Stronger Remedy Needed for Securities Companies

Three years ago, State Securities Commission (SSC) of Vietnam planned to withdraw deposits of investors from securities companies so that they can open their accounts directly in commercial banks, absolutely protect their money as well as prevent unsafe appropriation of investors’ deposit.

 

However, so far, there have only been about 10 percent of securities companies following this regulation, whereas the SSC has seemed to forget about it. Vietnam Association of Financial Investors (VAFI) have proposed to clearly separate accounts but received rejection due to influence of team benefits. It is also the neglect that has led to a variety of violations in securities companies recently.

 

The typical example is some securities companies with low liquidation in some transactions (unable to pay out for securities sellers) have been publicly warned by Vietnam Securities Depository.

 

Notably, many cases lost their liquidation ability so seriously that they couldn’t pay even VND1 billion to Vietnam Securities Depository while legal capital for securities broking activities are VND25 billion.

 

Recently, many staff members in securities companies, even those at the highest positions, appropriated capital (up to hundreds of billions VND) of investors from commercial banks and absconded. State Securities Commission of Vietnam has taken no effective measures to minimize the risk of investors losing their money.

 

While investors with savings accounts can be fully ensured since the Government has policies concerning deposits if the banks go bankrupt, money of investors in securities companies is nearly paid no concern. Obviously, there’s no one responsible for compensating investors if they have their money appropriated by securities companies or clerks.

 

It is estimated by experts that most securities companies can easily follow the regulations of separating accounts, while only few cannot since they do not have enough legal capital and thus have their broking function eliminated.

 

However, since there are too many securities companies, the quality is low with scattered management human resources and unfair competition by all means to attract customers, which results in too high percentage of loans for securities investment (there is one lending investors with the amount of 5 times higher than their own capital). The competition has changed the securities market into a gamble, and inevitably, both investors and companies suffer losses when the market is down.

 

According to the proposal on restructuring securities market, from January to April, SSC will take stronger actions in managing and grouping securities companies. Consequently, SSC will decide to terminate operation, recall establishment and operation license from those unable to handle their management.

 

Nevertheless, it is analyzed by VAFI that the measure will not work effectively. The important thing now is to quickly reduce the number of securities companies by 75 percent to concentrate and relocate human resources, and eliminate unfair competition via activities of dissolving, merger or acquisition. This will help to protect shareholders’ capital and make the securities market safe.

 

Another strong measure is the Prime Minister should introduce a document requesting state corporations, groups, enterprises and joint stock companies with shares held by the Government to immediately implement dissolving, mergers, acquisition or withdrawal from securities companies.

 

Securities companies should be required to increase their legal capital under the agenda to VND600 billion in 2013 (from VND300 billion at present) and VND1,200 billion in 2015. Those measures will both help to easily restructure securities companies and increase attractiveness for investment from foreign securities companies, as well as protect shareholders’ assets.

 

Securities companies themselves should be aware that they need to give up small benefits to seek bigger ones to win back the trust of securities investors.