Who is "Securities Broker / Dealer"?

Under Section 4 of the Securities and Exchange Act B.E. 2535 (the SEA), a "securities broker" is "a person representing another in the purchase, sale or exchange of securities in the normal course of business for a commission, fee, or any other form of consideration". Thus, in this context, any person holding himself/herself out that he/she engages in the business of soliciting and executing securities transactions for the account of others is clearly a broker.

Concurrently, a "securities dealer" is "a person conducting the purchase, sale or exchange of securities, outside a securities exchange or an over-the-counter centre, for his/her own account in the normal course of business". Thus, in this context, any person holding himself/herself out that he/she engages in the business of soliciting and executing securities transactions for his/her own account, outside a securities exchange or an over-the-counter centre is clearly a dealer.

In addition, under Section 90 of the Act, the securities business mentioned above can be undertaken only after a limited company or a public limited company or a financial institution established in accordance with other laws has obtained a license from the Minister of Finance upon the SEC’s recommendation.

 Any person operating securities business without a license shall be liable to imprisonment for a term of 2 to 5 years, a fine from Bt200,000 to Bt500,000 and a daily fine.

 For more details and inquiries, please call the SEC Information Center at 66-2695-9999 or e-mail: seccom@sec.or.th

Who is Eligible ?

 Being a securities company that has obtained one or two licenses to operate either as securities broker and/or securities dealer and/or securities underwriter, and wishes to obtain the rest;

 Not being a financial institution established under other laws;

 Not cross-holding shares of more than 99 percent with another securities firm;

 Having a sound financial condition and performance, estimated from the company’s financial statements of the past three consecutive years

Those who wish to limit their underwriting business to debt instruments only must apply for a separate license and have the qualifications prescribed in Ministerial Regulations No. 2 B.E. 2536 and No. 16 B.E. 2544

 Applicants must submit Form 90-6 enclosed with all required documents to the SEC Office;

 The SEC Office shall propose the applications for the SEC Board’s consideration. The SEC Board shall recommend the qualified applicants to the Finance Minister within 90 days after receiving the applications with completed paperwork;

 Upon the SEC Board’s recommendation, the Finance Minister shall grant the license within the next 30
day.

Associated Persons

Apart from an underwriter license for the securities company, the law requires that the following associated persons meet minimum requirements, not possess prohibited characteristics, and either be approved by or register with the SEC Office as the case maybe:

 Major shareholders of more than 10 percent stake (Notification of the Ministry of Finance dated February 23, B.E. 2543 and April 4, B.E. 2545)

 Directors, managers, management, advisors or external persons to whom the securities company contractually gives the managing power ( Section 103 and Section 104 of the Securities and Exchange Act B.E. 2535, Notifications No. GorThor/Nor/Khor. 3/2548, No. GorThor/Nor/Khor. 4/2548, and No. OrThor/Nor/Khor/Yor. 6/2548)

 One-fourth of directors must be independent directors (effective from January 1, 2007). (Notifications No. GorThor. 42/2543

 Investor contacts (Notification No. SorKhor 15/2548

Regulations of Broker/Dealer Supervision

1. Financial Responsibility Rules

1.1 Net Liquid Capital Rule (Notification No. GorThor. 18/2549 and SorThor. 23/2549)

 The purpose of this rule is to require a broker/dealer to have at all times enough liquid assets to promptly satisfy the claims of customers and other liabilities, as well as potential market and credit risks

 A broker/dealer is required, on a daily basis, to maintain the minimum net capital of Bt. 15 million or Bt. 25 million baht if it also holds derivatives agent license, together with the minimum NCR of 7% of general indebtedness (as specified by the SEC) as follows :

NCR     =  Liquid Assets (haircut adjusted) - Total Liabilities
                        General Indebtedness (as specified by SEC)

NC =< 1.5 times of minimum requirement (early warning) that means
Securities company operating only securities business
NC =< 10.5% or =< 22.5 million baht
Securities company holding derivatives agent license
NC =< 10.5% or =< 37.5 million baht

Securities company operating only securities business
NC < 7% or < 15 million baht
Securities company holding derivatives agent license
NC < 7% or < 25 million baht

The brokerage/dealing business is, therefore, frozen, and the broker/dealer is required to submit a 120-day contingency plan to the SEC within 30 days. In case the broker/dealer (a) fails to submit such plan, (b) fails to operate in accordance with the plan, (c) experiences negative NCs for 5 consecutive days, or (d) fails to fulfill its obligations as to clearing and settlements, all operations must be ceased, risks associated with investments will be minimized, and client positions are to be transferred to other broker/dealer

1.2 Customer Protection Rule / Segregation Rule (Notification No. GorThor. 4/2543)

 Customers’ funds and assets must be segregated from those of broker

 A broker must maintain, as well as keep accurate and current records of customer’s assets accounts. In addition, the monthly statement of client assets must be reported to all clients within the 7th day of the following mon

 Assessing to client’s assets is not permissible unless a client’s written authorization is granted.

1.3 Loans to Customers /Credit Balance (Notification No. GorThor. 39/2540 and SorThor. 42/2540)

 A broker is required to call for additional funds or marginable securities from clients to ensure that the market value of such pledged assets is not less than 50% of the total debit balances in clients’ trading accounts.

 All clients’ securities pledged shall be marked to market to reflect trading limits at any time and a broker is required to monitor such balances to ensure that clients’ trades do not exceed the specified trading limits and to call margin and force sell when value of such pledged securities falls to certain level prescribed by the Stock Exchange of Thailand.

 Loans shall be granted for the purchase of securities listed in the Stock Exchange of Thailand or those being offered by listed companies increase their capital.

1.4 Books & Records Requirements (Notification No. GorThor. 42/2543)

 A broker/dealer is required to maintain and keep current, as well as accurate, books and records, including those in relation to clients’ trades, clients' assets, as well as complaints received from clients, in an easily accessible manner for a minimum period of 2 years.

 A broker/dealer is required to maintain and keep current, as well as accurate, books and records in relation to clients’ trades for a minimum period of 5 years, of which in the first 2 years, they shall be kept in an easily accessible manner.

 Securities analysis reports or articles shall be maintained for a minimum period of 2 years from the date of dissemination.

 Evidence concerning giving advice to clients or receiving clients’ orders including tape records shall be maintained for a minimum period of 1 month, or longer until the client complaints related to such matters are completely resolved.

 Evidence concerning clients’ complaints should be kept completely, current and easily accessible.

1.5 Report Making and Submission

Securities companies must prepare and submit the following reports to the SEC Office

Weekly Report on the Purchase of High Turnover Securities by Individual Clients (SEC Circular SEC. Thor. 1/2547)

Monthly Reports

Unaudited Monthly Financial Statement (Form Bor.Lor. 2 & Bor.Lor. 2/1) (Notification No. SorThor. 55/2546)

Monthly Report on Margin Lending to Clients (Form Bor.Lor. 5/1) (Notification No. SorThor. 55/2546)

Monthly Statement of Clients' Assets (Form Bor.Lor. 8) (Notification No. SorThor. 55/2546)

Monthly Report on Net Liquid Capital (Form Bor.Lor. 4/1) (Notification No. SorThor. 50/2540)

Quarterly Reports

Quarterly Complaint Handling Summary (Notification No. GorThor/Nor. 8/2545)

Audited Financial Statement (ending June) (Form Bor.Lor. 1 and Bor.Lor. 1.1) (SEC Circular SEC. Thor.  25/2547)

To be filed within 3 months after the end of the period.

Annual Reports

Annual Compliance Report (SEC Circular SEC. Gor. 15/2538)

Audited Financial Statement (Form Bor.Lor. 1 and Bor.Lor. 1.1) (SEC Circular SEC. Thor. 25/2547)

Report on Gross Operating Income for Annual Transaction Levy Calculation (Form 14-2) (Notification No. SorThor/Nor/Yor. 59/2546)

Notifying Report of the Opening of New Branch Offices (Form 92-2) (Notification No. SorThor. 39/2543)

1.6 Risk Assessment Requirements (Notification No. GorThor. 42/2543)

 A broker/dealer should establish reasonable procedures as to risk measurement and management to ensure continuity of its businesses.

 Risk management programs should address all aspects of risks associated with undertaking securities business.

2. Conduct Regulations

2.1 Anti-Fraud Provisions

 A broker/dealer must not give false or misleading advice / statement of a material fact, and must not engage in any activity with the purpose to defraud investors. (Notification No. GorThor. 42/2543)

 A broker should have in place a system to ensure that its salespersons do not give advice in order to induce clients to increase their trades, thus increasing his/her remuneration ("Churning"). (Notification No. GorThor. 42/2543

 A broker/dealer must have proper procedures to prevent and deter the use, including tipping, of material non-public information in connection with the purchase or sale of securities. Those include measures to prevent possible conflicts of interests, i.e. physical barriers, isolation of certain departments, as well as internal policy as to staff trading, as specified by the SEC. (Notification No. GorThor. 42/2543 and OrThor. 27/2543

 Execution of orders must be in accordance with the specifications received from clients, as well as their authorized persons'. ("Unauthorized Trades") (Notification No. GorThor. 42/2543)

 Client information is to be treated confidential. (Notification No. GorThor. 42/2543)

2.2 Opening Client's Account (Notification No. GorThor. 42/2543)

 A broker/dealer must have in place procedures to ensure clients are the same persons as presented in the documents of account opening.

 A broker/dealer must conduct customer due diligence review to verify beneficial owner of such client’s trades.

 A broker/dealer must implement reasonable procedures to verify client’s financial capability prior to providing recommendations and effecting securities transactions.

 A broker/dealer must implement procedures according to the know-your-client principle to verify clients’ investment objectives and assess their understanding and experience in securities investment.

 A broker/dealer must constantly perform procedures according to know-your-client principle, keep an up-to-date clients’ information and review their financial capability and total exposure frequently.

 A written consent of client’s authorization for other person to perform on his/her behalf must be arranged and presented to a broker/dealer.

2.3 Trading Practices (Notification No. GorThor. 42/2543)

 All clients should be treated fairly and without any prejudice.

 A broker/dealer must deal fairly with clients by disclosing all material information and possible conflicts of interests, including when taking the opposite sides of the clients' orders. ("Duty of Fair Dealing")

 A broker/dealer should seek to obtain the most favorable terms available at the time orders are placed for the best interest of the clients, including executing clients' orders promptly and at the best available prices offerred in the prevailing market. ("Duty of Best Execution")

2.4 Other Conduct Rules

 A broker/dealer must implement reasonable procedures to verify the identities of new clients to assess their investment objectives and financial net worth prior to providing recommendations and effecting securities transactions. (Notification No. GorThor. 42/2543)

 A broker/dealer should have in place systems to handle customer complaints. (Notification No. GorThor/Nor. 8/2545)

 A broker/dealer must have effective and comprehensive compliance programs, as well as internal control systems, and develop environments where compliance units and internal audits can independently perform their functions. (Notification No. GorThor. 42/2543

Fees

Annual Fee (For those who had obtained licenses before the Securities and Exchange Act B.E. 2535 became effective and are exempted from the license fee in 2) (Notification No. SorThor/Nor/Yor. 59/2546)

     To be paid annually at the rate of 1 percent of the total income (before expenditures) from securities businesses but not below Bt500,000 or higher than Bt5,000,000. The fee shall be paid in two installments:
(1)1st Installment of Bt500,000 (at minimum) to be paid by January of that calendar year, and
(2) 2nd Installment of the remaining amount (not exceeding Bt4,500,000) to be paid in full by January of the following year.