Asean Exchanges

Thai bourse still keen on building Asean links

Charamporn Jotikasthira of the Thai stock exchange talks about the challenges facing the Asean trading link and how it could eventually benefit local brokers.
Charamporn Jotikasthira, Stock Exchange of Thailand

Asean Exchanges, a collaboration that will connect seven stock exchanges across the region, has been delayed a number of times. While some investors think it’s a great initiative, many worry that it is lacking in concrete details. Charamporn Jotikasthira, president of the Stock Exchange of Thailand, talks about where things stand.

I understand the plan was for the Stock Exchange of Thailand (SET) to be added to the Asean trading link in August. Is that still on track?
We will be following the two other exchanges — the Bursa Malaysia and Singapore Exchange — which are both waiting for regulatory approval, I believe. We should be ready to follow them within a month after they go live, so I expect we will be added to the trading link in coming months. Right now, we have to upgrade our trading platform first and this is taking place in August.

Who will the Asean trading link benefit?
Local brokers may not find it economical to invest in the infrastructure required to trade shares listed on overseas exchanges. The Asean trading link provides that infrastructure and acts as highway connecting the regional exchanges. If you are a global broker, you probably already have your own infrastructure connecting the exchanges in any market. By building such a highway, the local Thai broker that never had reach to buy shares abroad can now buy up to 2,100 shares in Malaysia and Singapore, in addition to other stocks on the SET and vice versa, without investing in the infrastructure.

There are advantages for individual investors as well. If a Thai individual buys or sells shares through the trading link, he does not need to declare capital gains tax. In contrast, if he buys shares through a regional broker, he has to declare capital gains tax, so going through the trading link will save money. However, institutional investors still have to pay capital gains tax, even if they use the trading link.

What are the challenges to getting the trading link off the ground?
The challenges are the harmonisation of rules and regulations. I think this is a good thing, because sooner or later, most of the investors in our region will invest abroad, so it is better to know the differences now. The more differences there are, the more difficult it is for a local investor to invest abroad and vice versa. For example, there is a withholding tax on dividends in Thailand, which is not true for all the countries in Asean. Another example is that you usually require a licence to publish research in each country, so the question is, will we honour licences from other Asean countries? From a global investors’ point of view, the regulations in Asean should be more similar. The sooner we try to link one another, the better off our region will be. With the collaboration, we are looking at all the differences in rules and regulations more closely.

To promote Asean as a region, we have signed an agreement with FTSE to come up with an Asean index. The first one will be the Asean Stars — comprising the 30 most exciting stocks in each Asean country. In the future, we might have indices for Asean energy companies, Asean banks and maybe an Asean-style exchange-traded fund for investors.

When do you plan to come up with this common framework?
That’s difficult to say, but once we start linking in the next month or so, we will have a bigger push towards cross-border harmonisation. When people start to trade, our differences would start to be highlighted.

What role, if any, will the SET play in helping other bourses in the region, such as Vietnam and Myanmar, in regional collaboration?
In Laos, we have been helping them on the education side and in forming rules and regulations. In Myanmar, we have been working with the central bank and educating them on our past experience. They plan to create their exchange in three years. We have 36 years of experience running a stock exchange, so we can help them to have a smoother experience. For Vietnam, they have been using our trading platform for the last 12 years.

How is the SET positioning itself to attract more new listings and foreign listings?
We are the most liquid exchange in the region. Our daily trading volume for the last quarter was the highest for any Asean country and we beat Singapore in terms of volumes. In terms of market capitalisation, however, we are still smaller.

We should be able to attract more companies to list as our corporate income tax rate will be reduced to 20% next year. We also have two new rules: We will allow infrastructure funds to list on the SET and we will also allow a sponsor which owns over 50% of a holding company to list its subsidiary. Previously, the sponsor was required to own more than 75% of the holding company, before it can list it. With this new ruling, a lot of Thai companies that are in partnership with foreign governments can list that joint venture.

There was previously talk of plans to demutualise the SET this year and go for an IPO in 2013, but that has been put on the backburner. Why is that so?
The reason for the plan to demutualise the Stock Exchange of Thailand was to improve efficiency. However, the government feels we can improve efficiency without demutualisation. Our cost income ratio has fallen from 93% down to 64% and this has been done without demutualisation.

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