Foreign institutional investors appreciate efforts in reforming the legal corridor in the Vietnam’s stock market. Photo: ST

Creating a stepping-stone for Vietnam’s stock market to be upgraded soon

Circular 68/2024/TT-BTC (hereinafter referred to as Circular 68) amends and supplements a number of articles of the Circulars regulating securities transactions on the securities trading system; clearing and settlement of securities transactions; operations of securities companies and information disclosure on the stock market, allowing foreign institutional investors to place securities orders without sufficient funds. Previously, foreign institutional investors were not allowed to buy securities unless they had sufficient funds in their accounts before the purchase order was sent, limiting the investor's portfolio restructuring.

Experts from VNDirect Securities Company believe that Circular 68 will create a stepping-stone for the Vietnam’s stock market to be upgraded to an emerging market by FTSE in September 2025.

According to VNDirect Securities' assessment, there are three potential impacts from the approval of orders without sufficient funds on the Vietnam’s stock market, including: attracting more foreign institutional investors as Vietnam's regulations move closer to international standards; expecting an increase in foreign capital flows into the Vietnam’s stock market; and improving market liquidity.

Regarding the impact of foreign capital flows expected to flow into Vietnamese stocks after Circular 68 is issued, experts said that the requirement for sufficient funds before trading is one of the main bottlenecks preventing the Vietnam’s stock market from being upgraded to an emerging market. Circular 68 is expected to help Vietnam meet the core conditions for upgrading. “We expect the Vietnam’s stock market to be classified as an emerging market by FTSE and MSCI in 2025 and 2026, respectively. If so, investment funds that simulate these indices will allocate capital to the Vietnamese market. The investment level will depend on the allocation strategy of each fund. The stocks expected to benefit the most will be those with the highest proportions in the FTSE and MSCI index baskets,” said VNDIRECT experts.

Along with that, serving foreign institutional clients will increase competition among securities companies. The securities industry will benefit from serving more foreign institutional investors thanks to increased brokerage income when liquidity increases.

Foreign investors appreciate the reform of the legal corridor

According to Mr. Bui Hoang Hai, Vice Chairman of the State Securities Commission, the issuance of Circular 68 is a joint effort of the management agency and market members with the cooperation of international organizations. The issuance of Circular 68 is the first step towards the goal of the market upgrading, and the upgrading of the stock market does not depend on legal documents but on the experience of foreign investors when participating in the Vietnam’s market. The effectiveness of implementation also depends a lot on securities companies, other organizations in providing services as well as listed organizations, public companies in improving the quality of information disclosure and corporate governance.

According to the representative of the State Securities Commission, to ensure high feasibility, the process of developing this Circular also had the participation and comments of many securities companies in the market. During this process, securities companies have calculated their capacity to ensure that they can participate when the Circular is issued. The new Circular also sets out great requirements for securities companies, including improving financial capacity, risk management capacity, and staff capacity.

Regarding Circular No. 68 removing the condition that foreign investors must deposit 100% before trading, Mr. Kojima Kazunobu, Chief Advisor of the Japan International Cooperation Agency (JICA), said that this is a decision that is highly appreciated by foreign institutional investors in reforming the legal corridor, helping to remove barriers for them when they want to participate in investing in the Vietnam’s stock market.

According to Mr. Kojima Kazunobu, foreign investors, including Japanese investors, pay a lot of attention to the Vietnam’s stock market. Like other foreign investors, Japanese investors are interested in the story of whether the Vietnam’s stock market is easy to invest in, and whether it can make great strides in the future.

"Vietnam's management agencies are actively implementing measures such as abolishing the regulation that foreign investors must have enough money when placing orders, aiming to upgrade by 2025. At the same time, Vietnam is participating in dialogues with market rating organizations MSCI and FTSE. I hope that Vietnam's management agencies will continue to implement measures to resolve the issues raised through dialogues with MSCI and FTSE, thereby realizing the Government's goal of upgrading the market by 2025," Kojima Kazunobu emphasized.