The first draft of a circular guiding securities margin trading has been released by the State Securities Commission (SSC) for public feedback before it is submitted to the Ministry of Finance for consideration and approval.
Securities margin trading is defined in the draft circular as the purchase of securities using money borrowed from securities companies, with the purchased securities used as collateral.
Under the draft paper, securities permitted for margin trading are shares listed on stock exchanges for at least six months; shares with a book value higher than their par value according to audited financial statements; shares of listed companies which have been established and operating for at least five years, have a charter capital of at least VND 20 billion, suffer from no business loss in the preceding year and have a ratio of pre-tax profit to equity capital of at least three per cent by the end of the preceding year; and shares which are neither placed under special control nor suspended from trading.
In addition, securities trading companies may not provide loans for customers to conduct margin trading of their shares or shares of companies holding 50% or more of their charter capital.
To be permitted to provide loans for margin trading, securities companies must satisfy conditions on equity capital and safety ratio of available funds. Note worthily, they must refrain from using capital from other sources but only use their own money to conduct margin trading operations.
In order to ensure safety for both securities companies and customers, the draft circular prohibits securities companies from providing loans for customers to purchase more than five per cent of the total shares of a listed organization. The total value of loans provided for a customer must not exceed one per cent of the equity capital of the securities company while the total value of loans provided for margin trading must not exceed its equity capital.
The maximum term of loans provided for margin trading would be six months. Loan interests would be agreed upon by customers and securities companies but must not exceed 1.5 times of the prime interest rate announced by the State Bank.
Under the draft paper, the SSC may request securities companies to terminate margin trading when great changes are seen in socio-economic conditions or wide fluctuations occur in securities prices.-