A week after it liberalised certain mutual fund laws, the Securities and Exchange Commission of Thailand (SET) has announced that it will develop an integrated system for short selling securities. Although the regulator and the Thailand Securities Depository will meet with the industry at the end of the month to get opinions, it is expected that by the fourth quarter asset managers will be able to short sell securities worth up to 5% of a fundÆs NAV.

Under the plan, the Thailand Security Depository, which is a subsidiary of the Stock Exchange of Thailand, will fork out roughly Bt70 million to develop an integrated system for short selling in an attempt to further develop the countryÆs securities lending and borrowing market.

The proposal stipulates that funds that want to use short selling would have 90 days to inform their investors about the change in their investment policy. If investors want to pull their money out, exit fees would be waived. New funds must clearly state in their prospectus if their investment policy includes short selling.

The Thailand Securities DepositoryÆs proposal will include getting member companies and customers to sign up to a pooled system, not unlike those fund in more developed securities borrowing and lending markets. This centralised system will not only help investors manage liquidity and reduce cost, but likely bring more fund managers into this business and allow them to lend more securities.

The move would likely generate some much-needed liquidity to ThailandÆs stock market and assist the countryÆs small securities borrowing and lending market.

Currently, Thailand is the smallest of Asia PacificÆs seven equity lending markets. As of April 2007, it was estimated that the average amount of lendable stocks was valued at $3.9 billion. However, its average assets on loan amount to $250 million, which puts it slightly above Taiwan in the region.

ThailandÆs securities lending market has not been without interest though. In December 2006, the countryÆs central depository shortened the buy-in period form T+5 to T+4.