SSC finally makes its margin call

A guideline governing margin trading was rolled out following an exhaustive public consultation process with market participants.

Margin trading, or trading in margin accounts, allows investors to borrow money from brokerage firms to buy shares.

The initial margin, or the portion of purchasing securities that investors must deposit in their account, is set at 60 per cent. The ratio was previously set to be 70 per cent.

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

The State Securities Commission (SSC) also flagged the possibility of lowering these ratios, stating that it would adjust them later “depending on the market situation”. These ratios are still much high than those set by other nations.

The range of eligible securities involved in margin trading was also significantly enlarged.

The guideline comes as market participants are concerned about how the SSC can impose its controls on local market margin trading activities. Brokerage firms have practiced the trading method before without the regulator’s approval, dodging the law by creating lending contracts under several forms to investors.

Previously, some analysts said that SSC’s possible tough regulations would force brokerage firms to go back to their old ways and provide margin trading services to clients with much more easier terms, such as high lending ratios.

“The guideline, though it just satisfies part of the market’s demand for margin trading, is obviously more flexible [than the drafted one],” said Trinh Hoai Giang, deputy general director for Ho Chi Minh Securities.

A brokerage would have to register with the SSC and have its technical and financial ability checked before approval, said SSC Fund Department head Pham Hong Son.

 Particularly, a brokerage must be able to manage margin trading accounts and normal cash accounts for itself, while the central clearing system can only recognise trading orders sent from cash accounts. Several leading firms including Thang Long Securities, Ho Chi Minh City Securities and VnDirect Securities, said they would adjust their technical systems and liquidate existing contracts that practically also provide margin trading, before registering with the SSC.