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NEWS UPDATES Asean Affairs              5  September 2011

Thai exchange looks at new strategies

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Traditional trading exchanges worldwide are increasingly seeing their volumes threatened by cutting-edge "dark pools" and automated trading systems (ATS).

As the new technologies make greater inroads into Asia, the Stock Exchange of Thailand is going to face rising challenges in the near future, says Banyong Pongpanich, the chairman of Phatra Securities.

The Stock Exchange of Thailand, he said, was at risk of seeing its volume thin out because its old trading technology is unable to accommodate the increasingly sophisticated demands of investors.

The issue has become urgent as the Thai bourse prepares to join the Asean Linkage, initially with Malaysia, Singapore and the Philippines, which will allow investors to trade on any or all of the four markets through their local brokers.

The cross-border trading platform is expected to attract more foreign investors, but it also comes with risk for the Thai market, said Mr. Banyong.

ATS uses computerised high-frequency trading programs and allows orders to be placed on all listed securities in any exchange in the world with lower transaction costs. "Dark pools" is the name given to large trades by financial institutions that are offered away from public exchanges so transparency is limited.

ATS and dark-pool trading are not possible yet in Thailand as existing laws have not yet been amended to accommodate a cross-border trading platform. However, once the Asean Economic Community is formed in 2015, traditional trading exchanges will be forced to adjust to stay competitive in a freer market.

"The SET and securities firms will face shrinking revenue if they haven't changed their business strategies and found new sources of income," said Mr. Banyong.

He said that dark-pool and ATS transactions had eaten into the market shares of the London and New York exchanges over the past three years. Asia began to see signs of such activity last year as main exchanges in China, Japan and Korea now use cutting-edge technological platforms. Now, Singapore and Malaysia are using the technologies as well.

Mr. Banyong said that at the very least, the SET must improve its infrastructure by moving to a high-speed trading system, promote transaction cost reduction, offer a variety of new investment products and lift capitalisation; otherwise it will lose investors to other markets.

The Thai market once had a weighting as high as 13 percent in the MSCI but the figure has fallen to only 2-3 percent and capitalisation remains small compared to others.

Once the Asean Linkage begins operating in the second quarter next year, 30 large-cap stocks from each country member will be available on a single trading board. This would help lift the capitalisation of stocks that could potentially be traded through Thailand to nearly 20 percent of the MSCI weighting.

However, an obstacle to the Asean Linkage is the different tax regimes related to investment and corporate rates in each country.


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This year in Thailand-what next?

AseanAffairs   04 January 2011
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