At present, certain foreign securities exchanges tend to be concentrated in a small number of large-cap securities, resulting in corresponding concentration in indices that reflect those markets. In addition, the current rules** permit funds to use indices recognized by securities exchanges that are members of the World Federation of Exchanges (WFE) (recognized indices), without requiring consideration of the diversification of index constituents. The rules also do not prescribe qualifications for benchmarks used by funds’ investment limits. Consequently, funds may be exposed to higher-than-appropriate concentration risk.

The SEC has therefore proposed to amend the fund index qualification requirements, taking into account overseas regulatory approaches, investor protection, and practicality. The key proposals are summarized as follows:

1. Revise the consideration of fund index qualifications: This would not apply to Depositary Receipts (DRs).

        (1) Discontinue the consideration of index qualifications based on the recognized index approach.

        (2) Require indices used by funds as investment references, including indices used as benchmarks for controlling investment limits, to meet the principle-based index criteria, such as having clearly defined objectives and calculation methodologies, providing sufficient diversification under the 20/35 rule (which sets a cap on the weight of each index constituent),*** being transparent, and being developed by a credible institution that is independent of AMCs.

        (3) Remove the exemption for Thai funds investing in foreign exchange-traded funds (ETFs) that track indices that meet the recognized index criteria, under which it is not necessary to consider whether the investment unit offerings are subject to supervision in a jurisdiction with adequate investor protection measures included in the list prescribed by the SEC Office.**** This revision would align with the discontinuation of the consideration of indices based on the recognized index criteria.

 2. Establish supervisory guidelines for temporary non-compliance with the 20/35 rule: Where an index has an index methodology that complies with the 20/35 rule and a clearly specified index weight rebalancing schedule, but the proportions of its constituents or the investment ratios temporarily exceed the prescribed limits due to market conditions, such circumstances would not be considered a case in which an asset ceases to meet the qualification requirements or a fund exceeds an investment limit for reasons other than additional investment. This approach would allow AMCs to manage investments flexibly without imposing an undue burden.

           3. Prescribe transitional provisions: Existing funds would be required to adjust their investments to comply with the new requirements within one year from the effective date of the notification. During this period, they may continue to invest under the existing requirements. If a fund is unable to comply with the new requirements after the deadline, it may maintain its investments under the existing requirements. However, additional offerings of investment units would be prohibited, and the AMC would be required to disclose to investors information on investments that do not yet comply with the new requirements.

The consultation paper is available on the SEC website at https://www.sec.or.th/TH/Pages/PB_Detail.aspx?SECID=1234 and on the Legal Hub at https://law.go.th/listeningDetail?survey_id=ODY1MERHQV9MQVdfRlJPTlRFTkQ=. Stakeholders and interested parties may submit comments through either website or by email to thanunya@sec.or.th and pattarav@sec.or.th.  The public hearing ends on 26 November 2026.

Notes:

* Mutual funds refer to retail mutual funds and mutual funds for non-retail investors.

** Notification of the Capital Market Supervisory Board No. Tor Nor. 87/2558 Re: Investment of Funds, dated 17 December 2015, as amended (Notification No. Tor Nor. 87/2558), requires a reference index to have either of the following characteristics:

    (1) A recognized index means an index recognized by a securities exchange that is a member of the World Federation of Exchanges (WFE member), such as an index developed or jointly developed by a WFE member, or an index tracked by an ETF traded on a WFE member exchange.

    (2) A principle-based index means an index assessed against principle-based criteria, such as having clearly defined objectives and calculation methodologies, providing sufficient diversification under the 20/35 rule, being transparent, and being developed by a credible institution that is independent of AMCs.

*** Each index constituent must not exceed 20 percent of the total index weight; or, where consistent with market conditions, any one index constituent may account for up to 35 percent of the total index weight, while each of the remaining constituents must not exceed 20 percent. Constituents related to gold or crude oil are not required to be taken into account for this purpose.

**** At present, the list of 15 jurisdictions with adequate investor protection measures as prescribed by the SEC comprises the United States, France, Germany, Luxembourg, the United Kingdom, Ireland, South Korea, China, Japan, Malaysia, Singapore, the Hong Kong Special Administrative Region of the People’s Republic of China, New Zealand, Australia, and Liechtenstein.