Securities Companies: Stay or Leave

Companies imposed ​​special supervision will have their business licenses revoked if they fail to overcome reasons of special supervision within six months. In case amended circular of the Decision 27 on Regulations on Organisation and Operation of Securities Companies has recently been submitted to the Ministry of Finance (MoF) by the State Securities Commission (SSC) and expected to be promulgated in the near future, these brokerage houses will be completely wiped off the stock market.

 

According to the latest information, Au Viet Securities Corporation (AVS) will officially end transactions with the Ho Chi Minh City Stock Exchange (HOSE). In a written approval, HOSE said it will stop providing information and transaction data for AVS as from December 28, 2012.

 

This is the latest name that ends membership to HOSE. Previously, on November 20, Viet Star Securities Corporation (SVS) sent a notice of announcement to investors, informing that it had signed an agreement to transfer their securities transaction accounts to FPT Securities Joint Stock Company (FPTS). SVS stopped activating securities transaction accounts and signing new contracts with investors as of November 23, 2012. Investors with accounts at SVS have been recommended to finalise account procedures and transfer their securities to other brokerage houses before the date SVS terminates transactions with HSX and the Hanoi Stock Exchange (HNX).

 

Like SVS, Sacombank Securities Joint Stock Company (SBS) also proposed a restructuring plan. However, this plan was turned down by shareholders. The Vietnamese stock market is in crisis. Indices have plunged steeply and liquidity has seriously drained. A number of securities brokers have been trapped in stock trading, leading to widening losses in financial statements from quarter to quarter. Therefore, many brokers sacrificed securities trading business in order to survive as the case of Vien Dong Securities Joint Stock Company (VDSE). The company’s application for termination of proprietary trading business is considered to be a few to do this.

 

Perhaps, this is a prudent step to survive the current difficult period. A prolonged bad market without a clear bright future has killed proprietary trading business of many securities companies because of huge losses. Hence, cutting back an unbeneficial activity helps reduce financial burdens.

 

Furthermore, ending proprietary trading business also means dropping underwriting business because the Law on Securities provides that “Securities companies are permitted to perform securities underwriting only when such companies also conduct proprietary trading business.”

 

For VDSE, this move leaves the company with only two professions, investment brokerage and advisory, and other financial advisory services as stipulated by the laws. Underwriting business requires a legal capital of VND165 billion and proprietary trading business needs VND100 billion. With the two business professions, VDSE need just VND35 billion of legal capital.

 

Three securities companies have their operations halted, namely Truong Son Securities, Hanoi Securities and SME Securities. Seven other companies are placed under supervision. In the coming time, some brokers will fall into a state of supervision. The restructuring is currently intense and drastic. Pham Hong Son, Head of Business Management Department under the SSC, said, “In practice, companies in this situation have almost nothing left. Given the current difficult market, they can hardly survive."

 

Many companies are moribund. According to the SSC, securities companies may be suspended one, some or all of business activities if they are found violated. The suspension period is over, they will have business certificates revoked if their problems are not fixed. And, licence revocation means an end to securities companies on the stock market.

 

It is important that the SSC must do to make the market healthy and protect legitimate interests of investors in this changing period.