In more detail
The key topics in the SEC's Public Hearing are summarized below.
- The Current Regulated Underlyings under the Derivatives Act
Currently, the regulated underlying goods and variables under the Derivatives Act and its sub-regulation include foreign exchange rates, interest rates, financial indices, securities indices, securities, gold, crude oil, silver, platinum, copper, zinc, iron, aluminium, tin, coal, natural gas, electricity, plastic, commodity indices, freight, carbon credit, and fresh or processed agricultural products (collectively referred to as the "Current Regulated Underlyings").
- The SEC's proposed Additional Regulated Underlyings
In the Public Hearing, the SEC proposed to include (i) digital assets, (ii) greenhouse gas emission allowances and Renewable Energy Certificates (RECs), and (iii) indices on regulated underlying goods or variables under the Derivatives Act (excluding indices on indices) as additional regulated underlying goods and variables under the Derivatives Act ("Additional Regulated Underlyings"), as outlined below.
- Digital assets
The SEC proposed to include digital assets as regulated underlying goods under the Derivatives Act. The digital assets refer to cryptocurrencies and digital tokens as per the definition prescribed in the Emergency Decree on Digital Asset Businesses B.E. 2561 (as amended). As a result, any person wishing to engage in a digital asset derivatives trading business must obtain the appropriate derivatives business license or registration and comply with the requirements under the Derivatives Act.
For example, if a licensed digital asset exchange wishes to make available digital asset derivatives on its exchange, such licensed digital asset exchange will be required to obtain a derivatives exchange business license and comply with the relevant requirements under the Derivatives Act, such as having a central counterparty as its clearing house for digital asset derivatives. Furthermore, any person who would like to conduct a derivatives dealing business in relation to over-the-counter derivatives referencing digital assets will be subject to derivatives dealing business license or registration requirements under the Derivatives Act.
- Greenhouse gas emission allowances and RECs
The SEC proposed to include greenhouse gas emission allowances and RECs as regulated underlying goods to support the Thai government's policy of achieving Net Zero emissions and to provide market participants with more effective tools for risk management.
- Indices on regulated underlying goods or variables under the Derivatives Act
In addition, the SEC also proposed to include (i) indices on regulated underlying goods; (ii) indices on groups of regulated underlying goods; and (iii) indices on regulated underlying variables (excluding indices on indices) as additional regulated underlying variables under the Derivatives Act. This supports investment diversification and prevents regulatory avoidance through bundling of regulated underlying goods.
- Proposed amendments to Current Regulated Underlyings
In this Public Hearing, the SEC also proposed to amend the Current Regulated Underlyings as follows:
- Carbon credit
Reclassifying carbon credits from regulated underlying "variables" to regulated underlying "goods." Under Section 3 of the Derivatives Act, derivatives contracts referencing regulated underlying "goods" may be settled either in cash or through a physical settlement mechanism, whereas derivatives contracts referencing regulated underlying "variables" may only be settled in cash and not by physical settlement. Therefore, reclassifying carbon credits as regulated underlying "goods" will enable both physical and cash settlement for carbon credit derivatives trading.
- Plastic
Broadening the scope of "plastic," which is an existing regulated underlying good, to be "refined petroleum products, natural gas-derived products, or petrochemical products." This expands the coverage of the Current Regulated Underlyings to cover more upstream products, improve risk management for related industries, and align with derivatives traded in international markets.
Endnotes
By designating Additional Regulated Underlyings under the Derivatives Act, the SEC intends to align Thailand's derivatives market with international markets, which offer a broader range of underlyings than those currently prescribed under the Derivatives Act.
Furthermore, the SEC also seeks to establish regulatory oversight into business operations with respect to derivatives referencing the proposed Additional Regulated Underlyings to ensure investor protection under the framework of the Derivatives Act. Therefore, business operators who provide services relevant to derivatives products referencing the proposed Additional Regulated Underlyings under the Public Hearing should carefully monitor their business activities to ensure compliance with the Derivatives Act.
For more details, please contact our team at Baker McKenzie.
