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Four years after banning Gold trading floors, Vietnam similarly bans Forex trading floors
Since the realization by a large number of FX firms that there was a land of opportunity in the Far East, substantial volume has been generated among the retail participants from what has now become an established network of introducing brokers and representative offices which provide western firms with clients from the Asia Pacific region.
Whilst many companies have gone to great lengths over the last three years to enable the funding of trading accounts by Chinese clients and provide them with good quality Chinese-language support with a degree of success, corporate eyes are beginning to consider the potential of other nations in the region, including Malaysia, Indonesia and even Vietnam, which has implemented the draconian measure of banning FX trading floors.
Most FX firms are familiar with the Chinese government’s strict capital control laws and disdain for the soliciting of its domestic population by overseas firms from free market economies, however other nations in the region are relatively unencumbered by such a barrier to international business – or are they?
Vietnam has taken this somewhat hostile step toward its domestic institutional FX business, as highlighted by Nguyen Quang Huy, Director of the State Bank of Vietnam’s Management Department during a press conference in Hanoi on Sunday.
Mr. Huy stated that, in congruence with Vietnam’s banning of gold trading four years ago, that “Forex trading via exchange floors is not a kind of trading activity intended to satisfy the foreign exchange needs of a nation, but it is purely a speculation.”
In a report on Wednesday by Vietanmese news source Tuoitrenews, Mr. Huy had stated that local organizations and individuals can only carry out foreign exchange transactions in accordance with SBV rules with an authorized credit institution.
Whilst, according to the State Bank of Vietnam, a number of unauthorized trading floors still exist in Vietnam, there were originally two recognized entities initially, one of which was established in Ho Chi Min City, the other in Hanoi, both which came into effect in 1991 as detailed by a study conducted some years ago by the Griffith University in Queensland, Australia.
As far as the trading of other asset classes via exchanges, “other exchange activities must be allowed by the Prime Minister and licensed by the SBV”, Huy stated at the press conference.
“Despite never being treated as a legal trading activity, a number of local organizations and individuals have engaged in this kind of trading in Vietnam.” he added.
“In addition to legal risks in which rule breakers can be fined up to VND50-100 million, organizations and individuals also face the risk of paying a transaction fee to trading floor owners without knowing that they can intervene in the transaction process in ways that are detrimental the traders” warned Mr. Huy.
“In particular, the forex market is the most fluctuating and unpredictable among financial markets,” he remarked. “As investors in Vietnam still have limited access to information, the risk of losses is very high,” he said.
Whilst the Vietnamese authorities only have jurisdiction over Vietnam’s domestic legislature, the banning of FX trading floors serves to demonstrate the nation’s perspective toward off-exchange FX trading. Whether this will spur the country’s market participants to look elsewhere and therefore represent a good opportunity for western firms which already have succeeded in gaining clients from other nations in Asia to capitalize on the restrictive practices of the authorities, or whether it will result in the governmental departments attempting to dissuade Vietnamese clients from trading with overseas firms is a matter for debate.
In terms of the institutional FX trading floors, due to the increasing availability of low-latency direct connectivity between international venues and trading desks, it will be interesting to note if trading venues around the world receive an influx of order flow from Vietnamese participants.