Vietnam stock market upgrade hard to achieve if prefunding issue not fixed: regulator
Prefunding requirement and foreign ownership limit are now the largest obstacles facing the upgrade of the Vietnamese stock market and will require practical coordination between relevant ministries and agencies to remove.
The remark was made by chairwoman of the State Securities Commission (SSC) Vu Chan Phuong while chairing a meeting with institutional investors and partners themed “Unlocking the potential of Vietnamese stock market” in Hong Kong earlier this week.
The conference was jointly organized by the SSC and the Asia Securities Industry & Financial Markets Association (ASIFMA) with the support of the World Bank Group (WB) to discuss solutions to upgrade the Vietnamese stock market from frontier to emerging.
Upgrading the stock market is one of the major goals the Vietnamese government is aiming for, Phuong said, adding that it was included in the project "Restructuring the stock and insurance markets to 2020 with orientation to 2025" and in the draft "Strategy on Stock Market Development until 2030". “Vietnam aims to upgrade its stock market from frontier to emerging by 2025,” she noted.

Chairwoman of the State Securities Commission (SSC) Vu Chan Phuong speaks at a meeting with institutional investors and partners in Hong Kong, August 29, 2023. Photo by The Investor/Ta Phu.
According to the SSC leader, in recent years, the regulator has shown great efforts and determination to promote and shorten the market upgrade roadmap. In terms of the legal framework, the Securities Law 2019, the Investment Law 2020, the Enterprise Law 2020 and guiding documents have gradually met the criteria for the upgrade by facilitating investment capital flow, access to information in English, account registration and opening by investors; strengthening disciplines; and strictly handling violations to make the market more transparent.
“Besides growing in size and liquidity, Vietnam's stock market is becoming more transparent and healthy as many violations have been strictly handled,” she stated.
Many businesses, including all large-cap firms in the VN30 group, have been proactive in disclosing information in English, she said, adding many new issues supporting the market upgrade have also been more clearly defined in the government’s Decree 155/2020/ND-CP dated December 31, 2020 and the Ministry of Finance’s Circular 96/2020/TT-BTC dated November 16, 2020.
In the near future, the SSC will continue to propose amendments to relevant legal documents to ensure that the stock market becomes more transparent, open and sustainable, aiding the upgrade process, Phuong said.
"Vietnam's efforts in both legal amendments and practical solutions have created more favorable conditions for foreign investors to participate in Vietnam's capital markets," she added.
The regulator has regularly communicated with Morgan Stanley Capital International (MSCI) and FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG), to update them on the real situation in the Vietnamese stock market.
At the meeting, rating agencies and major international financial institutions assessed that Vietnam has made many improvements and met a number of important criteria. However, they noted prefunding requirement and strict limits on foreign ownership of shares are among the main hurdles to Vietnam's emerging market status upgrade. Of which, the prefunding requirement is seen as the main problem.
Investors usually settle their trades two days after a deal in open markets, but in Vietnam they have to ensure the availability of funds prior to trade execution, which adds a significant cost for traders who execute multiple daily operations.
The other major hurdle is Vietnam’s strict limit on foreign ownership, which for banks is as low as 30% and has already been attained for many top lenders. Foreign investors are lobbying for gradually raising the limit to 35%.
Both issues require practical coordination among relevant agencies and ministries such as the State Bank of Vietnam (SBV) and the Ministry of Planning and Investment to solve, they said.
According to investors, to upgrade the stock market, Vietnam needs to implement a central counterparty clearing house (CCP) model as stipulated in Decree 155, in which depository banks must become CCP members and fully disclose the maximum foreign ownership ratios of conditional business lines.
Particularly for prefunding, when permitted by the SBV, the implementation of the CCP system is the optimal solution to handle the issue. If this issue cannot be fixed, a stock market upgrade will be very difficult to achieve.
While waiting for the CCP, the regulator is studying immediate technical solutions to minimize foreign investors' concerns regarding prefunding, Phuong noted.
Closing Thursday, Vietnam's benchmark VN-Index had surged 10.89 points, or 0.90%, to 1,224.05, marking its fourth straight gaining session.
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