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BOT Notification No 2-2556 (4 September 2017)-check

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Notification of the Bank of Thailand No. FPG. 2/2556

Re: Permission for Commercial Banks to Conduct Securities Business ____________________________

1. Rationale

At present the Securities and Exchange Commission and the Bank of Thailand have permitted commercial banks to increasingly extend their scope of business operations and have permitted commercial banks to hold 100% of shares in securities companies and asset management companies in order to increase channels for business operation and liquidity administration of commercial banks. In granting this permission for commercial banks to operate business to conduct securities business, the Bank of Thailand applies the business scope which is in line with the Office of the Securities and Exchange Commission and the laws governing securities and exchange. Nonetheless, if the Bank of Thailand should deem that such business materially increase risk exposure to the commercial banks’ standings and operations, it may prescribe additional prudential measures as attached.

This Notification has been gradually amended in correspondence with the transactions in the capital market. In 2009, permission was granted to commercial banks to borrow or lend foreign securities under the policy to increase investment channels in offshore securities. Such transaction is a tool to manage risk from the offshore securities invested by Thai investors. In 2010 permission was granted for commercial banks to undertake mutual fund management and venture capital fund management in accordance with the Financial Sector Master Plan 2. It enabled commercial banks to offer the public with wider range of services. Up until now commercial banks are able to undertake almost all types of securities business except brokering, trading and underwriting of equity instruments, and brokering of securities that are debt instruments.

This amendment extends the scope of the securities business that commercial banks may undertake. The Bank of Thailand herein permits commercial banks to undertake the securities business of brokering securities that are debt instruments including Sukuk, and brokering, trading and underwriting unit trusts including trust certificates. This permission is in line with the regulations of the Office of the Securities and Exchange

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Commission under the capital market development master plan which facilitate investors and fund raisers to have easy market access by liberalizing and increasing the effectiveness of the intermediary institutions. The objective of the capital market development master plan and the Financial Sector Master Plan 2 is to enable commercial banks to conduct more diverse businesses in order to promote competition and enhance the efficiency of financial services. In this regard, commercial banks conducting these businesses must take into consideration the appropriateness of the financial products they are offering and to ensure that they provide sufficient amount of information to the consumers so as to create stability in the Thai financial institution system.

2. Statutory power

By virtue of Section 4 and Section 36 of the Financial Institution Business Act B.E. 2551 (2008) which is a law containing some provisions restricting the rights and liberties of an individual set forth in of Section 29 together with Sections 31, 33, 36, 39, 41 and 43 of the Constitution of the Kingdom of Thailand, which was endorsed in the enactment of this law, the Bank of Thailand hereby permits commercial banks to engage in securities businesses in accordance with the regulations in this Notification.

3. Scope of Application

This Notification shall apply to all commercial banks according to the law on financial institution business.

4. Repealed/Amended Notifications and Circulars

The Bank of Thailand Notification No. FPG. 4/2553 Re: Permission for Commercial Banks to Conduct Securities Business dated 19 May 2010 shall be repealed.

5. Contents

5.1 Scope of Securities Business Operations

The Bank of Thailand grants permission for commercial banks to conduct certain prescribed types of securities businesses as indicated in Table of Permitted Businesses below. Commercial banks must be licensed, registered, or approved by the Office of Securities and Exchange Commission (SEC) and shall comply with the regulations issued under laws governing securities and exchange. Nonetheless for certain types of permitted securities businesses, commercial banks must comply with the Bank of Thailand’s additional regulations as follows:

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No. Type of Business

Regulations for Business Operations

SEC Regulations

BOT Regulations Stipulated in

Addition to the SEC Regulations

1 Brokering, Trading, and Underwriting Businesses. 1.1 Brokering, Trading and Underwriting of

Securities that are Debt Instruments and Sukuk

(Attachment 1)

1.2 Brokering, Trading and Underwriting of Securities that are Unit Trusts and Trust Certificates

(Attachment 2)

2 Investment Advisory Business 2.1 Financial Advisor - 2.2 Investment Advisor (Securities) - 3 Fund Management Business

3.1 Private Fund Management - 3.2 Provident Fund Management - 3.3 Mutual Fund Management

(Attachment 3) 3.4 Venture Capital Fund Management

(Attachment 4) 4 Other Types of Securities Businesses

4.1 Securities Borrowing, Selling, and Short Selling Business

(Attachment 5)

4.2 Local Securities Underwriters - 4.3 Securities Registrar - 4.4 Mutual Fund Supervisor - 4.5 Debenture Holder Representative - 4.6 Custodian Service -

Retail banks are able to conduct securities businesses in accordance with

the notifications of the Bank of Thailand regarding the scope of conducting businesses and the scope of conducting transactions for retail banks.

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5.2 General Supervisory Regulations

5.2.1 Commercial bank wishing to undertake the approved types of businesses under 5.1 as mentioned above must have staff readiness and risk management system which supports appropriate risk assessment, monitoring and controlling. Furthermore the commercial bank’s board of directors must approve policies, strategies and operational framework, in addition to overseeing that the management complies with the approved policies, strategies and framework.

5.2.2 Commercial bank must not operate securities businesses with the intention to avoid compliance with any laws or regulations including the notification of the Bank of Thailand on investment regulations and methods for financial institutions, the supervisory guidelines on large exposure (Single Lending Limit), etc.

5.2.3 Commercial banks must administer strict compliance with the accounting standards, laws or other relevant regulations and must possess suitable internal control systems in order to assess and review to determine that their staff has complied with the prescribed policies and procedures and that the established process is actually functional.

5.3 Suspension or Withdrawal of Business Operating License

The Bank of Thailand holds authority to suspend or withdraw license to operate securities businesses from commercial banks for the following conditions:

5.3.1 A commercial bank infringes or fails to comply with the rules and regulations as stipulated by the Bank of Thailand.

5.3.2 Other conditions as the Bank of Thailand deemed such action affects public safety and people’s well-being.

6. Enforcement date

This Notification shall come into force as from the day following the dates of its publication in the Government Gazette. Announced on 26th February 2013 (Mr. Prasarn Trairatvorakul) Governor Bank of Thailand

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Attachment 1 Brokering, Trading and Underwriting of Securities that are Debt Instruments and Sukuk

__________________________

1. Definition

“Securities brokering” means acting as a broker in purchasing and selling securities in accordance with the laws governing securities and exchange.

“Securities trading” means trading securities in accordance with the laws governing securities and exchange.

“Securities underwriting” means underwriting securities in accordance with the laws governing securities and exchange.

“Debt instrument” means debt instrument in accordance with the laws governing securities and exchange.

“Sukuk” means Sukuk in accordance with the laws governing securities and exchange.

2. Rules for Business Undertaking

Commercial banks must have written policies, strategies and operational framework to support the securities brokering, dealing and underwriting of securities that are debt instruments and Sukuk. In addition the policies, strategies and operational framework must be approved by the commercial bank’s board of directors, to use as operational guidance and to facilitate the Bank of Thailand’s examination. They shall at the minimum consist of the following key factors.

2.1 Business policies

2.2 Organization structure to support the operation of the business, scope of duty and responsibilities of related units

2.3 Detailed operational systems to support the business including operational systems for the types of securities businesses that the commercial bank is licensed, registered or approved by the Office of the Securities and Exchange Commission such as risk management system, internal control system, management system and accounting system, which shall include following:

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2.3.1 Systems for analyzing and managing risk of the securities to reflect the risk of that the securities value will vary with the various factors such as the fluctuation of interest rates, for determining investment limits for various types of securities and for determining ceiling for trading book.

2.3.2 Systems for setting risk tolerance ceilings to safeguard against loss (such as stop loss limit), monitoring and reviewing of risk ceilings, auditing and reporting to outcomes to identify any conduct differing from the stipulated limits and ceilings including temporary over limit approval.

2.3.3 Systems for monitoring of mark-to-market value changes of the securities at the end of each business day, for recording accounting in accordance with the accounting standards and for preparing reports of income or profit/loss incurred from the securities trading.

2.3.4 Systems for monitoring the back office operations such as receiving of securities buying & selling orders, transaction confirmation and reconciliation of transactions, settlement of securities trading, operational control, protection against conflict of interest, and legal management system.

2.3.5 Systems related to providing services to customers such as customer acceptance, receiving and sending of information, documents or various reports, handling of grievances, advising, maintaining customer confidentiality, disclosure and information management.

2.3.6 Systems for data collection, for preparing reports with details that are beneficial to the monitoring, analysis and evaluation of the business performance for reporting to management and the Bank of Thailand.

2.3.7 Any other systems stipulated by the Office of the Securities and Exchange Commission to support the businesses of brokering, trading and underwriting of securities that are debt instruments and Sukuk.

Moreover the commercial bank’s board of directors must oversee that the management complies with the details of the approved policies, strategies and framework.

3. Supervisory Regulations

Commercial banks conducting the businesses of brokering, trading and underwriting of securities that are debt instruments and Sukuk shall comply with the following supervision guidelines:

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3.1 Capital Adequacy

Commercial banks shall comply with the notifications of the Bank of Thailand regarding components of capital funds and criteria to maintain capital funds for locally registered commercial banks or foreign bank branches, whatever the case may be, and the notification of the Bank of Thailand regarding regulations on the calculation of credit risk, market risk and operational risk.

In the case of underwriting, commercial bank shall maintain capital adequacy for the liabilities according to the agreement on underwriting of the securities that are debt instruments and Sukuk from the date the commercial bank enters the underwriting agreement until the closing date of the offer. Such liabilities will have the credit conversion factor equivalent to that of the liabilities from underwriting of instruments or securities as stipulated by the Bank of Thailand.

3.2 Categorizing the Investment in Securities that are Debt Instruments and Sukuk

Commercial bank shall categorize the investment in securities that are debt instruments and Sukuk according to its intention for holding the investment which shall be in line with the accounting standards. Commercial bank shall also classify and set provisions in accordance with the Bank of Thailand notification re: guidelines for classifying and setting provisions for financial institutions.

3.3 Large Exposures Supervision

Commercial banks shall comply with the notification of the Bank of Thailand regarding supervisory guidelines on large exposure (Single Lending Limit) and guidelines for supervision of transactions with major shareholders or parties with beneficial interests (Related Lending).

3.4 Supervision of Sales of Securities Products via Commercial Banks

Commercial banks shall comply with the Bank of Thailand’s policy statement on the supervision of sales of securities and insurance products via commercial banks.

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Attachment 2

Brokering, Dealing and Underwriting of Securities that are Unit Trusts and Trust Certificates

__________________________

1. Definition

“Securities brokering” means acting as a broker in purchasing and selling securities in accordance with the laws governing securities and exchange.

“Securities trading” means trading securities in accordance with the laws governing securities and exchange.

“Securities underwriting” means underwriting securities in accordance with the laws governing securities and exchange.

“Unit trust” means unit trust in accordance with the laws governing securities and exchange.

“Trust certificate” means trust certificate in accordance with the laws governing securities and exchange, specifically the trust certificate which has similar features as a mutual fund.

“Trust fund” means trust fund in accordance with the laws governing trust for transactions in capital market.


Commercial banks must have written policies, strategies and operational framework to support the businesses of brokering, dealing, and underwriting of unit trusts and trust certificates that are approved by the board of directors of the commercial banks to be utilized as operating guidelines and for the examination of the Bank of Thailand. Such plan shall contain, at the minimum, the followings:



2.3 Detailed operational systems to support the business including operational systems for the types of securities businesses that the commercial bank is licensed, registered

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or approved by the Office of the Securities and Exchange Commission such as risk management system, internal control system, management system and accounting system, which shall include followings:

2.3.1 Systems for analyzing and managing risk of the securities that reflect the risk of that the securities value will vary with the various factors such as the fluctuation of interest rates, determining investment limits for various types of securities and determining ceiling for trading book.

2.3.2 Systems for setting risk tolerance ceilings to safeguard against loss (such as stop loss limit), monitoring and reviewing of risk ceilings, auditing and reporting to outcomes to identify any conduct differing from the stipulated limits and ceilings including temporary over limit approval.

2.3.3 Systems for monitoring of mark-to-market value changes of the securities at the end of each business day, for recording accounting in accordance with the accounting standards and for preparing reports of income or profit/loss incurred from the securities trading.

2.3.4 Systems for monitoring the back office operations such as receiving of securities buying & selling orders, transaction confirmation and reconciliation of transactions, settlement of securities trading, operational control, protection against conflict of interest, and legal management system.

2.3.5 Systems related to providing services to customers such as customer acceptance, receiving and sending of information, documents or various reports, handling of grievances, advising, maintaining customer confidentiality, disclosure and information management.

2.3.6 Systems for data collection, for preparing reports with details that are beneficial to the monitoring, analysis and evaluation of the business performance for reporting to management and the Bank of Thailand.

2.3.7 Any other systems stipulated by the Office of the Securities and Exchange Commission to support the businesses of brokering, trading and underwriting of securities that are unit trusts and trust certificate.


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Commercial banks conducting the businesses of brokering, trading and underwriting of securities that are unit trusts and trust certificates shall comply with the following supervision guidelines.


Commercial banks shall apply with the notifications of the Bank of Thailand regarding components of capital funds and criteria to maintain capital funds for locally registered commercial banks or foreign bank branches, whatever the case may be, and the notification of the Bank of Thailand regarding regulations on the calculation of credit risk, market risk and operational risk.

In the case of underwriting commercial bank shall maintain capital adequacy for the liabilities according to the agreement on underwriting of the securities that are unit trusts and trust certificates from the date the commercial bank enters the underwriting agreement until the closing date of offers. Such liabilities will have the credit conversion factor equivalent to those of the liabilities from underwriting of instruments or securities as stipulated by the Bank of Thailand.

3.2 Categorizing the Investment in Securities that are Unit Trusts and Trust Certificates

Commercial bank shall categorize the investment in securities that are Unit Trusts and Trust Certificates according to its intention for holding the investment which shall be in line with the accounting standards. Commercial bank shall also classify and set provisions in accordance with the notification of the Bank of Thailand re: guidelines for classifying and setting provisions for financial institutions.



3.4 Holding or Possessing Unit Trusts and Trust Certificates

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Commercial banks shall comply with the notification of the Bank of Thailand on investment regulations and methods for financial institutions

3.5 Supervision of Sales of Securities Products via Commercial Banks

Commercial banks shall comply with the Bank of Thailand’s policy statement on the supervision of sales of securities and insurance products via commercial banks.

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Attachment 3

Mutual Fund Management __________________________

1. Definition

“Mutual fund management” refers to the managing of mutual fund under the laws governing securities and exchange.

“Mutual fund” refers to collective investment under the laws governing securities and exchange.

2. Qualifications for Commercial Banks

As mutual fund management business is exposed significantly to operational risk and market risk, in conducting such business commercial banks must have good risk management. The Bank of Thailand hence stipulates qualifications for commercial banks undertaking this business as follows:

2.1 The composite rating from the latest Bank of Thailand’s examination is good, fairly good, or adequate.

2.2 The operational risk and market risk from the latest Bank of Thailand’s examination is low, medium low or medium.

Commercial banks having complete qualifications as stipulated in 2.1 and 2.2 may in general conduct mutual fund management business without having to obtain approval from the Bank of Thailand.

Commercial banks lacking the qualifications stipulated in 2.1 and 2.2 must obtain prior approval from the Bank of Thailand if they so wish to conduct the mutual fund management business.


Commercial banks must have written policies, strategies and operational framework to support the mutual fund management businesses that are approved by the board of directors of the commercial banks to be utilized as operating guidelines and for the examination of the Bank of Thailand. Such plan shall contain, at the minimum, the followings:

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3.3 Detailed operational systems to support the business including operational systems stipulated by the Office of the Securities and Exchange Commission such as risk management system, internal control system, management system and accounting system.

3.4 Measures to prevent conflict of interest between the commercial bank and the mutual fund. Transactions conducted by the commercial bank with the mutual fund must be subject to the same conditions or stipulations as normally imposed on transactions with other entities of similar risk level.



In the case where the commercial bank has investment in mutual funds managed by itself, lends to or conducts private repo with the mutual funds under its management, the commercial bank shall comply with the following supervision guidelines.



4.2 Categorizing the Mutual Fund Investments

Commercial bank shall categorize the investment in the mutual fund according to its intention for holding the investment which shall be in line with the accounting standards. Commercial bank shall also classify and set provisions in accordance with the notification of the Bank of Thailand re: guidelines for classifying and setting provisions for financial institutions.


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4.4 Holding or Possessing Investment Units in Mutual Funds

Commercial banks shall comply with the notification of the Bank of Thailand on investment regulations and methods for financial institutions.


Commercial bank, possessing the required qualifications under 2.1 and 2.2 and conducting the mutual fund management business but subsequently failed to meet the qualifications, shall undertake the following measures.

5.1 If the composite rating from the latest Bank of Thailand’s audit falls below acceptable level, the commercial bank shall take remedy action to improve the composite rating to the level stipulated by the Bank of Thailand while the commercial bank may continue to conduct the mutual fund management business.

5.2 If the risk level of the operational risk or market risk from the latest Bank of Thailand’s audit rises to higher than medium, the commercial bank shall take remedy action to improve the operational risk or market risk rating to the level stipulated by the Bank of Thailand while the commercial bank may continue to conduct the mutual fund management business.

5.3 However, if the commercial bank fails to improve the composite rating, operational risk or market risk to the stipulated levels for the following round of Bank of Thailand’s audit, it shall cease conducting mutual fund management for new customers from the date the audit result is notified. With regards to existing customers, the commercial bank shall continue to conduct the transactions until the mutual fund management ends. If the commercial bank wishes to conduct mutual fund management for new customers, it must obtain prior approval from the Bank of Thailand.

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Attachment 4

Venture Capital Fund Management

__________________________

1. Definition

“Venture capital fund management” refers to the conducting of venture capital fund management business under the laws governing securities and exchange.

“Venture capital company” refers to venture capital company under the laws governing securities and exchange.

2. Qualifications for Commercial Banks

As venture capital fund management business is exposed significantly to operational risk and market risk, in conducting such business commercial banks must have good risk management. The Bank of Thailand hence stipulates qualifications for commercial banks undertaking this business as follows:

2.1 The composite rating from the latest Bank of Thailand’s examination is good, fairly good, or adequate.

2.2 The operational risk and market risk from the latest Bank of Thailand’s examination is low, medium low or medium.

Commercial banks having complete qualifications as stipulated in 2.1 and 2.2 may in general conduct mutual fund management business without having to obtain approval from the Bank of Thailand.

Commercial banks lacking the qualifications stipulated in 2.1 and 2.2 must obtain prior approval from the Bank of Thailand if they so wish to conduct the mutual fund management business.


Commercial banks must have written policies, strategies and operational framework to support the venture capital fund management businesses that are approved by the board of directors of the commercial banks to be utilized as operating guidelines and for

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the examination of the Bank of Thailand. Such plan shall contain, at the minimum, the followings:



3.3 Detailed operational systems to support the business including operational systems stipulated by the Office of the Securities and Exchange Commission such as risk management system, internal control system, management system and accounting system.



In the case where commercial bank has investment in a venture capital company, lends to or transacts with a venture capital company or with related person of a venture capital company, the commercial bank shall comply with the following supervision guidelines.



4.2 Categorizing Investments in Venture Capital Companies

Commercial bank shall categorize an investment in venture capital company according to its intention for holding the investment which shall be in line with the accounting standards. Commercial bank shall also classify and set provisions in accordance with the notification of the Bank of Thailand re: guidelines for classifying and setting provisions for financial institutions.


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4.4 Holding or Possessing Shares in Venture Capital Company

Commercial banks shall comply with the notifications of the Bank of Thailand on investment regulations and methods for financial institutions, and guidelines on consolidated supervision.


Commercial bank, possessing the required qualifications under 2.1 and 2.2 and conducting the venture capital fund management business but subsequently failed to meet the qualifications, shall undertake the following measures.

5.1 If the composite rating from the latest Bank of Thailand’s audit falls below acceptable level, the commercial bank shall take remedy action to improve the composite rating to the level stipulated by the Bank of Thailand while the commercial bank may continue to conduct the venture capital fund management business.

5.2 If the risk level of the operational risk or market risk from the latest Bank of Thailand’s audit rises to higher than medium, the commercial bank shall take remedy action to improve the operational risk or market risk rating to the level stipulated by the Bank of Thailand while the commercial bank may continue to conduct the venture capital fund management business.

5.3 However, if the commercial bank fails to improve the composite rating, operational risk or market risk to the stipulated levels for the following round of Bank of Thailand’s audit, it shall cease conducting venture capital fund management for new customers from the date the audit result is notified. With regards to existing customers, the commercial bank shall continue to conduct the transactions until the mutual fund management ends. If the commercial bank wishes to conduct venture capital fund management for new customers, it must obtain prior approval from the Bank of Thailand.

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Attachment 5

Securities Borrowing and Lending and Short Selling Businesses __________________________

1. The Bank of Thailand declares securities borrowing and lending transaction to be

credit-like transaction under Section 4 of the Financial Institutions Businesses Act B.E. 2551.

2. Definition

“Securities borrowing and lending business” means securities borrowing and lending business in accordance with the laws governing securities and exchange.

“Short selling” means short in accordance with the laws governing securities and exchange.

“Securities borrowing and lending contract” means securities borrowing and lending contract in accordance with the laws governing securities and exchange.

“Borrowed or lent securities” means to debt instruments and Sukuk, equity instruments, and unit trusts and trust certificates which are securities under the securities depository system of the securities depository center according to the laws on securities and exchange, or securities for which the Bank of Thailand acts as securities registrar.

“Sukuk” means Sukuk in accordance with the laws governing securities and exchange.

“Trust certificate” means trust certificate in accordance with the laws governing securities and exchange, specifically trust certificate that is similar to mutual fund.

“Institutional investor” means institutional client in accordance with the laws governing securities and exchange.

3. Scope of Business for Commercial Banks

The Bank of Thailand permits commercial banks to conduct securities borrowing and lending and short selling businesses as follows:

3.1 Types of Businesses

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(1) Securities borrowing and lending business in the capacity of agent or broker;

(2) Securities borrowing and lending business in the capacity of counterparty with borrower or lender.

(3) Securities borrowing and lending businesses in the capacity of counterparty with parties who have licenses to operate securities borrowing and lending businesses under the laws governing securities and exchange, securities depository center or clearing house.

(4) Short selling.

3.2 Business Counterparty

(1) In the case where commercial bank is an agent or broker for securities borrowing, the commercial bank may carry out transactions with natural persons, juristic persons as well as institutional investors.

(2) In the case where commercial bank is an agent or broker for securities lending, the commercial bank may carry out transactions with individuals, juristic persons and institutional investors, except with non-residents and with any party resulting in the lending of Baht-denominated liquidity to non-residents.

(3) In the case of securities borrowing from counterparties, commercial bank may carry out transactions with institutional investors only.

(4) In the case of securities lending to counterparties, commercial bank may carry out transactions with institutional investors only, except with non-residents and, any transactions with a party resulting in the lending of Baht-denominated liquidity to non-residents.

Borrowing and lending offshore securities in foreign currency is permitted with counterparties that are institutional investors in accordance with the Notice of the Competent Officer Re: Rules and Practices Regarding Investment in Offshore Securities and Derivatives, and as amended thereof.


4.1 Commercial banks must consider calling for collaterals as appropriate for the reason that the securities borrowing and lending, and short selling businesses involve counterparties’ credit risks, market risks from taking positions in securities, and operational risks from business operations, calls for collateral, collateral return, and enforcement of collateral when counterparties default.

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4.2 Commercial banks must have written policies, strategies and operational framework to support the businesses of securities borrowing and lending, and short selling that are approved by the board of directors of the commercial banks to be utilized as operating guidelines and for the examination of the Bank of Thailand. Such plan shall contain, at the minimum, the followings:

4.2.1 Business policies

4.2.2 Organization structure to support the operation of the business, scope of duty and responsibilities of related units

4.2.3 Policy for analyzing counterparty’s credit worthiness and credit line, namely, prior to borrowing and lending securities, the commercial bank must ensure that the analysis is carried out on the counterparty’s credit worthiness every time by a unit with expertise in credit analysis, including the determination of the counterparty’s credit line which must be approved by responsible executives.

4.2.4 Policy and procedures regarding calls for initial collateral, calls for additional collateral, and enforcement of collateral, for example, setting the initial margin and call margin, and etc.

4.2.5 Detailed operational systems to support the business including operational systems for the types of businesses that the commercial bank is licensed by the Office of the Securities and Exchange Commission such as risk management system, internal control system, management system and accounting system, which shall include following:

(1) Systems for analyzing and managing risk of the securities and collateral that reflect the risk that the value of the securities and collateral will vary with the various factors such as fluctuation of interest rates, determining investment limits for various types of securities and determining ceiling for trading book.

(2) Systems for setting risk tolerance ceilings to safeguard against loss (such as stop loss limit), monitoring and reviewing of risk ceilings, auditing and reporting to outcomes to identify any conduct differing from the stipulated limits and ceilings including temporary over limit approval.

(3) Systems for monitoring of mark-to-market value changes of the securities at the end of each business day, recording accounting in accordance with the accounting standards and for preparing reports of income or profit/loss incurred from the transactions.

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(4) Systems for monitoring the back office operations such as receiving of securities borrowing & lending or short selling orders, transaction confirmation and reconciliation of transactions, settlement of securities trading, operational control, protection against conflict of interest, and legal management system.

(5) Systems for data collection, for preparing reports with details that are beneficial to the monitoring, analysis and evaluation of the business performance for reporting to management and the Bank of Thailand.

(6) Any other systems stipulated by the Office of the Securities and Exchange Commission to support the businesses of securities borrowing and lending and short selling.



Commercial banks conducting the businesses of securities borrowing and lending businesses and short selling shall comply with the following supervision guidelines:


Commercial banks shall apply with the notification of the Bank of Thailand regarding component of capital fund and criteria to maintain capital funds for locally incorporated commercial banks or foreign bank branches, whatever the case may be, and the notification of the Bank of Thailand regarding regulations on the calculation of credit risk, market risk and operational risk.

5.2 Categorizing Investments in Securities Borrowing or Lending and Collateral

Commercial bank shall categorize investment in the borrowed or lent securities according to its intention for holding the investment which shall be in line with the accounting standards. Commercial bank shall also classify and set provisions in accordance with the notification of the Bank of Thailand re: guidelines for classifying and setting provisions for financial institutions

5.3 Counting of Large Exposures

5.3.1 Commercial bank is the borrower.

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(1) Borrowing commercial banks shall be deemed to remain the owners of the securities placed as collateral since ultimately they will receive the securities back. Therefore, commercial banks shall comply with the notification of the Bank of Thailand regarding supervisory guidelines on large exposure (Single Lending Limit) and guidelines for supervision of transactions with major shareholders or parties with beneficial interests (Related Lending).

(2) In calculating of the maximum value of securities the borrowing commercial bank may place as collateral with any single party, the commercial bank shall combine with the amount of credit the commercial banks extends, invests in counterparty businesses, and creates in contingent liabilities or undertakes credit-like transactions with any individual or a group of people under any single project or for the same objective. At the end of each day, it shall not exceed the amount that the commercial bank is permitted under the notification of the Bank of Thailand on supervisory guidelines on large exposure (Single Lending Limit).

In the case where the commercial bank borrows securities that are exempted from being subject to Section 50 of the Financial Institution Business Act B.E. 2551 (2008) as it has placed cash or securities as collateral, the commercial bank is exempted from including the value of the cash or securities placed as collateral in the aforementioned ratio calculation for the portion that does not exceed such borrowed securities value. In this regard, value of the borrowed securities shall be the market price or the par value, whichever is lower.

5.3.2 Commercial bank is the lender.

(1) Lending commercial banks shall be deemed to remain owners of the securities they lend since ultimately they will receive the securities back. Therefore, commercial banks shall comply with the notification of the Bank of Thailand regarding supervisory guidelines on large exposure (Single Lending Limit) and guidelines for supervision of transactions with major shareholders or parties with beneficial interests (Related Lending).

(2) In calculating of the maximum value of securities the commercial bank lend to any single party, the commercial bank shall combine with the amount of credit the commercial banks extends, invests in counterparty businesses, and creates in contingent liabilities or undertakes credit-like transactions with any individual or a group of people under any single project or for the same objective. At the end of each day, it shall not exceed the amount that the commercial bank is permitted under the notification of the Bank of Thailand on supervisory guidelines on large exposure (Single Lending Limit).

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In cases that the commercial bank lends securities, where the counterparty has placed as collateral, cash, deposits at commercial banks, or exempted securities not subject to Section 50 of the Financial Institution Business Act B.E. 2551 (2008), the commercial bank shall be exempted from including the value of the lent securities in the aforementioned ratio calculation for the portion covered by collateral in the form of cash, deposits at commercial banks, or the said securities. In this regard, value of the borrowed securities shall be the market price or the par value, whichever is lower.

5.3.3 In case the lending commercial bank and the borrowing commercial bank have correctly complied with clauses 5.3.1 and 5.3.2, but subsequently, the value of cash or securities placed as collateral; exceeds the value of borrowed securities (in case where the commercial bank is a borrower), or the value of lent securities exceeds the value of received collateral (in case where it is a lender), or changes causing the said ratio in clause 5.3.1 or 5.3.2 to exceed the stipulated ratio, the commercial bank cannot conduct additional securities borrowing and lending transactions with such counterparty. As for the existed securities borrowing and lending transactions, these shall continue to have binding effects according to the contractual agreements.

5.3.4 Ratio calculations under clauses 3.2.1 and 3.2.2 over the transaction period requires marking-to-market the value of lent securities and the securities placed as collateral. Therefore, commercial banks are required to comply with the followings:

(1) In case there are changes in the value of borrowed securities or securities placed as collateral, and a borrowing commercial bank must deposit additional margin or receive the returned collateral. For ratio calculation, the commercial bank shall add the additional margin to or subtract the collateral received back from the collateral with the changed value, as the case may be.

(2) In case there are changes in the value of lent securities or securities received as collateral, and the lending commercial bank calls for additional margin or return of such collateral, for ratio calculations, the commercial bank shall add the additional margin or subtract the collateral returned from the collateral with the changed value, as the case may be.

5.4 Holding or Possessing Unit Trusts and Trust Certificates

Commercial bank borrowing the securities by placing as collateral, securities that are shares, unit trusts or trust certificates, or commercial bank lending securities that

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are shares, unit trusts or trust certificates, shall be deemed as the owner of such shares, unit trusts or trust certificates, as ultimately they will receive said that are shares, unit trusts or trust certificates back. During the period of securities borrowing where shares, unit trusts or trust certificates are placed as collateral, or the period of lending securities that are shares, unit trusts or trust certificates, the shares, unit trusts or trust certificates in the commercial bank’s accounts have not reduced in any way. Therefore commercial bank shall comply with the notification of the Bank of Thailand re: investment regulations and methods for financial institutions.

5.5 Maintenance of Liquid Assets

5.5.1 Commercial bank borrowing the securities who receives the ownership of securities, at the end of each day, shall count securities as liquid assets, as stipulated in the notification of the bank of Thailand regarding prescription on maintenance of liquid assets by commercial banks from the date of receiving securities transfer (Settlement date). Concurrently, securities lender who transfers the ownership of the securities shall not count the said securities as liquid assets on the same day. On the maturity day of the contract, the securities borrower shall deduct such securities from its liquid assets, and securities lender who has been returned securities shall count securities returned as liquid assets, on the same day.

5.5.2 Commercial bank lending the securities which receives other types of securities as collateral at the end of the day, shall count the said securities as liquid assets, as stipulated by in the notification of the Bank of Thailand regarding prescription on maintenance of liquid assets by commercial banks from the settlement date. At the same time securities borrower who transfers the ownership must not count the other securities as liquid assets on the same day. On the maturity day of the contract, the securities lender must deduct the other securities from its liquid assets and the securities borrower receiving the other securities back can then count the other securities as its liquid assets on the same day.

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Unofficial Translation This translation is for the ... · Certificates (Attachment 2) 2 Investment Advisory Business 2.1 Financial Advisor - 2.2 Investment Advisor (Securities) -