The disbanding of "account warehouses" affecting market liquidity?
The decline in the number of stock accounts gained attention at the end of October when the Ministry of Public Security disclosed the outcomes of the investigation into the criminal case of "Stock market manipulation and fraudulent appropriation of assets" involving FLC Group Joint Stock Company and related entities. Simultaneously, concerns were raised about the practice of entrusting someone else to hold a stock account. Information circulated in securities investment groups suggested that certain "account warehouses" were preparing to disband, contributing to volatile market sessions and an almost 11% drop in the VN Index in the second half of October.
It's challenging to confirm the correlation between the aforementioned events, the existence of "warehouses," and whether such practices have occurred. The situation intensified following the announcement by the Vietnam Securities Depository and Clearing Corporation (VSDC) that the number of stock accounts decreased by over 377,000 in October, with 545,000 accounts closed. While monthly fluctuations in account closures and openings are common, the cancellation of hundreds of thousands of accounts is unprecedented.
However, VSDC clarified that securities companies proactively reviewed and closed accounts inactive for an extended period, emphasizing that these closed accounts did not contribute to daily liquidity. In the securities industry, it is widely known that the number of accounts does not equate to trading capability. Only a certain percentage of accounts are "active" out of the total, a legacy of the equitization era when workers in equitized units opened accounts for depository purposes but lacked the ability to invest in securities.
Cleaning up stock account data is viewed positively for the market, even if it's primarily a statistical exercise. This process does not impact liquidity developments and coincidentally aligns with other sensitive events. Daily liquidity hinges on the convergence of buy and sell orders at specific prices. Low liquidity results from a mismatch between supply and demand, influenced by factors such as investors' unwillingness to trade, low-frequency trading, or small-scale buying and selling orders.
The market's sharp drop in October, leading to investor losses and reduced trading demand, is considered normal. Moreover, margin loan capital constitutes a significant portion of purchasing power, and an unfavorable market weakens this demand. Notably, when the market recovered over the weekend sessions, liquidity promptly increased to VND 21,000-22,000 billion per day, from the previous VND 10,000-12,000 billion per day.
Attach responsibility to the account owner
Distinguishing between an individual opening multiple investment accounts and someone "borrowing a name" to open an account is crucial. While the law permits an individual to open multiple accounts, subject to verification through a shared identity (such as Citizen ID/ID card), using someone else's name to open an account raises different concerns. This practice is unwarranted, especially considering that the law allows buying and selling the same stock within a session.
The gray area in this scenario involves account management trust services. Investors, perhaps lacking confidence in their abilities, may choose to entrust a more experienced individual to handle their account. This service typically doesn't require formal authorization documents, relying on online transactions and knowledge of the account password. However, in transparent situations, the account owner actively monitors transaction activities, as no one willingly accepts financial irresponsibility. Even in cases where transaction results are reported via phone, the reporting number remains that of the account owner.
The questionable aspect arises when individuals lend their identities for account opening without understanding or overseeing the account's activities. Numerous revealed stock price manipulation cases, spanning regions from South to North, or instances like the FLC case, involve a significant number of accounts using borrowed names. Despite this, proper procedures necessitate individual identification, enabling clear assignment of responsibility to the identified individual.
In terms of legal compliance and common sense, citizens must recognize the risks associated with lending their identity to others, particularly if they are not relatives. Each investment account is linked to a bank account for fund transfers. Without the real account owner's consent, transferring money to an unfamiliar account is not possible. This underscores the importance of understanding and adhering to legal and ethical norms in financial transactions.
