Illustrative photo: Internet

Untangling the crucial knot of "pre-trade margin"

Actively implementing solutions to promote the process of upgrading the stock market, the Ministry of Finance is actively drafting amendments and supplements to some provisions of regulations on securities trading on the stock trading system; securities clearing and settlement; activities of securities companies and disclosure of information on the stock market. Among them, the two main issues regarding pre-trade margin and requirements for equal and timely access to information for foreign investors (FIs) are the focal points receiving attention from experts and market members.

According to the leadership of the State Securities Commission (SSC), in the recent time, the management agencies have organized many meetings, exchanges with the market rating organization FTSE Russell, market members, relevant ministries, branches, and consulted with the World Bank to find solutions to the issue of not requiring pre-trade margin for FIs.

The proposed solution is to allow securities companies (SC) with sufficient capacity to provide services without requiring FIs to have 100% of the money before the time of placing buy orders for securities but only requiring FIs to have enough money before the time when the depository member must confirm the transaction results and payment obligations with the Vietnam Securities Depository and Clearing Corporation (VSDC). In case FIs do not have enough money by the specified time, the payment obligations of FIs will be transferred to SC. This provision only applies to foreign institutional investors (FIIs). According to SSC, international experience shows that FIIs often comply with payment obligations, there are few cases of non-performance of payment obligations in transactions without pre-trade margin, so the risk is low. The proposed solution only applies to FIIs is an appropriate solution to ensure the upgrading objectives as well as significantly reduce risks for SCs and the securities trading clearing and settlement system.

Tran Hoang Son, Director of Market Strategy of VPBank Securities Company (VPBankS) said that they have participated in many workshops of SSC and have seen the determination of these agencies throughout the time until now. It is expected that the Vietnamese market will soon meet the FTSE standards, however, experts from VPBankS emphasized two major barriers in the market which are the foreign ownership ratio and allowing foreign organizations to buy securities without requiring pre-funding on the T0 date. "At the present time, the Ministry of Finance is amending some laws and is expected to implement them in the first six months of this year. If the draft is amended and officially implemented, the feedback from rating organizations, such as FTSE, will help the market meet the upgrading standards soon," said Son.

Expectation of being officially upgraded by FTSE in the assessment period of September 2025

Regarding the issue of upgrading the stock market, according to a report just released by the international stock market rating organization FTSE Russell, Vietnam continues to be maintained on the watchlist for classification consideration, with the potential to be upgraded from the frontier market to the secondary emerging market and will be updated on the status of the watchlist in the updating period in September 2024. FTSE believed that the determination to upgrade to the emerging market was still steadfastly maintained by Vietnam since the annual assessment announcement in September 2023 and recently reaffirmed by the Prime Minister himself. Accordingly, on February 28, 2023, the Prime Minister committed specifically that the Vietnamese market would remove any barriers that may hinder meeting the upgrading criteria of FTSE by 2025. Measures proposed include amending relevant legal regulations and creating favorable conditions as well as removing barriers for foreign institutional investors (FIIs) to access the market. For example, currently, the Government is reviewing the foreign ownership ratio in various sectors and simplifying the account opening process for FIIs. Simultaneously, the proposed payment model by SSC is being continued to be reviewed and adjusted to be appropriate, with the active participation and coordination of market members.

Regarding the factor related to foreign ownership limits, experts from VPBankS believed that Vietnam was likely to apply the experience of Thailand. That is to use non-voting fund certificates. This helps alleviate the investment thirst restricted by foreign ownership limits but still not impact domestic enterprises too much, while trading also becomes easier. According to Son, the foreign ownership factor may be changed, amended by the end of this year and the English information factor is likely to be applied as soon as 2025 to ensure fairness and transparency between domestic and foreign investors.

VPBankS experts predicted that the market might be upgraded according to FTSE standards beforehand. "FTSE included Vietnam in the watchlist since September 2018, during the period from 2024 - 2025, when issues related to Pre-funding, foreign ownership limits are improved, then the earliest possibility at the assessment period in March 2025 will meet the upgrade standard and at the assessment period in September 2025 will be officially upgraded because our preparation has been very clear in 2024," said Son.