Thailand Tightens Grip on Short Selling, High-Speed Trades Amid Selloff

Thailand's Stock Exchange of Thailand (SET) is taking a firm stance against short selling and high-speed trading, aiming to curb market manipulation and boost investor confidence. The regulatory changes, announced in SET News 68/2024 and SET Circular Letter 68/2024, come amidst a selloff in Thai stocks, with foreign investors offloading nearly $3.3 billion worth of stocks so far this year. The new measures are expected to enhance market transparency, reduce the impact of foreign-dominated short-selling, and strengthen investor confidence.

The revised rules introduce the uptick rule, which requires short selling at prices higher than the last executed price, replacing the current zero-plus tick rule. This change aims to discourage aggressive short selling and protect investors from excessive price volatility. Additionally, the qualifications for non-SET100 securities eligible for short selling have been amended to require larger market-cap shares with more trading liquidity. The minimum three-month average market capitalization requirement for these securities has been raised to THB 7.5 billion (approx. USD 204.03 million), and a 12-month average monthly turnover of at least 2 percent has been introduced. The list of shares eligible for short selling under the new regulation will be published on the SET website.

High-frequency trading (HFT) investors will be required to register before sending HFT orders to the SET Co-location facility. This measure aims to strengthen the oversight of HFT investors and minimize disruptive trades. Disclosure of investors who conduct inappropriate trading practices will also be enhanced, with SET disclosing information of such investors to all SET broker member companies, enabling more effective supervision.

The regulatory measures are set to come into force on July 1, 2024. The SET has been working closely with the Thai Securities and Exchange Commission (SEC) to develop and implement these changes, with the SEC Secretary-General Pornanong Budsaratragoon emphasizing the importance of these measures in maintaining market integrity and investor confidence.

While the new regulations aim to address concerns about short selling and high-speed trading, some market participants have raised questions about their effectiveness. Critics argue that the uptick rule may not be sufficient to deter aggressive short selling, and that the registration requirement for HFT investors may not be enough to prevent manipulative trading practices. However, the SET and SEC maintain that these measures are a step in the right direction and that they will continue to monitor and evaluate the market to ensure its stability and fairness.

The Thai baht's weakness and fiscal discipline issues have contributed to the recent selloff in Thai stocks, with foreign investors offloading nearly $3.3 billion worth of stocks so far this year. The baht has been weak, and the new government's cash handouts have led to concerns about fiscal discipline. Political instability related to the potential removal of Prime Minister Srettha Thavisin from office and policy delays have also weighed on market sentiment. Overseas investors have added $85 million in exposure to Malaysia, the only country with year-to-date inflows within Southeast Asia, indicating that foreign investors are seeking better opportunities elsewhere in the region.

In conclusion, Thailand's regulatory changes aim to curb short selling and high-speed trading, enhance market transparency, and boost investor confidence. While the effectiveness of these measures remains to be seen, they are a step in the right direction to address concerns about market manipulation and protect investors. As the Thai baht faces challenges and political instability continues, foreign investors may seek better opportunities elsewhere in the region. However, with the right policies and regulatory framework, Thailand can attract and retain foreign investment, fostering a more stable and sustainable investment environment.