Restructuring brokerages to take shape

The project is divided into two phases. In the first phase lasting from April 1, 2012 to 2013, the watchdog will suspend brokerage firms who fail to meet its financial safety criteria.

The criteria were regulated in Circular 226, which came into effect on April 1. But the circular’s items on inspecting and punishing brokerages will only be activated next April 1.

A tough rating criteria, the international rating system CAMELS, will also be applied in this phase to classify the brokerage firms into three groups. The SSC said it would have different treatments for each of those three groups.

The second phase, lasting from 2013 to 2015, will see the watchdog upgrade its supervising regime to all brokerages including both robust and weak ones.

Weak firms which fail to meet Circular 26’s standards would face stricter treatments, such as being forced to narrow down their business or sell assets, said SSC chairman Vu Bang.

At the same time, the watchdog will also put all firms under a new control regime which involves “specific steps of identifying risks and solution to the risks,” Bang added, indicating that the regime is being set up with the support of Luxembourg Agency for Development Cooperation.

In addition, the SSC will classify the firms further under criteria of corporate governance and apply different treatments to those groups.

Although the body did not mention any measure of revoke business licence of weak brokerage firms, Bang said the restructure “will definitely result in a reduction in firms.”

“The current number of 105 securities companies is too many for the securities market’s scale,” said Bang. “This fact [too many firms] is one among the reasons of unfair competition among brokerage firms like dodging the law to conduct a mass of trading tools.”

SSC’s project of restructuring brokerage firms comes amid a series of restructures across the whole nation’s economy.
The local securities market saw up to 71 brokerage firms out of totaling 105 firms posting accumulative losses. The losses of those firms hit VND2 trillion ($96.6 million) so far, even doubling that figure from the 2008 financial crisis.

From now until the project’s first phase, the SSC would enhance its inspection to brokerages, said Bang. He indicated that some 50 firms had been checked so far.