The Securities and Exchange Commission (SEC) has introduced new regulations to mitigate systemic risks in margin loan activities, prohibiting securities companies and derivatives business operators from providing loans secured by securities for non-investment purposes.
The SEC’s updated framework governing the provision of margin loans will ensure proper risk management, protect securities firms from potential losses, and reinforce investor confidence in the capital market, the regulator said in a statement.
Under the new rules, brokers and derivatives business operators are strictly prohibited from offering loans against securities (LAS) without specific investment purposes to prevent misuse of securities-backed credit.
The revised criteria includes an adjustment to the initial margin requirements for newly listed stocks from initial public offerings, meant to reduce the risk of insufficient collateral coverage.
Furthermore, the SEC requires firms to align their lending practices with their financial positions by setting stricter limits on total outstanding margin loans, both per client and on aggregate.
“To prevent concentration risk, securities firms must implement effective risk management procedures, including monitoring the concentration of collateral securities and borrower exposures, as well as promptly reporting and addressing potential risks,” noted the statement.
The SEC also defined eligible investment fund units that can serve as collateral or marginable securities, including index funds, mutual funds, and feeder funds that meet specified characteristics and are listed on the Stock Exchange of Thailand, such as exchange-traded funds.
In addition, firms are reminded to assess the substance over form of any transaction to ensure that lending arrangements do not constitute prohibited LAS transactions, regardless of how they are structured or labelled.
The new rules came into effect on Oct 16, except for the enhanced lending limits based on firms’ financial capacity, which will come into force on April 16, 2026. Companies with existing loan exposures exceeding the new thresholds will be granted a one-year grace period from the publication date in the Royal Gazette to comply.
Prakit Siriwattanaket, managing director of Merchant Partners Asset Management, said amid weak economic conditions and tighter liquidity, businesses have found it challenging to manage cash flow through traditional channels such as bank loans, bond issuance, or capital increases.
“I believe such practices are unlikely among bank-affiliated brokerage firms, but may occur at a few independent ones. The SEC’s move to clarify and restrict these activities is a prudent step to prevent systemic risks,” he said.
As of Sept 26, total margin loans in the system amounted to 48.8 billion baht, with total collateral of 174 billion, representing 3.58 times the outstanding debt, according to the SEC.