Regulators loosen stock market trade band

(04-04-2008)
Securities officials expect investors to return to the stock exchanges following the State Securities Commission’s decision to loosen the daily trading band, effective next Monday. — VNA/VNS Photo Hoang Hai

HA NOI — Facing the prospect of a stock market nearly grinding to a halt over the past week, the State Securities Commission yesterday decided to loosen the daily trading band in effect on the nation’s stock exchanges by one percentage point, only one week after tightening the band.

Effective on Monday, the trading band on the HCM City Stock Exchange will be 2 per cent, while that at the Ha Noi Securities Trading Centre will be 3 per cent.

The trading band refers to the amount listed shares are allowed to gain or decline in value within a single trading day.

Last week, faced with a plummeting stock market, the State Securities Commission severely tightened the band to stave off a rapid decline in share values. The move had a dramatic chilling effect on trading over the past week, as traders simply stayed away from the market and daily volumes slowed to a trickle.

Volume on the HCM City exchange yesterday was only 1.9 million shares, only a quarter of the daily volume on March 25.

Nguyen Son, head of the commission’s market development department, said, "We decided it today as we have seen an improvement in the market in the past several days, and there are many supporting factors in favour of loosening the band, including agreement by commercial banks to delay selling shares they hold as collateral."

While volumes have shrunk, the VN-Index has increased daily within the maximum of the trading band, resulting in a cumulative 6.5 per cent increase in the seven sessions since March 25. The Index yesterday closed at 529.23, up 0.78 per cent.

Meanwhile, Son noted, the narrow band was allowing investors only a tiny profit in day trading, and had had a negative impact on market liquidity.

The market threatened to become frozen if the tight trading band was retained, he said.

A number of market analysts were urging a further loosening to restart sluggish trading.

"How much profit investors can earn with a two- or three-per-cent band? It is so little," said John Nolan, an analyst from a HCM City-based fund management company. "Given that buys are outweighing sells at the moment, investors now are thirsty for stocks."

In other stock markets worldwide, Son noted, there were circuit-breaking systems in place when the market plunges too deeply within the course of single trading session. The domestic market has no similar system, so tightening the trading band was a stop-gap measure.

"In the position of a market regulator, our commission has a detailed plan for better development of the stock market. We will do our utmost to work with other related offices as well as banks and securities firms to find the best way to achieve the best possible result," Son said. — VNS