts
of the Thai IOD, traditional, insular Thai business culture remains the
Lack of Market Forces
foregoing obstacles to effective securities regulation in Thailand combine
to cause this fourth obstacle: lack of market forces in the SET. A market-based
set of regulations must, by definition, rely on the market to police the
players in the vast majority of cases. Certainly litigation can stand
in the gap when there is a market failure, such as fraud, but such cases
should be relatively rare in a well-working market. [*334] But in Thailand,
as we have seen above, the law provides little protection for investors
and they do not expect it to. As noted in Section IV, above, investors
in the SET typically find other ways to manage their risks, namely putting
little money in and buying only to sell very quickly thereafter. When
you are a retail investor taking small positions in stocks and getting
out fast, it is not worth performing any fundamental analysis of the companies
you are buying. Thus, Thai investors are unfamiliar with financial analysis
for much the same reason they are ignorant of securities law: they believe
it is of no use to them. The institutional investors, for whom fundamental
analysis is worth doing and worth doing well, are too concerned with the
lack of securities regulation to return to the SET in significant numbers.
the knowledgeable investors that are at the heart of an efficient market
are scarce in Thailand. n129 As a result, the market
mechanism that should be encouraging compliance with securities and other
financial regulations is not operating. The Far Eastern Economic Review
reported that, on average, Asia's best-governed companies (i.e. those
with good transparency, respect for shareholder rights, etc.) all outperformed
their country indexes in 2001, except in Thailand, where they underperformed
by 15%. n130 The market is simply not rewarding good
governance. While good governance does not necessarily equal good management,
and hence, good profits, "it usually reflects management quality
and acts as a vital check against abuses to deter mismanagement." n131 This is undoubtedly true in Thailand as well,
but as the Assistant Secretary General of the Thai SEC put it, "this
is a market with no market force... no discipline." n132 The failure of enforcement discussed above is a serious problem, but its
effects are confined to those relatively rare cases of wrongdoing. The
resulting lack of market force, however, affects the workings of the entire
market. Good actors are not rewarded and bad actors are not sanctioned.
Securities violations do not result in legal difficulties, nor are they
even bad for business. This lack of market force is perhaps the greatest
challenge to effective market-based securities regulation in Thailand.
VII. A MIDDLE PASSAGE: THAILAND'S JOURNEY TOWARD BEST-PRACTICE SECURITIES
case of Thailand demonstrates the extent to which the character of a nation's
legal institutions, capital markets, government and culture can affect
the functioning of its laws, and thus, "good law" in one country
may not be viable when transplanted to another. But the regulators and
policyrnakers in Thailand understand that the factors impeding their goal
of effective market-based securities regulation are not immutable. As
mentioned above, they clearly view their move from merit-based to disclosure-or
market-based securities regulation as a work in progress and have been
energetically pursuing reforms to bring them further toward their goal.
I will list these reforms below under the headings Institutional, Legal
and Market-Supportive. This second round of reforms is mostly laid out
in a draft of proposed amendments to the '92 Act. This draft is currently
in committee at the Ministry of Finance, where it has been since 2000.
Despite the delay, the SEC and SET are optimistic that the amendments
will be accepted and the Ministry has said that it will finish its review
by September 2002. I have also included in this list certain reform measures
and initiatives that have not officially been submitted for approval at
the Ministry of Finance but that regulators are working on and are generally
agreed to be on the reform agenda.
SET and SEC Jurisdiction
SEC and the SET are set to propose legislation which will confer upon
the SEC full regulatory responsibility for those companies that listed
on the SET previous to the inception of the SEC. n133 Furthermore, the proposed amendments to the '92 Act contain a provision
which will allow the SEC to abrogate its regulatory responsibility in
cases where the offenders have already been punished adequately by the
SET, thereby eliminating duplicative enforcement. n134
SEC and SET Independence
draft amendment to the '92 Act lists as one of its main objectives the
greater independence of the SEC and SET. To this end. it [*336] removes
ultimate authority over the SEC from the Minister of Finance and places
it with the Office of the SEC. The Office has the power to issue rules
and regulations, obviating the need for review in the Ministry of Finance.
The amendment also eliminates the ex-officio members of the SEC, namely
the Permanent Secretaries of the Ministries of Finance and Commerce and
the Governor of the Bank of Thailand. Commission members are still appointed
by the Cabinet, but they must be approved by Parliament and cannot be
members of any political party. The majority of these commission members
will work full-time for the commission, unlike in the past when membership
was only a part-time assignment, and are charged with making rules and
regulations to deal with market developments.
the draft amendment, the SEC no longer has the power to appoint any members
of the board of the SET. SET members will elect each member of the board,
and two-fifths of the board must be persons not affiliated with a brokerdealer.
There must be at least one director representing issuing companies listed
on the SET and one director representing investors. The manager of the
SET must be independent. The SET is empowered to make and enforce its
own rules. However, the SEC is entitled to ensure that such rules enforce
at least a minimum standard of conduct and may elect to review SET disciplinary
standards for disclosure and wider application of anti-fraud provisions
are the main goals of reform in this area. To this end, the draft amendment
extends liability for misstatements and omissions to statements made and
documents produced after the original offering. It also allows the SEC
to appoint independent auditors to inspect a company's disclosures if
the company's board is unable to choose an auditor themselves. Finally,
the draft requires that companies exempt from the registration requirements
of the '92 Act provide minimal disclosures, which are subject to the same
antifraud rules as the disclosures of non-exempt companies.
regulators have proposed a number of measures to facilitate the pursuit
of civil remedies in securities cases. The draft amendment contains two
of these measures. First, it confers joint liability with the [*337] issuing
company upon directors and others, including experts, responsible for
misleading statements or omissions in securities disclosures. Second,
it also gives subsequent buyers of securities the standing to sue the
original issuer. Although not contained in the draft amendment, regulators
are committed to pushing through legislation that would allow class actions
for securities cases, thereby greatly reducing the legal costs to an individual
investor-plaintiff. They envision either the SEC or an investor's advocacy
group as being the class representative in these cases. This investor
advocacy group is to be formed by the SEC and SET. Its mission, aside
from possibly representing a class of investors in a civil suit, would
be to purchase shares of each listed company, analyze them, and advise
investors on their legal options in cases of fraud, insider trading, or
draft amendment includes a variety of sections designed to help enable
successful criminal prosecutions. First, it defines more clearly what
constitutes insider trading, stressing that not only corporate insiders
but also those with nonpublic insider information can be guilty of this
offense. Second, it alters the burden of proof for market manipulation
by holding that the judge may presume intent from a defendant's conduct,
such as making "wash sales" or "match orders." Next,
the standard for criminal misstatements and omissions is clarified as
those that "may affect investment decisions or proxy voting."
This anti-fraud prohibition includes statements made in public as well
as in documentation such as the prospectus and registration statement.
The scope of liability is held to include those who make or prepare the
statements, including experts, as well as the managers of the company.
problem of police and public prosecutors' lack of expertise in securities
cases is addressed in the draft amendment as well. The draft requires
that a number of "inquiry officials" and prosecutors be attached
to the SEC so that they familiarize themselves with the technical aspects
of investigation and prosecution of securities violations. Also. it stipulates that
the prosecutor assigned to the SEC will supervise investigations by the
police into securities matters and that the inquiry official assigned
to the SEC will be in charge of each investigation.
promote the gathering of evidence in securities trials, the draft exempts
auditors who tip off the SEC to securities law violations from [*338]
prosecution for disclosure of confidential information under the Penal
Code. It also offers an unspecified cash reward to those who agree to
supply evidence in securities cases.
draft also extends the statute of limitations for levying fines in an
administrative action to five years from commission of the violation,
or one year from discovery by an SEC official.
the other categories of reform are self-explanatory, this section appears
to be somewhat of a catchall. Although they seem disparate, educating
investors, deepening the market, and publishing corporate governance quality
rankings are all designed to enhance the market force that is supposed
to be disciplining the issuers. This, according to the Assistant Secretary
General of the SEC, is the top priority in the reform strategy; his view
was echoed by many of the regulators I spoke with. n135 The rationale behind this is that enforcement of civil and criminal penalties
is only necessary in the relatively rare cases where you have true criminals
operating in the market. The average Thai businessman, on a dayto-day
basis, must be disciplined through market force (i.e. the purchasing decisions
of informed investors), not legal sanction.
improve market discipline, the SEC is focussed on raising the quality
of investors in the SET. To this end, it has begun holding seminars to
teach investors the basics of company analysis, the value of corporate
governance and their rights as investors and shareholders. As mentioned
above, it also plans to create an investor advocacy group to encourage
investors to invest well and to sue for their rights when they are victimized.
cooperation with the IOD, the SET and the SEC will begin to offer rankings
of firms depending on their commitment to the principles [*339] of good
corporate governance. The criteria include the number of directors, independent
directors, and audit committee members who have taken the IOD courses;
how many independent directors there are; the level of transparency; and
the use of respected independent auditors. Those scoring seven out of
ten will receive fee reductions from the SET and fast-track registration
procedures for new offerings. The rankings will be publicized throughout
the investment community by the SET and the investor advocacy group. The
other side of the coin is a blacklist created for the individual managers
who are the worst violators of corporate governance standards, and this
also would be publicized to the investment community. This system is designed
to stand in for the fundamental company analysis that retail investors
are unable or unwilling to engage in.
Deepening the Market
mentioned above, the Thaksin Administration has repeatedly expressed its
intention of deepening Thailand's stock market, with a goal of reaching
market capitalization of 700 billion baht-an increase of 50%-over the
next three years. n136 This will be accomplished through
a joint strategy of privatizing state-owned enterprises (SOEs) and encouraging
greater domestic investment. n137 The theory behind
this strategy is that a larger market will naturally contain greater market
forces to discipline management. Furthermore, SOEs headed for privatization
are being instrt,cted by the Ministry of Finance in better governance
procedures and are supposed to set a good example in the market.
the administration had been cool at best toward foreign investors. Their
suspicion stemmed from a belief that foreign influences had exacerbated
the Thai financial crisis and that now foreigners would stream back into
Thailand to buy up its crown jewels at fire-sale prices. Recently, however,
the administration has distanced itself from this earlier stance and has
been more actively courting foreign investors, even performing roadshows
for PTT's IPO in the U.S. and Europe. But the commitment to expand the
domestic investor base has retained its primacy in the eyes of the administration. n138
VIII. EVALUATING THE "MIDDLE PASSAGE" REFORMS
not all of these "middle passage" reforms will necessarily be
implemented, even at this nascent stage they represent a sincere and diligent
effort on the part of Thai regulators and policymakers, and are a testament
to the strength of their commitment to effective securities regulation.
I will not attempt to foretell which will or will not be accepted by the
Ministry of Finance and passed by the Parliament; instead, my evaluation
will focus on how well the reforms and initiatives address the challenges
listed in Section IV, above. In general, they do much to overcome the
obstacles and move the Thai securities regulatory regime toward more optimal
performance. However, I believe that a realignment of the priorities assigned
to these reform initiatives could improve the speed and efficiency with
which the new securities regulatory regime, and the SET itself, develops.
the recent securities law reforms initiated by the Thai regulators, redefining
the jurisdictional boundaries between the SEC and the SET is perhaps the
least fundamental, but as such, it is relatively uncomplicated. It requires
a minor adjustment in procedures at the regulatory level and no action
whatsoever by the business community. As long as the change is made known
to the listed companies affected, this reform ought to eliminate any future
confusion and duplication of efforts.
more important of the institutional changes is the move to greater independence
of the SEC and SET from the Finance Ministry and the political parties.
This will allow them to be far more flexible and responsive, as well as
free them to a great extent from political pressures to favor promotion
over regulation. Although these institutions will likely remain dependent
upon the government to some extent for funding, these reforms will do
much to eliminate the inefficiency and politicization that has hampered
mentioned above, Thai regulators and policymakers see deepening and enhancing
the market as their top priority. This is not to say that they have overlooked
the need to take steps to facilitate enforcement of criminal, civil and
administrative penalties in the case of wrongdoing. In fact, their reform
efforts in the area of enforcement are [*341] comprehensive. The draft
amendments, as seen above, clarify the laws and extend liability to individuals
and situations not previously thought covered. More important, though,
are the measures designed to encourage the pursuance of cases, both civil
and criminal. On the criminal side, attaching an investigator and a public prosecutor to the SEC will greatly expedite the investigation and prosecution of securities cases. Class actions are a key step
in making civil remedies viable for retail investors. Finally, the measures
designed to encourage evidence gathering and whistle blowing will help
to build cases that will stand up in court.
from lengthening their statute of limitations, the draft amendment proposes
no direct initiatives to augment for administrative remedies. But the
difficulty with administrative penalties, as noted above, is that without
a viable recourse to civil law, investors in the affected company would
be the ones most hurt by them. Furthermore, the politicization of the
SEC and SET has discouraged their optimal use. By improving private investors'
options for legal recourse and making the regulatory institutions more
independent, the draft amendments have addressed the main obstacles facing
proper use of administrative remedies.
is much to applaud in these reforms and little to criticize. However,
I feel that three possible initiatives are conspicuous in their absence.
First, I expected the draft amendment to eliminate the requirement that
a plaintiff be in possession of the shares of the company over which she
is suing. Although the draft allows subsequent purchasers standing to
sue, this may not be enough, particularly considering the very brief time
that the average Thai retail investor holds her shares. This holding requirement
undoubtedly serves to curtail the number of suits brought. Second, the
SEC remains without the ability to bring civil suits on its own behalf.
If it can be the class representative in class actions, there should be
no reason why it cannot also initiate and pursue litigation on its own.
It seems that a leading role by the SEC in bringing cases would be the
most effective way to add some discipline to the market, familiarize the
judiciary with securities cases, and show investors that the law offers
them real protection. Third, this reform initiative addresses the need
to have experienced investigators and prosecutors who are comfortable with the technical aspects of securities
cases, but overlooks a similar need in the case of judges. Nothing so
ext,eme as attaching a judge to the SEC or creating a special court for
securities cases is required. Simply offering education and training seminars
for judges on issues in securities law would be a worthwhile step. Such
seminars have taken place in Egypt over the last few years and have proved
popular [*342] among their judiciary. n139 In Thailand,
such seminars would be particularly important given the number of recent
changes in the securities laws and the infrequency with which judges have
encountered securities cases in court.
not insignificant, the above criticisms are somewhat cosmetic. They arc
issues of degree, not of fundamental reform strategy. Furthermore, if
the existing reform measures are passed as is, the more independent SEC
will have much greater ability to promulgate such new rules, if the need
becomes evident. But while these reforms set the stage for greatly improved
enforcement of securities regulations, they only take us so far. As discussed
above, supply of effective laws must be matched with demand for their
use if they are to be operationalized. I will discuss this issue of demand
for enforcement in Section VIII.D, below.
order to improve the culture of corporate goveniance, the draft amendment
requires more disclosure and ensures that potential liability is extended
to the managers themselves in the cases of material misstatements or omissions.
Initiatives in the draft to facilitate enforcement complement this effort,
by increasing the threat of litigation or even criminal charges to encourage
compliance. Behind all this, the IOD continues its management training
exercises and regulators and politicians sing the praises of good corporate
governance in the media. But ultimately, Thai regulators and policymakers
realize that it is the market that must be the driving force in encouraging
good corporate governance and good disclosure, while at the same time
discouraging misbehavior. The market-supportive initiatives listed above
are designed to stimulate market forces to discipline managers. The most
creative of these initiatives is the corporate governance rankings that
the SEC and SET will publicize, which I will discuss further in the following
Lack of Market Forces
reiterate, the top priority of Thailand's "middle passage" reform
strategy is deepening the market and providing investors with the information,
including good governance rankings, that they need to make rational investment
decisions. This is designed to provide the SET with the market discipline
it has so long been lacking. Because, in a [*343] disclosurebased securities
regulatory system, it is the market-not the regulator-that is primarily
responsible for policing corporate behavior, this seems like a reasonable
approach. Enforcement capabilities are still lacking, but the cases of
fraud, insider trading and market manipulation that they cover are not
the norm and will become even rarer as firms realize that investors reward
good governance. In time, enforcement capabilities will be developed,
particularly as the newly empowered investors begin to militate for their
rights. After all, demand for enforcement has been shown by the Asian
Development Bank to be a vital element of legal development. It seems
that all the pieces of the puzzle fall into place. In short, Thai regulators
and policymakers acknowledge that corporate governance and securities
enforcement is weak in Thailand, but that knowledgeable, rational retail
investors will exert the market force required to improve it.
argument is that corporate governance and securities enforcement is weak
in Thailand and therefore knowledgeable, rational retail investors cannot
exert the market force to improve it. I disagree with the notion that
Thai retail investors are acting irrationally when they speculate on the
market, and that if they were more sophisticated they would instead invest
in well-governed companies. Thai retail investors are already making rational
investment decisions, given their limited resources, the nature of the
market, and the lack of securities enforcement. For a Thai retail investor,
speculation with little fundamental analysis is the way to maximize the
potential value of their securities transactions on the SET. Because there
is little market discipline and no practical legal recourse if they are
defrauded, they must reduce their risk by putting little money in and
getting out quickly. This behavior renders the cost of fundamental analysis
well above its benefit, even if they knew how to do it, which most certainly
regulators argue that the investors themselves, once they are more sophisticated,
will supply the market discipline through their own investment choices
that will in turn, serve to protect them. Once their collective market
force has raised the standards of transparency and governance, the rational
investors will be buying and holding shares of well-run companies (i.e.
investing instead of speculating). The poorly run companies that take
advantage of investors by flouting securities regulations will be shunned
by the market and see their share prices plummet. The problem with this
strategy lies in moving from a state of rampant speculation to a state
of widespread fundamental analysis and investing. As a sidekick said to
Indiana Jones in the movie Raiders of'the Lost Ark, "very dangerous...
you go first." Although humorous, this quotation raises a serious
issue: achieving equilibrium in a state where [*344] retail investors
are protected by the market forces they engender requires their coordinated
movement away from speculation to fundamental analysis. Without a critical
mass of retail investors doing fundamental analysis and investing in well-governed
companies, their market force will not be strong enough to afford them
protection. Having insufficient protection by market forces, long-term
investors will face unacceptable levels of risk. Thus, they will once
again turn to speculating to manage their risks and the equilibrium state
will revert back to one of widespread speculation. How can a Thai retail
investor count on her fellow retail investors to move with her away from
the safety of speculating?
plight of this Thai retail investor is not unlike the famous prisoner's
dilemma, in which two prisoners, A and B, are interrogated separately
for committing a crime. If A and B were free to choose an outcome together,
and could trust each other not to take advantage, they would agree to
both keep silent. However, if A implicates B, and B remains silent, this
is the best outcome for A and the worst outcome for B. If they both implicate
each other, this is not as good an outcome as if they had both kept silent,
but B has avoided the worst outcome (i.e. remaining silent while being
implicated A). Similarly, if all (or even the majority) of the Thai retail
investors could get together and agree, they would choose.to all perform
company analyses and only buy stocks of corripanies with good corporate
governance. This would be the best outcome for them, collectively, because
they would be protected by the market force created by their purchasing
decisions. However, if not enough of the investors are doing sound analysis,
their combined market force, which pushes for good corporate governance,
is diminished. Therefore, market discipline, which should be protecting
the investor, begins to break down. In a market with little discipline
and no viable legal enforcement to act as a safety net (i.e. the SET as
it stands today), shortterm speculation is the best way for retail investors
to reduce the risk of losing their investment. So, as a retail investor,
if most everyone else is speculating -and you are engaging in fundamental
analysis and buying and holding, you are taking an unreasonable risk and
your expected outcome is the poorest. In short, no one will want to be
the first retail investor on the SET to stop speculating and.begin investing.
Because retail investors wish to avoid the poorest outcome, and cannot
rely on each other to only buy shares of well-governed companies, the
rational retail investors in the SET will remain speculators. Although
none of these stock speculators will think of this situation in terms
of the prisoner's dilemma, they will instinctively be wary of a buy and
hold strategy and will probably opt to wait and see if it works out for
other people first.
They should be wary. Newcomers to the SET, however, may not be quite as.
cognizant of the risks involved. As mentioned above, deepening the market
has been the administration's top priority among securities reforni initiatives.
To this end, the government has held seminars around the country trying
to drum up enthusiasm for equity investing. n140 Although
there is an educational component to these seminars dealing with the risks
of investing, it is questionable whether a truly frank discussion of risk
would be compatible with the administration's stated goal of promotion.
At this stage, I believe that expanding the domestic retail investor base
in the SET will, at best, result in an increase of speculators in the
market, adding little market discipline. At worst, it could result in
substantial economic loss to some ordinary Thai people who were unprepared
to manage the risk of investing in the SET. This worst case would damage
public confidence in the stock market at this critical juncture in its
system of good corporate governance rankings is designed to steer retail
investors toward the better-run companies and prime the pump of market
discipline through various administrative incentives for good governance.
If this works properly, it may be a solution to the, collective action
difficulties for retail investors mentioned above. But like a meritbased
securities regulatory regime, this ranking involves qualitative judgements
by a central regulator. The SEC opted to move away from merit-based securities
regulation in part because the public mistook it for a government guarantee
that the company was safe to invest in. n141 It seems
that the good corporate governance rankings have a high potential of causing
the same difficulty. Another reason the SEC moved away from making qualitative
judgements about companies was because they had difficulty with the close
cases and felt that such decisions are better left to the investor. n142 Again, it seems like one could say the same about corporate governance
rankings. Some market professionals I spoke with are also skeptical about
their usefulness as an inducement to improve the quality of governance.
Although high marks mean some discounts on fees and fast-track procedures,
these advantages may be too small to amount to any real incentive. n143
sum, the "middle passage" reform strategy successfully addresses
the majority of challenges facing the current system and thereby will
create .a securities regulatory regime that is far more capable of fulfilling
its mandate of shareholder protection, systemic stabilization [*346] and
market promotion. However, I believe that the problem of weak market forces
may continue to bedevil the Thai reformers even after these reforms are
in place. Educating investors and deepening the market clearly must be
part of any effective program to develop the equities market in Thailand,
but considering the problems outlined above, they inay not be effective
as the primary engine for the development of market forces at this stage.
In the following section, I will argue that the regulators' top priority
should shift to enforcement while still maintaining the important investor
education programs and delaying market-deepening initiatives until a cycle
of market development has more firmly taken hold.
THE NEED FOR ENFORCEMENT
prevailing attitude of Thai regulators seems to be that striving for some
successful securities cases or prosecutions is "trying to run before
we can walk." n144 This implies that it is easier
to build up a measure of general market discipline first, so that the
market will police the typical Thai manager, who wishes to run his company
honestly. Later, when the market is more sophisticated, the law will begin
to catch up with the relatively few violators of securities regulations.
I believe that this theory underestimates the potential for enforcement
to act as a catalyst for developing general market discipline.
the "middle passage" reform strategy envisions the development
of market force on the SET as independent from securities enforcement.
The recipe it espouses for the creation of market force calls for education
of investors and managers, deepening the market and bolstqring the incentive
to good corporate governance with a ranking and rewards system. As discussed
above, this may not be effective because the behavior of retail investors,
which is the key ingredient, might not change significantfy. How might
their behavior be changed from speculation to deeper company analysis
and long-term investing? As discussed above, speculation is a response
to a high-risk investing environment.. If viable legal recourse were available
for Thai investors whose investments were wrongly expropriated, this would
lower investment risk and encourage a move away from speculation. But
Thai investors, as we know, are.highly skeptical of the ability of the
legal system to provide them with justice. They are also well aware of
the lack of good corporate governance principles in Thai business culture.
In my opinion, Thai retail investors will believe that the risk is lower
only when [*347] they see some genuine prosecutions of wrongdoers and
successful civil cases against managers. Until then, they will continue
to speculate and thus "not need protection of the laws." n145 But one of the problems of legal development is that it does not happen
in a vacuum and requires some support in social practice and demand for
enforcement. This leads us to a Catch-22, where investors will not demand
enforcement until they see some successful prosecutions and there will
be no successful prosecutions until there is a demand for enforcement.
Obviously another approach is needed.
key to injecting market force into the SET is the presence of. institutional
investors. They are not caught in the prisoner's dilemma described above
because they embody so much more market force than the individual,Thai
retail investor and therefore have no collective action problem. In other
words, Thai retail investors can only protect themselves if a large number
of them act in concert but institutional investors are powerful enough
to go it alone. They command a large amount of capital, engage in detailed
analyses of the companies they invest with, interact with management,
are more likely to vote their shares at meetings, and care more about
corporate governance. In cases of wrongdoing, they are far more likely
to demand enforcement and militate for their rights. By doing this, they
spur legal development, engender greater market discipline and work to
change management practices to embrace transparency and other principles
of good governance.
they exert such a healthy influence on the market, why are there so few
of them in the SET? First, in many quarters, Western financial institutions
are viewed as the villains in the 1997 financial meltdown in Thailand.
This view, predictably, proved quite popular in Thailand-and the current
ruling party, Thais Love Thais, won the greatest ever majority in the
history of Thai democracy on the back of their baldly populist stance.
As Thailand turned inward to find the solutions to its economic problems,
foreign institutional investors, still viewed with suspicion, were not
encouraged to return. Although the administration has recently initiated
efforts to woo the institutional investors back, its bias toward increasing
domestic retail investors remains.
and more importantly, institutional invebtors care about good corporate
governance and protection of shareholder rights. Like Calpers and Templeton,
most institutional investors want to see a commitment to these principles
before they enter a market, and therefore they are currently wary of the
SET. n146 So this appears to be the same [*348] Catch-22
observed with regard to retail investors above. However, with institutional
investors, I believe, the threshold for acceptable eriforcement is much
lower than it is for retail investors. This is because institutional investors
are better able to protect themselves independent of any securities enforcement-through
their market clout, relationships with management and investment diversification-and
as such are able to shoulder much more risk.
level of enforcement that will demonstrate to institutional investors
an acceptable commitment to securities regulation is indeterminate. So
Thailand's regulators must simply do what is possible. As we have seen
from such episodes as the failure of the boiler room prosecutions, successful
securities cases, either criminal or civil, are unlikely to occur in the
near future. Thus, the option that is left is administrative sanction.
The SET in particular has a plethora of potentially powerful enforcement
options, including suspending trading, forcibly de-listing companies,
banning individuals from securities activities. and levying fines. These
are available and have.been used, but not to great effect as of yet. This
is not because the SET was derelict in its duties but because of the difficult
regulatory environment they were in. With the economy in crisis and politically
powerful businessmen asking the government for assistance, the SET, exposed
to the political winds, could not maintain a stringent regulatory agenda.
Now that the SET is independent, the economy is improving, and the need
for corporate governance is in the political spotlight, its officials
may be even more zealous in applying its rules and regulations in order
to police its members. Obviously they must walk a fine line between regulation
and promotion, taking care to sanction, in a highly public manner, only
the worst violators while encouraging the borderline cases to reform their
behavior. I believe that this initiative would do much to convince institutional
investors that Thai regulators are genuinely serious about securities
enforcement and investor protection and is the best way to make the SET
a more attractive investment option than some of its rival bourses in
Southeast Asia. With the addition of more institutional investors, the
virtuous cycle of market development can begin.
is enforcement so vital? If the majority of Thai managers are basically
honest, as assumed by the "middle passage" reform strategy,
all they need is a little market discipline and reasonable investor protection
will be achieved. I believe this view misjudges the nature of transparency,
disclosure and other aspects of good corporate governance necessary for
investor protection. First, without enforcement, Thailand's corporate
governance campaign has a credibility problem. It is often very difficult
to gauge the quality of a company's governance standard because [*349]
it is so easy to talk the talk. n147 Walking the walk,
however, is where there tends to be slippage. Thus, a robust securities
regulatory regime to enforce the standards lends much needed credence
to company's claims of good governance. This is particularly true in the
case of countries like Thailand, where the business community is widely
known for its traditional neglect of good governance practices.
the deterrence effect of anti-fraud regulations is a vital complement
to market discipline in enforcing investor protection. The elements of
good corporate governance, like full and proper disclosure in offering
documents, are not black and white but rather shades of gray. The standard
fcr fraud in Thailand is a misstatement or omission that would affect
one's decision to purchase a security. n148 The rule's
strength lies in its vague nature: because managers are not sure where
the line is, it is safer for them to err on the side of extra disclosure
when there is a credible threat of enforcement. Absent such a threat,
even honest managers would likely allow the "fudge factor" in
their disclosures to increase. Though likely not amounting to fraud in
most cases, this would cause governance standards to suffer and increase
risk to investors. Furthermore, it is the nature of many securities violations
to not seem "wrong," particularly to a manager in his sixties
who, for example, has been engaging in insider trading as standard operating
procedure since the SET opened. These people are not dishonest, just set
in their ways and the idea of "good corporate governance" is
completely new to them. Because of the traditional business culture in
Thailand and the highly subjective nature of investor protection principles,
enforcement plays a key role in ensuring reasonable compliance with securities
"middle passage" reform initiative represents a tremendous effort
on the part of Thai regulators and policymakers and does much to set the
stage for the development of an effective market-based securities regulatory
regime. I conclude, however, that it overestimates the potential for an
enlarged and educated group of retail investors to be the catalyst to
set this development in motion.. The top priority, instead, should be
achieving the highest degree possible of securities regulation enforcement.
Due to limitations in the court system, administrative sanctions need
to be applied to show true commitment to investor protection in the SET.
This will have two results. First, it will encourage [*350] greater participation
by international institutional investors and second, it will provide an
economic incentive for corporations to improve disclosure, transparency
and other governance standards while deterring violations with a credible
threat of sanctions. Market discipline will increase as the institutional
investors buy into companies that they feel are governed well. These institutional
investors will also begin to demand enforcement of their rights in the
courts when such cases become necessary. All this will make the market
safer for retail investors who will begin to come out from behind the
protection of their short-term speculation and follow the lead of the
institutional investors in searching out well-governed companies to buy
into. The ongoing educational efforts sponsored by the SEC and SET will
assist them in doing so. As demand for enforcement naturally increases,
and market forces move social practice into conformity with good governance
principles, the legal system will respond by yielding proper verdicts
in civil and criminal securities cases.
case of Thailand is not an indictment of the effectiveness of the market-and
disclosure-based securities regulations that are championed by the Washington
Consensus. It simply illustrates the need to focus on what is possible
in terms of implementation and enforcement given the prevailing conditions
in law, business, politics and society. What this requires is a multi-faceted
approach to reform that can address the unique obstacles faced by regulators
in the developing country while at the same time preserving a long-term
commitment to Washington Consensus principles. In other words, the case
of Thailand suggests that the answer to the question "one way or
many?" is "one way by many paths." Furthermore, as underlined
by the revelations regarding fraud and abuse of shareholders in corporate
America, it is clear that no one country has a monopoly on good ideas
for policing its markets. Developed and developing countries alike have
the opportunity to learn from each other's successes and failures.
are many reasons to feel optimistic about the stock exchange of Thailand
and its role in the nation's economic recovery, not the least of which
is the energetic and inventive program of reforms discussed in this paper.
Ironically, however, the greatest threat to development of the securities
regulatory regime in Thailand, and many developing nations, may be a strong
recovery by the stock market, which would remove the most powerful impetus
for following through with important reforms. One can only hope that the
commitment to [*351] developing an effective securities regulatory regime
will survive an economic rebound that would otherwise be such a boon to
the people of Thailand.
the time this article was originally completed, the shortcomings of the
Thai securities law enforcement were being placed squarely in public view
due to the high-profile collapse of the Brinton Group boiler-room prosecution,
mentioned briefly in Section IV.C, above. n149 Seven
executives from the company were on trial for criminal securities fraud,
allegedly selling phony stocks to overseas buyers and scamming them out
of 6.9 billion baht. n150 Public prosecutors had dropped
the charges against the Brinton executives citing lack of evidence despite
the SEC's strenuous protests and demand that prosecutors justify their
actions. n151 Although much of the resulting criticism
was aimed at the SEC, ultimately this debacle provided them with the weight
of public opinion and international pressure, particularly from Australia
where most of the victims resided, to press their agenda for greater authority
to prosecute violations of the Securities Act. In other words, public
demand, a vital ingredient for change and development of the law, was
on the side of the SEC, and the regulators did not let the opportunity
to the Brinton case collapse, Thai regulators were fully aware of the
obstacles they faced in their efforts at effective securities law enforcement.
However, effective reform in this area was correctly understood to entail
fundamental changes in the prosecutorial system and significant diversion
of resources and personnel to investigation and prosecution of securities crimes. The more modest reforms detailed
above had been, and even now remain, staled in the legislative process
since 2000, so the probability of success of these enforcement reforms
was deemed so low as to remove them from the reform agenda altogether.
My response was to call for greater use of administrative sanction, particularly
by the SET, which could use its powers to suspend trading of a stock or
even to delist where the company is engaging in securities fraud. But
the public outcry and national embarrassment over the Brinton [*352] matter
was so strong as to move enforcement reform from the SEC's wish list to
the top of the political agenda.
after the charges against the Brinton Group were dropped, the SEC began
to publicly make its case for an overhaul of the securities law enforcement
system. n152 Responding to allegations that it was
a "paper tiger," SEC officials stated that they were hampered
by inadequate laws and a lack of authority to pursue their claims. n153 Less than a week after the Brinton case was dropped, the Justice Ministry
made public its plan to form a special unit comprised of economists and
capital markets experts that would prosecute white-collar economic criminals. n154 Not to be outdone, the Finance Ministry announced
two days later that it would review proposed legislation designed to allow
the SEC to "directly punish market rulebreakers." n155 The next month saw the House Banking and Finance Committee calling for
securities regulators to perform a further review of securities laws with
a view to future amendment and called police, prosecutors and market regulators
to testify before them regarding the failures of the Brinton case. n156 In a letter to the Bangkok Post, Dr. Suvarn Valaisathien, the Deputy Commerce
Minister, detailed the importance of securities enforcement to protect
shareholders and exhorted legislators to speed the approval of a law to
allow class actions. n157 Most recently, officials
from the Justice and Finance Ministries, the Bank of Thailand, the SEC
and the SET, police investigators,
and public prosecutors met to discuss challenges to the prosecution of
economic crimes and possible ways to overcome those challenges. n158 The participants agreed that a lack of coordination between regulators,
police, and prosecutors played a significant role in the failure of prosecutions
under the Securities Act. n159 This acknowledgment
seems to amount to an endorsement of proposed legislation that would create
a combined unit of police, prosecutors, and SEC officials to prosecute
cases of securities fraud.
the legislative reform process in Thailand has been prone to severe delays
in the past, it has shown itself to be rather agile when public opinion
is aligned properly. One can only hope that the [*353] political impetus
for securities law enforcement reform remains strong and results in a
more efficient and effective prosecutorial process, which, as stated above,
I believe is the key to developing a more robust stock exchange. But even
to have such reform on the political agenda was practically inconceivable
only six months ago, and so the fact it is being debated at all represents
a significant step forward.
encouraging sign is the announcement by Prasarn Trairatvorakul, Secretary-General
of the SEC, that the Commission's focus for 2003 will be increasing participation
by institutional investors in the capital markets of Thailand. n160 Vigorous enforcement of securities regulations is a prerequisite to attracting
major institutional investors, so it is certainly an opportune moment
for the SEC to embark on this initiative. The SET has been performing
enormously successful roadshows for institutional investors and fund managers
in Europe and the U.S., and plans to engage in a similar marketing initiative
in Asia in the coming months. n161 As I argue above,
the complementary strategies of improving securities law enforcement and
raising the level of participation of institutional investors in the Thai
market will, if properly implemented, result in a virtuous cycle that
will greatly strengthen market forces and truly operationalize the marketbased
securities regulatory regime.
challenge now is proper implementation. If the reforms of the prosecutorial
system are approved, as it appears they will be, the SEC, police, and
prosecutors must follow through and produce convictions for securities
fraud. This is a vital step toward creating a securities regulatory regime
that serves to protect investors, promote the market and prevent systemic
crises, and helps the stock exchange of Thailand to be a more effective
engine of economic development. The high-profile failure of the Thai securities
regulatory regime in the Brinton case has provided the Thai government
and regulators with a unique opportunity. What the securities regulatory
regime needs now are some high-profile successes.
Associate, U.S. Law Group, Allen & Overy, London. Fredrick Sheldon
Traveling Fellow, Harvard University, Sept. 2001 - June 2002.
DAVID K. WYATT, THAILAND: A SHORT HISTORY 54 (1984).
Id., citing Griswold & Prasert, The Inscription of'King Rama Gamhen
of Sukhodaya (1292 A.D.): Epigraphic and Historical Studies no. 9, JSS
59, pt. 2, at 205-208 (July 1971).
Id. at 186.
Id. at 73.
n7 See Edward McBride, A New Order, THE ECONOMIST (Feb.
THE THAI BAR ASSOCIATION, THE LEGAL SYSTEM OF THAILAND 23 (Aug. 1981).
Interview with Prof Thongtong Chandarangsu, Vice Dean, Chulalongkorn University
Faculty of Law (Mar. 28, 1999).
Interview with Dr. Borwornsak Uwanno, Secretary General, King Prajadhipok's
Institute (Mar. 29, 1999). See also Reuter and NI World Guide 2001/2002
Stock Exchange of Thailand website: History of the SET at http://www.set.or.th/en/about/set/history-pl.html.
Summary of Analysis on the Draft Amendment to the Securities and Exchange
Act (Unofficial Translation) at http://www.sec.or.th/secenI/legal/secact/newact.shtml.
Interview with Mr. Suthichai Chitvanich, Senior Vice President, the Stock
Exchange of Thailand (Sept. 26, 2001).
Shawn W. Crispin& Mark Mitchell, Market Free For All, FAR EASTERN
ECONOMIC REVIEW (June 1, 2000).
Matthew Montagu-Pollock, Thai Stock Market Cleans Up Its Act, ASIAMONEY
Summary of Analysis on the Draft Amendment to the Securities and Exchange
Act supra no.e 14. The "Cabinet," previously known as the Council
of Ministers, is the Prime Minister's executive body, responsible for
the administration of the various ministries. For a more complete description
of the Cabinet and its place in Thai government, see http://www.mahidol.ac.th/Thailand/govemm-politic/polities.html.
See SET website, supra note 12.
PASUK PHONGPAICHIT & CHRIS BAKER, THAILAND'S BOOM AND BUST 1 (1998),
citing WORLD DEVELOPMENT REPORT 1997 (Washington: IBRD, 1997), Table 1
Id. at 42.
n23 Id. at 101.
Id. at 5.
WALDEN BELLO, SHEA CUNNINGHAM & LI KHEANG POH., A SIAMESE TRAGEDY:
DEVELOPMENT & DISINTEGRATION IN MODERN THAILAND 33-36 (1998) [hereinafter
Edward McBride, A Load on Its Mind, THE ECONOMIST (Feb. 28, 2002).
BANGKOK POST (May 17, 2002). By mid-June 2002, the SET has reached 415.
BELLO, supra n.25, at 45, quoting economist Jeffrey Sachs: "the IMF
arrived in Thailand in July with ostentatious declarations that all was
wrong and that fundamental surgery was needed when, in fact, the ink was
not even dry on the IMF's 1997 annual report, which gave Thailand and
its neighbors high marks on economic management." See also PHONGPAICHIT,
supra note 21, at 318.
AMARTYA SEN, DEVELOPMENT AS FREEDOM 235 (1999).
See PHONGPAICHIT, supra note 21, at 311.
See SEN, supra note 29, at 15.
BELLO, supra note 25, at 52.
See McBride, supra note 26. See also PHONGPAICHIT, supra note 21, at 100-3.
See also BELLO, supra note 25, at 33, citing HG Asia, Communique Thailand
(1996) ("Thailand worth a nibble perhaps but not a bite").
PHONGPAICHIT, supra note 21, at.281, citing Yukio Ikemoto, "Income
Distribution and Malnutrition in Thailand," Chulalongkorn Journal
of Economics, 5, no.2 (1993). See also BELLO, supra note 25, at pp.37-8
citing World Bank, World Development Indicators 1998 (World Bank, Washington
DC, 1998) Table 2.8, p.70.
BELLO, supra note 25, at 56-7.
See Adam S. Posen, The Looming Japanese Crisis (May 2002) (policy brief,
Institute for International Economics).
See Michael Mussa, Argentina and the Fund: From Triumph to Tragedy (Mar.
2002) (policy brief, Institute for International Economics)
See McBride, supra note 26.
Interview with Doug Barnett, President, Quest Capital Co., LTD (Dec. 12,
Interview with Rapee Sucharitakul, Assistant Secretary General, Securities
and Exchange Commission (Sept. 24, 2001).
This is the title of a course at Harvard Law School. An excerpt from the
course description states: Is the world gradually converging toward the
same set of economic practices and institutions, following the lead of
the North Atlantic industrial democracies? Or can democratic market economies
take institutional forms radically different from those now established
in the United States and Western Europe'? In recent years, an influential
set of ideas i.i political economy, sometimes labeled "neoliberalism"
or "the Washington consensus," has provided a focus for passionate
controversy and conflict throughout the world. Debate about the existence
of alternative paths for the developing countries and the postcommunist
societies finds parallels in the discussion within the prosperous industrial
democracies about how best to reconcile American-style economic flexibility
with European-style social protection. International financial instability
has lent new urgency to the controversy over alternatives. The course
considers these themes by exploring their variations in major postcommunist
or developing societies, as well as in the North Atlantic countries.
Interview with Dr. Tithiphan Chuerboonchai, Dean, Chulalongkorn University
Faculty of Law (Dec. 2, 2001).
Howell E. Jackson, Selective Incorporation of Foreign Legal Systems to
Promote Nepal as an International Financial Services Centre, in REGULATION
AND DEREGULATION: POLICY AND PRACTICE IN THE UTILITIES AND FINANCIAL SERVICES
INDUSTRIES (Christopher McCrudden, ed., 1999).
See id. at 367-8, 408. Also this point was clarified by Professor Jeffrey
Sachs in a lecture for the Harvard Law School course "One Way or
Many" in Spring 2000 (see note 43).
This summary paraphrases Professor Roberto Unger of Harvard Law School
in a lecture for the course "One Way or Many," Spring 2000 (see
See BELLO, supra note 25 at p.52.
Crispin, supra note 17.
Montagu-Pollock, supra note 18.
Interview with Rapee Sucharitakul, supra note 42.
Montagu-Pollock, supra note 18.
The SEC website at http://www.sec.or.th provides a list of the numerous
fines levied monthly since the beginning of 1999.
Montagu-Pollock, supra note 18.
See Durana Chudasri, Retail Investors Need to Take Care to Protect Benefits,
BANGKOK POST (Nov. 19, 1999).
Interview with Pornkanok, Director, The Thai Institute of Directors (IOD),
(Oct. 3, 2002).
"Thailand Economic Indicators," THE ECONOMIST website, at http://www.economist.com/countries/Thailand/.
"Thailand Update," World Bank website, athttp://Inweb 18.worldbank.org/eap/eap.nsf/7a4109e5442319dc852567c9007162
The Economist Poll of Forecasters, THE ECONOMIST 110, (Apri. 27, 2002).
SET website at http://www.set.or.th/static/ii-iarket/ii-iarket-u 13.htm1.
Emerging Market Indicators, THE ECONOMIST 78 (Aug. 17, 2002).
Securities Watchdog Sees Nothing Dodgy, BANGKOK POST (Feb. 7, 2002).
Interview with Rapee Sucharitakul, supra note 42.
Interview with Doug Barnett, supra note 40.
Sarah McBride, Retail Investors Trickle Back Into Asia's Markets, THE
ASIAN WALL STREET JOURNAL M1 (Feb. 8-10, 2002).
SET Slips on Pull-Out, BANGKOK POST (Feb. 22, 2002).
Regional Briefingv: Bangkok SET, THE ASIAN WALL STREET JOURNAL M2 (June
Ubels, Helen, Asian Firms Work to Tighten Boards, THE ASIAN WALL STREET
JOURNAL M8 (Apr. 23, 2002).
Wanted: Good Corporate Governance: Top Stock Picker Warns Companies to
Shape Up, ASIAWEEK (June 4, 1999), available at http://www.asiaweek.com/asiaweek/99/0604/biz3.html.
Interview with Boonchai Sriprachaya-anunt, Senior Vice President, Investment
Banking, Merrill Lynch Phatra Securities (Jan. 11, 2002).
Prescott, Reginald, Power to the Shareholders, THE BANGKOK POST (May 20,
Interview with Rapee Sucharitakul, supra note 42.
Interview with the manager of a Bangkok-based investment fund (Dec. 2001).
This individual agreed to the interview on condition that his name not
be printed here.
See the Afterword for a further discussion of this case and its ramifications.
Securities Watchdog Sees Nothing Dodgy, supra note 65.
Ubels, supra note 73.
See "Law and Development Movement, World Bank website, athttp://wwwl.worldbank.org/publicsector/legal/ldmovement
PHILIP A. WELLONS & KATHARINA PISTOR, THE ROLE OF LAW AND LEGAL INSTITUTIONS
IN ASIAN ECONOMIC DEVELOPMENT 1960-1995 19 (1999).
Id. at 63, diagram 4.1.
Interview with Supan Poshyananda, Director, Legal Department, Securities
and Exchange Commission (Sept. 24, 2001).
Interview with Thidarat Aruninta, Assistant Vice President, Legal Department,
The Stock Exchange of Thailand, (Sept. 26, 2001).
Interview with Supan Poshyananda supra note 89.
Interview with Rapee Sucharitakul, supra note 42.
See Philip Wellons, Prototypes of Securities Regulation for Africa: Key
Issues, Harvard Institute for International Development (Aug. 1999), at
26. "National politics may cripple the finance ministry's efforts
to regulate securities markets much more than it would undermine an independent...
Interview with Waratchya Srimachand, Deputy Director, Corporate Finance
Department, Securities and Exchange Commission (Oct. 4, 2001).
Id. See also interview with Suthichai Chitvanich, supra note 15.
Interview with Waratchya Srimachand, supra note 97.
See PM Urges Transparency, BANGKOK POST (Mar. 15, 2002).
This point was mentioned by all of the Thai securities regulators with
whom I spoke.
Interview with Suthichai Chitvanich, .supra note 15.
Interview with Thidarat Aruninta supra note 91. See also interview with
Waratchya Srimachand, supra note 97.
Interview with Waratchya Srimachand, supra note 97.
Interview with Tithiphan Chuerboonchai, supra note 44.
Interview with Rapee Sucharitakul, supra note 42. See also Summary of
Analysis on the Draft Amendment to the Securities and Exchange Act supra
Summary of Analysis on the Draft Amendment to the Securities and Exchange
Act supra note 14. See also Interview with Rapee Sucharitakul, supra note
Interview with Doug Barnett, supra note 40.
Interview with Thidarat Aruninta, supra note 91.
Interview with Trakarn Nopmuang, Director and Prakid Punyashthiti, Deputy
Director, Market Intermediaries Supervision Department, Securities and
Exchange Commission (Sept. 24, 2001).
2001 SET Midyear Report, BANGKOK POST.
Justin Doebele, Off With Their Perks!, FORBES GLOBAL (May 14, 2001).
Interview with Tithiphan Chuerboonchai, supra note 44. See also interview
with Kittipong Kittayarak, Director General, Department of Probation,
Ministry of Justice (Dec. 12, 2001).
Interview with Patraporn Milindasuta, Vice President, CICG Counsel, Office
of General Counsel, Merrill Lynch Phatra Securities Company (Feb. 12,
McBride, supra note /. Jee also interview with Patraporn Milindasuta supra
See Edward McBride, All Things Considered, THE ECONOMIST (Feb. 28, 2002).
WYATT, supra note 1, at 292-3.
Id. at 67, 292-3.
Voranai Vanijaka, Family Firms Feel the Heat, BANGKOK POST (Sept. 11,
2000), citing the Andersen Consulting study. See also Andreas Kluth, Empires
Without Umpires, in A Survey of~Asian Business, THE ECONOMIST (Apr. -7,
2001), citing the Economist Intelligence Unit in diagram 2.
See Kluth, supra. This view was supported by anecdotal evidence supplied
by my interviewees.
Andreas.Kluth, OfLaws and Men, in A Survey ofAsian Business, THE ECONOMIST
(Apr. 7, 2001).
See DOJto Andersen: Drop Dead, Dobbs Report (Mar. 27, 2002), CNNMoney
website, at http://money.cnn.com/2002/03/2
Interview with Pornkanok supra note 57.
See Krissana Parnsoonthorn, SEC Wants to Boost Quality of Investors, BANGKOK
Tom Holland, The Search for Quality,. FAR EASTERN ECONOMIC REVIEW 43 (Apr.
Interview with Rapee Sucharitakul, supra note 42.
Interview with Thidarat Aruninta, supra note 91.
Summary of Analysis on the Draft Amendment to the Securities and Exchange
Act, supra note 14.
Interview with Rapee Sucharitakul, supra note 42.
Pamsoonthom, supra note 129.
Discussion with Professor Philip Wellons of Harvard Law School, who established
this program in Egypt.
Parnsoonthom, supra note 129.
Interview with Rapee Sucharitakul, supra note 42.
Interview with Boonchai Sriprachaya-anun:, supra note 75.
Interview with Rapee Sucharitakul, supra note 42.
Interview with Doug Barnett, supra note 40.
Interview with Boonchai Sriprachaya-anunt, supra note 75.
See Nuntawun Polkuamdee, Krissana Parnsoonthorn, & Chiratas Nivatpumin,
Good Governance Easier Said than Applied, BANGKOK POST (Jan. 31, 2002).
See also Ubels, Helen, Asian Firms Work to Tighten Boards, THE ASIAN WALL
STREET JOURNAL M8 (Apr. 23, 2002), quoting Hong Kong shareholder activist
David Webb: "change [in corporate governance standards] is being
held back with people putting form over substance."
Summary of Analysis on the Draft Amendment to the Securities and Exchange
Act supra note 14.
See Nuntawun Polkuamdee, Fraud Case Dropped by Prosecutors, BANGKOK POST
(Dec. 13, 2002). See also Nuntawun Polkuamdee & Krissana Parnsoonthorn,
Thais Risk 'Corruption Hub' Status Over Brinton, BANGKOK POST (Jul. 24,
Nuntawun Polkuamdee, Australians 'Shocked' by Outcome, BANGKOK POST (Jul.
See Announcement on the Decision of the Public Prosecutor Not to Bring
Criminal Charge on the Count of Fraud Against Seven Members of the Brinton
Group, SEC NEWS (Jul. 2, 2002).
Nuntawun Polkuamdee & Krissana Parnsoonthorn; Legal Weaknesses to
Blame for Inefective Role, SEC Insists. BANGKOK POST (Jul. 4, 2002).
Nuntawun Polkuamdee, Market Experts to Help New Unit Hunt Economic Criminals,
BANGKOK POST (Jul. 11, 2002).
Nuntawun Polkuamdee, Amendment Would Give SEC Teeth, BANGKOK POST (Jul.
Brinton Case Sparks Call to Review Laws, BANGKOK POST (Aug. 1, 2002).
Dr. Suvarn Valaisathien, Class Action Law is Urgently Needed. BANGKOK
POST (Sept. 2, 2002).
Nuntawun Polkuamdee, Red Tape Impedes Convictions, BANGKOK POST (Dec.
SEC Announces Plan to Increase Investor Participation in the Year 2003,
SEC NEWS (Dec. 24, 2002).
Finance Minister Announces Roadshow a Major Success for Listed Companies,
SET EXCHANGE NEWS (Jan. 24, 2003 ).