Off-floor Securities Trading: An Investment Headache

The Hochiminh City Securities Exchange (HOSE) is preparing for online transaction in early 2008. However, HOSE and some securities companies have recently facing technological troubles, causing a worry that whether HOSE can smoothly operate online transaction system?

 

On September 7, HOSE selected 1-2 securities companies to pilot online transaction method. Together with issuing regulations related to online transaction with Remote DC Term model scheduled on October 1 this year, HOSE is preparing necessary facilities for online transaction with Remote DC Term system and will test the method on October 15. The exchange will also develop gateways system to cater for connection to front-Office system at securities companies.   

 

According to the HOSE’s announcement, the exchange will carry out the online transaction method in the first phase from October of 2007 until the first quarter of next year. DCTerm order-placing screens currently equipped in the exchange will be transferred to securities brokers on a requirement that they have to ensure the security of the host computer and network equipment. HOSE will place control over order placing process via Remote DC Term at securities companies. In the second phase slated from the first quarter of 2008, the exchange will apply online transaction combined with manual transaction, allowing front-office system at securities companies to contact with the host computer at the exchange via gateways system to move and receive transaction information. In this stage, the exchange will maintain manual transaction method for securities firms that do not have Front-Office system.  

 

At present, the combined method is considered a optimal solution while HOSE now has only eight seats for manual transaction and as many as 50 companies are waiting for setting up securities firms. According to statistics of the international stock markets, if technology infrastructure system on the market smoothly operate, the market is likely to increase operating revenue by another 50 per cent. In addition, HOSE affirmed that the new method will limit risks of mistaken order input of securities companies, or risks of making mistake in calculating rooms as in case of Sacombank shares (STB), because Stock Custody Centre will be also directly connected to HOSE.

 

HOSE director Tran Dac Sinh said that up to 90 per cent of technology software of securities companies are not compatible to HOSE system if online transaction method is applied.

 

At the end of 2006 when a series of securities companies were set up, many brokers had registered capital of only VND20-30 billion (US$1.3-1.9 million). These firms have often used domestic technology software. Statistics showed that stock brokers use up to 90 per cent of FPT software due to its cheap and popular features. Moreover, many companies have given reason that they are waiting for upgrading programmes from HOSE and HASTC. Only 10 per cent of securities companies such as SSI, SBSC, VCBS, Trang An, etc. have strongly invested in buying foreign technology software or hired a private partner to write dedicated software for them, in order to opportunely adopt with new upgrading programmes of HOSE and HASTC.

 

According to IT experts, London Exchange, for example, invested US$80 million to buy new software when upgrading the technology system, and then its members jointly paid for investment to jointly use a standard and identical system. Vietnam stock market is suggested to refer to this solution to avoid waste in technology investment for separate securities company as well as securities trading centres and stock custody centres. The State Securities Commission will manage this system which functions as intermediary system.

 

Therefore, in accordance with HOSE’s technology upgrading process, 90 per cent securities companies are facing great challenge in technology investment, especially in mid of dark picture of the market. Some big companies affirmed that HOSE and HASTC should jointly invest in buying foreign software worth US$2-3 million to upgrade the system of the two bourses. Small-scale stock companies are also fostering to prepare their own plans. According to an official of BienViet Securities Company, the technology solution for securities companies at this time is required to be expansible and customizable.