Ending Gold Margin Trading

In a relatively long period from the late 1990s until 2007, gold trading activities were generally stable and there were no impacts on monetary policy management of the State Bank of Vietnam. However, recently, the fluctuation of gold prices on global markets has made gold a special commodity and gold-related activities have affected monetary policy regulation and social and economic stability.

Therefore, the Prime Minister has assigned the State Bank of Vietnam (SBV) to coordinate with other ministries and relevant agencies to review all current regulations on gold management to submit to the Government which will issue a decree on gold management in the direction that the State will centrally and uniformly regulate and terminate gold margin trading in any fashion.

Shortcomings in gold trading floors

The first gold trading floor in Vietnam is the ACB gold trading floor founded on May 25, 2007 under the name of Saigon Gold Trading Centre owned by Asia Commercial Bank (ACB). Its nine members were commercial banks and large-scale experienced gold traders.

Initially, the ACB gold trading centre was a wholesale marketplace for its members. ACB functioned as both the organiser and trading member. However, the trading volume was not big at first.

In December 2007, from the operation of the gold trading floor for its members, ACB deployed “Investing in gold ACB” product for individual investors. Since then, the trading volume unexpectedly increased. With attractive profits from this business, many commercial banks decided to open gold trading floors like Viet A, Phuong Nam, Dong A, Sacombank, Wall Street and World Gold Exchange.

According to the central bank, gold margin trading in Vietnam is based on price difference (margin trading). This is globally considered a very risky business for both investors and gold floor operators. This does not create the value for the economy, but in contrast, a large volume of capital drawn from business and production activities to feed gold dealings on trading floors. The Saigon gold trading floor owned by ACB alone used to top more than VND8,000 billion a day. Until now, although operations of gold trading floors have slowed down; outstanding loans on gold trading floors in Ha Noi and Ho Chi Minh City have exceeded VND2,000 billion.

Because gold trading floors provide their own regulations and investors, especially individual investors, do not clearly understand all risks that they can confront from gold margin trading. Recently, many conflicts and complaints have happened to investors and floor operators.

Regarding jewellery gold and fine arts trading, according to the State Bank, most gold traders are currently trading material gold and fine arts items, meeting the social demand. These companies have managed to meet the growing demand for the precious metal and created jobs for thousands of people throughout the country. However, in addition to bullion and fine arts trading, some have illegally traded foreign currencies and substandard gold.

As regards gold margin trading in foreign nations, to date, 11 commercial banks and eight gold traders have licensed gold margin trading abroad. The overseas gold trading permit in 2006 aimed to help gold dealers to choose price rate for importing and exporting the previous metal. However, according to the central bank, gold margin trading abroad has exposed some limitations: Units permitted with gold margin trading abroad also trade on international gold trading floors. This activity is highly risky when world gold price unexpectedly fluctuates. At the same time, these units also established domestic gold trading floors, which de facto perform gold margin trading in the country and they caused many changes in the gold market in recent time.

Say no to gold margin trading

The State Bank of Vietnam said, through its examinations, the formation and operation of gold trading floors currently lack legal basis. Particularly, the operation of gold trading floors exposes a number of factors that can cause economic and social instability.

Before that fact, the Prime Minister has told not to organise and perform gold margin trading in the country and abroad in any form. Within 90 days from the notice of announcement, all activities in association with gold trading floors and gold margin trading in the country will be terminated. The grace of 90-day period for the termination to operations of gold trading floors and gold margin trading is aimed to give enough time for investors to conclude their gold on their account. The State Bank said that it would implement necessary measures to realise the conclusion of the Prime Minister.

In addition, to put gold jewellery fine arts trading into order, the State Bank of Vietnam has closely coordinated with relevant ministries, agencies and provincial/municipal People’s Committees to inspect and address illegal foreign exchange activities. According to the regulations on foreign exchange agents issued together with the Decision No. 21/2008/QD-NHNN dated July 11, 2008, the State Bank has clearly stated that only economic organisations named foreign exchange agents for credit institutions permitted to provide foreign exchange services are allowed to carry out foreign exchange activities.

Also, the central bank will coordinate with relevant agencies to implement necessary measures to strengthen the control over the observance of gold quality standards and the protection of the rights of consumers.

Posted by VBN on Jan 12 2010. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry