At a meeting with 23 securities companies and market members on May 14, the State Securities Commission (SSC) asked local stock exchanges to disclose information about proprietary trading by securities companies. Since March 1, 2022, the Hochiminh Stock Exchange (HOSE) suspended the provision of this information.
Resuming control over proprietary trading
Proprietary trading occurs when a securities firm invests in stocks for direct marker gain. With abundant capital, the buying and selling activities of stock brokerages leave a certain impact on the supply and demand in the market and investor sentiment. Moreover, proprietary traders’ transactions may be another source of data for investors to assess and forecast the trends of one of the most experienced investors in the current market, besides the transaction trends of foreign investors and reports on the assessment and forecasts about the market securities companies’ analysts.
Therefore, the information about securities companies acting as proprietary traders has been an important factor in supporting investors in making decisions. The information had earlier been provided by stock exchanges but was not publicized to investors. It was sold to data service providers under separate packages and investors accessed the information by buying these packages from data service providers.
However, as mentioned above, since early March, HOSE has suspended the provision of the information and merged the proprietary trading into the local securities firms’ trading value. It explained that the suspension of the proprietary trading information disclosure would not affect the disclosure of the stock trading information as the information was provided to some customers under service packages. According to HOSE, the suspension was aimed at reviewing and developing new products.
To date, data on transactions in March of securities companies have yet to be revealed. Nevertheless, financial reports showed that securities companies had taken profits from many stocks in the first quarter of this year. The stock market later saw repeated strong corrections since early April. Obviously, the coincidence in time and market developments has raised doubts among investors.
In recent sessions, while individual investors’ selling pressure has been huge, local trading entities, including proprietary traders, have bottom-fished. As a case in point, in the session on May 9, the VN-Index lost over 59 points and proprietary traders spent more than VND1.1 trillion net buying stocks, mainly those of banks, such as VPB, MBB, VCB, ACB and TCB, and other stocks, including FPT, VIC, VHM and KBC. On May 10, these traders continued spending nearly VND800 billion net buying large-cap stocks. In addition, foreign investors have also repeatedly net bought stocks since early May.
Most recently, on May 16, SSC wrote to local stock exchanges, asking them to resume announcing information about proprietary trading before May 23, and HOSE said it would announce the information from May 17. SSC also directed the Hochiminh and Hanoi Stock Exchanges to ask listed organizations to publicize the information related to the companies affecting share prices within 24 hours from the time that shares hit their ceiling or floor prices for at least five consecutive sessions. In the coming time, SSC will propose the Ministry of Finance amend and supplement the Ministry of Finance’s Circular 96/2020/TT-BTC dated November 16, 2020, guiding information disclosure in the stock market.
To limit the possible impact of the derivatives market, SSC has allowed the Vietnam Securities Depository to issue regulations on making deposits for, balancing and making payments for derivatives, including adjusting the closing price of the VN30 Index futures contract. In specifics, instead of the VN30 Index in the closing periodical order-matching session as earlier, the closing price in the future periods will be the average VN30 Index on the last 30 minutes of the maturity date, including 15 minutes of continuous order-matching and 15 minutes of closing periodical order-matching, after excluding three highest levels and three lowest levels of the index in the continuous order matching session.
With the previous pricing method, investors with a high financial capacity just need to spend a small amount of capital on some large-cap stocks with a high number of free float shares in ATC sessions to send the VN30 Index up or down at will and manipulate the transaction of derivatives to earn profits, thereby creating an impact on the base market. Therefore, the early change in the calculation of derivatives is necessary to prevent market manipulation.
Due to many violations in the stock market, SSC has enhanced the supervision and handling of individuals and organizations infringing the transaction and information disclosure regulations, especially the transactions and information disclosure of large stakeholders, founding shareholders and leaders of enterprises. In addition, the management agencies have tightened control over the operation of securities companies, especially their lending activities, and imposed heavy sanctions on stock brokering companies manipulating the stock market.
To prevent and minimize violations in the derivatives market, the Ministry of Finance has directed stock exchanges to promptly find ways to prevent shareholders of the same company from transacting shares without disclosing information before the transactions and propose amending regulations relating to the stock trading.
The ministry will also direct the competent agencies to inspect and supervise listed companies and organizations trading stocks and auditing companies whose customers have erroneous financial reports and handle violators in line with the law.
In addition, the ministry will quickly review shortcomings and unworkable regulations in the Securities Law and documents guiding the deployment of the law, and conduct a plan to restructure the stock market as planned and a strategy to develop the local stock market in the 2021-2030 period after getting the Government’s approval.
Meanwhile, an SSC representative said the status upgrading would depend greatly on market credit rating agencies. However, SSC had been cooperating with the relevant agencies to reach a consensus on solutions and a clearer roadmap so that the Vietnamese stock market would see its status upgraded at the earliest as targeted by the Government.
Earlier, Prime Minister Pham Minh Chinh had urged the upgrading of the local stock market’s status from frontier to emerging. If successful, a large volume of foreign capital could be poured into Vietnam, stimulating the domestic capital flow. This, together with the bright signals of the economy, will help the bull market return.
During a working trip to the world’s largest stock exchange in New York—the New York Stock Exchange—on May 16, the prime minister witnessed the handover of two cooperation agreements in the finance, banking and investment sectors between Vietnamese and U.S. partners, including a cooperation agreement between SSC and the New York Stock Exchange on the upgrading of the market status and the development of policies to facilitate investors to participate in the two stock exchanges.
As for securities companies, one of the most practical and effective solutions to support investors is margin lending, which needs to ensure safety and reduce risks for investors and securities companies themselves. The announcement of decisions to change the margin rates to investors needs a specific roadmap and plans and a more flexible time for deposit supplementation.
They should not offer margin loans and encourage customers to borrow margin loans in mass without taking risks into account for short-term benefits but later suddenly reduce or even cut the margin lending rate and ask customers to supplement deposits. If not, their shares will be discharged, putting investors at a disadvantage, especially during market corrections.