The Stock Exchange of Thailand (SET) is contemplating adjusting measures in four areas to impose greater controls on both short sales and program trading, aiming to reduce the volatility of securities prices and increase the long-term strength of the bourse.
The adjustment comes after a study about short selling and program trading carried out by an external consultant found the bourse’s market surveillance system is up to regional standards, according to a statement issued by the SET.
The study compared regulations and guidelines regarding short selling and using computers to send orders (program trading) used in the SET with stock exchanges overseas, both in developed markets and those with a similar level of development as Thailand (peer exchanges) to enhance trading to be transparent and fairer for all types of investors.
“The study found that overall, the Thai bourse has regulations and guidelines in place to supervise short selling and program trading that are comparable with peer exchanges,” the statement noted.
“However, the advisor has additional suggestions for the SET to consider in order to strengthen the supervision of such matters to suit the situation in the country.”
The areas the consultant suggested upgrades comprise the control, reporting, monitoring and enforcement, and division of responsibilities.
In terms of control, the SET has been urged to improve the mechanism for controlling program trading and reducing the volatility of securities prices. In this regard, the consultant suggests setting guidelines for following up on short selling transactions and having a price control mechanism to reduce the volatility of securities prices.
In the area of reporting, the bourse should make short selling reports easier to understand in terms of the details and the follow-up process, including public disclosure.
For monitoring and enforcement, the SET should emphasise its member companies ensure investor compliance, including making punishment stricter, noted the consultant.
Regarding division of responsibilities, the bourse should specify the scope of duties and responsibilities of the market regulator and the stock exchange to oversee short selling and program trading, in accordance with international standards. In doing so, regulatory agencies would be able to punish violators directly and quickly, according to the consultant.
Improvement in these four areas of operation would allow the SET to better protect against naked short selling transactions and inappropriate program trading transactions in the future, noted the statement.
The board of directors considered the recommendations and told the SET to come up with proposals for improving related rules and guidelines.
The bourse wants to discuss this subject with the Securities and Exchange Commission and related parties in order to expedite actions regarding measures as soon as possible, said the SET.
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