Thailand's Securities and Exchange Commission (SEC) is consulting on tighter index eligibility requirements for mutual funds and provident funds to address concentration risks. The proposals would require diversification assessments for both investment reference indices and benchmarks used to control investment limits, while allowing temporary breaches caused by market conditions. Current rules permit certain exchange-recognized indices without assessing constituent diversification and prescribe no qualifications for investment limit benchmarks. Eligibility based on recognition by exchanges belonging to the World Federation of Exchanges would be replaced by criteria covering clear objectives and calculation methods, transparency, diversification and development by a credible institution independent of asset managers. Under the 20/35 diversification rule, each constituent's weight must not exceed 20%, although one constituent may reach 35% where consistent with market conditions. Constituents related to gold or crude oil need not be counted. Depositary receipts would fall outside the revised qualification rules. Thai funds investing in foreign exchange-traded funds tracking recognized indices would also lose an exemption from considering whether the unit offerings are supervised in an SEC-listed jurisdiction with adequate investor protection. Temporary breaches caused by market conditions would not trigger asset disqualification or investment limit breach treatment if the index methodology complies with the 20/35 rule and specifies a rebalancing schedule. Existing funds would have one year from the rules' effective date to adjust their investments, with continued investment under existing requirements permitted during that period. Funds still unable to comply afterward could retain investments under existing requirements, but could not offer additional investment units. Their asset managers would have to disclose investments that remain noncompliant.

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