Securities and Exchange Commission, Thailand Quarterly - CMIC

“The task for risk managers is to see through any mirage that may build up, and to always look for the downside risks. In the next few years, international economic factors such as the political changes going on in the Middle East, global warming, China’s long-term economic adjustment process, and the crisis resolution to European problems, may hold a few particularly acute challenges for risk management.” SEC Chief ’s keynote address at the Risk Management Seminar on February 22.

Securities and Exchange Commission, Thailand Quarterly Newsletter Issue No. 28 April 2011

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“Emerging market regulators should be aware of problems arising from shadow banking, counterparty risks and the too-big-to-fail issue – who should pay for bank failures. They must plan today for bank failures that might happen tomorrow. If not, they will again automatically impose the burden on the general tax payers, the innocent bystanders.”

Keynote address at the APEC Financial Regulators Training co-hosted by the SEC and the Asian Development Bank on March 14.

ASEAN Capital Markets Integration

SEC Secretary-General Thirachai Phuvanatnaranubala as Chairman of the ASEAN Capital Markets Forum (ACMF)led the ASEAN securities regulators’ executives meeting on March 7 in Kuala Lumpur, Malaysia to discuss progress of work on capital markets integration scheduled for launch by 2015 under the ASEAN leaders’ vision of the ASEAN Economic Community.

The ACMF was pleased with the works, especially those relating to creating mutual recognition (MR) framework among ASEAN securities regulators. The MR framework aims to minimize duplication of work in conducting regulatory approval/registration process once it has obtained necessary approval from one ASEAN securities regulator who is a signatory to the MR agreement.

International Updates Focused areas for MR include cross-border offerings of retail mutual funds, approval of secondary listing and single prospectus for cross-border equity and debt offerings based on the ASEAN common disclosure standards and plus scheme effective since 2008.

The progress toward MR of single prospectus regime for ASEAN took a giant leap in February when Malaysia, Singapore and Thailand agreed to reduce 40 percent of their additional domestic requirements (“pluses”) for debt securities offerings. The ACMF also discussed the progress of the ASEAN Corporate Governance Ranking Initiative. Following similar assessments being conducted at the national level in several countries including Thailand (by the Thai Institute of Directors Association), the pan-ASEAN CG ranking is expected to improve implementation of CG practices by publicly listed companies in ASEAN. The actual assessment and ranking, to begin next year by a third party, will complement the ASEAN exchange linkage initiative (scheduled to go live by 2012) and enhance the overall attractiveness of ASEAN public limited companies to the international investing community.

Being one of the working groups under the ASEAN Finance Ministers, the ACMF provided its annual report to the Finance Ministers, in April in Bali, Indonesia. For the first time, the report was prepared in the form of a comprehensive scorecard which assesses the level of progress made toward integrating ASEAN capital markets. The ACMF scorecard is now a public document and available for download at the ACMF website at www.theacmf.org.

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Investor Education Plan Investor education is one of the major tools that the SEC has been using to achieve investor protection objective. It has continuously launched various educational programs for investors through traditional and online media as well as various activities.

Due to certain key findings from its investor survey in 2009, the SEC has adjusted its investor education strategies, shifting focus more on potential investors so as to enhance investment culture and build up well-informed, wise investors, as follows:

• Pushing for “financial education” to become “national strategy”, together with other key agencies, e.g., Finance and Education Ministries, the Bank of Thailand, the Stock Exchange of Thailand, etc. This is aimed to help enhance financial literacy of the Thai people which would in turn contribute significantly to solving the country’s economic and social problems in the long run; • Reviewing strategies for investor education concerning (1) target groups to cover existing and potential investors, (2) key messages for personal finance and financial planning, investment products and suitability, and tips to become wise investors, and (3) channels ranging from online and traditional media to variety of activities, so as to execute the plan appropriately and efficiently; and

• Conducting regular surveys to get to “Know Our Investors” in terms of investment behavior, level of knowledge in relation to product features, access to and ability to understand investment information, and level of ability to exercise rights to protect their own benefits. The information obtained will also be used to adjust regulations in relation to disclosure requirement, new product development, and expectation of intermediaries, investor contacts and financial planners regarding their role to educate clients. Note: SEC Investor Survey 2009 is available at http://www.sec.or.th/infocenter/report/education_survey.ppt

Thailand among top three fund markets in Morningstar’s global survey Thailand’s asset management industry ranks third behind the US and Singapore respectively in its first-time evaluation by Morningstar’s Global Investor Experience Study 2011.

The industry received the overall score of A- with an A, ranking first along with the US and Australia, in the area of fees and expenses, a B+, the third place behind Sweden and the US, in the area of disclosure, and a B, the fourth place behind Hong Kong, Singapore, Germany and Netherlands in the area of regulation and taxation. There is still a room for improvement in the area of sales and media. Note: Morningstar’s Global Investor Experience Study is available at http://global.morningstar.com/GlobalInvestorExperience2011

EU recognizes Thailand’s auditor oversight The European Commission has announced its recognition of Thailand’s auditor oversight as in the transitional phase of the group of 20 third countries such as New Zealand, Hong Kong, Taiwan and Malaysia that are in the process of establishing an independent public oversight system for auditors. During this transitional period, the SEC approved auditors are allowed to perform audit activities under the EU jurisdiction without registering with EU competent authorities, and the SEC must set up a full auditor oversight system by July 31, 2012.

In moving toward such goal, the SEC revised regulations on approval of auditors in line with the international standards whereby the approved auditors must work for audit firms whose audit quality assurance system must be reviewed and approved by the SEC. To allow the audit industry to make necessary preparations for compliance with the revised regulations, the requirement will take effect January 1, 2013.

In addition, the SEC aims for a recognition as EU equivalent or mutual reliance allowing EU member states to rely on supervisory work of Thailand’s oversight systems.

Securities Offerings (Jan 1 – Mar 31, 2011) Equities

Note: Some have not started the offering process.

Type of offeringNo. of companies*

Q1

Initial public offerings (IPO) – stocks 2

Public offerings (PO) – stocks 3

Public offerings (PO) – warrants 0

Total 5

Debt securities

Type of securitiesOffering value (million baht)

Q1

Short-term debt securities 314,685.88

Long-term debt securities 66,186.00

Other debt securities* 11,055.04

Total 391,926.92

Note: *Including convertible debentures, structure notes and securitization bonds

Product Innovation

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The SEC has driven financial innovation under the Capital Market Development Master Plan to enhance product varieties for investment choices. The Q1/2011 progress includes:

Carbon fund Earlier this year, the SEC Board approved a set up of carbon fund in the form of mutual fund. The objectives are to support the development of projects for a reduction of greenhouse gas emission by clean development mechanism (CDM Project) as well as provide business operators with additional access to sources of fund and carbon credit market.

The fund will be allowed to (1) invest in both equities and debt instruments issued by CDM project operators; (2) trade Certified Emission Reduction (CER); (3) engage in other transactions such as guarantee, loan, hire purchase or leasing of equipment; (4) give advice or provide services related to CDM projects; and (5) be a joint operator of CDM projects. As investment in carbon fund is associated with high risks, the SEC therefore allows only institutional investors and those with high risk tolerance to invest in the fund.

The regulations on establishment and management of carbon fund are in the drafting process and a public hearing on the draft regulations will be held in Q3/2011.

Infrastructure fund The SEC has launched the regulations on establishment and management of infrastructure fund, effective as from January 16, 2011. Infrastructure fund will become a financing tool in support of the country’s economic expansion and long-term competitiveness, yet providing more investment choices and easing the government’s burden on budget and public debt.

Key features are: (1) The fund must be a close-end fund with registered capital not less than 2 billion baht; (2) The fund may invest directly in infrastructureor indirectly through the infrastructure company which the fund holds more than 75 percent of its outstanding shares. Types of infrastructure include rail system, toll way, electricity, water supply, airport, deep sea port, telecommunication and alternative energy, providing further that the investment value of each project must not be less than 1billion baht; (3) Investment in incomplete project (greenfield project) is permissible providing that the investment units of the fund investing in high proportion of greenfield project must be offered only to high net worth investors; (4) Any person or persons in the same group is entitled to hold investment units not exceeding one-third of the total amount of the investment units sold, with an exemption for particular entities who are on tax-exempt status such as the Government Pension Fund and the Social Security Fund;

(5) Foreign unitholding limit must be consistent with those prescribed by laws governing the industry in which the fund invests; and (6) The fund must pay dividend in the amount of not less than 90 percent of the net profit, but paying out dividend while the retained earnings is in deficit, is prohibited.

The SEC is in the process of issuing related regulations concerning documentary requirements on details of mutual fund project, commitment between unitholders and asset management companies, and prospectus. A public hearing on the draft regulations will be held in Q2/2011.

Precious metals derivatives

The SEC Board has approved a launch of new licensing category “derivatives brokerage license which is limited to precious metals”. The license holders are empowered to engage in derivatives brokering business having precious metals such as gold, silver, and platinum as underlying securities. Qualified precious metals traders or business operators are able to apply for the license. While those existing gold futures license will be upgraded. This is to encourage the participation for the precious metals industry, allow the license holders to engage in a wider range of business, and yet provide the investors with additional channel of access to a variety of services. In addition, the SEC will extend the scope of services for derivatives investor contacts limited to gold futures to cover precious metals derivatives as well as allow selling agents whose services are limited to gold futures and qualified physical precious metals business operators to be selling agents limited to precious metals derivatives of derivatives brokers.

SEC Senior Assistant Secretary-General Pravej Ongartsittigul (second right) recapped the SEC’s supportive measures for establishment of infrastructure fund at a finance forum hosted by MFC Asset Management Plc.

Infrastructure Fund: The New Investment

2. Advertisement and disclosure of fund information: The SEC has encouraged asset management firms to focus more on providing investors with investment information, for example, investment policy, risks and fund performance, than concentrating on sales promotions and premiums. Relevant regulations on fund advertisements will be revised accordingly. Additionally, the SEC asked the AIMC to coordinate with fund rating agencies such as Lipper or Morningstar to support comparison of fund performances useful for investors’ decision making and promote public access to such rating information on a regular basis. 3. Business activities between asset management companies, commercial banks and their subsidiaries: The SEC has urged asset management companies to perform fiduciary duties with due care and in compliance with the AIMC stardards when engaging services provided by shareholders and networks to ensure independent business judgment, asset management and sale practices.

Supervision of independent professionals In moving toward international linkage and disclosure-based principle, the SEC is putting a stronger emphasis on reliance on information disclosure for investors’ investment decisions and has enlarged scopes of responsibilities of market professionals, as follows:

• Financial advisors To raise the quality of financial advisors and enhance their practicality and due care, the Investment Banking (IB) Club, with continued support of the SEC, last year launched its revised ethics and due diligence guidelines for preparation of tender offers, application for tender offer waivers, acquisition or disposal of assets and connected transactions. Meanwhile, the IB Club is drafting rights and duties of issuers and holders of derivative warrants (DW) to standardize DW issuers’ practices and better inform investors of product features and conditions.

• Auditors and audit firms The SEC is reviewing audit firms’ quality assurance systems, requiring that the SEC approved auditors work with audit firms and comply with the SEC’s new audit oversight system by January 1, 2013. The new scheme will particularly address audit quality control on both firm level and engagement level to mitigate risks associated with financial misstatements. Of the total 28 audit firms, 10 have already been reviewed by the SEC since October 1, 2010. • Compliance The SEC is promoting the roles of compliance units and compliance professionals of securities companies, asset management companies, LBDU (limited brokerage, dealing, and underwriting) licensees and derivatives brokers to accommodate the upcoming liberalization of securities businesses and financial innovations. As such, compliance units and professionals should foster sound compliance culture and high standards of roles and duties to ensure efficient performance and client confidence.

Market Competitiveness The SEC has closely coordinated with market participants and their trade associations to enhance Thai market competitiveness. Two-way communication has been emphasized through such activities as quarterly meeting, focus group, compliance meeting, seminar and training program for clarification, exchange of ideas and updates on the industry’s demands and obstacles. Securities business The Q1/2011 bilateral meeting with the Association of Securities Companies (ASCO) emphasized three key issues as follows:

1. Industry readiness for ASEAN capital markets integration: The ASCO was instructed to study other ASEAN countries’ regulations and raise any issues they have foundfor the SEC’s further discussion at the ASEAN Capital Markets Forum (ACMF). Most securities firms, however, have demonstrated their readiness for the ASEAN capital markets integration and market liberalization. A working group comprising representatives from the SEC, the StockExchange of Thailand and the ASCO will be set up to ensure the Thai market’s effective preparation for the ASEAN capital markets integration. 2. KYC/Suitability Test: The ASCO has designed a questionnaire for its members to use as the Know Your Customers (KYC) or Suitability Test, a self-assessment of investor profile and risk appetite. The new tool will be officially launched on July 1, 2011.

3. ASCO role as self-regulatory organization (SRO): The ASCO has reaffirmed its intention to take on the role of SRO for the benefits of investors and the industry as a whole. The SEC will propose amendment to the securities law to support self-regulation of industry associations. The ASCO plans to adopt the SRO role in 2011.

Asset management business The Q1/2011 bilateral meeting with the Association of Investment Management Companies (AIMC) discussed measures and guidelines for asset management companies with regard to protection of investors’ interests as follows:

1. Property funds’ rental income guarantors: The SEC and the AIMC have agreed that asset management companies should conduct due diligence on property funds’ rental income guarantors to assure investors that they have scrutinized guarantors’ financial condition which would help minimize risks arising from guarantors’ breach of rental contracts. The SEC will also require the guarantors to have their credit rated and disclose its credit rating for investors’ decision-making.

In cases where the lessee of the property is a newly established company and its parent company guarantees the rental income to be paid by the lessee to the fund, the SEC will require disclosure of an additional investor alert that “since the income guarantor is in the same group of the lessee, the rental income guarantee structure must not minimize the fund’s risk in case of the lessee’s breach of contract.”

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EnforcementAdministrative sanctions and others On February 15, 2011, the SEC extended the submission date of the special audit report of Bliss-Tel Plc.(BLISS) from February 16, 2011 to February 28, 2011. In January, the SEC ordered BLISS to arrange a special audit by the auditor who had reviewed the company’s third quarterly financial statements of 2010 on the item of advance payment for advertising service due to the auditor’s qualified opinion on such item.

More details in SEC Releases No. 3 and 11/2011

Criminal sanctions

Fine Settlement The Settlement Committee imposed penalty fines on the following cases:

• TWZ price manipulation The Settlement Committee imposed fines on Auttawut Phaichai and Patinya Pittayanupakorn in the amount of 16,071,788.32 baht and 4,563,791.25 baht respectively for manipulating the share price of TW Corporation Plc. (TWZ) during the following periods: (1) September 28 to October 26, 2007, (2) April 28 to May 15, 2008 and (3) June 23-24, 2008.

• SLC insider trading The Settlement Committee imposed a total fine of 1,185,785.60 baht on Chutchapong Munchupa, former executive of Solution Corner (1998) Plc. (SLC), for using undisclosed information he had obtained by virtue of his positions to sell SLC shares and for imparting a false statement with the intention to mislead any person concerning facts sensitive to the SLC share price. • TRAF price manipulation The Settlement Committee imposed fines on Lalana Sirichanyakul, Sippakorn Kawsa-art and Rinnapa Kunawatsatit in the amounts of 36,815,524.26 baht, 500,000 baht and 500,000 baht respectively for manipulating the share price of Traffic Corner Holdings Plc. (TRAF) (currently M Pictures Entertainment Plc. (MPIC)). Jantharapa Wongpaiboon was also ordered to pay 333,333.33 baht fine for aiding and abetting such manipulation. In addition, Sippakorn and Jantharapa will be subject to the SEC’s consideration regarding prohibited characteristics of capital market personnel.

• SAMART, SIM and SAMTEL price manipulation The Settlement Committee imposed fines on Phongsri Saluckpetch and M.L. Soonthornchai Chayangkool in the amount of 33,105,453.71 baht and 1,500,000 baht respectively for manipulating the share prices of Samart Corporation Plc. (SAMART), Samart I-Mobile Plc. (SIM) and Samart Telcoms Plc. (SAMTEL). A separate fine of 999,999.99 baht was also imposed on Somchai Vimorkcha-roensuk and Somruay Sae-lim for aiding and abetting such manipulation.

• RCI price manipulation The Settlement Committee imposed a fine of 333,333.33 baht on Adirek Umbangtalad for aiding and abetting the share price manipulation of Royal Ceramic Industry Plc. (RCI) on May 2, 2008.

More details in SEC Releases No. 13, 14, and 27/2011.

Criminal complaint In March 2011, the SEC filed criminal complaints against the following cases:

• TWZ price manipulation The SEC filed a criminal complaint with the Department of Special Investigation (DSI) against Nattawadee Chindaprasert, Auttawut Phaichai, Patinya Pittayanupakorn and Nakorn Tanasornkornchatchon (former name - Napadon Tuphitakphol) for manipulating the share price of TWZ Corporation Plc . (TWZ) during the following periods: (1) September 28 to October 26, 2007, (2) April 28 to May 15, 2008 and (3) June 23-24, 2008. Earlier, Nattawadee and Nakorn had refused to enter the settlement process while Auttawut and Patinya had accepted to do so but later failed to pay the fines as ordered by the Settlement Committee.

• KARAT insider trading The SEC filed a criminal complaint with the DSI against Apichart Rungruangcheva (former name Wisith Kanchanopas), Ratchanee Panich, Krisada Kulvivat and Preecha (surname unknown) for trading Karat Sanitaryware Plc. (KARAT)’s shares by using inside information provided by Apichart, who at that time led the legal advisory team for the purchase of KARAT shares from major shareholders and the making of tender offer to delist KARAT from the SET before such information became public.

More details in SEC Releases No. 24 and 29/2011. Court judgment • Roynet case The Southern Bangkok Criminal Court sentenced Kittipat Yaoprukse to eight-year and 18-month imprisonment and a fine of 1,880,000 baht. The SEC in February 2003 filed a criminal complaint with the Economic Crime Division of the Royal Thai Police against Roynet Plc. (Roynet) and Kittipat Yaoprukse for falsifying account to deceive other persons, recording false statement, concealing the report on buying and selling of securities, and using inside information for trading Roynet shares. • CWT case The Criminal Court sentenced Payuth Anantasittikun to a fine of 600,000 baht for aiding or abetting the manipulation of the share price of Chai Watana Tannery Group Plc. (CWT) from July 15, 2004 to February 9, 2005. The SEC in January 2008 filed a criminal complaint with the DSI against Payuth Anantasittikun for aiding or abetting the CWT share price manipulation. More details in SEC Releases No. 23 and 25/2011.

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Corporate Affairs Department Securities and Exchange Commission, Thailand 16th Floor, GPF Witthayu Tower, 93/1 Wireless Road, Lumpini, Patumwan, Bangkok 10330, Thailand Tel: (66) 2695 9504-5 Fax: (66) 2256 7755 Email: [email protected] Website: http://www.sec.or.th

Disclaimer: This newsletter is for information purposes only. The analysis, opinion or conclusion presented herein are those of the editorial team. There shall be no legal binding to the SEC Thailand.

Tell us what you think of Capital Thailand • What is useful to you? • What do you want more of? • What do you want less of?Email: [email protected]

Enforcement Summary (Jan 1 – March 31, 2011)Criminal sanctions

Fine settlement Criminal complaint

No. of cases No. of persons Fine payment No. of cases No. of persons

58 39 103,178,435.90 4 13

Key Functions For Business Growth

SEC Deputy Secretary-General Chalee Chantanayingyong gave a keynote address at a listed company seminar urging listed companies to pay more attention to three key units conducive to revenue making and business growth: (1) company secretary to ensure regulatory compliance and accurate company information, (2) internal control to ensure check and balance without embezzlement or frauds, and (3) investor relations to ensure effective communication and strengthen relationship between companies and investors. Efficient back-office is also key to risk reduction, corporate image building, investor confidence and fund mobilization.

Organizational Updates Appointment of SEC Board members Finance Minister Korn Chatikavanij appointed (1) Nontaphon Nimsomboon, (2) Kumchai Jongjakapun, (3) Sathit Limpongpan, and (4) Bandid Nijathaworn as expert members of the SEC Board for a four-year term, effective from March 1, 2011.

Nontaphon Nimsomboon: He obtained a Bachelor of Commerce (2nd Class Honors) from Thammasat University, Thailand, an MBA from the University of Iowa, USA and a Ph.D. in Accounting from Thammasat University, Thailand. Previously, he was Auditor General of the Office of the Auditor General of Thailand and President of the Institute of Certified Accountants and Auditors of Thailand. He is Chairman of AMC International Consulting Co., Ltd. as well as Director and Chairman of the Audit Committee of the Bank of Thailand.

Kumchai Jongjakapun: He holds an LL.B. (2nd Class Honors) from Thammasat University and a B.A. in Political Science from Ramkhamhaeng University, Thailand. A Barrister-at-Law, he graduated with an LL.M. in International Business Law (with Merit) from University College and a Ph.D. in the same field from King’s College, University of London, UK. He was Dean of the Faculty of Law of Thammasat University, Thailand between 2004 and 2007.

Sathit Limpongpan: He graduated with a Bachelor of Law from Thammasat University, a Barrister-at-Laws of Thai Bar Association, a Master of Laws from Tulane University, USA, a Master of Economics from Sukhothai Thammathirat University, and a Ph.D. in

Development Administration from National Institute of Development Administration (NIDA). Before the appointment, he was Minister-Counselor (Customs) and then Permanent Secretary of the Ministry of Finance.

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Bandid Nijathaworn*: He holds a B.A. (Hons.) in Mathematical Economics from the University of Essex, Colchester, England, a master’s degree in Economic Policy and Planning from La Trobe University, Australia, and a Ph.D. in economics from the same

university. He was Deputy Governor for Monetary Stability of the Bank of Thailand between 2004 and 2009. Prior to joining the Bank of Thailand, he was an economist at the International Monetary Fund. *Resigned from the post on May 12, 2011