New SSC draft guidelines to continue margin lending ratio

In its draft guideline on margin trading issued on Thursday, the State Securities Commission would continue to restrict the margin ratio to 30:70 – a ratio market insiders are saying is too restrictive.

Under the guideline, brokerages would be able to loan up to 30 per cent of the value of a securities transaction, while the investor would be required to front the remaining 70 per cent.

“The proposed margin ratio of 30:70 is too conservative and doesn’t truly reflect the nature of margin trading,” Vietcombank Securities Co deputy director Tran Viet Anh told the newspaper Dau tu Chung khoan (Securities Investment).

Since the nation’s stock markets had yet to allow for short sales and derivative trading, a margin ratio limited to just 30 per cent wasn’t going to do much to improve the liquidity of shares on the market, Anh said, suggesting a ratio of at least 40:60.

The Ministry of Finance issued Circular No 74 on June 1, approving margin trading effective August 1, and the SSC was tasked with drawing up specific guidelines.

The margin ratio of 30:70, although it would help ensure the financial security of securities companies, was unfeasible, said the director of a Ha Noi-based securities company who asked to remain anonymous. The ratio should depend on an evaluation of each share and each investor’s financial capacity and relationship with the brokerage, he said.

The newly revealed draft guideline also sets regulations on securities eligible for margin trading. The stocks would have to have been listed for at least six months, have book value of no lower than face value, and not be subject to transfer restrictions.

These rules would broaden the number of shares eligible. Under an earlier draft, many blue chips, including Saigon Securities Inc (SSI), Asia Commercial Bank (ACB) and Vietinbank (CTG), would have been ineligible as their share prices sometimes fell below VND10,000 or failed to satisfy liquidity requirements in a single month.

Nevertheless, SHB Securities Co deputy director Bui Thi Minh Tam said the commission should further loosen the criteria by allowing securities companies to create the list of eligible stocks on the basis of consultations and negotiations with investors.

Tran Viet Anh of Vietcombank Securities Co said the commission could manage the process by overseeing the companies’ basic indicators, such as minimum charter capital, usable capital, and liquidity.

SSC’s vice chairman Nguyen Doan Hung said the commission’s policy was to be prudent when initially implementing margin trading, since many securities firms have already suffered heavy losses in the current market decline.

“The money they lend comes from their equity or from of bank loans, so it is better to be careful,” Hung said.

Under the new draft, brokerages which have operated for at least one year and satisfy minimum charter capital requirement would be allowed to lend up to 200 per cent of their equity to investors. The line of credit that could be extended to a single investor would also be increase from 1 per cent of equity to 3 per cent.

Interest rates would be limited to no more than 150 per cent of the prime rate set by the State Bank of Viet Nam. With the prime currently at 9 per cent, that would equat to 13.5 per cent per year. — VNS

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