The Stock Exchange of Thailand (SET) will place a limit on algorithmic trading, the most preferred trading method for foreign investors, to reduce market volatility.
Limiting algorithmic trading does not equate to halting the trading method, but rather putting a cap on the magnitude and speed of foreign equity trading during high-volume trading sessions.
Algorithmic trading involves the use of fast computer programmes and complex algorithms to create and determine trading strategies for optimal returns. As such, algorithms are able to execute trading instructions under particular conditions in price, volume and timing.
The use of algorithmic trading has risen sharply this year because high volatility in the baht's value has helped investors from abroad shoulder lower foreign exchange costs, while Thailand's stock market has attracted related investors because of high trading liquidity.
In a recent promotional video released on its official YouTube channel, the SET hyped itself as "Asean's most liquid market" and "building confidence in Thailand’s potential".
The move to try to throttle automatic trades may run into the government-driven project to create a modern and digital Thailand 4.0.
"In the past, we found solutions to attracting foreign investment flows. Such fund flows are large, but the issue is handling technological trading programmes and managing trading orders so as not to affect the overall stock market," said SET president Pakorn Peetathawatchai.
"The SET will consider a cap on the magnitude of foreign trading to prevent high trading volume [from algorithmic trading] to keep things fair."
Foreign investors' trading portion on the Thai bourse is 37%, up from an average of 20-30% in previous years.
But retail investors' trading portion is around 40%, down from the previous norm of 50-60%, with the rest attributed to institutional investors and brokerage firms.
The SET's daily trading value averages 60 billion baht per day. Combined average daily trading value of the SET and Market for Alternative Investment index in June was worth 57.39 billion baht, up 34.3% year-on-year.
Foreign investors, meanwhile, sold 180 billion baht worth of local equities in the first six months of 2018, sparked by heightening external concerns.
The net capital outflows were in contrast with net inflows worth 13 billion baht logged in the first half of 2017.
The first-half net outflow also increased from the 39.4 billion baht registered in the second half of 2017.
The value of foreign equity holding stood at 4.85 trillion baht in the first half, accounting for 29.7% of total market capitalisation, a slight decline from 30.8% logged at year-end 2017.
The SET index at the end of June decreased 9% from year end-2017 and 7.6% from the previous month to 1,595.58 points, resulting in a lower forward price-to-earnings ratio at 14.57 times.
Mr Pakorn said net outflows from the Thai bourse are in line with global stock markets, fuelled by concerns over global trade conflicts and monetary policy manoeuvres by the US Federal Reserve.
But the Thai economy still looks promising, driven by internal factors including accelerated government investment and improving private investment, he said.
