Global provider of benchmarks, analytics and data solutions FTSE Russell last week kept Vietnam on its watch list as a frontier market.

Investors during a trading day 

Vietnam was added to the watch list a year ago for possible reclassification to secondary emerging market status.

 The market “continues to fail the ‘clearing and settlement – T 2/T 3’ criterion which is currently rated as ‘Restricted’, due to the market practice of conducting a pre-trading check to ensure the availability of funds prior to trade execution,” FTSE Russell said in its statement.

“Additional improvements are sought with regard to the registration of new accounts where market practice can extend the registration process and also the introduction of an efficient mechanism to facilitate trading in securities that have reached, or are approaching, their foreign ownership limit between non-domestic investors.”

FTSE Russell also acknowledged Vietnamese market regulators have made “constructive interaction” in the last twelve months to develop and improve the capital market while it also looked forward to “continuing the engagement”. This failure had been widely expected.

 According to Bao Viet Securities Company (BVSC), no big improvements have been made since FTSE Russell’s last review in September 2018.

 One big problem is the amended Law on Securities, which has not been approved by the National Assembly.

 Compared to the previous interim review on March 2019, Vietnam meets seven of nine criteria required for its upgrade to the secondary emerging market status.

Besides the “clearing and settlement” criterion, Vietnam needs to improve the “settlement – rare incidence of failed trades” but it needs further information for assessment, according to FTSE Russell.

 According to FTSE Russell, Vietnam needs to follow the international practice of delivery and payment, meaning an investor will pay for shares after he receives them.

 Under Article 7.2 of Circular 203/2015/TT-BTC dated December 21, 2015 by the Ministry of Finance, an investor can only place a buy order after he proves to have a sufficient amount of cash in the account.

 If the investor has a deposit at a bank, the bank must have the confirmation letter or the letter of credit on his placed order before he can execute the transaction. This can help institutional investors trade without proving they have a sufficient amount of cash.

 However, very few banks can offer institutional investors a letter of confirmation or a letter of credit as there are no specific instructions for this activity. Besides banks, securities companies can provide the same thing to investors if they are allowed by the State Securities Commission.

 Vietnam will be reviewed for possible reclassification as a secondary emerging market within the FTSE country classification scheme at the annual review in September 2020, FTSE added.