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Who protects investors if securities companies go bankrupt?
Nguyen Thanh Ky, Secretary General of the Vietnam Association of Securities Businesses (VASB), has released a figure which may startle investors: 70% of operational securities companies have been operating perfunctorily with manpower and operation cuts.
The question is naturally raised: As far as investors who have assets (stocks and money) deposited at securities companies, who would protect them if those companies went bankrupt?
Prior to October 1, 2008, securities investors opened accounts at securities companies, which meant that securities companies managed their money. However, the State Securities Commission (SSC) decided that as of October 1, 2008, investors’ money would be under the management of commercial banks instead of securities companies, which, according to SSC, would ensure the safety of investors’ money.
However, to date, only 10 securities companies have completed the process of transferring investors’ money to banks for management.
What about stocks? Phuong Hoang Lan Phuong, Director of the Stock Depository Centre, said that Vietnam is applying the two-level stock depository scheme. Under the scheme, securities investors open accounts and deposit stocks at companies which are depository centre members. The member companies then re-deposit their clients’ stocks at the depository centre.
As such, the depository centre does not keep detailed data about the securities ownership of investors, it just keeps the general stock figures of every member company. It is clear that with that scheme, neither the money nor stocks of investors are being managed independently of securities companies’ assets.
Article No 71 of the Securities Law stipulates that securities companies have to have professional liability insurance or have a fund to compensate investors for damages caused by mistakes of securities companies’ staffs. Meanwhile, the regulations on the structure and operations of securities companies stipulate that if closing down, securities companies have to have solutions to deal with valid contracts, ensuring the benefits of investors.
However, in fact, not many securities companies have taken out professional liability insurance, simply because they don’t want to pay for it. Meanwhile, insurance companies still hesitate to provide the service in Vietnam as they think it is very risky and unfamiliar.
In 2000, Bao Viet planned to provide liablility insurance for the stock market. However, the plan has not been implemented, for many reasons.
In 2007, when the stock market witnessed hot development, Gras Savoye Willis Vietnam launched several stock-related insurance products. According to the insurer, many investment funds in Vietnam, namely VinaCapital, Dragon Capital, Mekong Capital or Indochina Capital, have used their services, but very few securities companies have.
A Dau tu chung khoan newspaper reporter has found out that only one securities company has used a service provided by the insurer for one year. However, the company is going to stop using the service due to unsuitable provisions. The director of the securities company said that many other companies do not have insurance policies, and they have not been punished for this.
The problem lies in the fact that there is no concrete provision which clearly stipulates how to deal with bankrupt securities companies which are uninsured. And the question still remains unanswered: Who will protect investors’ interests?
DTCK
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