There are increasing warnings from analysts that several local brokerage firms are illegally providing short selling to their clients. Lawyer Tran Minh Hai, executive director for Banking-Securities-Investment Law Co., Ltd, tells VIR why.
How does the short selling impact on the Vietnamese stock market?
While regulators have not allowed short selling, the tacit way brokerage firms provide this trading instrument to their clients is distorting supply-demand on the stock market. It’s also a factor generating price manipulation.
Meanwhile, that fact obviously will force these brokerage firms to conceal some of their operations, which makes their financial situation vague to regulators and negatively impacts on the market’s transparency.
Besides, while no legal framework has been set for short selling, there can be disputes between the brokerages and the clients that are hard to deal once the market does not move like expected.
What are the risks for brokerage firms?
As I said, “swindles” between investors and brokerages easily occur as the brokerage theoretically violates the legal regulations. Meanwhile, the brokerage firms system’s safety can be hurt when these firms rush to provide short selling to fight for clients.
When should the regulators begin to supervise short selling?
Actually, the State Securities Commission proposed a legal framework to the Ministry of Finance on supervising short selling since 2005. But I don’t understand why that proposal had not been developed.
The negative impacts of short selling are obvious. They shouldn’t “leave unbridled” that trading tool on the market for such a long time.
In my opinion, they should start enhancing their supervision of brokerage firms, as well as prompting these firms in reporting operations. Frequent inspections are necessary to timely prevent short selling. Besides, the regulators should impose punishments on violating firms that are strict enough to give warnings to others.