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11 Dec 2009

Financial Markets

Capital Market Master Plan: Impact on Securities Business (Current Issue No.2189)

In early November 2009, the Economic Cabinet approved the Capital Market Master Plan with a 5-year strategic timeframe (2009-2013). This new Master Plan was developed to continue from Thailand's first capital market development plan with a 3-year development timeframe (1999-2001) to drive our capital markets toward becoming the primary mechanism of aggregating, channeling and monitoring efficient exploitation of economic resources, which would then have far-ranging benefits toward our country's potential for development and competitiveness.
To achieve this objective, the new capital development plan has laid down eight important reform measures. One of those measures is to ‘liberalize and enhance the efficiency of intermediary institutions', which reiterates the government policy of liberalizing securities firm licensing, including full-service licenses, liberalization of commission fees, as well as facilitating cross-border transactions.
KASIKORN RESEARCH CENTER (KResearch) views that the changes in the regulations relating to securities business, particularly toward liberalized licensing and commissions, is expected to produce some direct and indirect impacts on securities business, and thus remodel the securities business overall, including some effect on future mergers to increase native firms' competitiveness. Meanwhile, the sliding-scale commissions, which will begin the first step in 2010, will likely affect the financial status of securities firms unavoidably, because the revised commissions on both retail and institutional investor transactions will be lower than current rates. Besides this, the securities business still largely depends on the commissions, accounting for more than 75 percent of their total income.
Factors that will help strengthen and support securities firms to survive after the liberalization would include their size and/or market share, business objectives and clear-cut customer segmentation to help formulate successful business strategies. In addition, securities firms should provide full services to respond to all their customers' needs. Moreover, they should diversify their income structures by reducing their reliance on commission fees and manage operational costs more effectively. In their adjustments over the last five years, some securities firms have adopted these guidelines, but the changes in their income structure may take time to complete and may be affected by many uncontrollable factors, such as changes in the overall economy and capital market situations at home and abroad.
Although market participants should be able to overcome challenges arising from liberalization of licensing and commission fees starting in 2010, there are other obstacles ahead, particularly a possible entry of new players in 2012 after liberalization comes into full force and FTA initiatives for the financial sector are brought back on the table. In addition, many agreements made with other countries – particularly the Thai-US FTA pact – have been postponed. If work continues on those FTA pacts, the USA might bring cross-border services into contention, and new foreign investors could thus lose interest in applying for securities firm licensing and seek to introduce cross-border investment products instead. That would reduce overall domestic securities business income directly and indirectly.

No matter how they conclude the negotiations, or how securities firms adjust, consumers will likely enjoy new benefits and opportunities in the SET where new products will be introduced at lower prices and services will improve. If our capital markets grow under the more effective mechanisms as thought in this Master Plan, it will eventually bear fruit for the Thai economy as a whole in the form of more sustainable growth.

Financial Markets