The hidden floors

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One year after the government closed all gold trading houses, many illegal floors are still operating around the country, tapping into investor demand despite the risks involved.

The illegal floors began to pop up soon after the shutdown order in March 2010. After months of discreet operations, some of them are becoming bolder and actively soliciting customers.

Many investors said they are doggedly pursued by brokers of illegal trading floors, whose networks have expanded rapidly, especially in Ho Chi Minh City.

As other investment alternatives dry up in the downturn, these floors are trying to catch investors' attentions, analysts said.

About 20 gold trading houses run by banks and financial firms, which had been running for more than two years, were ordered to close a year ago. A government statement at the time said transactions at the trading floors total thousands of billions of dong a day but have a fragile foundation.

The trade was indeed a gold mine for the floors, providing a lucrative source of income. But experts say the heavily leveraged operations were very risky for traders and the national financial market.

Most gold trading floors required investors to pay a security deposit of only 7 percent of the net asset value of their trades while banks backed the rest.

The trading in illegal floors these days is even more precarious since investors need to fork out merely 1 or 2 percent of the trade value.

At IGI, for instance, a person with US$100 can trade gold worth up to $8,800. Likewise, a deposit of nearly $1,000 can earn investors the right to trade $140,000 worth of gold at Hong Hoi Company. This kind of leverage means the companies do not just offer bullion trade service like they claim, but are also involved in trading on accounts.

Experts warn although the low deposit requirement sounds like a good deal, investors need to be cautious of fluctuating trends. Gold prices can rise or fall by 1 to 2 percent within a day, and investors risk losing their deposits.

Besides, investors are not protected by law if they are cheated because gold trading on accounts has been banned, experts added.

Deputy central bank governor Nguyen Van Binh, in an essay published on the government website on Sunday, said there are thousands of gold traders in the country, including nearly 4,000 in Hanoi and Ho Chi Minh City. While many are upright, some have set up small trading floors circumventing the government ban.

Binh admitted that the gold market has not been managed very well because there is no central authority to oversee the market.

Nguyen Hoang Minh, deputy director of the central bank branch in HCMC, said there is no legal basis for the bank to impose punitive measures on illegitimate gold trading floors yet.

As a result, all his branch can do is to inform the municipal administration of the situation.

Minh said a request has been sent to the government so that the State Bank of Vietnam can take a more active role in ending the illegal practice.

The government said the central bank has finished drafting new regulations to deal with violations on both currency and gold markets. The new rules are expected to be approved this month after being reviewed by the Ministry of Justice.

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