Woofun AI reports that the Securities and Exchange Commission (SEC) of Thailand has unveiled a comprehensive regulatory framework designed to govern the launch and operation of domestic exchange-traded funds tracking Bitcoin and Ether. This proposal establishes a distinct operational model for crypto assets within the Thai financial system, moving beyond preliminary discussions to define precise eligibility, custody, and trading parameters. The initiative aims to integrate digital assets into the traditional securities market while maintaining strict oversight over asset management and investor protection mechanisms.

The current consultation phase represents the culmination of an earlier regulatory inquiry conducted between April and May. During that initial period, respondents generally endorsed the foundational framework but expressed significant concerns regarding the custody of underlying digital assets. Addressing these feedback points, the SEC issued its detailed proposal on August 24, initiating a public consultation on the operational mechanics of these products. The regulations specify that the initial scope will be limited to passive funds, each tracking a single cryptocurrency rather than offering diversified crypto portfolios. This narrow focus allows regulators to monitor performance and risk factors with greater precision before potentially expanding the asset universe.

Woofun AI data shows that a central pillar of the regulatory structure is the mandatory exposure threshold, which requires each fund to maintain an average net exposure of at least 80% of its net asset value to the selected cryptocurrency over each accounting year. This quantitative requirement ensures that the ETFs remain tightly coupled with the price movements of their underlying assets, minimizing deviation and tracking error. The SEC has indicated that future additions to the eligible asset list will depend on a rigorous assessment of liquidity, market acceptance, network security, and investor protection metrics. By setting this high bar for exposure, the regulator seeks to preserve the integrity of the ETF product while managing the inherent volatility of the digital asset class.

The prospectus for each approved fund must provide transparent disclosure regarding how exposure is calculated and the degree of flexibility managers possess when handling cash reserves, fee deductions, or market disruptions. Only licensed asset management companies are permitted to establish and operate these products, ensuring that only regulated entities with proven compliance histories can enter the market. Applicants must demonstrate possession of suitable personnel, robust operational systems, and formal agreements with necessary service providers to ensure the smooth functioning of the fund. These stringent eligibility criteria are designed to mitigate operational risks and ensure that fund managers have the infrastructure required to handle digital assets securely and efficiently.

Trading for all approved crypto ETFs will be conducted exclusively on the Stock Exchange of Thailand, integrating these products into the country's primary securities market. This venue restriction eliminates the need for retail investors to open accounts on separate crypto exchanges or manage private wallets, thereby reducing the barriers to entry and the associated security risks. Investors can gain exposure to Bitcoin or Ether through ordinary securities accounts, leveraging familiar brokerage relationships and regulatory safeguards. This mechanism aims to broaden retail participation by providing a secure, regulated channel for accessing digital asset markets without the complexities of self-custody.

The regulatory framework explicitly prioritizes Thai-domiciled funds, prohibiting the issuance of depositary receipts that reference foreign crypto ETFs during the initial launch period. This restriction also extends to certain arrangements where securities firms facilitate investments in foreign crypto funds for ordinary customers, effectively shielding the domestic market from immediate foreign competition. Institutional investors and ultra-high-net-worth individuals are treated separately under the proposal, allowing them greater access to international products through existing channels.

Meanwhile, Thai mutual funds and private funds are permitted to invest in locally established crypto ETFs, fostering a domestic ecosystem for institutional adoption.

This domestic-focused approach provides local asset managers with a protected period to develop expertise and build market share before foreign ETF wrappers become widely available to Thai retail investors. By keeping management fees and exchange activity within Thailand, the regulator aims to stimulate local financial innovation and retain capital within the domestic economy.

However, the competitiveness of these domestic products will ultimately depend on factors such as management fees, liquidity, tracking accuracy, and the reliability of custody arrangements. Local firms must demonstrate that they can offer comparable or superior terms to established foreign competitors to attract sustained investor interest and capital inflows.

Custody arrangements are a critical component of the regulatory design, with fund assets primarily held by digital-asset custodians regulated in Thailand. Qualified crypto businesses may also apply to serve as fund supervisors if they meet rigorous requirements concerning financial strength, personnel qualifications, and operational systems. While a fund supervisor may appoint a sub-custodian, the entity physically holding the digital assets must possess the appropriate custody license, ensuring clear lines of accountability. Asset managers delegating digital-asset investment functions are restricted to working only with licensed digital-asset fund managers, further tightening the regulatory chain of custody and oversight.

Recognizing potential limitations in the domestic custody market, the SEC has allowed for overseas custody solutions when local arrangements are unavailable or unsuitable, provided the foreign provider operates under adequate regulatory supervision and safeguards. A separate consultation has identified 11 jurisdictions deemed acceptable for this purpose: South Korea, Hong Kong, Japan, France, Malaysia, Germany, Luxembourg, Liechtenstein, Singapore, the United States, and Ireland.

This list defines acceptable regulatory environments but does not automatically authorize every custodian based in these markets, as providers must still individually meet the SEC's qualification requirements. The preference for onshore custody facilitates closer regulatory coordination and quicker response times in the event of security breaches or operational failures, although overseas providers may become necessary if domestic custodians lack sufficient capacity, insurance coverage, or experience to support large-scale funds.

Investor protections are embedded throughout the proposal, with operators required to warn against excessive concentration and assess whether an allocation aligns with the investor's financial position and tolerance for losses. The product documents must clearly explain how assets are segregated, how private keys are controlled, which entities are responsible for custody, and how the fund calculates its net asset value using reliable pricing systems.

Investors will receive detailed information on fees and the procedures followed during market disruptions, ensuring transparency about the operational structure and division of responsibility. These disclosures aim to make the risks and mechanics visible before purchase, although they cannot prevent losses stemming from market downturns. The public consultation concludes on September 20, after which the SEC will review feedback and potentially revise the proposal before adopting final regulations.

Asset managers can only begin preparing individual products once the regulatory framework is finalized, requiring named service providers, approved custody arrangements, detailed offering documents, and listing approval from the Stock Exchange of Thailand. The current proposal thus establishes a potential pathway to market rather than a fixed launch schedule, leaving local custodians and market makers to demonstrate their ability to support efficient trading and maintain price stability relative to the underlying Bitcoin and Ether markets.