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Published on July 25, 2007

Once implemented, it will be Thailand's first law governing trustees, although it covers only a narrow area of trusteeship, focusing on transactions in the capital market.

Jantima Phienveja, senior assistant director of the SEC's Legal Division, said the draft Act had already passed its first reading by the National Legislative Assembly (NLA) and was undergoing scrutiny by an ad hoc committee, which is more than 50-per-cent complete.

Once the Act passes its third reading by the NLA, it will be published in the Royal Gazette and take effect 90 days later.

"In the future, when new financial instruments are introduced, relevant parties will be forced to conduct their transactions in accordance with the new law. However, before we introduce new rules [under the new law], we'll consider whether the consequent cost is too high," Jantima said.

The SEC defines "trust" as a kind of asset management involving the relationship between "settlers", "trustees" and "beneficiaries". The relationship is based on trust among these parties, because the settler, or original owner, gives ownership and rights over assets to the trustee, who has a duty to manage or arrange the assets with honesty and care, in order to ensure the best outcome for the beneficiary.

Jantima said Thailand's capital market was currently using a part of the trust concept for regulations under the current Securities and Exchange Act, including those governing shareholder representatives and mutual-fund caretakers.

"Thailand is using the concept of trust in a limited way," Jantima said. "But once the new law is implemented, the concept will be given wider meaning, and this will be used to facilitate transactions in both existing and new financial products."

One example is when Company A issues covered warrants to investors with a promise that the holders will, when the agreement reaches maturity, be able to exercise their right to buy shares in Company B that are currently being held by Company A. Current law stipulates that to prevent Company A using the shares of Company B for other purposes, the shares must be deposited with a custodian.

However, the custodian does not have legal ownership of the shares, and if Company A's financial status is weak, it can still use the shares for other purposes. Investors can only seek settlement in a court after Company A's liquidation.

Under the new law, a trustee will be established to replace the custodian. In the case outlined above, the trustee will have legal ownership of the shares and protect investors' rights by not allowing Company A to use those shares.

Even if Company A's financial health deteriorates, the holders of covered warrants will still be able to buy Company B's shares, in accordance with their rights. This will save time and reduce the default risk for investors, Jantima said.

As well as the covered-warrant example, the new law will also apply to employee stock-option plans and securitisation.

Jiwamol Kanoksilp

The Nation