CAPITAL MARKETS / REGULATION, REFORM AND PERFORMANCE

New SEC Act undergoing more fine-tuning

NUNTAWUN POLKUAMDEE AND WICHIT CHANTANUSORNSIRI

Authorities are reviewing a new draft of the SEC Act in light of concerns voiced by securities regulators and listed companies that new reporting obligations imposed on corporate executives could prove too onerous in practice.

The amendments, approved by the cabinet last month, represent a major overhaul of the 1992 SEC Act, including the structure of the Securities and Exchange Commission, the role of market participants and the responsibilities of corporate directors and senior executives.

The Listed Companies Association, however, has voiced complaints that several areas of the draft law, ostensibly aimed at strengthening corporate governance, will prove burdensome in practice and deter companies from listing in the market.

Under the draft law, directors and senior executives face criminal liability and jail sentences of up to five years for violating their fiduciary duties or potentially causing losses to shareholder interests.

But the Listed Companies Association argues that the law, as drafted, is unfairly broad and fails to offer accommodations for normal risk-taking that all businesses must undertake in the course of their operations. The Finance Ministry is also looking at possibly reviewing details related to how the SEC board is structured.

Under the current draft, the SEC board would be split into two committees, with the first responsible for overall policymaking for the capital market. A separate sub-committee would oversee day-to-day SEC operations and liaise with other market participants.

The 11-person main board would be largely composed of senior technocrats, including the central bank governor and the permanent secretaries of the finance and commerce ministries.

The SEC chairman and SEC secretary-general would be appointed by the Senate with the endorsement of His Majesty the King. Six other directors would be nominated by the SEC chairman and secretary-general, with approval to come from a Senate screening panel and endorsement by the cabinet.

The involvement of the Senate is a significant change from the current structure, under which the SEC chairman is the finance minister by title, who in turn appoints the secretary-general. The board currently includes representatives of the central bank, finance and commerce ministries, as well as four to six experts appointed by the cabinet on the recommendation of the finance minister.

Under the new law, the Senate screening committee would include 10 former executives of key capital-market organisations like the finance and commerce ministries, the central bank and the National Economic and Social Development Board.

The SEC subcommittee, overseeing daily operations, would have nine directors, including the SEC chairman, secretary-general and two senior executives. The five other directors would be nominated by the SEC secretary-general and ratified by the SEC main board.

Section two of the new act focuses on the role of the Thailand Securities Depository, the country's clearing house, as well as the role of other market participants.

The TSD will be given added flexibility to undertake contracts with SET members to mitigate payment risk for clearing and settlement and offer electronic services. The TSD will also be responsible for segmenting broker assets with those of their clients, adding increased protection for investors in case of a bankruptcy as creditors would have no right to claim investors' assets.

Financial institutions such as banks would gain the authority to auction shares and securities on behalf of their clients into the market, a right now reserved for securities companies. The new law will also allow other financial institutions to expand into brokerage services, albeit only with consensus agreement from the Association of Securities Companies.

The third major change deals with listed companies. So-called ''whistleblowers'' and company auditors would receive amnesty and protection for informing regulators of corporate fraud and wrongdoing. Listed companies would be explicitly prohibited from dismissing employees reporting abuse at their employers, and regulators would be able to offer rewards to parties and witnesses volunteering information about fraud, insider trading or share manipulation.

Investigations into connected transactions would be shifted to the SEC, rather than managed by the Stock Exchange of Thailand as under current practice.

Board secretaries would be made directly responsible for maintaining minutes of board meetings and shareholders' meetings for the past 10 years, while penalties for corporate fraud and abuse by directors and management would be increased.

Bangkok Post

Monday April 09, 2007