It seems that the State Securities Commission (SSC) is encountering difficulties in both administrating an overheated stock market and monitoring securities trading companies, which have recently been allowed to operate on the local bourse.
“I was taken by absolute surprise” said SSC president Vu Bang, when commenting on the recent scandal at the Thien Viet Securities Co (TVS).
“In the applications filed by TVS, Pham Kinh Luan is fully qualified as he has a clear resume and currently does not work for any other companies. TVS has a letter of appointment to install him as managing director and he agrees. Given that their applications are all eligible, the SSC must grant the licence” Bang was quoted as saying.
“Internal conflicts or even a change in their managing director is TVS’s business. On March 2 this year, TVS sent an official letter to SSC informing of the change of managing director. Although that SSC did not make any mistakes when granting the licence, it should not ignore its responsibility to inspect the operations of securities companies.
Perhaps the overheated growth of the stock exchange has made the SSC short staffed and unable to supervise the operations of stock trading companies. Recently rumours have spread about abnormal operations by newly established securities companies, many of which have announced increases in chartered capital while at the same time they have been marketing their shares instead of focusing on setting up stock trading venues and providing consultancy services to other investors.
The share prices of some companies have sextupled even although they have just started to operate and have not yet made any revenue never mind profits.
Under existing regulations, if these securities companies do not make an IPO but sell shares to internal shareholders, who are subject to the Law on Enterprise, they can increase chartered capital without first seeking permission from the SSC.
Such loopholes have made a considerable impact on the share prices of securities companies, which in turn affects the share prices of many other companies listed on the OTC market. The SSC is also believed to have failed to control the OTC market.
“A sad fact is that we want to control it but haven’t yet manage to control it. We may have to rely on economic measures to put them under control in the short term” Bang was quoted as saying.
The Ministry of Finance has recently required public companies to register for trading through securities intermediaries and list on the Hanoi Stock Trading Centre (HaSTC) and the SSC will have to take strong measures to make newly established securities companies prepare for this.
Its reported that dozens of securities companies have not started operating yet even though they have obtained business licenses.
According to Bang, recent warnings by the IMF are mainly focused on controlling banks’ capital flow into the stock exchange.
Although the amount of stock mortgaged loans in security transactions is not large, bankers cannot control the huge amounts of asset collateral loans flowing into the bourse.
In addition, commercial banks also investing in securities by buying shares from one another.
This makes it is necessary to review and assess the exact figure of capital flow into the stock exchange.
Under sustainable stock market development plans being finalised by the SSC, a scenario of crisis and corresponding crisis recovery measures have been outlined.
“The SSC is studying how other countries have handled similar situations ‘” said Bang.
“We will be cautious over the flow of foreign capital and we could control any potential crisis by restricting the influx or the outflow of foreign capital, both of which have their own costs” added Bang.
Given that the control of forex rates in Vietnam is relatively strict and the dong is not yet a freely convertible currency, the costs might be acceptable and can be imposed on corporate investors.
However when asked about measures that could be taken to control the capital flow of small and individual investors, Bang replied, “We are still studying this”.