SEC pushes for leveraging rules
Written by changthai11 on Sunday, October 5th, 2008
FINANCIAL MARKETS
SEC pushes for leveraging rules
NUNTAWUN POLKUAMDEE
The Securities and Exchange Commission will propose that Asean members impose regulations limiting the leveraging ratios available for investment banks and brokers.
Thirachai Phuvanatnaranubala, the SEC secretary-general, said he would raise the concept of limiting debt-to-equity ratios at the next meeting of the Asean Capital Markets Forum.
Mr Thirachai, who is the current chairman of the forum, said leveraging ratios for investment banks and securities brokers should be similar to those imposed on commercial banks.
He said the US financial crisis came as Wall Street banks took on debt as much as 30 to 40 times their equity.
The downturn in the US home mortgage market has resulted in a sharp decline in the value of securities using such assets as collateral, wiping out the capital bases of banks such as Lehman Brothers and Bear Sterns.
Mr Thirachai said the crisis was a clear failure of regulators to control practices within the financial sector.
”In the US, many big houses had debt of up to 30 to 40 times their capital. So when they faced with a liquidity crunch, they couldn’t cope with the damage. We need to consider the lessons learned from the case,” he said.
Thai securities brokers, Mr Thirachai said, had an average gearing of under two times their capital, with the highest at just eight times.
He said moves by the US SEC to limit short-selling and suspend accounting practices had distorted the financial market and hurt institutional funds that could no longer find and report accurate market prices to their investors.
Mr Thirachai said he would propose the concept of imposing firm leveraging limits to other ACMF members before the next meeting in January.
”We need to take steps to build up market confidence and regain investor confidence,” he said.
Mr Thirachai added that fallout from the US would continue until the year-end as institutions divest their assets.
He said while investors should not overly panic about the situation, the crisis would inevitably hurt the Thai economy and exports going into 2009.
Mr Thirachai declined to comment about reports that the Association of Securities Companies would ask regulators to delay plans to liberalise the industry in 2012.
Meanwhile, Voravan Tarapoom, president of the Asset Investment Management Companies, agreed that market sentiment would stay poor over the next several months, even if the US Congress approves a $700 billion bailout package.
”No one knows how much damage will occur from collateralised debt obligations or credit default swaps. The crisis in confidence has spread across the world,” she said.
Mrs Voravan, who also heads BBL Asset Management, said foreign investment funds had frozen their investments, even in supposedly risk-free sovereign bonds.
”I think that cross-border [investment] policy should be stopped for the moment. We have to ask ourselves how can we protect against risk once we have opened the country. Even the US still has no solution yet, and how will we cope with the risk from increasingly complicated financial products?”
