Thailand finally has its first exchange-traded fund (ETF), although it didn't arrive without plenty of drama.

In the days right before the fund was to launch, the Bank of Thailand (BoT) announced a preliminary decision to deny requests by the Stock Exchange of Thailand (SET) that the ETF be exempt from a 30% reserve requirement on foreign assets. The reserve requirement was part of a round of restrictions on foreign investments instituted last year under Thailand's military government, which came to power in a bloodless coup. The move to restrict foreign investment was reminiscent of Malaysia's introduction of capital controls in the late-1990s, a move that provoked furious debate in the international investment community. In Thailand, the foreign investment restrictions caused an investor panic that sent the Thai stock market into a one-day 15% plunge in December 2006.

After the extreme market reaction, the BoT quickly backtracked, exempting certain investments from the ruling, and the rules have been easing slowly since. However, Thailand's ETF is a new type of investment and was not automatically exempt from the restriction. The SET had been very vocal about its confidence that the ETF would qualify, but there were concerns that too much foreign investment in the ETF would strengthen the Thai baht.

In the end, however, supply and demand ruled the day. Initial subscriptions to the ETF from domestic investors were slower than expected. Rather than have a failed launch, they released the reserve requirements and allowed foreign investors to come in.

In the end, Thailand's ThaiDex SET50 ETF began trading under the symbol TDEX on September 6 and ended the day up 4%. The fund tracks the SET's index of 50 blue-chip stocks. As it started trading, the fund had net assets of $145.35 million. The exchange's next major project seems to be the launch of options contracts on the SET50, which are set for October.