Upgrading the stock market will bring more foreign investors to Vietnam. Photo: Internet

Consider removing the requirement to deposit 100% of the money before buying securities

Recently, Vietnam's stock market has made many efforts to improve criteria to satisfy the conditions of an emerging market. However, there are still a number of obstacles that need to be addressed and removed to further encourage the participation of foreign investors in the coming time, the most important thing is the deposit requirement of pre-transaction (pre-funding) and limit ed ownership of foreign investors.

According to Mr. Nguyen Son, Chairman of Vietnam Securities Depository and Clearing Corporation (VSDC), the fundamental and long-term solution to the problem of pre-transaction deposit requirements is to deploy a clearing and settlement mechanism for securities transactions according to the central clearing partner (CCP) model, in which legal documents do not require investors to deposit before trading, and VSDC is the unit responsible for final payment for investors’ transactions. With the CCP mechanism, there will be no cancellation of transactions when investors lose their ability to pay.

Also according to Mr. Nguyen Son, there are currently a number of reasons why this mechanism has not been implemented such as: the CCP mechanism is being urgently built with the information technology system for managing and operating transactions (KRX). However, the KRX system is not currently operational. In addition, the securities law and banking law have some inconsistent contents that need to be supplemented and amended. Accordingly, commercial banks and foreign bank branches providing securities depository services need to be allowed to act as clearing members and connect to VSDC's payment clearing system to receive notification of investors’ payment obligations and make transaction payments for investors who are their direct customers with VSDC. In case the investor does not have enough money or securities to pay for his or her transaction, the responsibility for paying for the securities transaction will be transferred to the securities company where the investor placed the order.

Mr. Son said that to ensure the goal of upgrading the market by 2025, the immediate solution is that VSDC is working with the State Securities Commission to propose and recommend the Ministry of Finance to amend Circular 120/2020/TT-BTC removing the regulation that investors must deposit 100% of their money before buying securities, instead allowing securities companies (CKS) to proactively regulate whether their investors must deposit or not, and the deposit ratio for each investor based on the securities company's credit rating for each investor as well as the deposit ratio for each security based on the risk level of each security. In case the investor does not have enough money to pay for the transaction, the securities company will have to make payment to the investor, including the case where the investor opens a depository account at the depository bank and only places orders at the securities company.

Reduce the number of industries with limit ed ownership by foreign investors

Regarding the solution to the ownership ratio of foreign investors, Mr. Phung Xuan Minh, Chairman of Saigon Ratings Company, said that it is necessary to consider applying the model of depository certificates without voting rights based on careful research of experience of countries around the world and evaluate the impact of this model on business ownership structure. In addition, listed businesses also need to be prepared with complete and detailed knowledge to be able to understand and apply these changes.

"It is necessary to gradually expand and fully announce the maximum foreign ownership ratio of conditional business lines, limit  access, and only limit  foreign ownership to those industries that are truly related to national security. Even for some sensitive fields such as finance and banking, it is still possible to set a limit  on the foreign ownership ratio for each specific subject, avoiding inequality. For example, currently expanding and encouraging foreign investors to invest in weak credit institutions and transfer-receiving credit institutions; for other joint stock commercial banks, the total share ownership level should not be adjusted to exceed the limit  of 30% of charter capital," Mr. Phung Xuan Minh proposed.

Regarding the ownership ratio for foreign investors, Mr. Dang Hong Quang, Director, Chief Representative of the Hanoi Office, VinaCapital Investment Fund said that currently, according to the Investment Law and Decree 31/2021/ND-CP, there are 25 occupations of foreign investors do not have market access and 59 occupations have conditional market access. “We recommend reducing the number of occupations on this list for occupations that do not necessarily limit  market access for foreign investors. In addition, the issuance of depository certificates without voting rights will also help foreign investors invest in businesses that have reached the ownership limit  for foreign investors," Mr. Dang Hong Quang proposed.

In addition to the two major obstacles mentioned above, a VinaCapital representative said there are a number of other issues that need to be resolved for Vietnam's stock market to be upgraded, such as registration procedures to open new accounts for foreign investors still take a lot of time; Some business information and legal regulations are not available in English; and some limit ations on the liberalization level in the foreign exchange market. “If all of the above problems are resolved, Vietnam's stock market will soon be upgraded. This will be an important turning point for Vietnam's stock market and one of the driving forces for long-term development for listed businesses, while also contributing to bringing more foreign investors to Vietnam," Mr. Quang emphasized.

According to the State Securities Commission, unlike many other markets, the fact that Vietnam has not been upgraded to an emerging market is not due to factors related to scale and liquidity, but mainly due to factors related to foreign investors' ability to access the market.

Among them, one of the important issues that need improvement is increasing the right to access information in a fair and transparent manner for foreign investors, as well as encouraging information disclosure in English and improving the published information quality of companies in the market.

For a stock market to develop sustainably, it must be a truly "healthy", transparent stock market, ensuring fairness for all investors participating in the market. As the agency directly managing and supervising the stock market, the Securities Commission has been and will continue to make efforts to ensure the continuous, smooth, stable, and transparent operation of the market, strengthening confidence for the domestic and foreign investor community, creating a foundation for the upgrade of Vietnam's stock market.