Earlier, the SEC conducted a public hearing on the principles for revising the rules on the maintenance of net capital adequacy for business operators in the part related to the use of subordinated debt in sustaining the net capital**. Moreover, the proposed amendment included a review of the risk haircut rates used in calculating the net capital adequacy in alignment with the current conditions, covering the risks of various financial instruments and revision to the definition of special debts to encompass additional categories of outstanding debts. The SEC received valuable feedback and suggestions and took them into consideration when reviewing the proposed regulations. 

The SEC is therefore soliciting public comments on the proposed regulations and relevant draft attachments with the key points as follows:    

(1) Allowing business operators to temporarily include the amount of the subordinated debt beyond the shareholders’ equity without being considered as part of the total liabilities in calculating net capital. This temporary measure would allow business operators a period to undertake improvements and adjustments to ensure that the subordinated liabilities not counted as part of the total liabilities would not exceed the shareholders’ equity. Additionally, the definition of the subordinated debt would be revised to include provisions specifying a cancellation or postponement of interest payments or other returns in the event of circumstances that may impact the net capital of business operators, as specified by the SEC, to provide greater flexibility and appropriateness;    

(2) Adjusting the haircut rates for certain types of securities concerning position risk*** and specifying appropriate haircut rates for position risk of stocks traded on LiVE Exchange and depository receipts (DRs); and

(3)  Revising the definition of special debt to include other outstanding debts such as debts resulting from delayed payments for securities sale to customers as a result of an official authority’s freezing payments from of such sale, as well as debts from having clients’ asset custody or acting as a representative of such asset custody for a business operator who engages in other business activities and distinctly segregates its assets from those in its custody. This measure aims to mitigate excessive burdens in maintaining capital adequacy.  

The consultation paper is available on https://www.sec.or.th/TH/Pages/PB_Detail.aspx?SECID=962 and https://law.go.th/. Stakeholders and interested parties are welcome to submit comments and suggestions via the websites or emails: bhumipisuth@sec.or.th, sawarin@sec.or.th, and arthipha@sec.or.th. The public hearing ends on 7 February 2024.

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Remarks:

* The current regulations mandate that business operators maintain a minimum level of net capital as follows:

         (1) Net Capital (NC): Liquid assets after deducting the total liabilities and risk haircuts at an amount not less than the specified value;  

(2) Net Capital Ratio (NCR): the ratio of NC compared to general liabilities (the total liabilities and derivative financial liabilities, excluding special debts), plus required margin for derivatives contracts, not lower than the specified ratio.          

** Subordinated debt refers to liabilities for which the rights of creditors are subordinated to those of general creditors. Such debt is unsecured and lacks conditions allowing creditors to demand repayment before the specified due date. It is excluded from the total liabilities, specifically limited to the portion that does not exceed the value of the shareholders’ equity.

*** Position risk refers to the risk arising from changes in the prices of securities or underlying assets in a direction that results in potential loss for the business operator. The loss occurs due to the business operator taking a position, either long and/or short, in securities, financial instruments, or derivatives.