Stock Market Restructuring: Start from Securities Companies

While the "health" of the economy was good enough, the stock market was considered a very effective investment channel. Money flows in this market were a top concern for most banks at that time. The stock market played a vital role in the financial system.

 

When the economy showed signs of slowdown and slid into recession because of high inflation, the stock market witnessed panic sell-offs, causing long periods of slumps. According to a report released by the Hochiminh Stock Exchange (HOSE), two-thirds of listed securities companies suffered losses in the first nine months of 2011. Eighteen companies suffered a combined loss of VND1,350 billion. At the start of October 2011, 12 securities companies had liquidity ratio of below 180 percent. Among them, five had this ratio below 120 percent, meaning that they need to be put under special supervision.

 

According to the State Securities Commission of Vietnam (SSC), daily stock trading value peaked VND5,000 billion in its prime time but the value was averaged at VND2,500 - 3,000 billion in non-crisis period, and just VND1,200 billion in crisis time. Respective brokerage fees were VND30 billion, VND15 billion and VND9 billion a day. The monthly fees were VND780 billion, VND390 billion and VND230 billion, respectively. If the current monthly brokerage value is shared by more than 100 stock brokerage houses, each will earn just 2.3 billion a month. This amount of money is not enough for system maintenance, asset depreciation and office rents. This showed that the number of securities companies is now too many.

 

Besides, some companies faced temporary loss of liquidity. SME Securities Joint Stock Company failed to settle its financial obligations to the Vietnam Securities Depository (VSD). It was thus suspended some business scopes. The loss of liquidity is believed to a pressure on many stock brokerage houses.

 

Moreover, according to financial experts, current difficulties facing securities companies are just in the early stage because these companies could previously negotiate with banks to borrow loans but this now seems to be an impossible mission. Banks are now in trouble and they need restructuring. And, securities companies may face massive money withdrawal from investors. The first to be hit will be small and distrusted ones.

 

Given this scenario, many experts have warned that these companies may face the risk of collapse. The collapse of securities companies may not be as serious as banks but it turns to be a serious problem because they are holding a lot of money for investors. For that reason, the restructuring of such companies need to be done immediately and ultimately to regain the investor confidence and function as an important fundraising channel for the economy.

 

The ongoing restructuring of the banking system needs more time to finish as this much bigger system is the lifeblood of the economy and this work is backed by the State Bank. Meanwhile, the shake-up of securities companies may be carried out sooner because this system has smaller scale and scope. The ripple effect of securities companies is believed not as serious as banks.

 

Some days ago, the Vietnamese stock market developed very strongly. The number of listed companies and brokerage houses increased quickly. The bullish market was a golden chance for securities to earn money.

Currently, the stock market is now on downward spiral. It lost about 65 percent of value from the peak time (in 2007). Although a lot of leverages like tax breaks or more trading time were adopted to spur the market, they did not work eventually. Money keeps leaving the market although many companies are worth of investing.

 

When the reshuffle is underway, some companies may go bankrupt because they fail to follow. This is a normal phenomenon. The restructuring of securities companies and strengthening of market management will ease investors and persuade them to return to the market. The liquidity will be better and values will gain. Cash flows will come back to the market and listed companies can raise funds for their business operations. According to experts, restructuring securities companies is not a hard job and the State Securities Commission of Vietnam (SSC) needs to take strong action to revamp the market. The market operator should not easy with disqualified brokerage houses and take firm action against manipulative forces to boost the market transparency and regain the investor confidence.