No need to push demutualisation of stock market

The demutualisation plan is now up in the air after Kittiratt Na-Ranong was assigned as deputy prime minister and commerce minister. He had disagreed with the plan during his stint at the SET.

The plan had been pushed for a period as capital market development has reached the Asean Linkage phase, starting with cross-country trading by the exchanges of Malaysia and Singapore next year.

Many parties agree that if Thailand wants a global and regional presence in the capital markets, its exchange needs to undergo demutualisation for further development.

"Personally, [I feel] the exchange is getting better. Most exchanges that have been demutualised were weak. The Thai capital market is strong with sufficient capital. Thus, there is no need for demutualisation or a need to rush it. But this depends on the committee for capital market demutualisation and other parties," Kittiratt has said.

Even though this was a personal comment, it shook the capital industry, which has to be ready if the government disagrees with the demutualisation plan. However, there is some hope that Finance Minister Thirachai Phuvanatnaranubala, who has served as the Securities and Exchange Commission's secretary-general, could help defend the plan. Thirachai was one of the plan's proponents.

Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Market Organisations (Fetco), conceded that it depends on government policy whether demutualisation will ever take place.

The proposal, which is being reviewed by the Council of State, will be submitted to the Cabinet prior to forwarding to Parliament for approval.

"If the government disagree with demutualisation, agencies especially the stock exchange may have to rush for other ways to boost operating efficiency and maintain a global presence.

"Now, everyone will have to wait with a 50:50 chance. Fetco needs to see demutualisation, which is in the vision of the Thai capital market development plan.

"If the plan does not take place, everyone has to find ways to keep the Thai stock exchange on the global stage. We hope that the finance minister, who used to support and push for it, will see the need to demutualise to enhance efficiency and international competitiveness in the future," he said.

Last Monday's meeting of the committee on the capital market development plan still agreed on the proposal. Without the plan, expansion for brokerages could be slower than in demutualised countries, however, the securities industry could go on.

SET president Charamporn Jotikasthira still backs the plan, which calls for clearer operations starting next year, but he has said he has not yet discussed with Kittiratt and Thirachai on whether to proceed with the SETs reform policy or make any adjustments.

To be competitive on the global stage amid liberalisation in finance and investment, it is necessary to set up a proper organisation and demutualisation is one way to increase competitiveness.

"There are several ways to demutualise. These include listing or non-listing. But listing will help increase competitiveness more and raise funds for investment. If not, the exchange has to use its cash for investment. This depends on government policy," he said.

Banyong Pongpanich, chairman of Phatra Securities Co, said demutualisation is a good idea, as all roles will be clearly divided and operating efficiency and flexibility will be increased in the future. That will allow the stock exchange to forge linkages with foreign markets.

"If the government wants to change the Thai exchange's demutualisation, it can do so. However, it must be clear on how the capital market will proceed. Even though there could be no impact in the short term for not having demutualised, there will be problems in the long run," he said.

The SET has restructured its organisation with two major functions -- the exchange and the Capital Market Development Fund, which develops the capital market in the long term. The SET has more than Bt10 billion in capital.

Boston Consulting Group has finalised its study on SET demutualisation with shares to be held by the authorities, brokerages and general investors.

There are three options for the SET demutualisation - 50:50 shareholding between brokerages and authorities, allocation of 100 per cent to brokerages, and allocation of stakes to brokerages, authorities and general investors.

A survey of the International Federation of Stock Exchanges found that demutualised exchanges like those in Australia, Singapore and Hong Kong show greater operating efficiency with higher profitability and a lower cost-to-revenue ratio at 58 per cent versus 91 per cent for non-demutualised exchanges.