There are hopes that the method will expand issuers' access to funding. Underwriters have to walk a fine line in order to comply with the underwriting requirements.

In its circular to local securities companies dated 20 August 2018, the Securities Exchange Commission Thailand (the SEC) acknowledges that, in practice (especially when there is an offering of new securities to foreign institutional investors), foreign banks normally act as an initial purchaser, whereby they will first purchase the securities and then subsequently sell the securities to customers, usually right after the first purchase. This method is called delivery-versus-payment (DVP). There have been discussions about whether this practice is permissible for local underwriters, specifically about whether the underwriters' initial purchase would violate the allocation requirement, which prohibits underwriters from allocating securities for themselves; and whether the underwriters' subsequent sales to their customers would violate the blackout period requirement, which prohibits the underwriters from selling the securities.

To widen the opportunity for issuers to gain access to capital markets and for local underwriters to be able to provide DVP services to their customers, the Thai SEC confirms in its circular that local underwriters may use this version of DVP when underwriting securities, so long as they still comply with the existing underwriting rules.

The 2018 circular sets out the following guidelines, including examples, that local underwriters must follow to be in compliance with the underwriting rules.

1. There must be in place mechanisms that can prevent conflicts of interest.

For example, an underwriter must disclose information regarding the DVP arrangement in offering documents, such as the registration statement and prospectus. Information must include amounts and prices of securities that are allocated using the DVP settlement. The underwriter must keep the securities to be allocated on a DVP basis separate from its other investments, as if it were keeping its customers' assets.

2. The transaction must truly reflect its customer's intention and done for the benefit of the customer.

There should be a definitive agreement describing the terms of the sale and purchase of securities. The circular requires that the parties must not enter into a definitive agreement prior to the relevant registration statement and draft prospectus becoming effective, and the underwriter must keep the securities in its name on behalf of the customer for no longer than the first day on which the securities are traded on the Stock Exchange of Thailand.

3. There must be clear rules and procedures in relation to the DVP transaction.

The rules and procedures will work as guidelines for the underwriter's personnel to make sure the relevant regulations have been complied with. It is important that the rules and procedures cover all the aspects throughout the cycle of transaction, from inception (such as know-your-customer (KYC) and customer due diligence (CDD) matters); allocation (and restrictions); until closing (such as settlement and enforcement if a customer is in default).

4. Transactions must be documented.

In addition to having a definitive agreement, the underwriter must make sure that other activities in relation to the DVP arrangement are properly documented, such as the KYC and CDD activities and evidence relating to payment and delivery of securities.

5. It must be in compliance with other requirements.

The underwriter must ensure that it is in compliance with all the requirements regulating the underwriting business, such as restrictions and prohibitions applicable to the allocation of securities. The allocation under the DVP scheme must also be included in reports on sales and distribution of securities.

This circular only sets out guidelines for local underwriters to ensure that their conduct does not violate the intention of underwriting rules because the DVP arrangement could lead to questions in relation to compliance with underwriting requirements. It is crucial that underwriters pay attention to the details when completing a DVP transaction.

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