VN to allow short selling of stocks

Investors observe market movements via computors. Authorities plan to soon allow investors to short-sell shares in local bourses to boost trading volume.-Photo vcci.com.vn

Short selling is when a broker lends shares to an investor at the current market price. If the price then falls, the investor can sell the shares back to the broker at a lower price, with the difference being the investor's profit. If the share price goes up and the investor sells the shares back to the broker, the investor loses money.

The State Securities Commission (SSC) plans to submit to the Ministry of Finance within this month a draft circular, which aims to amend the Circular 74 issued in 2011 by the Ministry of Finance on short selling.

Son said that short selling was a complicated process and required strict management to make sure it does not create instability for the national stock market.

He said that the shares used for short selling would be margin (debt)-trading shares, meaning that investors would have more choices to make in addition to the shares in the VN30 and HNX30 Index, which cover the 30 largest shares in terms of capitalisation and liquidity on each of two local markets.

The SSC would issue the list of margin-trading stocks, and based on that brokerage firms would decide which one of them could be shorted on the same day, Son said.

In addition, foreign investors would be unable to participate in margin trading and intraday trading.

Tran Vu Thach, Director of Stock Trading Division from VNDirect Securities Joint Stock Company, told Viet Nam News that investors, especially small ones with low capital, may suffer losses from short-selling if they do not have sufficient and punctual information to perform the transactions.

He said that brokerage firms would have to provide support for those investors to reduce the financial risks and protect their customers by updating information for clients and upgrading the IT system to help customers improve trading efficiency.

Brokerage firms that plan to provide intraday-trading services must meet some requirements such as having their equity at least equal to their capital, having profits on their financial reports, not going through merger and acquisition progress and having total debt less than three times equity.

Brokerage firms must report to the stock exchanges and the Vietnam Security Depository about the customers and their intraday-trading accounts at least one day before these customers are able to perform intraday transactions.