Regulators ban new stock brokerages, fund managers

Monday, May 5, 2008
Viet Nam has too many stock brokerages according to SJC Securities Joint Stock Co general director Huynh Anh Tuan.
"With the current small size of the stock market, the number of existing securities companies is too much," said Tuan.
"In recent months, the number of newly-founded securities firms has been higher than the number of new listings on the bourse," he said.
Eighty-seven brokerage houses currently operate nationwide, giving Viet Nam a much higher proportion of brokerages than other nations in the region.
According to figures from the Economic Committee of the National Assembly, China now has 107 securities firms, Malaysia 37, Thailand 31, Singapore 27 and South Korea 50.
Meanwhile, the applications of dozens more firms are pending at the State Securities Commission.
As a consequence, the commission suspended the acceptance of further applications on April 28, including requests to form new fund management companies.

The interim move was intended to improve the service quality and effectiveness of existing brokerage houses and fund management firms.

Some have argued that the rule was anti-competitive and that the entry of new brokerages onto the market, and the resulting competition, would generate better services.

Many have also questioned the ban on new fund management companies. Fund management companies are professional investment institutions which pool the capital of individuals to invest in securities. Most market watchers believe it is a type of professional institution that should be encouraged, not stymied.

There is wider support in the industry for the ban on new stock brokerages, however, as many have been set up merely as vehicles for companies to trade securities on their own behalf. The end result, however, has been than many brokerage houses are facing bankruptcy now that the stock market has dropped.

Not only have these firms lost money on their own investments, their income from trading fees has also slowed to a trickle. Tighter daily trading bands on the nation’s stock exchanges has slowed trading volumes, but membership fees that securities companies pay to both the HCM City and Ha Noi exchanges have remained as high as before.

Meanwhile, fixed operating costs of these securities firms, including rents and wages, continue to rise. Some analysts expect a wave of mergers among securities firms over the next year as many struggle to survive. (VNS)