New instruments set to improve liquidity

Securities investors desperately wait for authorities’ bold moves

Measures proposed by the State Securities Commission (SSC) to improve market liquidity include allowing trading on margin accounts, buying and selling one stock in the same session and shortening settlement time from  current three days (T+3) to two days (T+2), which are so far not available on the Vietnamese market.

The SSC said the government’s  tightened fiscal policy were impacting on the market growth. Additionally, high inflation and interest rates, complicated gold and dollar price movements and the dilution affect of last year’s massive share issues are also causing market demand-supply imbalance.

“Improving liquidity will encourage investors to join the securities market,” SSC chairman Vu Bang said at the watchdog’s meeting on market development in 2011 held in Hanoi last week.

Bang said trading on margin accounts and buying and selling one stock in the same session would likely be allowed first given their lower risk.

The SSC has drafted a guidance for margin trading, which requires certain standards for brokerages and specific stocks. The guidance also obliges traders to maintain a minimum depository ratio of 20 per cent of the stock traded on the margin accounts.

Meanwhile, higher-risk instruments would have to wait for a sufficient legal framework to be developed, Bang said.

Regarding the proposal on lengthening daily trading sessions, which currently take place from 8am to 11am, Bang said that  the SSC “does not oppose [this]”. However he said that the proposal was hard to be implemented soon as current trading volumes were often low.

Besides, the market watchdog is working on the option to permit hedge funds which are favoured by securities investors.

“We hope the new instruments will be realised soon,” Bang said.

Indeed, the SSC has proposed the new instruments for the Ministry of Finance (MoF) approval a few years ago and no reply has been publicised yet. Local investors have therefore repeatedly expressed their disappointment, particularly amid poor market performance.

“We have waited [so long] and now want to see specific deadlines for authorities’ plans,” said Nguyen Viet Cuong, deputy general director of Tan Viet Securities.

However, market authorities have blamed the long delay on the underdeveloped market conditions, in which legal regulations as well as resources fail to measure up to the sophisticated securities market.

“We must improve market liquidity but we simultaneously  have to secure the market safety,” said Tran Xuan Ha, MoF Vice Minister.

Ha said the MoF would announce a roadmap soon for developing new trading instruments for the stock market.

Recently, a SSC representative said the MoF already adopted new safety standards for brokerages, which was viewed as the first steps to create a better foundation for applying high-risk trading instruments.

Yet the SSC said necessary regulations were still pending the MoF’s approval.