Additional Basel III tier 2 instruments allowed for retail investors

In a statement, the Securities and Exchange Commission said that upon the Capital Market Supervisory Board's recent approval, relevant regulations are expected to become effective by the fourth quarter of this year.

The instruments will contain the convertibility to common shares, but the banks must set the floor conversion price, the SEC said. While this decision will increase investment choices for investors, it will help strengthen the financial system. Mutual funds, except money market funds, can also subscribe for the instruments.

According to SEC Secretary-General Vorapol Socatiyanurak, the floor conversion price of Basel III additional tier 2 instruments has been set at 50 per cent of the commercial banks’ common stock prices at the offering period. The floor conversion price will also be applicable to Basel III additional tier 1 instruments with condition of conversion to equity.

“The Basel III additional tier 2 instruments’ complexity and associated risks are different from those of plain debt securities because the holders will be forced to convert them into common shares if the banks face financial problems. As a result, the floor conversion price has been standardised to reduce complexity and enable investors to learn of the highest exposure. In addition, banks will be able to determine the number of shares for conversion prior to the offering of instruments. In order to provide investors with sufficient information, moreover, intermediaries and selling agents must apply the procedure for selling for high risk securities such as suitability test, key information disclosure and warning of the securities’ high risks or complexity," he said.