On 1 August 2016, a notification of the Capital Market Supervisory Board (CMSB) governing securities underwriting activities 1 (the " New Regulation ") came into effect, overhauling another regulation of the CMSB implemented in 2009 2 . The New Regulation governs securities underwriting in a number of ways, including allotment procedures, the operations of a securities underwriter (e.g. dealing with subscription amounts, dissemination of information, and dealing in securities while acting as a securities underwriter) and characteristics that prevent an operator from acting as a securities underwriter. The scope of the New Regulation covers debt instruments, shares, share warrants, derivatives warrants, units in specified types of trusts (i.e. real estate investment and infrastructure trusts). This client alert discusses new regulatory requirements on the underwriting of debt instruments, and is the first half in our series on the New Regulation.
Certain types government bonds are also subject to the New Regulation
While removing certain types of securities that were obsolete, or for which the nature of their underwriting did not fit well with the provisions under the old regime, the New Regulation adds certain types of bonds (defined to mean bonds under the regulation governing an offering of debt instruments by Thai governmental agencies) (the "Regulated Bonds ") to the list of regulated debt instruments. As a result, a securities underwriter managing the sale of the Regulated Bonds must comply with the procedures under the New Regulation as well. The easiest way to comply with this requirement is to apply the underwriting procedures for corporate bonds to that of the Regulated Bonds.
Private placement of debt instruments (offerings to institutional investors and high-net worth investors) is no longer subject to allotment restrictions
Previously, an offering of debentures to institutional investors and high-net worth investors (an "II/HNW Offering") was subject to the underwriting requirements, because the regulation provided that it applied to any offering that is subject to the filing of a registration statement and draft prospectus. Although it is stated at the beginning of the allotment subsection of the New Regulation that it applies to all the offerings that require the filing (including the II/HNW Offering), provisions in the remainder of the subsection set out requirements that are applicable only to public offerings. The restrictions on the allotment of debt instruments that were applicable to II/HNW Offerings were struck from the New Regulation. We believe that this change indicates the CMSB's acceptance of the market practice, under which underwriters relied on an exemption by asking for a waiver of the fair allocation protection from each high-net worth subscriber. Therefore, old requirement is rendered ineffective.
Other requirements still apply
The New Regulation only relaxes underwriters' obligations to comply with allotment requirements, rather than removing all the requirements in relation to their underwriting. The New Regulation also mentions that an underwriter must comply with the notification of the CMSB governing standard conduct of business, management arrangement, operating systems, and providing services to clients of securities companies and derivatives intermediaries3 , and provides for the power of the Office of the Securities and Exchange Commission (the "Office of the SEC") to set out guidelines on underwriters' operations for their compliance with the New Regulation. It remains to be seen how the regulators will enforce this in practice.
More in the regulatory pipelines
On 21 July 2016, the Office of the SEC also published a consultation paper imposing requirements on intermediaries (i.e. securities underwriters) in offering securities to high-net worth investors. This comes after a few years of relaxation of the same requirement for debt instrument offerings. The Office of the SEC suggests in the consultation paper that the upcoming regulation when imposed will be applicable to all types of securities offered to high-net worth investors. The consultation period will continue until 19 August 2016. The Office of the SEC expects to release the final regulation by December 2016, and the same to come into effect by April 2017. Underwriters should pay special attention to the upcoming regulation, given that a regulation issued as a result of the consultation paper could affect its practice.