Merger of AFET and TFEX benefits investors

Their comments were in reaction to recent remarks by Finance Minister Surapong Suebwonglee, who said that the two exchanges should merge in order to widen the futures market to attract more investors. The merged organisation should be supervised by the Stock Exchange of Thailand, he said.

Chanon Phucharoenyos, CEO of JSP Futures, said a merger would help complement commodities trading, which has been dominated by hedgers.

Currently, business operators in the agricultural sector buy futures through Afet because they want to hedge their exposure to price fluctuations in order to protect their business. They represent 60 per cent of overall trading volume, while there is only a small number of speculators. Just nine brokers do all other trading on the exchange.

Merging the two organisations would inevitably benefit investors, Chanon said.

He added that brokers would also gain from more trading channels and a bigger customer base. Then, competition in the futures market would intensify. As there are about 30 brokers trading on the TFEX, a merger would bring more of them into the market.

With government support, education for trading on Afet will expand. If the government does not provide the necessary backing, the futures market for agricultural products will not develop due to a lack of information for potential investors.

Information technology would help facilitate a merger of the two trading platforms.

Apichat Laksanasirisak, managing director of DS Futures, believes investors would also benefit from having one account and trading on the combined Afet and TFEX markets.

However, the merger process could take some time, as the two markets are governed by different Acts, which must be revised before they can be integrated.

Chanon agreed that once the merger had been completed, brokers would be able to carry out crossproduct trades, thus boosting trading liquidity. Up until now, he said, investors had been hesitant to trade on Afet, as they were worried about a lack of trading liquidity.

Brokers working on the TFEX have their own trading portfolios which represent around 25 per cent of the exchanges' total trading volume, while Afet brokers carry out less than 10 per cent of total trading volume. Once merged, the new organisation should have higher trading liquidity.

Investors trading on Afet would have more options to balance their investment portfolios, Chanon said.

While the SET Index has fallen by 20 per cent this year, the Afet market has risen by about 20 per cent. The commodities market is expected to grow at this pace for another two or three years, as oil prices are expected to remain high.

"Investors have hardly made any use of Afet to hedge their investment risk. Most investors focus on investment in stocks. When the equities market is volatile, investing in commodities will help balance investors' portfolios," Chanon said.

Punnee Thakerngkait, managing director of BFIT Securities, said some of her clients had expressed interest in buying Afet futures. However, they are reticent because there are too few products traded on the exchange.

The prices of existing products are quite high, however, and her company expects a merger of the exchanges to boost the overall market, Punnee said.