Brokers, a common term used in the securities business in the Thai capital market, are securities companies which obtain licenses from the Ministry of Finance upon the recommendation of the Securities Exchange Commission and have been granted ‘membership’ by the Stock Exchange of Thailand (SET).
Besides brokers, there are sub-brokers which, like brokers, take orders from investors. But since sub-brokers are not SET members, they have to route orders to a broker. The broker then transmits these orders to the SET trading system.
A sub-broker, like a broker, is a securities company operating in the securities business but is not a member of the SET. As the Stock Exchange of Thailand is the center of securities trading for both local and foreign investors, if everybody was allowed to trade directly with the SET, there would be problems in practice, in order transmission, order matching, order confirmation, and settlement. Moreover, the cost in securities trading would be too high.
To solve these problems and to ensure systematic securities trading with fairness and low cost, the SET has resolved to allow only member companies (brokers) to transmit orders to the SET trading system. Sub-brokers cannot send their orders to the SET trading system directly but can route the requests to brokers first, and brokers will then pass these orders to the SET trading system.
The SET places much importance on the benefits of the investors investing in the Exchange; therefore, it carefully selects member companies by assessing their qualifications and their readiness to be investors’ representatives in securities trading, with the emphasis on stable financial status, willingness to operate in such business, qualified personnel, sufficient equipment and tools, and useful operating systems.
Let’s look at the pros and cons between a broker and a sub-broker from the investor’s point of view:
The advantage of using a broker is the direct, hence faster, transmission of orders to the SET. The benefits of using a sub-broker are, because of its small customer base, superior quality of service, closer and friendlier customer relationship, and better care of your interests.
In practice, sub-brokers have to send orders through their brokers, and one sub-broker may deal with as many as three brokers. If a broker’s computer system breaks down, its customers can’t trade, but the sub-brokers customers may remain unaffected because their orders can be relayed via the other two brokers.
It is generally believed that the broker serves only as a middleman in securities trading, with commissions as his return. However, for this commission, the broker has to be responsible to their clients for accuracy, starting from opening the trading account until completing clearing and settlement. Their responsibilities include:
In the process, if any mistake occurs, the broker has to be responsible and make sure that the buyers get their securities and the sellers get their money accordingly and within the time limit. As for any mistake or loss that might happen, i.e., in case the broker receives a counterfeit scrip, suffers a delay in receiving the scrip, or doesn’t receive all the scrips, cannot collect the money, or does not get all the money from securities selling, the broker has to accept the loss and complete any necessary legal transactions to protect the client’s benefits.
If a mistake or loss occurs as a result of the broker’s violation of laws or his failure to comply with the regulations and member’s codes of conduct, the broker will be punished by the SET. Punishment may include probation, fine, trading suspension, and membership dismissal, according to how serious the mistake is.
The broker transmits your order to the SET trading system, confirms the result of the execution, and looks after your account, tax, and matters concerning securities laws and regulations. The final decision, however, is yours. And its consequences are, of course, yours. Your broker is not accountable for the profits you make or the losses you incur. Given the critical role that brokers play, be careful and thorough in selecting a broker. Here’s a checklist to help you pick a good broker or a sub-broker.
At present, the Securities Exchange Commission is the organization in charge of the surveillance of brokers’ operations. In case any investor or any person involved is not fairly treated or would like to report on a brokers’ operation and their staff, they can contact the Market Intermediaries Supervision Department, the Securities Exchange Commission www.sec.or.th.
Only member companies of the SET are authorized to buy or sell securities on the SET. Companies applying for membership on the exchange must hold a securities license from the Ministry of Finance, which is approved based on a recommendation by the Securities and Exchange Commission. At present, there are 39 members.
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