New trading system KRX 'not criterion for Vietnam stock market status upgrade'

The new trading system KRX is not a condition required by rating agencies FTSE Russell and MSCI to approve a status upgrade for the Vietnamese stock market, said director of a securities firm.

"However, this is still an important stepping stone for Vietnam's stock market to meet criteria such as "prefunding" with the central counterparty clearing house (CCP) model, the T+0 settlement system (trades in shares are settled on the same day) or short selling", he noted.

The executive, who declined to be named, informed that securities companies and the Ho Chi Minh Stock Exchange (HoSE) have made more than 5,000 hypothetical testing examples.

"The 'testing' of the system is very serious; the exchange and securities companies are trying their best to operate the new system smoothly," he noted.

Meanwhile, a representative of another securities company expressed doubts about the official application of the KRX system. "The testing process still has many errors, and there is no guarantee that serious errors or even data loss will not occur when the system officially runs"

Previously, the State Securities Commission (SSC), the local stock market watchdog, rejected the HoSE’s proposal to operate the KRX system, provided by Korea Exchange, on May 2.

According to the regulator, the HoSE had proposed to the commission the official operation of the KRX system without a report from the Ministry of Finance and the Vietnam Stock Exchange (VNX), and without obtaining the opinions of beneficiary units such as the Hanoi Stock Exchange (HNX) and VSDC.

“This failed to comply with legal regulations stated in Clause 26, Article 4, the Securities Law 2019,” it noted.

The KRX system has not undergone a comprehensive acceptance review involving the investor, the contractor and beneficiary units; as well as obtained the required Level 4 information security approval from the relevant authority per government regulations.

Immediately after receiving SSC's opinion, the HoSE issued a document requesting securities companies to stop implementing the plan to convert to the KRX trading system.

This development has made investors worried about the possibility of having the Vietnamese stock market status upgraded from “frontier” to “emerging”.

The latest report of FTSE Russell in late March showed that Vietnam has met seven out of nine criteria for market status upgrade.

It has yet to meet the “Settlement Cycle (DvP)” criterion, which is currently rated as “Restricted” due to the market practice of conducting a pre-trading check to ensure the availability of funds prior to trade execution, FTSE Russell said in a statement.

By default, the market does not experience failed trades, the “Settlement – costs associated with failed trades” criterion is unrated.

Additionally, FTSE suggested improvements to the process for the registration of new accounts, and the introduction of an efficient mechanism to facilitate trading between non-domestic investors in securities that have reached, or are approaching, their foreign ownership limit (FOL).

Meanwhile, MSCI's report points out nine criteria that Vietnam's stock market had not yet met, including the foreign ownership limit (FOL) level, foreign "room" level, equal rights for foreign investors, foreign exchange market liberalization level, information flow, clearing and settlement, possibility of off-exchange transactions, stock lending, and short selling.

These nine criteria were also mentioned in its June 2021 and June 2022 reports, showing that Vietnam has not made any improvement to satisfy MSCI's requirements in the past two years.

MSCI's report also pointed out two criteria that need improvement: registry and market regulations.

Currently, investors are required to register transactions, and opening an account requires approval from the Securities Depository Center. Many legal documents related to the stock market do not have English versions to facilitate foreign investors’ access.