Decision time near for Kittiratt

The controversy over the readiness of the capital market for full liberalisation re-emerged as soon as Kittiratt said early last month he would review the master plan for capital market development as proposed by the Securities and Exchange Commission (SEC).
The plan was set to be implemented from 2010-12 in preparation for the coming of the Asean Economic Community in 2015.
Part of that plan is the liberalisation of the securities industry and brokerage commissions, which went into effect in the beginning of this year.
Representatives of the securities industry told a roundtable organised last week by Krungthep Turakij Channel on the liberalisation of brokerage commissions that they need a minimum rate to be endorsed by the regulator to ensure transparency in the securities industry. They also gave their opinions on questions that have always been asked for years once any stage of liberalisation was kicked off.
The same issues in the past that are being rehashed now are whether the capital market is ready for liberalisation; whether the quality of equity research will deteriorate; who stands to gain and whether brokers will conspire to set commission rates.
However, what individual investors want is an immediate end to fixed rates as the securities industry has developed for more than 40 years since the stock market emerged.
Pattera Dilokrungthirapop, CEO of DBS Vickers Securities and also president of the Association of Securities Companies, said brokerages want to maintain the services they provide their clients by setting two schedules of commission rates – a sliding scale for individual investors and negotiated rates for institutional investors. They do not want the government to overturn the liberalisation of commissions, previously set at negotiated rates depending on transaction value.
“But what we need is an endorsement from the authority for a minimum rate of 0.2 per cent collected from institutional investors, who need full services including stock analyses. This does not exceed the average global rate of 0.25 per cent provided by full-service brokerages,” she said.
Currently, the rates for individual investors are 0.25 per cent of transaction value for trades up to Bt5 million, 0.22 per cent for more than Bt5 million but less than Bt10 million, 0.18 per cent for more than Bt10 million but less than Bt20 million and 0.15 per cent for more than Bt20 million. Before the financial crisis of 1997, the commission was a flat 0.5 per cent.
“Once the capital market is further developed … we wish to make it transparent,” Pattera said.
Somjin Sornpaisarn, CEO of TMB Asset Management Co, as the representative of asset management companies, pointed out that prices are normally correlated with quality. Good prices would result in cost management and then the good quality of equity analysis.
“We should not force too much on brokers so as not to survive. Even if they survive, they will compete until there is lower quality of services.”
Paiboon Nalinthrangkurn, CEO of Tisco Securities Co, said on behalf of the Securities Analysts Association that the decline in stock analysts shows that many brokerages have cut costs by reducing the number of analysts.
Last year there were only 280 analysts, compared with 350-360 three years ago.
Conspiring to fix brokerage commissions is not believed likely, as there are many players in the market. Now, there are 36 securities companies, half of which are majority owned by foreign shareholders in Asia, the EU and the US. The other half is split evenly between banks and non-banks. Each company has its own objectives and policies.
There are now signs of reduced new staff hiring and equipment procurement, as many securities house have tried to cut costs to deal with the coming AEC, he added.
Charnchai Kongthongluck, president of Trinity Securities Co, said those investors with strong bargaining power will gain the most from liberalised commissions, while general investors with low-bargaining power will lose stock research services.
Prasit Srisuwan, president of Country Group Securities, said that according to a survey, 90 per cent of investors are happy with the rate of 0.16-0.17 per cent while the remaining 10 per cent need the best negotiated prices.
Kitichai Taehchangamlert, managing director of Home Property, representing individual investors, argued that the Stock Exchange of Thailand has been in business since 1974, so brokerages should have had enough time to improve themselves.
“I think the competition in the Thai capital market is fair, not too high or too low. Everybody is waiting for when the commission fees will be fully liberalised,” he said.