Settlement process - Thailand
|Fixed income securities (scripless):|
Pre-matching is mandatory and carried out between the counterparties via telephone, file exchange, and the Thailand Securities Depository (TSD)'s Post Trade Integration (PTI) system. The following fields are mandatory for pre-matching:
- Type of instruction (i.e. delivery or receipt against payment or free of payment)
- Settlement date
- Security (ISIN)
- Settlement quantity
- Settlement amount (for against payment transactions);
- Counterparty BIC
In order to avoid failed trades, buying investors are required to fund their account or to send a notice of receipt to the custodian by SD-1. Overdrawn positions are not allowed.
Securities movements, processing and recording take place through the TSD Post Trade Integration (PTI) System. Shares are transferred between depository members on a net basis by internal transfer between the members’ accounts. Cash payment is done on a net basis via BAHTNET, an electronic fund transfer system.
A true delivery versus payment as per the G30 recommendations does not currently exist in the Thai market.
T+1 or SD-1:
Custodian checks on funding or pre-advice of incoming funds from customers and checks whether there are sufficient securities from customers.
Pre-matching via the TSD systems.
T+2 or SD:
Custodian checks, in the morning of SD, whether the funds are paid or available on customer accounts to avoid any overdrawn position.
The Thai Clearing House (TCH) produces a report detailing the net amount owed by the member to the TSD or vice versa.
The custodian is identified by the TCH or TSD as having no holding positions under pending settlement status (that is, not being a pending receiver) or having holding positions under pending settlement status (that is, being a pending receiver) at customer account level.
Note: For more on pending settlement, please refer to the section below - Pending settlement mechanism.
Settlement is final for the custodian who is not a pending receiver.
The TCH will identify the transactions under pending receive status.
Settlement is final for the custodian who is a pending receiver.
Pending settlement mechanism
On 6 November 2017, the Thailand Clearing House (TCH) implemented pending settlement to:
- better manage fails in listed securities for delivery;
- be in line with international standards, namely the Principles of Financial Market Infrastructures (PFMI); and
- prepare for the shortening of the settlement cycle from T+3 to T+2 on 2 March 2018.
If pending settlement is imposed when a securities company has insufficient securities for delivery to the TCH and the short position cannot be covered by TCH’s mandatory securities borrowing and lending (SBL), buy-in on T+3 (SD+1), the following will happen:
Settlement transaction and confirmation
- Market participants, or clients of market participants, who are identified by TCH or the Thailand Securities Depository (TSD) to be the pending receiver, will receive the holding position but under pending settlement status. The pending receiver will pay the full amount for the securities.
- The pending receiver has the right to use the holding position, held under pending settlement status, in lieu of delivery obligation within net-clearing as normal.
- A settlement confirmation for the impacted transactions will be sent with the actual settled quantity of shares, while the payment amount will be in full.
- The TCH will trigger cash settlement on SD+3 (counting from SD of the originating defaulted selling broker) to terminate outstanding pending settlement if the originating defaulted selling broker still cannot deliver the shares to TCH.
- If cash settlement is triggered, the pending receiver will receive cash settlement instead of securities. The price used for cash settlement is (1) buy-in price, (2) 130% of mark-to-market price of the previous business day, or (3) 130% of the mark to market price of the business day before ex-date if the cash settlement is triggered during corporate action’s ex-period, whichever price is higher.
- Cash settlement will be settled in the second batch of net-settlement at 16:00 Thai time and further credited into the market participant’s cash account, or client of market participant’s cash account, after 16:00 Thai time.
Scripless government and state-owned enterprise bonds are settled through the PTI (Post-Trade Integration) system on T+2. Physical government and state-owned enterprise bonds can be settled based on agreement between counterparties while cash can be made either through BOT's BAHTNET system or by cheque as agreed between the counterparties.
Corporate debt securities
Scripless corporate debt securities are settled through the TSD's system. The cash settlement depends upon agreement between the counterparties and can be made through BOT’s BAHTNET system.
The settlement process for listed funds, is the same as for listed equities. (Please refer to “Equities” above.)
Subscription payment of non-listed funds is usually made on the same date of subscription via bank cheque payable to the funds subscription account. The cash account will be debited on the date of the subscription payment. The receipt of mutual funds units subscribed will be recorded as free of payment delivery on the date that the advice of number of units allocated from the fund management company is received by the custodian bank.
For redemption of non-listed funds, the securities will be recorded as withdrawn on the same date the redemption order is submitted to the fund management company by the custodian bank. Redemption proceeds will be credited upon receipt by the fund management company.
RTGS-DVP is a real-time gross settlement link implemented between the TSD and the BOT. Settlement via the RTGS-DVP system is possible for big-lot trades in equities and corporate bonds but must be preagreed with the broker before the trade is done. Settlement date (SD) can be either T+1 or T+2 as agreed between the counterparties.
- Corporate Bonds: Minimum of 10,000 units or THB 10 million.
- Equities: Minimum of THB 50 million.
- TSD acts as the CSD and TCH is the central counterparty for securities settlement of all fixed income instruments and equities. The processing of securities transactions is separate from the processing of cash transfers as TCH is not a member of the payment system and the cash transfer occurs reasonably close in time to the securities processing. TSD has implemented risk measurement controls to limit the short period of asset commitment risk. The TSD PTI System facilitates the transfer of securities between members on a net basis. The movements between member accounts can be observed via a computer link with TSD and is final at 14:15 on SD. This system has reduced the counterparty risk and fail trade rate.
- Funds for securities settlement are processed through the Central Settlement System (CSS), BOT's electronic fund transfer system. TCH uses CSS to assist simultaneous debiting and crediting of all participant accounts at BOT. TCH informs CSS of the cash netting positions and CSS executes the credit and debit transactions within the BAHTNET system simultaneously across the accounts held by custodians and settlement banks at the BOT.
- Accounts are required to be funded by 14:00 and funds are frozen between 14:00 and 14:05. If funds of any member bank are not sufficient, the system sends a warning message to those members and will lock the available funds in the accounts until the positions are covered.
The guarantee funds are only available to defaults related to on-exchange transactions and do not cover OTC trades.
The Clearing Fund
The Clearing Fund protects members in case of a broker's default. The target size of the fund is THB one billion which is based on the trading size of the top three members. The SET initially contributed THB 100 million and each broker pay a fixed contribution of at least THB 12 million, upon admission of membership. In addition, each general clearing member of the TCH has to make monthly contributions, depending on the level of potential damage risk of the member, with a required minimum contribution of THB 1,000 a month.
The fund would be used as follows:
- First access would be made to the defaulting members contribution to the fund.
- Second access would be from SET’s contribution at the first part (THB 60 million).
- Third, a call would be on other members' contribution to the fund.
- Finally, a call would be made on the remaining Exchange's contribution to the fund.
The Securities Clearing Reserve Fund
- The Securities Clearing Reserve Fund has a balance of THB 4 million and can only be utilised following the exhaustion of all other sources of funds: the members line of credit, TSD’s line of credit and the Clearing Fund.
- Under the current structure, if a member defaults, the member first borrows against its line of credit and then the TSD would use its own lines of credit. Beyond that, the TSD could use the Clearing Fund and only use the Clearing Reserve Fund if the Clearing Fund is exhausted. The defaulting member is obligated to repay the full amount of any monies paid from the fund, together with interest from the date of utilisation.
The Securities Investor Protection Fund (SIPF)
- The objective of the fund is to protect and build confidence for investors trading listed securities at the SET through the members of the SIPF (SIPF members are exchange member brokers). The fund protects the investors assets that are held in the custody by SIPF member. In the event that the members of the SIPF fail to return the assets to investors, each investor shall be compensated by SIPF for the damage at the actual cost but not more than THB one million per SIPF member. The protection does not include any losses from securities trading.
No restrictions are imposed on the type of cash accounts non-residents may maintain. Non-residents may open a local currency account for holdings as follows:
- THB proceeds from the sale of foreign currencies that originated from abroad or from a non-resident foreign currency account;
- THB transferred from other non-resident THB accounts;
- Obligations of residents to non-residents that are approved by the BOT;
- THB proceeds from trading listed securities in the SET and other instruments.
Financial institutions are not allowed to pay credit interest to non-resident THB savings or current accounts except for fixed deposits with a tenor of at least 6 months.
Authorised banks are required by the BOT to report movements on non-resident THB accounts on a daily basis. Therefore, non-resident account holders must declare the purpose and details of any payment transactions before the transactions takes place.
The Bank of Thailand allows non-residents to segregate and operate two types of non-resident THB accounts:
- Non-resident Baht Account for Securities (NRBS)
This account is allowed for cash transfers related to investments in securities and other financial instruments (that are equity and debt instruments, unit trusts, financial derivatives transactions traded on TFEX, sale proceeds or returns) and related payment to such investments.
- Non-resident Baht Account (NRBA)
This account is allowed for general investment purposes except securities investments (that is, trade, services, direct investments, investment in immovable properties, loans and transactions).
Transfers of funds are only permitted between accounts of the same type, that is, from NBRS to NBRS or NRBA to NRBA.
BOT Automated High value Transfer Network (BAHTNET)
BAHTNET is a high value, low volume payment system similar to RTGS systems in other countries. It requires cleared funds before making the payments. The payments are final and irrevocable. Funds are cleared real-time and same-day.
Five core services are available in the BAHTNET system:
- Interbank funds transfer;
- Third party funds transfer;
- Account inquiries from deposit accounts at BOT;
- General messaging;
- Broadcast to other BAHTNET members.
Imaged Cheque Clearing and Archive System (ICAS)
ICAS is an image-based cheque clearing system introduced in 2012 by BOT following the integration of cheque clearing systems in Thailand and to shorten the cheque clearing day regardless of clearing locations.
System for Managing Automated Retail Funds Transfer (SMART)
SMART is the payment channel for low value high volume transactions developed by local commercial banks.
Due to the tight restrictions on lending to non-residents as regulated by the Bank of Thailand (BOT), intraday or overnight overdraft facilities are not available to non-residents. Each on-shore financial institution is only allowed up to THB 600 million for all related transactions per “Group of non-residents” without underlying trades or investment in Thailand. The “Group of non-residents” includes the non-resident's head office, branches, agents and affiliated companies located outside Thailand.
This is applied to the transactions that are considered as providing THB liquidity to non-residents including granting THB overdraft, executing foreign exchange (FX) or THB transactions similar to providing THB liquidity to non-residents without underlying such as FX outright, buy-sell swap, cross currency swap, FX options, and other derivatives transactions similar to providing THB liquidity to non-residents.
As it is not possible to monitor the overall liabilities of non-residents, custodians do not provide credit facilities to their customers.
Foreign Exchange Regulations
On-shore and off-shore foreign exchange transactions are permitted. In the case of an off-shore foreign exchange transaction, the on-shore settlement of the THB transaction must be processed via the NRBS because a transfer from an NRBA to an NRBS and vice versa is not permitted by Bank of Thailand.
According to the Bank of Thailand's regulations, FX for other values than spot, requires underlying proof for example, securities trade instructions against payment or corporate action income details. There is no limit and no underlying proof required for FX value spot.
FX for value Today/Tomorrow/Forward and FX Swap can be done up to the amount of underlying transactions. However, the non-resident investors can book FX for other value dates than spot without underlying proof but within the allowed limit set by the Bank of Thailand.
Note: Previous against payment instructions or corporate action income and cost in the past cannot be used as the underlying proof for FX booking with Today and Tomorrow value. Value date of underlying transactions should be the same as FX value date.
Limit on THB aggregate account balances
Non-resident outstanding THB cash balances are limited to a maximum of THB 200 million per account type (NRBS/NRBA). The limit applies to aggregate account balances per account type held by any non-resident entity with Thai banks.
Compliance with this limit will be strictly monitored by Thai banks and the BOT. The BOT may consider requiring Thai financial institutions to sell excess non-resident balances to the BOT at penalty rates.
Non-resident account holders that do not cooperate with their Thai banks in ensuring that their account balances remain below the THB 200 million limit will be reported to the BOT and may be exposed to further actions of BOT.
TSD acts as the registrar for all SET listed securities. Registration is done immediately and simultaneously with settlement. Securities are available for same-day onward delivery. Securities are registered in the name of “Thailand Securities Depository Company Limited for Depositors”. The names of shareholders are provided by the TSD participants to the TSD on book closed date.
Registration for non-TSD securities needs about 2 weeks and securities are not available for delivery during this period.
Local Shares held by non-residents
TSD allows its participants to maintain omnibus or segregated depository accounts at their client account level.
Participants maintain detailed records of ownership in their own books. At books close date, TSD will be able to see who the eligible shareholders are, based on eligible holdings in participants’ segregated depository accounts.
Foreign investors may purchase Local Shares and register them as foreign, provided that the foreign ownership limit is not exceeded. Registration is done through a real-time online system. Once the foreign ownership limit is reached, Local Shares owned by foreign investors cannot be registered. The TSD maintains a queue for foreign registration, which operates on a first-come, first-served basis. Local shares pending in the registration queue are available for trading and can be withdrawn at any time.
If foreign investors are unable to register local holdings over a record date, they will have legal title, but will not be entitled to corporate actions and voting rights. Entitlements will be paid neither to the previous owner nor to the current (foreign) shareholder.
As a foreign ownership limitation is not applied to mutual funds, registration is not necessary.
The funds for corporate action benefits are considered from the registrar record of account holders and their holdings as of book closing day.
For a listed fund, which is usually held in book-entry form in TSD’s CSD system, the underlying client’s name is declared by the custodian bank to TSD as the unit holder during the book closing period of the fund.
Registration of listed mutual funds in physical form takes about 2 weeks. During the registration period, funds are not available for trading and settlement.
Registration of NVDR held by foreign investors
NVDRs can be queued for foreign investors as per the normal queuing process for Local-to-Foreign Shares and still enjoy the financial benefits.
NVDRs are available during the queuing for Foreign Shares.
Government debt must be registered in the owner's name. The registration periods vary, but on average it takes about one week.
Scripless corporate debt, is registered in the name of “Thailand Securities Depository Company Limited for Depositors”. The names of bondholders will be available on the bond registrar’s books in the morning of books close date.
Some instruments, such as physical certificates, cannot be registered under the name of “Thailand Securities Depository Company Limited for Depositors” but in the owner's name. Re-registration of physical securities usually takes around 35-45 days while physical securities converted into scripless format will take around one to two days.
A stamp duty of 0.1% of the value of the purchase may be levied and is payable by the seller if the company does not use the TSD as registrar. Registrations performed by the TSD are free of stamp duty.
Failed trades - buy-in rules
If a transaction fails to settle on T+2, since the seller's broker account has insufficient securities for delivery to TCH, this will result in the TCH being unable to deliver full obligation securities to the eligible recipient.
In the early afternoon of T+2, TCH will immediately try to borrow the securities on behalf of and for the sellers account. If this is successful, no penalty will be levied and the failing party will only take over the borrowing charges. However, if this is not successful after the TCH utilises the SBL and the selling broker still has insufficient securities, the TCH will apply the pending settlement mechanism.
The TCH will try again to borrow securities at the end of T+2 on behalf of the selling broker to cover its insufficient position. If successful, a “one day late” settlement penalty will be levied and the seller must bear the borrowing costs. However, if this is not successful and the second borrowing attempt fails, the broker has time to regularise its position until 11:30 on T+3 (SD+1). If the account is still short after that time, TCH enforces a mandatory buy-in with same day settlement.
- Buy-in Price
If the buy-in attempt remains unsuccessful until T+5, the TCH will trigger cash settlement on T+5 at 16:00 to terminate the outstanding default. The cash settlement price for buy-in will be the same as cash settlement price for pending settlement.
Previous closing price or last bid plus five spreads (whichever is higher).
T+4 to T+5:
Previous buy-in price or closing price or last bid price plus two spreads (whichever is higher).
- Clearing and settlement
The executed buy-in transaction will be settled on the same day in the Net Clearing system between 13:30 and 14:15. TCH has added additional round of clearing and settlement at 15:15 to 16:00 for returning failed delivery securities, returning collateral of failed delivery securities, or paying cash settlement to the pending receiver.
Buy-in procedures are rarely applied, since pre-matching is mandatory on SD-1 and counterparties are unlikely to match trades without having the relevant securities in their account.
Penalties for late deliveries are as follows:
|Delay (business days)||Penalty (% of the consideration)|
> 1 ≤ 2
> 2 ≤ 3
> 3 ≤ 5
The minimum penalty amount applied is THB 300 per security per occurrence. In addition, the SET also imposes a penalty of THB 1,000 per day per trade on the broker for late settlement. Such penalties may be passed on by brokers to their clients.
Failed trades for debt instruments at the Bond Electronic Exchange
For a failed payment, a penalty of a maximum of twice the payment amount may be considered. For a failed delivery, a penalty at a rate of five percent of the value of the securities may be considered.