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Brokers may offer margin accounts
The State Securities Commission is considering whether to authorise stock brokerages to offer margin accounts to their clients, a service which would allow clients to borrow short-term from brokerages to buy securities.
Nguyen Son, director of the commission’s Stock Market Development Department, said the commission was researching the proposal but warned that the service would not be available immediately as a regulation would have to be drafted to provide a legal framework.
Vo Hoai Chang, head of the Analysis and Investment Department of SME Securities Co, said, "It would be good news if the State Securities Commission allowed brokerages to make loans to investors, but I think it will take time for them to issue official permission."
Any regulation would have to take into account State Bank of Viet Nam policies on credit institutions, Chang suggested. If securities companies were allowed to make loans, the operations of these companies would fall within the scope of regulations on credit institutions.
Most brokers, he said, were not eager to act as lenders due to their limited financial capacity. Most have used available capital to invest on their own behalf.
Margin accounts are merely a service to support investors, and securities companies do not profit a great deal from the loans themselves as they are short-term loans that generate minimal interest income, said an analyst with VIS Securities who requested anonimity.
Huynh The Du, a lecturer with the Fulbright economic teaching programme in Viet Nam, said that, in international stock markets, margin accounts were a kind of credit service that brokerages and investment banks were allowed to supply. Allowing them would help raise stock market liquidity and reduce risk as securities companies would use their own long-term capital to grant loans.
"At the current scale of the stock market, securities companies could supply the service with a capital adequacy ratio regulated in line with international rules," Du said. "This source of capital is more stable than the short-term capital that commercial banks draw on to lend to investors."
The risks posed by margin accounts that brokerages could face would depend mainly on the brokers’ capacity to appraise the stock market’s situation, he added. Some companies could be brought to ruin if the stock market failed to perform efficiently.
"With the new service, investors would have more sources of capital to invest. However, this alone would not be a decisive factor to help the stock market recover from its current downturn," said Chang. "Even if investors have more capital to invest, they don’t know how to invest in the current situation in which no information can be relied on to spur the market."
VNS
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