SSC bans margin trading and short selling

September 06, 2011 | 16:33

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The State Securities Commission demanded brokerages on Monday to stop providing illegal margin trading and short selling services to investors.

The requirements were stated on the State Securities Commission’s (SSC) website yesterday.

Margin trading allows investors to borrow a portion of the funds they use to buy securities. Such service is being provided by local brokerage firms with much higher borrowing-portions as compared with that regulated by SSC, largely under the form of “cooperative investment contracts.”

The regulator required brokerage firms to “stop signing newly cooperative investment contracts.” All existing contracts had to be liquidated and the liquidation must be reported.

The requirement comes nearly a week after SSC rolled out long-awaited margin trading on August 30. The watchdog imposed a significantly low borrowing ratio compared with those practiced by local brokerage firms before, triggering concerns that the firms would resort to old tricks.

Short selling helps investors to sell borrowed securities. The trading tool has not been activated given Vietnam’s immature market. But like margin trading, short selling was prominent largely on the market without the regulator’s approval, particularly within recent months when VN-Index tumbled.

Securities companies and fund management companies must not conduct short-selling “without the legal guidelines”, stated the requirement.

The SSC specifically banned fund management companies from using the portfolios they managed as guarantees for investor’s securities loans which allowed companies to dodge the law to provide short selling services.

By Hai Linh

vir.com.vn

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