phuocpham
28-08-2009, 03:20 PM
Stock brokerages have been forbidden to allow their clients to make short sales pending publication of a detailed instruction from the State Securities Commission, the commission announced yesterday.
Short sales is defined as sales of a stock that an investor does not own but "borrows" from the brokerage. Investors who sell short believe a stock’s price will fall. If the price drops, the investor can buy the stock at the lower price and profit on the difference. If the share rises, the investor incurs a loss.
The Law on Securities currently allows securities companies to sell or lend a stock to their clients for sale, if the client does not currently own the share.
However, the commission said, there were no detailed instructions regulating the provision of this service by brokerages.
The commission threatened strict punishment for any company which intentionally violated its temporary ban on short sales.
Le Minh Cuong, a client of VPBank Securities Co, said a ban on short sales was unnecessary, as the service encouraged stock market liquidity.
"Brokerages understand the need to protect themselves when making short sales," Cuong said. "I personally think market regulators should develop an instruction while allowing the service to continue in the meantime."
Nguyen Hoang Hai, an analyst with a HCM City-based securities company, said that short sales allowed investors to achieve a significant short-term profit.
"In developed markets, this service is quite popular and market regulators have specific regulations on it which help reduce overloads on the market or price speculation," Hai said.
But he agreed with the commission that a continued regime of short sales without regulation would subject investors to more risks than profits, especially in the context of an unstable market.
Short sales is defined as sales of a stock that an investor does not own but "borrows" from the brokerage. Investors who sell short believe a stock’s price will fall. If the price drops, the investor can buy the stock at the lower price and profit on the difference. If the share rises, the investor incurs a loss.
The Law on Securities currently allows securities companies to sell or lend a stock to their clients for sale, if the client does not currently own the share.
However, the commission said, there were no detailed instructions regulating the provision of this service by brokerages.
The commission threatened strict punishment for any company which intentionally violated its temporary ban on short sales.
Le Minh Cuong, a client of VPBank Securities Co, said a ban on short sales was unnecessary, as the service encouraged stock market liquidity.
"Brokerages understand the need to protect themselves when making short sales," Cuong said. "I personally think market regulators should develop an instruction while allowing the service to continue in the meantime."
Nguyen Hoang Hai, an analyst with a HCM City-based securities company, said that short sales allowed investors to achieve a significant short-term profit.
"In developed markets, this service is quite popular and market regulators have specific regulations on it which help reduce overloads on the market or price speculation," Hai said.
But he agreed with the commission that a continued regime of short sales without regulation would subject investors to more risks than profits, especially in the context of an unstable market.