Prevent risks from securities companies mobilizing capital from investors

VCN - The State Securities Commission (SSC) issued an official dispatch requesting securities companies to immediately stop signing new agreements and to settle all transactions related to investment cooperation activities, no later than June 30, 2024. Securities companies must report the settlement implementation roadmap to the SSC before December 30, 2024, and monthly report the results of implementation until full settlement. Mr. Do Bao Ngoc, Deputy General Director of Vietnam Construction Securities Joint Stock Company (CSI), discussed with Customs Magazine about this issue.
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Prevent risks from securities companies mobilizing capital from investors
Mr. Do Bao Ngoc, Deputy General Director of Vietnam Construction Securities Joint Stock Company (CSI).

In your opinion, why did the State Securities Commission issue the regulation? What do you think about this matter?

Over the past two years, there have been violations in the stock market related to bonds and market manipulation activities. Therefore, the SSC reviews and discovers that the capital mobilization from investors by some securities companies to serve the production and business activities of the companies may create risks.

For example, a securities company uses the investors’ deposit to provide margin product (margin lending) to customers but the capital cannot be recovered, or a securities company uses capital for investment but the investment is loss and the company cannot return capital to investors, which are risks for the securities company. All of those causes damage to customers, and this is why the SSC has issued the regulations to prevent potential risks.

How will this regulation affect the operations of securities companies?

The move by the SSC will directly impact securities companies. Recently, securities companies provide products to bring benefits to customers. Accordingly, customers' idle deposits which have not yet invested in the stock market, will be mobilized by the securities company and can be provided to other investors or securities companies that operate more effectively will bring profit benefits to customers.

However, this activity is prohibited, so the securities company's enjoyment of intermediate spreads will be affected. Accordingly, the securities company will reduce revenue from the brokerage segment and may reduce profits from their self-trading activities. In the short term, I think that this regulation may have a direct impact on securities companies, but in the long term, we will have a safer and healthier market.

According to international practice, are securities companies allowed to mobilize money from investors?

According to the US or some European stock markets, securities companies are not allowed to mobilize investors' money in the form of deposits, but they can provide intermediate products and services. For example, they can cooperate with banks to provide quick connection services and transfer savings from the securities company account to a bank account instead of the securities company performing the processes. Of course, the securities company and the bank will share benefits with each other, so that the securities company may still earn a part of the revenue from this activity.

I think that in the near future, securities companies may do two things. Firstly, they can increase their capital to serve production and business. Second, they must strengthen cooperation with banks and other intermediary organizations to provide products and services in accordance with their operating licenses, thereby increasing revenue and minimizing the impact of this new regulation on the operations of securities companies.

In your opinion, if this operation is not permitted, what methods should investors have to optimize capital resources?

In fact, we see that the products provided by securities companies to customers help customers process savings on securities accounts, but now if the securities company is not allowed to do that, investors will have to spend a little more effort. They will have to transfer money from their securities account to their bank account. This process is quite fast. They can implement the entire savings process through the bank's app.

This regulation has been issued and securities companies must cooperate closely with banks to provide those products and services on the securities company's app but are connected with banks. This is not too difficult for investors. I believe that the investors will implement this because they will feel safer and comply with the law.

As for securities companies, in your opinion, what strategies do they need to increase more revenue when there is no more cash flow from investors?

For securities companies, any company with long capital will have an advantage; any company with many customers and taking advantage of capital from customers will also have an advantage. Currently, when the advantage of capital from customers no longer exists, securities companies must focus on increasing their capital capacity to provide products and services to customers.

In addition, the securities companies can cooperate with intermediary financial institutions such as banks to provide lending products; or coordinate with banks to provide quick savings products and services, and other products so investors can quickly use on the securities company's app. I think that these are two solutions that securities companies should do immediately.

Thank Sir!

By Hoai Anh/Ngoc Loan

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