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New circular brings in much-needed regulatory changes for a stock market desperate for morale boosters

Investors and experts welcomed new stock market regulations which will ease trading restrictions starting August

A recent circular issued by the finance ministry to ease stock trading restrictions will help bolster liquidity and make the market more transparent, analysts say.

Circular 74, set to take effect on August 1, allows investors to buy and sell a stock within the same trading session. It also permits investors to open multiple accounts at brokerages.

Another important change introduced by the circular is margin trading, which means investors can borrow money from brokerages to buy shares.

The new regulations have been welcomed by investors and experts, who have complained earlier there are too many restrictions on doing business in Vietnam's stock market, although it is 11 years old.

Under the current rules, investors are allowed to only have one trading account. They are also banned from buying and selling the same shares the same day.

"Investors have been waiting for these changes for a long time," said Nguyen Van Manh, deputy general director of Kim Eng Vietnam Securities. "Circular 74 will definitely boost liquidity given that the market has lacked supporting news of late."

The permission to buy and sell a stock on the same day will give investors security against losses, he said.

"After purchasing a stock, investors will be able to amend their decision by selling it in the same day to prevent losses in case some bad news about the share comes during the trading session," said Manh.

Johan Nyvene, general director of the Ho Chi Minh City Securities Corp., said some stock market players were bending current laws by using the names of their friends or relatives to open different accounts so they could buy and sell the same share during a trading session.

Not all investors can do that though, so the new circular will restore some parity in stock transactions for all investors, thus improving liquidity, he added.

Manh said that with margin trading allowed now, risks to the stock market will be minimized.

"Currently, many securities companies are offering investors margin trading under the form of "˜investment cooperation contracts.' They lend money at high interest rates and accept numerous shares as collaterals. This poses potential risks to the stock market and even to brokerages.

"As margin trading will be officially allowed in August, it is certain that authorities will soon specify how much brokerages are permitted to lend investors, which stocks are allowed to be used as collateral, and other terms. That will help make securities firms' lending activities more transparent," said Manh.

It is common for brokerages in Vietnam to offer loans to their investors, though the country is yet to issue legal documents allowing such activity. As of March 31, outstanding debts at securities companies stood at nearly VND11.2 billion (US$546 million), newswire VnEconomy reported on May 4.

As for the new rule on multiple accounts, Nguyen Son, head of market development at the State Securities Commission, said it means investors no longer have to break the law to open many accounts or ask others to run their accounts.

He said the new regulation would also make it easier for authorities to monitor the holdings of each investor, especially of major shareholders.

Michel Tosto, Institutional Sales & Brokerage director of Viet Capital Securities Co., said that permission for multiple accounts is a major breakthrough for the brokerage sector as it will completely revolutionize the way brokers have been working so far.

"This effectively means that brokers, at the institutional level at least, will no longer compete for accounts, but compete for flows," he said.

Market stimulus

The new steps in Circular 74 will "provide stimulus for a market that is in a down phase, and needs some positive changes to move up," said Alan Pham, chief economist at VinaCapital Investment Management Ltd.

Nguyen Anh Tuan, deputy head of brokerage at the Viet Dragon Securities Corp., agreed with Pham, saying that the new rules, along with the measures to stabilize the macro-economy being implemented by the government, are restoring investor confidence in the stock market.

He cited as an example a recent central bank move which saw the rate cap on dollar deposits by individuals lowered from 3 to 2 percent, and the limit for institutions from 1 percent to 0.5 percent.

Prime Minister Nguyen Tan Dung last week asked the construction and finance ministries and the central bank to propose measures for stable and efficient development of the property and stock markets so as to boost economic growth. The ministries are expected to submit a report this month.

"Investors expect the government to introduce more measures to boost liquidity in the market," said Nguyen Duy Phong, a HCMC-based analyst at ACB Securities Inc.

The VN-Index, the country's major stock index, has dropped 8 percent this year following concerns that higher borrowing costs will shrink corporate earnings and economic growth. The gauge advanced 0.84 percent on Thursday to close at 445.17.

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