Anticipation prolonged after KRX system delayed

In late April, the State Securities Commission (SSC) sent an urgent notice to the Ho Chi Minh Stock Exchange, stating that there were unresolved issues and an insufficient basis to approve the proposed implementation of the KRX IT system slated for May 2.

The launch postponement has left the investment community in limbo, and a definitive go-live date remains undecided.

Securities companies had reported successful multi-stage testing of the system, projecting a go-live date in early May. However, market sentiment was mixed on whether the operational launch could meet investor expectations immediately. More preparation time has been deemed necessary for securities firms and regulatory bodies to introduce new trading products such as intraday trading and short-selling.

“In the short run, the KRX system does not fully meet its anticipated potential, facing operational and regulatory limitations,” explained Nguyen Thanh Lam, director of Personal Client Research and Analysis at Maybank Investment Bank.

However, he emphasised the strategic long-term benefits. “This foundation is crucial for securities companies as they prepare for the future - particularly with Vietnam’s expected elevation to emerging market status, which should attract significant capital inflows,” Lam said. “We foresee about $1 billion related to passive funds, with potential for an additional four to five times that amount from active funds.”

This outlook suggests that the immediate impact on securities stocks may be muted once the KRX trading system is operational. Rather, these stocks could experience heightened volatility if subsequent updates on the market upgrade process emerge.

“Interest in the KRX system peaked over April,” remarked Lam. “During numerous shareholder meetings, executive boards faced persistent inquiries regarding their system’s compatibility with KRX and the potential impacts of this new trading system on the market dynamics and stock valuations.”

Lam suggested that companies like Vietcap Securities, Ho Chi Minh Securities, and SSI, known for their substantial institutional brokerage share, are well-positioned to benefit from both KRX and the broader market upgrade. “Recent capital increases are poised to enhance their capacity for margin lending, buoyed by anticipated improvements in market liquidity and demand,” he said.

This market anticipation is underpinned by the decade-long development of the KRX project, initiated in 2012 by the Ho Chi Minh City bourse and involving the Hanoi Stock Exchange and the Vietnam Securities Depository. The heightened regulatory focus on KRX since late 2023 aligns with accelerated efforts to upgrade the nation’s market classification.

Securities firms have been actively gearing up for the transition to the new KRX trading system. At its AGM in April, SSI deputy CEO Nguyen Duc Thong stated, “We have navigated all testing phases flawlessly. Our team has been diligently preparing for the test scheduled on April 30. Initially, SSI might not undergo drastic changes. However, it establishes a vital foundation for developing a variety of new products such as day trading and options trading.”

At the Viet Dragon Securities Corporation AGM, CEO Nguyen Thi Thu Huyen reported, “All participating firms have completed all of their tasks in the recent KRX system test, showing a united front for the system going live in May.”

She also stressed that the launch of KRX would introduce new market products such as securities awaiting settlement, intra-day trading, and buy-ins, significantly boosting market liquidity.

As of April 25, numerous securities companies began notifying their clients about the switch to the KRX system, such as Vietcap Securities, Techcombank Securities, and Viet Dragon Securities.

Chen Chia Ken, CEO of Phu Hung Securities, said, “We were among the few firms that met all KRX’s technical requirements during the tests, thanks to our thorough preparations. We have successfully completed all prerequisites, fully meeting the requirements to operationalise the new system, and are not only poised with a new trading system, but has also developed a new mobile trading application compatible with KRX.”

Despite the delay, some market participants are taking a philosophical view. One industry insider said, “A delay is manageable. After a decade of waiting, a few more months won’t hurt, especially if it ensures that the regulations and guidelines are thoroughly prepared before being introduced to the market - it’s preferable.”