Margin trading finally becomes a reality

September 01, 2011 | 13:54

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The State Securities Commission (SSC) has at last provided the low down on margin trading, officially activating the long-awaited trading tool.

The value of purchased securities that investors must deposit in their accounts, is 60 per cent. The ratio was previously going to be 70 per cent.

The maintenance margin, or minimum amount of equity that must be maintained in a margin account, is 40 per cent.

Those ratios are quite high as compared with those normally set by other nations. The guidance said the SSC could change the ratios later “according to the market situation.”

The regulatory body requires brokerages to not post accumulative losses of 50 per cent charter capital or more and not have debt lager than six times of equity levels if they want to participate in margin trading. The liquidity ratio, or percentage of liquidity on total risk value, must be higher than 150 per cent within latest three months.

Besides, the SSC will check each brokerage’s technical systems before conducting new business.

Any securities except ones banned by the two stock exchanges can be involved in margin trading. The banned stocks generally will be the ones that have been newly listed for less than six months, being delayed for transactions, under warning status or under supervision.

The regulations, actually, are significantly easing as compared with those drafted by SSC before. The SSC was previously seen to be too cautious in drafting controls for margin trading, which would make the new instrument hard to boost market’s liquidity.

The SSC had asked for market participants’ ideas on the guidance for months before submitting its final plan to the Ministry of Finance for approval.

By Hai Linh

vir.com.vn

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