KGI Securities (Thailand) plans to expand its fixed-income business in the private repurchase market, targeting to be the market leader with Bt2 billion-Bt4 billion in trading transactions per day next year from the current Bt1 billion.

The Securities and Exchange Commission gave its approval for the securities firm to handle private repurchase transactions in December last year. Earlier, transaction were only conducted between the Bank of Thailand and commercial banks.

Ratchakritpong Ekrangsun, executive vice president of KGI's fixed-income department, said that the firm planned to meet with up to 10 firms a month to introduce them to this financial tool.

"It's a win-win business. We, as the borrower, give government bonds to the lender as a guaranteed asset. Then we take the money to trade in other bonds, hopefully to make a capital gain. The lender has the assurance that if we default on repaying the loan, they can recover it from the guaranteed bond," Ratchakritpong said.

Under the plan, KGI forecasts that volume in private repo trading will increase to Bt8 billion a day over the next three years.

Each transaction starts from a minimum of Bt5 million. Retail investors are also welcome to act as lenders and the minimum transaction for them is also Bt5 million.

He said that so far two life insurers had opted to us this financial tool to park some of their cash flow.

If more players enter the market, it will increase liquidity in the bond market, he added.

Ratchakritpong said that in order to make this financial tool work effectively education was needed, as most people did not know how it worked. Secondly, if the government eases capital-gains tax on bond-trading, this will boost liquidity in the market. Thirdly, once the plan to implement the Deposit Insurance Agency (where banks and the government contribute to a fund as a safety net for savers) comes into effect, it will encourage people to think about other savings alternatives.

He gave Taiwan as an example of a developed bond market.

Annual trading volume in the private repo market grew from 3.7 trillion Taiwan new dollars in 1997 to NT$8.9 trillion last year.

Piyarat Setthasiriphaiboon

The Nation