Removing "bottlenecks" to upgrade the stock market

The Ministry of Finance has just sought opinions on amending many relevant legal regulations to remove some bottlenecks and meet the rating organization's upgrading criteria.

No pre-transaction margin required for foreign investors

Recently, the management agency has organized many meetings and discussions with the market rating organization FTSE Russell, market members, relevant ministries and branches. At the same time, consulted with the World Bank to find a solution to the problem of "no pre-transaction margin requirement" for foreign investors.

Accordingly, the proposed solution is to allow qualified securities companies to provide services that do not require foreign investors to have 100% of the money before placing an order to buy securities, but only require foreign investors to have enough money before the time the depository member must confirm the transaction results and payment obligations with the Vietnam Securities Depository and Clearing Corporation (VSDC).

In case the foreign investor does not have enough money at the prescribed time, the payment obligation of the foreign investor will be transferred to the securities company. However, to ensure feasibility and safety, the proposed management agency only applies to foreign institutional investors.

"This solution basically received consensus and feasibility assessment from market members and the World Bank, FTSE Russell," informed the leader of the State Securities Commission.

Thus, the solution to the issue of not requiring pre-transaction margin is considered to remove the biggest obstacle related to upgrading the Vietnamese stock market according to FTSE Russell criteria. This solution is also considered to help the trading mechanism of the Vietnamese stock market to be similar to the trading mechanism of many stock markets in the world.

However, to reduce the risks that may arise for the market when implementing this service, the State Securities Commission has also proposed a number of contents related to the service users and applicable subjects.

The proposal to allow 100% margin trading for foreign institutional investors has been carefully considered based on many aspects. Applying it only to institutional foreign investors and not to domestic investors still ensures fairness, because currently only domestic investors are allowed to use the service of borrowing money to buy securities (margin loans), while foreign investors are not currently allowed to borrow money to buy securities.

In addition, there are currently about 7.39 million securities accounts in the market; of which, the number of securities accounts of foreign investors is 45,384 accounts, including 4,551 accounts of foreign institutional investors.

Although the number of foreign institutional investor accounts only accounts for 10%, statistics on HOSE in the period from 2020 to December 31, 2023, the value of buying/selling transactions of foreign institutional investors always reached over 94% of the total transaction value of all foreign investors. Therefore, foreign investors are the main subjects that need to solve the problem of upgrading the stock market.

According to international experience, foreign institutional investors often comply with payment obligations, and there are few cases of non-fulfillment of payment obligations in transactions without pre-trade margin, so the risk is low.

Thus, the proposal to apply only to foreign institutional investors is a suitable solution to ensure the upgrading goal as well as significantly reduce risks for securities companies and the securities transaction clearing and settlement system.

Gỡ nút thắt để nâng hạng thị trường chứng khoán - Ảnh 1.

How to minimize risk?

Also according to the proposal of the management agency, the subjects provided with the service are securities companies with good financial status, meeting the conditions for providing clearing and settlement services for securities transactions, and having enough limit to meet the payment for securities transactions of foreign investors using this service in case the foreign investor temporarily becomes insolvent.

To minimize risks, the management agency also proposed to add regulations that in case a securities company invests beyond the limit due to providing 100% non-margin trading services for foreign institutional investors, the securities company is not allowed to continue providing the above services until it complies with the investment limit according to current laws.

Currently, regulations related to listed stock transactions, transaction registration; securities transaction settlement and securities company operations are stipulated in Circular 120/2020/TT-BTC regulating listed stock transactions, transaction registration and fund certificates, corporate bonds, listed warrants on the securities trading system; Circular 119/2020/TT-BTC regulating registration, depository, clearing and settlement of securities transactions and Circular 121/2020/TT-BTC regulating the operations of securities companies. These regulations are currently being well implemented, ensuring stable and smooth securities trading, clearing and settlement activities on the stock market.

However, to meet the upgrading goal and implement solutions to overcome the problem of pre-transaction margin requirements from foreign investors, the Securities Commission proposes to amend and supplement some contents in the above documents.

Specifically, the management agency will amend and supplement Circular 120/2020/TT-BTC to add regulations on foreign institutional investors using 100% non-margin trading services to place orders to buy securities without having enough money before placing the order.

Along with that, Circular 119/2020/TT-BTC will be amended and supplemented to add regulations on handling cases where foreign institutional investors using non-margin trading services lose their ability to pay, then the payment obligation of the foreign institutional investor will be transferred to the securities company where the foreign investor places the order through the securities company's proprietary account.

In addition, Circular 121/2020/TT-BTC will be amended and supplemented to supplement regulations on the operations and responsibilities of securities companies in trading and paying for securities transactions of foreign investors in cases where securities companies are provided with 100% non-margin trading services, as well as regulations on the application of investment limits of securities companies when performing this service.

In addition, Circular 96/2020/TT-BTC guiding information disclosure on the stock market issued by the Minister of Finance will be amended and supplemented to supplement the provisions on exemption from responsibility for information disclosure before transactions of insiders and related persons of insiders being securities companies when the securities company performs payment obligations for transactions of foreign investors using 100% non-margin trading services that are insolvent.

This proposed amendment is due to the fact that the disclosure of this information is unavoidable for the securities company when the insolvency handling is automatically transferred from the customer's securities purchase account to the securities company's proprietary trading account.

According to VTV

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