Securities companies disallowed to accept deposits from investors

The State Securities Commission (SSC), Vietnam's stock market watchdog, has instructed securities companies to stop mobilizing capital from investors and settle all outstanding transactions before June 30, 2024.

In a newly issued document, the SSC mentioned that some securities companies through websites, applications or contracts signed directly with investors have recently allowed investors to enjoy interest rates on idle money in their accounts. The regulator warned that this may prompt investors to think that securities companies function like credit institutions and are able to take deposits.

The commission required securities companies to immediately stop this activity and settle all related transactions by July next year. They must report the settlement roadmap by the end of this month, and the process monthly until full settlement.

By the end of the third quarter of 2023, customer deposit balances at securities companies had reached about VND77 trillion ($3.17 billion), the highest within five quarters. In recent years, investors have maintained a large amount of money in securities accounts, sometimes up to VND100 trillion ($4.12 billion).

Over time, securities companies have offered products similar to bank deposits to attract capital from investors and then pay them interest at significantly higher rates. At the beginning of the year, some brokerages paid up to 12% for 12-month deposits. The rates are now being offered at 8-9%. This is considered another way of raising capital by securities companies, besides bank loans or corporate bond issuances, to serve their margin lending and proprietary trading activities.

The SSC said it will prohibit securities companies from this kind of capital mobilization from investors.

According to experts, after this "whistleblowing," securities companies will have to balance their proprietary trading activities, which may include narrowing part of this activity to settle deposits with investors. In addition, margin lending activities will become tighter as these firms lose an "easy" source of money.

In addition, the commission also mentioned some securities companies have made agreements and signed credit contracts with commercial banks stating that "the bank has the right to deduct money from the securities company's payment account to recover debt when the securities company fails to repay the debt in full and on time."

According to the SSC, such agreements may cause misunderstandings about the deduction of money from payment accounts of securities companies, including specialized accounts of investors in the name of securities companies opened at banks. Therefore, to ensure safe market operations, the regulator instructed securities companies not to make agreements or sign credit contracts with commercial banks containing the above misleading content.

“Securities companies must ensure the repayment of investors’ deposits in all situations,” the SSC noted.