Trading Fixed Income Instruments on the Exchange
Thailand Bond Exchange, TBX, was established to provide investors with additional investment instruments. In addition to a better access to information by investors, TBX will also provide investors with an ease to conduct trading transactions. TBX enhances the bond’s secondary market. Prior to TBX, bonds were traded in the Over-the-Counter ‘OTC’, which was mainly the institutional investors arena. Small investors were unable to get into that particular market due to its size and its ambiguity or simply the lack of information.
TBX is currently working under the trade-by-price method. However, the committed price will be converted into indicative yield to assist in decision-making. In the very near future, both government and corporate bonds will be listed on the TBX. While currently only publicly listed companies’ bonds are allowed to trade on TBX, non-listed companies will soon be able to have their bonds traded on the exchange as well. The commission fee associated with bond trading required by brokerage companies is not fixed and subject to negotiation between the investors and their respective brokers.
Automatic Order Matching (AOM)
An investor can place an order through a member of the Exchange or a brokerage company, who in turn, enter the order into TBX’s trading platform. Similar to equity trading at SET, the orders are sequenced using the FIFO algorithm. The FIFO follows the sequence of price and then time priority. If the bid or offer price and volume can be matched, the orders are matched automatically. The detail restrictions of the AOM through TBX are as followed:
|Price is quoted in term of per unit with 2 decimal points. This quoted price is required to be the gross price.|
|A unit of bid or offer is set to be 100 units of bond. Each transaction order must be the multiple of 100 units.|
Total value per transaction
|The maximum value per transaction is set to be 10,000 units of bond or equivalent to 10 million baht.|
|The spread is the allowable adjustment of price to be bid or offered. The spread is set to be 0.01 baht.|
Ceiling and Floor
|No limitation in ceiling and floor price.|
|The commission is currently fully negotiable with the broker.|
Put Through (PT)
When the trading value crosses over 10,000 units, which is equivalent roughly to 10 million Baht, an alternative method provided by TBX called “Put Through” must be selected. The counterparties can negotiate off the exchange. Once the deal is concluded, the seller can initiate the put through transaction, which then needs to be verified by the buyer. Once the confirmation process is completed, the buyer will allow that transaction to go to the next process, clearing and settlement.
Indicative signs are placed by the TBX in order to convey some information to investors. Examples of those symbols are as followed.
- XI (Exclude interest) shows that the buyer of this bond will not be eligible to receive the interest in that period.
- XP (Exclude principal) advises investor who purchases the bond that s/he will not be entitled to receive the principal payment in that period. Normally, this sign is associated with amortizing bond prior to its maturity date.
- NP, NR, SP and H are the symbols used in the same manner as employed by the Stock Exchange of Thailand.
The Clearing and Settlement Process
Once the order’s execution is completed, the clearing and settlement process is the next most important procedures, ensuring investors’ confidences. A good C&S procedure reduces the counterparty risk. Counterparty risk refers to the case where one party fails to deliver the promised bond, and the other party fails to pay the cash associated with the transaction. Thailand Clearing House Co.,Ltd. (TCH) , known as TSD, administers this process. Currently, it takes 2 working days to complete the clearing and settlement transaction once the order has been executed. To simplify the procedure, investors are encouraged to make scrip deposit to TCH prior to any deal taking place.