The Stock Exchange of Thailand (SET) plans to impose tougher trading alerts to help curb trading in speculative stocks.
Stocks with price movements out of line with their financial fundamentals could be subject to restrictions on trade including requirements for trades to be settled only in cash and the exclusion of those stocks from the use of collateral by brokers in calculating investor trading limits.
Over the past month, more than 40 stocks on the SET and Market for Alternative Investment were subject to trading alerts, which require only that companies issue clarifications to the public.
But clarifications issued by companies are usually little more than denials of any knowledge of what is driving speculative trade on the secondary market or statements that the company has no material information to disclose that could influence stock prices.
SET president Kesara Manchusree said the new measures would first restrict trade to cash only for three weeks.
She said if a second alert was issued, a new three-week restriction would begin, and the stock would be excluded as collateral from trading account calculations.
For a third alert, the stock would be prohibited from net settlement trades.
The new measures must be approved by the Securities and Exchange Commission (SEC) before taking effect.
SEC deputy secretary-general Tipsuda Thavaramara said the SEC supported the market's efforts to reduce risks for investors through stricter controls on speculative stocks.
The SEC will approve the measures once the proposal is submitted by the SET, she said.
Pattera Dilokrungthirapop, chairwoman of the Association of Securities Companies, said the third step was quite significant, given that most "hot stocks" were settled through net settlement.
"The new policy is measured and should not affect trading volumes. Both buyers and sellers are still able to trade as normal," she said.
Investors mostly ignored the announcement, with the SET index closing yesterday at 1,577.55 points, down 3.72, on trade worth 40.3 billion baht.
Analysts do not expect the measures will make a significant impact on already-weak market sentiment.
Prakit Siriwattanages, an investment analyst at Asia Plus Securities, said the measures could help to reduce trading volumes for speculative stocks.
But brokers already impose restrictions under their own risk management practices to curb exposure to speculative stocks such as by reducing margin loan limits or trading limits, he said.
Each broker also maintains its own list of high-risk stocks that investors can trade only through cash rather than credit.
"At least the SET is looking to protect investors that could be hurt from trading these stocks," Mr Prakit said.
"Frankly, investors should also take care of themselves."
He said if the SET decided simply to suspend trading in speculative stocks, this would certainly affect market sentiment.
For now, the proposed new rules will at least require trade to be through cash balance accounts.
The cash balance rule requires investors to pay the full amount ahead of trading.
Stocks on the cash balance list jumped to 163 in the first 10 months of this year from the same number for all of last year.
Watchara Kaowsawang, a well-known local investor, agreed the new measures would have little effect on overall market sentiment.
They are just a new warning for traders to exercise caution when investing in speculative stocks, he said.
"It's fine, considering that the measures are not going to take effect immediately. Investors have time to take a step back," Mr Watchara said.
"I invest in some speculative stocks myself, as the blue chips have not really moved in recent months. But most of my trade is already through cash.
"I do think that for stocks that have received repeated alerts, greater controls are necessary, given the greater risk."
The SEC, meanwhile, recently added warrants to its turnover list, which is a weekly list of securities that have had unusual fluctuations in price or volume.
Local brokers have also begun to impose greater restrictions on margin lending and trading limits for speculative stocks as an internal risk control measure.
The SET index has gained nearly 22% this year despite the fact that the economy has slowed sharply on disappointing exports and domestic consumption.
The index is currently priced at 18.75 times earnings compared with a market ratio of 14.6 times at the end of 2013.
The SEC plans to announce two new fund classifications covering health and education funds in order to give investors a new long-term investment option.
Details of the two fund types are expected soon.