1.Create a formal coordination mechanism among governmental agencies with regulatory authority over the capital markets

The formal inclusion of the SEC’s Secretary General in the Financial Institutions Policy Committee (FIPC) helps improve coordination among regulators with regard to critical matters affecting the financial system. As for the coordination at the working level staff, the SEC and the BOT have close coordination, through regular consultations and information sharing, particularly in the issues concerning clearing and settlement systems.

2.Amend the SEA to transfer final licensing authority over securities firms to the SEC.

It is considered that the transfer of licensing authority from the Finance Minister to the SEC is not necessary, as the existing legal provision where the Minister has the final responsibility of granting securities licenses is not a restriction in practice. Although licensing eligibility requirements are in the form of Ministerial Regulation, the process is always initiated by the SEC, and in the past whenever the SEC proposed a scheme for granting new licenses, the Minister did not have any particular resistance.

3.Amend SEA to change nomination and appointment process for SEC Board members.

Upon enactment of the Securities and Exchange Act (No.4) B.E. 2551, the SEC’s composition has been changed, so as the nomination and appointment processes of SEC Board members. At present, the Finance Minister no longer chairs the SEC Board. Rather, the SEC Chairman is appointed from outside experts by the Cabinet’s resolution upon recommendation of the Finance Minister. As for the expert commissioners in the SEC Board, the new nomination and selection processes have been introduced. Under the processes, the Finance Minister has the duty to appoint the Selection Committee comprising ex-high ranking public officials and/or ex- SEC commissioners to perform selection process of the expert commissioners in the SEC Board. The SEC Chairman and the ex officio commissioners jointly nominate a list of experts to the Selection Committee, twice the number of expert commissioners to be appointed. The Selection Committee then conducts the selection process and proposes the selected experts to the Finance Minister for appointment.

4.Confirm that the authority of the Minister of Finance under Section 262 of the SEC does not extend to direct involvement in the daily operational activities of the SEC.

The SEC, in practice has operational independence in carrying out its day-to-day activities. Though the assessors view that Section 262 in the SEA is theoretically open for possible involvements by Finance Minister in SEC daily decisions, the provision has never been invoked by any Minister.

5.The SEC should publish for public consultation the complete text of its draft regulations in addition to its summaries.

The SEC has been conducting public hearings on the proposed rules or amendments consistently through its website, focus groups and seminars. Recently, full text of proposed rules or amendments has been regularly published on its website.

6.The SEC should amend its code of conduct and provide that restrictions on securities investments by its staff also applies to spouses, minor children and all other account over which an employee has the authority to make investment decisions.

The SEC’s employees are prohibited from investing in securities with certain exemptions, i.e. investment in investment units of mutual fund and debt securities. Prohibition has been expanded to include investment in derivatives products. The employee’s code of conduct has recently been amended to enable a periodic review on investment accounts of the employee and his or her spouse and minor children. Although the amended code of conduct does not restrict securities investments of the employee’s spouse and minor children, which would be considered an unfair restriction on their right and liberty in making investment, the report of their investments will give the SEC the information for monitoring purpose.

7.The SEC should seek an amendment to the SEA to permit it as a matter of discretion to review and approve or require changes to all SET rules, including trading and operations rules.

Under the present legal framework of the SEA, the SEC Board has the authority to order the SET to amend or revoke its existing rules or to issue new rules, providing that the SEC Board considers that the SET’s rules may cause damage to or prejudice the public interest or insufficient to protect and maintain investor confidence.

8.The SEC should seek authority to act as an appellate reviewer of SRO disciplinary actions.

The current SRO disciplinary and appeal process where the affected person or offender, disagreed with the actions, can appeal to the Appellate Committee approved by the SEC and then to the Administrative Court is considered as having sufficient check and balance.

9.The adequacy of FAP resources to perform its required functions should be carefully examined. If warranted efforts should be taken to increase the funding of the FAP.

The SEC has continuously given financial support to the Federation of Accounting Professions (FAP) since 2006 for the development of Thai accounting standards, auditing standards and code of ethics for professional accountants in line with international standards.

10.The SEC should examine the adequacy of surveillance of the OTC debt market.

The SEC undertook an assessment on efficiency and adequacy of Thai Bond Market Association (ThaiBMA)’s e-surveillance system and planned to conduct an on-site inspection in the first quarter of 2009.

11.The SEA should be amended to substantially expand the enforcement authority of the SEC. The SEC should have the authority to independently file civil enforcement actions against any person or entity that violates the SEA or the SEC regulations implementing the action. This authority should include money sanctions, restitution to investors, and the ability to order corrective action.

SEC administrative authority over registered persons and entities should include authority to impose money fines and to bar persons from serving as Directors of listed companies.

The SEC should obtain the authority to refer criminal actions directly to the Public Prosecutor, without a separate review by the Thai Royal Police or the Department of Special Investigations.

An analog of the Settlement Committee should be created to consider SEC civil actions, including those based upon fraudulent misconduct.

The SEC is of the view that the power to file civil enforcement actions independently, including the power to impose money sanctions against the violators of the SEA would help improve the SEC’s enforcement authority significantly. However, since civil sanctions are not applicable in the Thai legal system, the SEC in late 2006 commissioned the Institute of Legal Research Foundation to study on the alternative enforcement measures against securities law violations. The study report, completed in early 2008, has proposed a draft Bill to reform securities law enforcement programs by making avail for the SEC a variety of measures such as civil sanctions and administrative sanctions. The SEC agrees in principle with the suggestions made in the report and is currently in the process of finalizing the proposed draft Bill before submitting to the Government for legislation process.

As for the SEC administrative authority to bar persons from serving as directors of listed companies, the newly amended securities law has explicitly empowered the SEC to bar listed firms’ directors and management with prohibited characteristics.

12.The SEC should be given the authority to temporarily suspend trading in individual securities, when warranted.

It is considered that the existing framework that the SET, as a front line regulator, exercises the power to temporarily suspend trading of individual securities, while the SEC has the authority to suspend trading of the whole market for the safeguard against damage to public interest is still appropriate.

13.The SEA should be amended to authorize a court to order a person or company to comply with an SEC request to testify or to produce documents in an investigation.

A study on the issue has been underway.

14.A private class action legal case should be permitted.

The Class Action Act came into effect on March 5, 2008, enabling shareholders and investors to pursue lawsuits against the directors for breaches of duties more conveniently and with less concern about costs.

Please see 1 above

16.The SEA should be amended, consistent with the DA, to enable the SEC to seek information on behalf of foreign regulatory bodies, consistent with international standards for cooperation.

Under the newly amended SEA, the SEC is empowered to provide investigatory assistance to foreign regulators upon request even in the case that the SEC does not have its own interest in the matter. Following this development, the SEC became a full signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (IOSCO MMoU) in May 2008, enhancing effectiveness of its cross-border enforcement actions.

17.The SEC should seek amendments to the SEA in accordance with the 2005 ROSC on corporate governance. These include authority to issue regulations governing the annual and special shareholder meeting process, including timing of notices, minimum number or percentage of shareholders required to request a meeting or to add items to the agenda, to remove a director, to require cumulative voting in director elections and to extend the legal fiduciary duties of company directors so that they apply to senior management of a company.

All of the above issues of concern have already been addressed under the newly enacted SEA amendments. In essence, the law has enhanced protection of shareholder rights significantly through (1) shareholders’ ability to propose agenda items for the shareholder meetings; (2) channels for shareholders to seek legal redress, whereby they are entitled to file, on behalf of the company, the claim to disgorge ill-gotten gains obtained by company directors or management in bad faith. Shareholders also have rights to receive reasonable litigation expenses from the company by court order, since they act for the benefit of the company as a whole.

18.Because Thai accounting standards are in transition and the FAP is still in a formative period, accounting and auditing ROSCs would be appropriate in the near future.

Thailand went through accounting and auditing ROSCs in 2008, with the FAP as core coordinator.

19.The restriction on new securities dealers’ licenses is inconsistent with an equitable application of licensing policy. The 2012 deadline should not be extended.

Starting January 1, 2012, the SEC will accept unlimited applications for new securities licenses, providing that applicants meet the “fit and proper” requirements for each category of licenses being sought for. The new licensing criteria will be in the form of single license allowing license holders to engage in a full range of securities businesses. Those who seek to engage in a specific category of securities businesses will be able to apply for “boutique services” licenses. The Ministerial Regulation governing this new licensing regime has been passed in February 2008. This regulation clearly states that by 2012 applications for new brokerage licenses will be accepted.

20.The one month record retention requirement for tape recorded customer calls should be extended.
Record retention requirement is extended from 1 to 3 months, starting from April 2009.

21.The highest priority should be given to empowering the SEC to take all necessary action, such as the authority to appoint a liquidator or receiver to protect customer accounts and to preserve assets of a securities firm that fails and to transfer or deliver out customer assets in the event that a failed firm misappropriates them. Related issues of bankruptcy law protection for customer assets held in street name, and settlement integrity for unsettled transactions should also be addressed.

The SEC must have clear authority to isolate a failing firm’s risks to prevent systemic market failures.
The recommended MOU with other regulators should also provide for advance warnings of potential firm failures to ensure effective and timely response to possible systemic risks.

The amended SEA has given the SEC and Thailand Securities Depository Center (TSD) the authority to act in the event of a securities firm’s failure, including the power to segregate and administer client assets. Regarding the issue of MOU, please see 1 above.

22.Transparency in the equity market is sound and improving in the debt market. Further efforts may be appropriate, such as creation of better depth of book disclosure for equities and meaningful electronic disclosure of dealer quotes in the debt market.

Please see 9 above

23.As previously noted, amendment of the SEA to authorize SEC discretionary authority to review all SET rules is warranted.

Please see 6 above

24.Amendment of the law is required to clarify the definition of prohibited market misconduct, such as insider trading and market manipulation.

The SEC has conducted a research with a view to improving law enforcement against market misconduct. Once the research is concluded, the SEC will proceed with drafting the Bill and submitting it to the Government for legislation process.

25.A full ROSC on the securities clearance and settlement system would be beneficial.

Thailand went through an assessment of the securities settlement system, also in the context of FSAP, in May 2007. The report on the assessment results can be viewedhere.

26.The TSD should have the legal authority of a central counterparty and not have discretion to decline to settle trades. Member firm security deposits should be legally under the TSD and not subject to creditor rights in bankruptcy.

This recommended action has been taken into account and included in the TOR of the Technical Assistance on central counterparties (CCP) requested from the IMF.