Securities and Exchange Commission plans additional public hearings on margin loans

The Securities and Exchange Commission (SEC) is gearing up for a second series of public hearings regarding the tightening of regulations on margin loans. This move comes in response to concerns that certain brokerage firms have been facilitating the misuse of margin credit for activities unrelated to stock market investment. Surasak Ritthongpitak, Assistant Secretary-General of the SEC, indicated that the forthcoming regulatory changes are likely to restrict securities firms from granting margin loans for non-investment purposes.

The intended purpose of margin loans is to enable investors to bolster their positions in capital markets by using securities as collateral. However, Mr. Surasak pointed out that some firms have been enabling clients to utilize borrowed funds for non-investment endeavors, which goes against the core objective of margin lending. When securities are pledged and the borrowed funds are diverted towards personal or business uses, it essentially transforms into a personal or multi-purpose loan, a service that only licensed financial institutions authorized by the Bank of Thailand can provide.

Following the initial round of hearings on margin loans held in February, the SEC is revisiting specific areas of concern in preparation for the upcoming second round of discussions. The primary focus of these subsequent hearings will be to refine critical aspects to ensure stronger risk management practices among securities firms. Mr. Surasak acknowledged that the proposed tightening of regulations could have a significant impact on securities businesses, particularly during unfavorable market conditions.

Brokerages have expressed apprehension that stricter loan limits may lead to a decrease in revenue and compel clients to reduce their margin portfolios. While certain new measures may be implemented in the third quarter of this year, others will allow firms more time to adapt, noted Mr. Surasak. As of the end of April, the total outstanding value of margin loans stood at approximately 62 billion baht, according to the SEC.

Earlier in the year, the regulator made adjustments to margin loan requirements, including modifications to initial margin levels for initial public offering stocks, alignment of credit limits with brokers’ financial conditions, imposition of concentration limits on client collateral, and enhancement of credit risk assessments. Mutual funds were also removed from the list of marginable securities and disqualified as collateral for margin loans and securities borrowing and lending transactions due to systemic risks that could trigger widespread forced sales of fund units.

Moreover, brokers are now mandated to ensure that margin credit is exclusively used for securities trading. According to Mr. Surasak, the SEC conducted investigations into naked short selling – the sale of shares without prior ownership – and found no violations, attributing a recent incident with a broker to a system error involving a negligible share volume. A centralized platform called the Security Bureau is being developed to facilitate tracking of margin loans across firms in collaboration with the Association of Securities Companies, with an anticipated launch date of February 1, 2026.