Regulators in Thailand are looking into establishing a framework under which fixed-income securities can be borrowed and lent, according to the Secretary General of the Securities and Exchange Commission, Thirachai Phuvanat-Naranubala.
Being able to borrow securities to support short sales of fixed-income holdings will help greatly boost market liquidity which has been a problem in Thailand, according to Citigroup’s MarketWatch.
Once established, the sec lending framework will allow investors to borrow bonds and debentures from dealers or other institutional investors for an agreed-upon period where lenders are paid a fee for the use of the securities over the period.
The dearth of liquidity in Thai markets has led to a vicious cycle of bonds being sharply discounted and that has pressured fund managers to liquidate even more bond holdings to raise cash, according to MarketWatch.
The SEC and the Association of Investment Management Companies have therefore agreed to require open-ended fixed income funds to add weightings for cash and top-grade bonds to help cut portfolio risks if they get hit by a sudden redemption.
The Thai SEC also wants dealers to take the role as market makers to help increase liquidity in the market.