Stock Exchange of Thailand
|Location||Huai Khwang, Bangkok, Thailand|
|Founded||30 April 1975|
|Market cap||17.74 trillion baht 12/4/2018 ($517.59 billion )|
The Stock Exchange of Thailand (SET, Thai: บริษัท ตลาดหลักทรัพย์แห่งประเทศไทย จำกัด) is the national stock exchange of Thailand. At the end of 2017, the Stock Exchange of Thailand had 688 listed companies with a combined market capitalization of 17.92 trillion baht or US$560 billion.
The modern Thai capital market developed in two phases. The privately owned Bangkok Stock Exchange operated from 1962 to the early 1970s. The Second National Economic and Social Development Plan (1967–1971) established the Securities Exchange of Thailand to mobilize funds to support industrialization and economic development. This was the country's first officially sanctioned, supervised, and regulated securities market.
The Bangkok Stock Exchange
In 1961 Thailand implemented its first five-year National Economic and Social Development Plan to support the promotion of economic growth and stability and to develop the kingdom's standard of living. The Thai stock market began in July 1962 when a private group established an organized stock exchange as a limited partnership. The group later became a limited company and changed its name to the "Bangkok Stock Exchange Co., Ltd." (BSE) in 1963.
Despite its well-intended foundation, the BSE was insufficiently active. Annual turnover was only 160 million baht in 1968, and 114 million baht in 1969. Trading volumes continued to fall sharply thereafter, to 46 million baht in 1970 and 28 million baht in 1971. The turnover in debentures reached 87 million baht in 1972, but stocks continued to perform poorly, with turnover hitting an all-time low of only 26 million baht. The BSE finally ceased operations in the early 1970s. It is thought that the BSE failed because of a lack of official government support and a limited investor understanding of the equity market.
The Stock Exchange of Thailand
Despite the failure of the BSE, the concept of an orderly, officially supported securities market in Thailand attracted considerable attention. The Second National Economic and Social Development Plan (1967–1971) proposed for the first time a plan for the establishment of such a market, with appropriate facilities and procedures for securities trading.
In 1969, as recommended by the World Bank, the government acquired the services of Professor Sidney M. Robbins from Columbia University to study the development channels of the Thai capital market. Professor Robbins had previously served as chief economist at the United States Securities and Exchange Commission. In 1969 the Bank of Thailand formed a Working Group on Capital Market Development, which was assigned the task of establishing the stock market. A year later, in 1970, Professor Robbins produced a comprehensive report entitled "A Capital Market in Thailand". This report became the master plan for the development of the Thai capital market.
In 1972, the government took a further step in this direction by amending the "Announcement of the Executive Council No. 58 on the Control of Commercial Undertakings Affecting Public Safety and Welfare". The changes extended government control and regulation over the operations of finance and securities companies, which until then had operated fairly freely. Following these amendments, in May 1974, legislation establishing the Securities Exchange of Thailand (SET) was enacted. This was followed by revisions to the revenue code at the end of the year, allowing the investment of savings in the capital market. By 1975, the basic legislative framework was in place and on 30 April 1975, the Securities Exchange of Thailand officially started trading. On 1 January 1991 its name was formally changed to "The Stock Exchange of Thailand" (SET).
On 10 September 2014, SET became the first Southeast Asian country and ASEAN member to join the United Nations Sustainable Stock Exchanges initiative.
As defined in the Securities and Exchange Act (SEA) (1992), the SET's primary roles are:
- to serve as a center for the trading of listed securities, and to provide the essential systems needed to facilitate securities trading
- to undertake any business relating to the securities exchange, such as a clearing house, securities depository center, securities registrar, or similar activities
- to undertake any other business approved by the SEC.
The Stock Exchange of Thailand is a juristic entity set up under the Securities Exchange of Thailand Act, B.E. 2517 (1974). It operates under the legal framework laid down in the Securities and Exchange Act, B.E. 2535 (1992). Its mandate is to be a market or center for the trading of listed securities, and promoter of financial planning, and to provide related services connected to such activities, without distributing any profits to members. It encourages the general public to become shareholders in a variety of local industries. Its main operations include securities listing, supervision of listed companies and information disclosure, trading, market surveillance and member supervision, information dissemination, and investor education.
The SET has operated fully computerized trading since April 1991 through the Automated System for the Stock Exchange of Thailand (ASSET), which enables trading to be efficient, equitable, and fluid. In this trading system, two principal methods of trading are available: Automatic Order Matching (AOM) and Put-Through transactions (PT). In 2012, The SET successfully launched its new trading platform, SET CONNECT. SET CONNECT offers greater capacity and superior transaction speed, and provides the uses of industry standard interfaces, making it easier to accommodate linkage with other marketplaces to attract further liquidity.
Automatic order matching (AOM)
AOM trading performs the order matching process without human intervention. After brokerage houses electronically send buy or sell orders from their offices to the SET mainframe computer, the ASSET system queues the orders and arranges them according to a price-then-time priority. This means orders are first grouped according to price, with the best price taking precedence. Then, within each price group, orders are arranged according to time. In terms of the matching process, there are two methods: continuous order matching and call market method. Continuous Order Matching procedures operate during the regular trading sessions. The ASSET continuously matches the first buy and sell orders in the queue, and at the same time, confirms each executed transaction via the member (broker's) terminal. Call market matching is used in calculating the opening and closing prices of a security at the opening and closing of trading. This method allows brokers to enter their orders to be queued for matching at a specified time at a single price that generates the greatest trading volumes for that particular stock.
Put Through (PT) trading
ASSET also allows brokers to advertise their buy or sell interests by announcing bid or offer prices. Members may then deal directly with each other, either on behalf of their clients or for themselves. Prices may be adjusted during the negotiation; hence, the effective executed price may not be the same as that advertised and may not follow the price spread rules. After concluding negotiations, dealers must send details of the results to ASSET for recording purposes.
SET trading is conducted on all bank business days, normally from Monday through Friday. Each day there are five trading sessions:
- Pre-opening session I: This is the morning auction which starts at 09:30 and ends at a random time between 09:55 and 10:00 when the open price is determined.
- Morning Session: This session starts immediately after the pre-open (at a random time between 09:55 and 10:00) and continues till 12:30.
- Pre-opening session II: This is the afternoon auction which starts at 14:00 and ends at a random time between 14:25 and 14:30 when the afternoon open price is determined.
- Afternoon Session: This session starts immediately after the pre-open II (at a random time between 14:25 and 14:30) and continues till 16:30.
- Closing session: The close auction starts at 16:30 and ends at a random time between 16:30 and 16:40.
Floor and ceiling limits
On 1 December 1997, the SET introduced new floor and ceiling price limits for trading. The former limits allowed stock prices to fluctuate within a range of 10 percent, while the current limits allow prices of a stock to fluctuate within a range of 30 percent of the previous closing price on the main board. However, if the market price is less than 1 baht, stock prices may fluctuate within a range of 100 percent of the previous closing price. Ceiling and floor limits apply to each trading board utilizing the AOM system, with the exception of the foreign board.
Together with the introduction of the floor and ceiling trading limits, the SET also implemented a circuit breaker system to dampen any unusual volatility in the market that may cause investor panic. The circuit breaker operates in two stages. First, if the SET index falls by 10 percent from the previous day's close, all trading in listed securities is halted for 30 minutes. Second, if the SET index falls by 20 percent from the previous day's close (i.e., another 10 percent), trading in all listed securities is halted for one hour. If the circuit breaker is in effect at the closing time of a session, trading resumes in the next session.
Recent 2017 study finds that "dealers predominantly sell to institutional accounts, creating a negative correlation between the two groups, in addition to strong institutional herding which is all indicative of potential agency problems on the exchange. Also find that local individual accounts practice negative feedback trading and the other groups practice positive feedback trading. Of the four groups, the only group that influences the SET is the local individual group of investors. The foreign investor is found to be the least significant group on market returns, provide market liquidity to locals, and be the least responsive to daily market changes-following the prudent man rule."
Industry group indices and sectoral indices
In addition to the SET Index, which is calculated from the prices of all common stocks on the main board, the SET also provides industry group indices and sectoral indices. Both these types of indices are calculated from the prices of the common stocks which share the same fundamentals which characterize each particular industry group and sector, respectively.
The index calculation methodology is identical to that of the SET Index, which is a market capitalization weighted index. This means the larger the capitalization of a stock, the more its weight in the index. The industry group and sectoral index calculations are adjusted in line with the same factors that influence the calculation of the SET Index. These influencing factors include the shifting of a stock from one sector to another sector or the shifting of a stock from a sector in one industry group to a sector in another industry group. The base date of the industry group indices is on 31 December 2003, which was when the industry group indices were established and set at 100 points. Smaller capitalized shares are underrepresented because both institutions and traders by their very mandate must avoid these due to liquidity constraints. For this reason many smaller or mid-cap Thai stocks may be underpriced. Smaller companies in Thailand make up over 70 percent of its GDP and often have higher growth rates then the averages. Yet, most trade at P/E discounts to the Thai market while often yielding considerably higher dividends. There is no Thai small cap index.
There are eight industry group indices (divided into 25 sectoral indices):
- Agro and food industry (agribusiness, food, and beverage)
- Consumer products (fashion, home and office products, personal care products, and pharmaceuticals)
- Financials (banking, finance and securities, insurance)
- Industrials (automotive, industrial materials and machinery, packaging, paper and printing materials, petrochemicals and chemicals)
- Property and construction (construction materials, property development)
- Resources (energy and utilities, mining)
- Services (commerce, health care services, media and publishing, professional services, tourism and leisure, transportation and logistics)
- Technology (electronic components, information and communication technology)
- "Exchange of Thailand (SET) Overview | StockMarketClock".
- Polkuamdee, Nuntawun (25 June 2018). "SET's new boss hits the ground running". Bangkok Post. Retrieved 25 June 2018.
- "History & Roles". Stock Exchange of Thailand (SET). Retrieved 7 April 2016.
- "Partnering with the UN Sustainable Stock Exchanges Initiative". Stock Exchange of Thailand. Retrieved 10 September 2014.
- "การเข้าร่วมใน UN Sustainable Stock Exchanges Initiative". Stock Exchange of Thailand. Retrieved 10 September 2014.
- "The Stock Exchange of Thailand - Supervision of Market - Trading system and procedure". The Stock Exchange of Thailand. Retrieved 1 July 2011.
- French, Jordan (2017). "Asset pricing with investor sentiment: On the use of investor group behavior to forecast ASEAN markets". Research in International Business and Finance. 42: 124–148. doi:10.1016/j.ribaf.2017.04.037.