​Objective of Financial Market Development

​          Financial market is a crucial component in the economic system.  It is the engine that drives the economy, being a platform where surplus units meet deficit units and negotiate various kinds of financial agreement.  The objective of financial market development is, therefore, to enhance the capability of the financial market to act efficiently as an intermediary.  An efficient financial market is one with proper depth and breadth, that is on the supply side, there is a wide range of financial instruments, offering choices of issuers, credit risks, and etc. to satisfy all classes of asset demand. On the demand side, there has to be sizable investment demand from various types of investors, with different risk-return appetites. Also, a good diversity among issuers and investors usually brings about a good mix of market views, leading to an active exchange of financial assets.  A highly liquid financial market as such is able to accommodate large and varied issuance of financial instruments with minimum price effect. Here, financial instruments can be quickly exchanged at reasonable cost. Efficient clearing and settlement system is a key supporting factor that helps lower transaction cost.   

          A liquid financial market also enables central bank to efficiently conduct its day-to-day operations to attain its interest rate target. 

​Roles of BOT in Financial Market Development​

          Progress in the development of the Thai financial market has continued in several aspects.  A variety of task involve several entities in the public and private sectors; for instance, the Public Debt Management Office (PDMO), the Office of Securities and Exchange Commission (SEC), the Stock Exchange of Thailand (SET), the Thai Bond Market Association (ThaiBMA), the Bank of Thailand (BOT), as well as academics and market professionals.

          Each entity has been tasked with the main responsibility of developing its specialized area.  For BoT, money market (BIBOR and Private Repurchase Market) as well as Asian Bond Fund (ABF) are focused.

​          ​BIBOR, the short-term interest rate benchmark for Thai Baht, is the rate at which contributing banks offer to lend Thai Baht funds to prime banks, in a reasonable market size, on an unsecured basis in the Bangkok interbank market, just prior to 11 AM. The rate is derived by eliminating the first two highest and lowest of the quotes and arithmetic-averaging the remaining rates for the day.

          Over the past year,​ the BOT continued its efforts in developing BIBOR, with an aim to reinfor​ce the reliability and transparency of its fixing process, as well as for it to be increasingly used as a reference rate of financial transactions. The efforts undertaken include

          -   The BOT has closely monitored BIBOR rates and their movement to ensure that they are in line with transacted rates and suitably reflect situations in money market. The meetings between BOT and BIBOR contributors are arranged regularly to exchange view and discuss on relevant issues.

          -   In cooperation with BIBOR contributors, the BOT stepped up its public relations efforts targeted at both within the contributing banks themselves as well as their customers. One-on-one meetings and seminars have been held to enhance knowledge and understanding of BIBOR as well as importance and benefits of BIBOR.

          -   The BIBOR code of conduct was issued in 2014 as guidelines for submission process to strengthen the reliability and transparency of the reference rate setting processes.​

          ​In Thailand, the initiative on developing private repurchase market began in 1998 when the bond market was activated by the massive issuance of government bond for Financial Institutions Development Fund (FIDF) indemnification. In order to achieve this objective with low cost, the government had realized the necessity of putting in place the elements and mechanism to make the bond market a new investment alternative and then an efficient source of funding. If bond prices are transparent and reliable, bonds can be used as collateral in the money market. The link between these two markets was, thus, built through the repurchase market.

         To expedite the development of private repo market, the efforts have been made in several areas, such as
-   Tax Exemption : Capital gain tax on the repo transactions, special business tax (SBT) on the capital gain of the repo borrower, as well as Stamp Duty for the transfer of security are exempted.
-   Master Agreement :  TBMA/ISMA Global Master Repurchase Agreement (GMRA) is used as the master agreement, with Thai annex to suit Thai Legal environment. 

          Furthermore, in 2010, the BOT initiated and sponsored the development of a standard Thai language repo master agreement, with a goal to increase the penetration of repo transactions into the smaller financial institution and non-financial institution segments. This standard Thai repo master agreement was expected to help lower legal and operational costs of each institution, and to a certain extent, lower operational risk if widely used among market participants.

​          Executives' Meeting of East Asia and Pacific Central Banks (EMEAP), a cooperative organization of 11 central banks and monetary authorities, has launched ABF2 in December 2004 to develop the regional bond market. Under ABF2, EMEAP will invest a fraction of their reserves in the local currency denominated bond issued by sovereign and quasi-sovereign entities in eight EMEAP markets, namely China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand.
          The passively managed style of ABF2 will follow the Asian Bonds Index created by the International Index Company (IIC). This fund is divided into two parts comprising (1) Pan Asian Bond Index Fund (PAIF) which will invest in the local bond market in eight EMEAP markets. (2) Fund of Bond Funds (FoBF) which is distributed into 8 individual funds managed by fund managers in the local country. In Thailand, the ABF Thailand Bond Index Fund (ABFTH) has been launched in 2006. ABF2 will help attract the interests of both domestic and international investors in the Asian bond markets, and would also help expedite market development and regulatory reforms at both domestic and regional levels.