July 07--The Stock Exchange of Thailand (SET) expects to settle the process of gold delivery with traders by the end of the year in a move that will pave the way for the establishment of a physical gold exchange.
"We're in talks with gold dealers to have the same understanding about the benefits of the spot gold market and most of them have agreed in principle. We're outlining the practical guidelines, in which the gold delivery process could be completed this year," SET chairman Sathit Limpongpan told the Bangkok Post in an executive interview.
When the negotiations with gold dealers and guidelines on the delivery are completed, the SET will ask the Bank of Thailand and the Securities and Exchange Commission (SEC) to consider starting spot gold trading.
The idea to set up a spot gold exchange in Thailand was floated last year by the Bank of Thailand to regulate physical gold trading after it found discrepancies between spot market trades and the US-dollar value of transactions. In the first six months of last year, net gold imports amounted to US$10 billion and led the country into a trade deficit.
However, it is unclear which parties would run such an exchange if the idea takes shape.
Mr Sathit said the spot gold exchange should be operated by the SET and regulated by the securities watchdog as both organisations have facilities to accommodate trading, while gold traders can retain their status as major players in the market.
Thailand's physical gold has been traded for a long time but its trade has never been regulated.
"We don't know the structure of the spot gold exchange at the moment. It is too early to say when we can set it up," said Mr Sathit.
Pawan Nawawattanasub, chief executive officer of YLG Bullion International, said the SET is negotiating with about 10 traders who account for 90% of the country's physical gold trading and most of them have agreed to the idea about setting up the spot gold market.
However, talks are still in early stages and there are different opinions among players about the exchange's models and structure, she said. Details will have to be sorted out.
Ms Pawan said Singapore will set up a spot gold exchange on Sept 9, with full options of clearing and settlement including physical gold delivery and trading in multiple currencies. The new exchange set up by the government of the city-state and foreign investors are its target.
"If Thailand wants to set up its own spot gold exchange, we need to think our trading target. If we want to enlarge the market to serve the AEC, we should consider whether our trading laws are open enough and if they allow the market to trade in other currencies, apart from the Thai baht."
In addition to the SET, gold dealers, the central bank and the SEC, the talks should be extended to the Finance Ministry and the Commerce Ministry.
She said the impact from the setting-up of the spot gold exchange on the existing physical gold market and end users should be taken into consideration as they could shoulder higher costs from insurance and other fees, which are different in countries with spot gold markets.
In the meantime, the SET chairman said the stock exchange has asked the Public Debt Management Office to allow a higher number of government bonds to be traded in the Bond Electronic Exchange, a subsidiary of the SET, to develop the market.
He said that he wants the Finance Ministry to waive taxes concerning merger and acquisitions to strengthen local companies' competitiveness and encourage them to expand, and eliminate all hindrances for venture capital to use tax privileges.
The SET's working group is mapping out its proposal about tax concerning the exchange before forwarding it to its board of governors and the Finance Ministry, Mr Sathit said but dismissed recent media reports that the board meeting this month will discuss a levy on capital gain tax for investors who put their money in the stock market less than one year.