Derivatives: Opportunity for Stock Market Restructuring

More securities brokerage companies went bankrupt because of poor performances. At present, only over 80 securities companies are in operation, a decrease from 20 percent from the peak several years ago. Closures may increase in the coming time as new regulations on derivative business. Indeed, some 30 securities companies are truly operating while 50 others cannot live on securities businesses and they are still alive at the will of their owners.

 

More companies float their shares at the back of economic recovery and the market liquidity is thus improved as a result. While the number of securities companies declined, the source of incomes for operational ones will increase. This is actually a big opportunity for securities companies and this is also a reason for the prolonged existence of weak performing companies. But, according to specialists, the development of stock market is not easy for securities companies to operate in such a perfunctory way.

 

Securities brokerage - one of the most important businesses of securities companies - depends on the registered capital value. In fact, only securities brokerage houses with a registered capital of VND500 billion can develop their brokerage business in a very competitive market. But, small securities companies are also pleased with what they are doing because they take less as they do less. And, to a certain extent, the capital scale only produces competitive edge, not a decisive difference. Even, some brokerage houses can make money from securities trading even though this business is not as easy as earlier. But, derivatives will certainly make a difference as the law requires that a securities company must have a registered capital and owner’s equity of at least VND600 billion to trade derivatives and the value must be from VND800 billion if it wants to provide derivative brokerage services.

 

The regulation on registered capital of securities companies in the Decree 42/2015 is within the capacity of some companies but beyond the capacity of others. The capital requirements are easy for good-performing securities companies but very hard for weak ones.

 

Increasing the share capital is not easy for all securities companies because the stock market is still a hard place to earn money for many. Previously, this job was not very difficult because they could use their capital surplus and retained earnings to issue bonus shares to existing shareholders. The secondary equity offering is more difficult and selective. Only best-performing companies can draw investors.

 

The opportunity for unlisted securities to lure investors is even thinner. If they cannot hike their share capital, they will be unable to provide derivatives businesses. Customers will of course come to companies with derivatives services as derivatives will provide them with one more risk aversion tool.

 

If they cannot use derivatives in proprietary trading business, they will lack an important risk prevention tool and lack a drive for their proprietary trading business.

 

The gap in operation scale and competitive advantage will downplay small companies and cause their good employees to leave. Professional expertise related to derivatives is complex, forcing securities companies to supplement resources to meet market demands and regulatory requirements.

 

Currently, high-level personnel are not enough in the securities industry and the introduction of derivatives will make high-quality personnel scarcer. Without doubt, to stay alive on the stock market, small brokerage houses must quickly add capital, expertise and personnel to access derivative securities.