|
Rules to limit brokerage risks
The Ministry of Finance Circular No.226 governing financial safety for securities companies took effect April 1. Viet Nam News reporter Mai Huong spoke to Pham Hong Son, Director of the Securities Business Management Department of the State Securities Commission, about it.
How does Circular 226 modify existing regulations?
With regard to current regulations monitoring the activities of securities companies, Decision 207 partly deals with the calculation of companies' usable capital. But it is an old method, and deals only with cash flow (Referring to the assets able to be converted into cash within 30 days).
New regulations apply Basel II standards, which were originally applicable to credit institutions. These regulations are applied even more rigorously to securities companies as they take companies' operational risks into account. The total risk value of a company measures market risk, operational risk and liquidity risk. Previously, we just counted company debt, but now other risks are taken into consideration.
The new regulations monitor the majority of a company's financial operations. The circular's content is more effective and comprehensive for evaluating the overall operations of securities companies.
How will the circular affect the performance of securities companies, particularly small capitalised ones?
In the view of the drafting committee, the main objective of the circular is to allow securities companies to calculate their financial adequacy ratio themselves. While some companies are better at risk management, there are others that focus on doing business and fail to give enough priority to risk management. The are implicit risks for these companies that they are failing to recognise.
New regulations will help companies review and re-evaluate their entire operations, and recognise their risk levels so that they can find suitable solutions to ensure business safety.
The State Securities Commission will only use the usable capital ratio (Total usable capital to total risk value) to oversee their operation. Companies that cannot guarantee achieving the required ratio will be put under control (If the ratio hovers around 120-150 per cent in all reports for three consecutive months), or will be put under special control (If the ratio is less than 120 per cent, or the company's preventive measures fail to tackle the problem).
Some people have said that the circular contains some shortcomings when it comes to calculating risk. What do you think?
I disagree. According to international principles, any financial institution must ensure it has a certain level of usable capital and make certain their assets can be liquidated within 90 days. In some countries, the time frame for liquidation is just 30 days.
Securities companies cannot invest in non-liquid stock. Their main objective is to ensure they have enough liquidity and a certain level of usable capital for their safe operation. They must also guarantee that their portfolio is liquid. If not, their financial status would be negatively affected.
In addition, apart from the circular's regulations, there are also investment restrictions on securities companies following Decision 207.
How do you assess whether companies can meet the financial adequacy ratio stipulated in the circular?
Circular 226 does not stipulate what the compulsory charter capital requirement is for securities companies. Regulations are there just to gauge the usable capital ratio. If companies satisfy this ratio, they should perform well. Even if a company is big, if it cannot meet required standards it will be put under control.
The drafting committee consulted with securities companies and asked them to test their ratio from June 2010. Basically, most companies can meet the requirement. These regulations are new, but good for securities companies and they need to be familiar with them.
From May 15, companies will have to report monthly according to new regulations. However, this year, companies will not be put under control if they do not meet the circular's safety requirement. After one year, companies that violate the regulations will be put under control or special control.
vietnamnews
|
