Foreign investors at the headquarters of HoSE. Photo thoibaotaichinhvietnam.vn

HÀ NỘI — Resolving obstacles for foreign institutional investors is a crucial step for upgrading the stock market, according to the State Securities Commission (SSC).

The Ministry of Finance is gathering feedback on proposed legal amendments to remove key barriers, meet international rating standards, and improve pre-funding arrangements and access to information for foreign investors.

In a media briefing, SSC highlighted that the proposal is a crucial step in line with the Government's directives and guidance, addressing challenges for foreign investors and aiming to upgrade the market and attract investment capital, particularly from abroad.

The SSC leadership recently engaged in discussions with FTSE Russell, market participants, relevant ministries and the World Bank (WB) to deal with the no pre-funding requirement for foreign investors. 

The proposed solution allows securities companies with sufficient capacity to offer services without requiring foreign investors to have 100 per cent funds before placing purchase orders. They only need to have sufficient funds before the clearing member confirms transactions and payment obligations with the Vietnam Securities Depository and Clearing Corporation (VSDC).

If a foreign investor lacks sufficient funds by the specified deadline, the payment obligation will be transferred to securities companies.

However, to ensure feasibility and safety, the regulatory authority suggests implementing this solution exclusively for foreign institutional investors.

"The proposed solution has gained consensus and has been deemed feasible by market members, the WB and FTSE Russell," said SSC.

The SSC leadership clarified that the decision to apply the new mechanism exclusively to foreign institutional investors ensures fairness. Currently, only domestic investors can use margin trading services, while foreign institutional investors are not allowed to borrow funds for securities trading.

Out of the total of 7.39 million securities accounts, 45,384 accounts belong to foreign investors, including 4,551 accounts held by foreign institutional investors. 

Although they make up only 10 per cent of the account number, statistics from the Hồ Chí Minh Stock Exchange (HoSE) during 2020 - 2023 showed that foreign institutional investors consistently contribute over 94 per cent of the total trading value of all foreign investors. Hence, addressing the challenges faced by foreign institutional investors is crucial for upgrading the stock market.

In fact, international experience suggests that foreign institutional investors typically adhere to payment obligations, with rare occurrences of non-compliance in non-pre-funding transactions, resulting in minimal risks. Therefore, the proposal to exclusively apply the mechanism to foreign institutional investors is a suitable approach to achieve the market upgrading goal while substantially reducing risks for securities companies and the securities clearing and settlement system, said SSC.

To minimise risks, the regulatory body proposes that securities companies refrain from providing non-pre-funding trading services using 100 per cent funds from foreign institutional investors if the investment limit is exceeded. Before continuing such services, all current legal obligations must be met.

English disclosure mandate

International rating agencies find information accessibility in the Vietnamese market insufficient, specifically regarding disclosures in English from listed companies. 

To address this, the Ministry of Finance proposes a balanced approach. It includes identifying a list that public companies have to disclose in English in the short and long term. 

A comprehensive classification of the information to be disclosed is proposed for both small-scale and large-scale public companies.

Under the plan, listed companies and large-scale public companies are set to commence regular English disclosure on January 1, 2025, with extraordinary information to be disclosed in English upon request starting on January 1, 2026. 

Other public companies will follow suit, beginning regular English disclosure on January 1, 2027, and disclosing extraordinary information in English upon request on January 1, 2028. 

Stock exchanges and the VSDC will also be required to disclose information in both Vietnamese and English. — VNS