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Merits and Demerits of Direct and Indirect Account Methods. Sinhua Saelee (sinhua.s@set.or.th) 27 June 2006. Concepts of accounts of TSD. Only specified institutions can be depositors of TSD TSD applies indirect account method

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merits and demerits of direct and indirect account methods

Merits and Demerits of Direct and Indirect Account Methods

Sinhua Saelee (sinhua.s@set.or.th)

27 June 2006

slide2

Concepts of accounts of TSD

  • Only specified institutions can be depositors of TSD
  • TSD applies indirect account method
  • An omnibus account will be utilised by a participant for keeping many securities holders in one account
  • A participant must separate his own portfolio account from client account
  • Accounts are separated by purposes, e.g. clearing and settlement, custody, issuer a/c, a/c for special purposes, etc.
slide3

Concepts of accounts of TSD (cont’d)

  • In some cases, an individual account can be opened
    • pledging account
    • sub-account under a participant’s account, if needed, for some group of holders, for example, mutual funds
slide7

Structure of Account Number

Account number has the following format:

PID-XXXXXX-K

PID = participant ID

XXXXXX = account type

K = check digit

*TSD will open an account and assign account number for a participant

slide8

Types of the accounts

  • Clearing account: for clearing and settlement of securities in the SET, Bond Electronic Exchange, OTC
  • Custody account:
    • Custody account for portfolio and clients
    • Pledging account
    • SBL account
    • REPO account
    • Collateral account for SBL, REPO
slide9

Types of the accounts (cont’d)

  • Specific accounts:
    • Issuer account
    • Custody a/c for subsidiary companies: Thai NVDR, TTF
    • Accounts for tender offer, for exercising derivative warrants, for keeping green-shoe option shares, etc.
slide10

Type of Account: Issuer account

  • An issuer account is provided for a specific institution, i.e. a listed company, where securities issued by the company can be deposited in order to reduce the share certificate issuance
  • TSD, on behalf of the issuer, will perform CSD functions for an individual, such as deposit, withdrawal, transfer, keeping major shareholders’ shares under the conditions set by the Exchange (silent period), shares freezing for a certain period
slide11

Type of Account: Account for the subsidiary of the SET

  • Some special securities such as Non-Voting Depository Receipt (NVDR) is issued by a subsidiary company of the SET – Thai NVDR Co. Ltd., who issues NVDR for a foreigner who faces holding limit of some listed companies
  • At the time of issuing NVDR, common shares are held by Thai NVDR Co. and kept in Thai NVDR Co.’s account
  • Thai Trust Fund (TTF) is also issued by a subsidiary – Thai Trust Fund Mgt. Co. Ltd., who holds common shares of a listed company and issues TTF for a foreigner
slide13

Post Trading Integration (PTI)

  • Since 2004 TSD has developed CSD and registrar systems to be “Post Trading Integration - PTI” where all back-office services will be provided through PTI system
  • In the first phase of launching in May 2006, PTI has been developed for migrating government bonds from the Bank of Thailand to TSD under the Central Securities Depository Scheme of the Thai government
  • The account number format has been expanded to be 13 digits
slide14

PTI (Cont’d)

  • Account number format (for PTI system):

PID-XXXXXXXXX-K

PID = Participant ID

XXXXXXXXX = account running number

K = check digit

  • A/c number no longer implies types of the accounts but runs orderly
slide15

Other features of PTI

  • PTI will be finally utilised for all securities deposited in the scripless system of TSD
  • Securities transfer functions can be both performed by TSD’s web-based application and by S.W.I.F.T. message initiation
  • Participants can manage the custody accounts in PTI system by themselves, i.e. open, modify, close
slide16

Other features of PTI (Cont’d)

  • The accounts could be managed by TSD for various purposes, such as
    • freezing in a participant level, an account level and each securities level
    • initiation for deposit and withdrawal by participants
    • Real Time Gross Settlement (RTGS) by holding securities to be transferred until payment has been finished
slide21

Why indirect account method

  • Direct account method requires relatively huge amount of application development and transactions costs
  • An investor needs not reveal his identity
  • Indirect account is more suitable for Thai market