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SEC public hearing on proposed amendments to the margin loan regulations

Monday 6 January 2025 | No. 3 / 2025

Bangkok, 6 January 2025 – The Securities and Exchange Commission (SEC) is seeking public comments on proposed amendments to the regulations related to margin loans for securities purchases. The proposal aims to ensure that securities companies take into account the risks associated with the securities placed as collateral in margin accounts by their clients and manage such risks appropriately. This approach will help reduce the risks of clearing and settlement/bad debts and minimize impacts on the stability and credibility of the overall capital market.

Currently, securities companies provide margin loan services to investors to enhance opportunities for higher returns on investments. However, the SEC has observed that many stocks used as collaterals in margin accounts have experienced price volatility and declines due to various factors. When stock prices drop, the value of the collaterals is subsequently affected, leading brokers to forcibly liquidate the collaterals. Nevertheless, the liquidation value may be insufficient to cover the debt, causing losses to the brokers and impacting the credibility of the overall capital market. Additionally, some brokers issue margin loans at a high proportion compared to their financial position, while many other brokers concentrate their margin loans in a limited number of clients and collateral types.

Furthermore, the forced sale of collaterals in the form of investment units may lead to a decline in the net asset value per unit, potentially triggering the redemption of other investment units. Legal risk may also arise from improper auctioning of collaterals. Additionally, providing loans for securities trading in a manner that may constitute lending to a single group of individuals without restrictions on the purpose (Loan against Securities: LAS) deviates from the intended purpose of margin loan transactions.

The SEC therefore deems it necessary to amend the regulations regarding margin loans to enhance cautious risk management of securities companies. The key points of the proposed amendments are as follows:

(1) To revise the initial margin (“IM”) rate for initial public offering (IPO) stocks to reduce the risk of insufficient collateral to cover the debt;

(2) To revise the lending criteria to align with the financial position of securities companies, regarding the total outstanding debts from all margin loans and the loans to any particular client to ensure greater caution;

(3) To establish a concentration ratio for the securities used as collateral by each customer, ensuring it does not exceed the specified level compared to the total number of outstanding shares. Additionally, the brokerage firm should monitor customer trading behavior to prevent inappropriate trading activities;

(4) To require brokers to appropriately consider the credit risk management of their clients, including margin calls and force sell of collaterals;

(5) To remove daily redemption fund from being classified as marginable securities and from being used as collateral in margin loan transactions and securities borrowing and lending (SBL) transactions; and

(6) To require brokers to implement measures for ensuring that margin loan transactions are genuinely used for securities trading, considering the facts or substance of such transactions. For example, using margin loans to purchase big lot securities from related parties may be considered as LAS transactions, for which brokers are not permitted to provide services.

The consultation paper is available at: https://www.sec.or.th/TH/Pages/PB_Detail.aspx?SECID=1056 and the legal hub at https://law.go.th/. Stakeholders and Interested parties are welcome to submit comments and suggestions via the SEC website or email: benja@sec.or.th, kunpatu@sec.or.th, laksika@sec.or.th, anudporn@sec.or.th, sawarin@sec.or.th, or arthipha@sec.or.th. The public hearing ends on 4 February 2025.

NEWS

Securities and Exchange Commission

Corporate Communication and Investor Service Department

Tel. (66)2033-9502-5 E-mail: press@sec.or.th

No. 3 / 2025	Monday 6 January 2025
SEC public hearing on proposed amendments to the margin loan regulations
Bangkok, 6 January 2025 – The Securities and Exchange Commission (SEC) is seeking public comments on proposed amendments to the regulations related to margin loans for securities purchases. The proposal aims to ensure that securities companies take into account the risks associated with the securities placed as collateral in margin accounts by their clients and manage such risks appropriately. This approach will help reduce the risks of clearing and settlement/bad debts and minimize impacts on the stability and credibility of the overall capital market.
Currently, securities companies provide margin loan services to investors to enhance opportunities for higher returns on investments. However, the SEC has observed that many stocks used as collaterals in margin accounts have experienced price volatility and declines due to various factors. When stock prices drop, the value of the collaterals is subsequently affected, leading brokers to forcibly liquidate the collaterals. Nevertheless, the liquidation value may be insufficient to cover the debt, causing losses to the brokers and impacting the credibility of the overall capital market. Additionally, some brokers issue margin loans at a high proportion compared to their financial position, while many other brokers concentrate their margin loans in a limited number of clients and collateral types. Furthermore, the forced sale of collaterals in the form of investment units may lead to a decline in the net asset value per unit, potentially triggering the redemption of other investment units. Legal risk may also arise from improper auctioning of collaterals. Additionally, providing loans for securities trading in a manner that may constitute lending to a single group of individuals without restrictions on the purpose (Loan against Securities: LAS) deviates from the intended purpose of margin loan transactions. The SEC therefore deems it necessary to amend the regulations regarding margin loans to enhance cautious risk management of securities companies. The key points of the proposed amendments are as follows: (1) To revise the initial margin (“IM”) rate for initial public offering (IPO) stocks to reduce the risk of insufficient collateral to cover the debt; (2) To revise the lending criteria to align with the financial position of securities companies, regarding the total outstanding debts from all margin loans and the loans to any particular client to ensure greater caution; (3) To establish a concentration ratio for the securities used as collateral by each customer, ensuring it does not exceed the specified level compared to the total number of outstanding shares. Additionally, the brokerage firm should monitor customer trading behavior to prevent inappropriate trading activities; (4) To require brokers to appropriately consider the credit risk management of their clients, including margin calls and force sell of collaterals; (5) To remove daily redemption fund from being classified as marginable securities and from being used as collateral in margin loan transactions and securities borrowing and lending (SBL) transactions; and (6) To require brokers to implement measures for ensuring that margin loan transactions are genuinely used for securities trading, considering the facts or substance of such transactions. For example, using margin loans to purchase big lot securities from related parties may be considered as LAS transactions, for which brokers are not permitted to provide services. The consultation paper is available at: https://www.sec.or.th/TH/Pages/PB_Detail.aspx?SECID=1056 and the legal hub at https://law.go.th/. Stakeholders and Interested parties are welcome to submit comments and suggestions via the SEC website or email: benja@sec.or.th, kunpatu@sec.or.th, laksika@sec.or.th, anudporn@sec.or.th, sawarin@sec.or.th, or arthipha@sec.or.th. The public hearing ends on 4 February 2025.

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