SSC ban hits a brick wall

A broker at one Hanoi-based securities company said his firm was transferring the blacklisted stocks in its “storage” to a fund management company so the brokerage could continue providing margin trading service for those shares.

The broker said his company would continue borrowing money from the fund to trade in the blacklisted shares using the dubbed “joint investment contracts”. The brokerage, meanwhile, would help manage those contracts without violating the market watchdog’s ban.
This is just one of the ways local brokerages are getting around the State Securities Commission’s (SSC) ban on using certain stocks perceived as risky as mortgaged assets in margin trading.

Some of banned stocks, however, are highly sought after by local investors and could be used for margin trading much by local brokerages before the SSC ban came into force in early October.
A source familiar with the matter said it was pretty much business as usual at securities companies when it came to margin trading services on the blacklisted shares. Firms which are yet to register with authorities to conduct margin trading still hold margin contracts with clients, while registered brokerages have found workarounds.

“It [shifting storage of banned stocks into relevant funds] is one way of doing it. Other firms are using several different ways to continue providing margin trading in disallowed stocks,” said the manager of another brokerage firm. Market participants’ failure to obey SSC’s rules is said a product of the regulator’s loose supervision of its regime and also of the criticised incomplete measures taken to develop the new instrument.

While the watchdog speaks out against brokerages providing margin trading for blacklisted stocks, several firms said little had actually been done by the SSC. “Brokerages had been taken liberties with SSC’s warnings,” said the manager of a brokerage’s investment department. “Even if they tighten supervision, there will still be several ways for brokerages to dodge regulations.”
Indeed there is still opposition to the SSC’s banned stocks list. Some insiders say the watchdog has disallowed trading in some shares merely because of losses posted. Meanwhile, several are opposing the market watchdog banning newly listed shares even the listed companies have had a good track record.

“SSI [Saigon Securities] was a major firm with huge potential for growth but the stock is still banned [from the allowable margin trading list] because of a temporary loss,” said Nguyen Ngoc Thang, manager for OTC Investment Department at An Binh Securities “The Military Bank stock is currently very much sought after with good fundamentals in the over-the-counter (OTC) market, but it will still be blacklisted too when it comes to list this week. The SSC’s way of classifying stocks reflects a limited point of view,” said Thang.

And while some brokers agree with the regulator’s policy of limiting the use of bad fundamental stocks in margin trading there is concern about the SSC’s ability to force market participants to obey its rules. “We agree the rule will help reduce risks for investors, but as the market situation is still difficult, we have to struggle for alternative sources of revenues [like allowing margin trading on blacklisted stocks],” said a broker at a Hanoi-based brokerage.