Stock Market Regulators Plan for Brighter Future

The conference coincided with Prime Minister Nguyen Tan Dung’s move yesterday to order the Ministry of Finance, the Ministry of Planning and Investment and the State Bank of Viet Nam to closely co-ordinate on long-term measures to secure the development of the market.

One of the hightlights of his request was the need to develop new products such as global depository certificates, as well as the need to establish a derivatives market.

Dung also urged the finance ministry to complete its scheme for the bond market by the second quarter of this year.

“The volume of Government bonds should be increased, rather than the types of bonds, in oder to raise more funds for the economic and social needs of the State,” he wrote.

Dung also told the Ministry of Planning and Investment to assess the process of converting foreign-invested enterprises into joint stock companies.

The Government has signed three significant documents on the development of the stock market in the past two days.

“This proves that the Government and relevant ministries have been consistently concerned about the short- and long-term development of the market,” said Minister of Finance Vuong Dinh Hue.

The process of restructuring the stock market this year would have four focuses, namely products, the structure of investors, securities companies, and the system of stock exchanges and the Viet Nam Securities Depository Centre, Hue said.

While investors had expected the nation’s two stock exchanges to be merged this year, State Securities Commission chairman Vu Bang said a plan to govern the merger would be submitted to the Government in the third quarter.

“Execution of the plan would then probably take place about six months later,” Bang said, predicting that both exchanges would continue to operate but ultimately under the management of a single stock exchange agency.

“Stocks will shift to trading in HCM City, while the Ha Noi branch will mainly focus on developing specialised products such as derivatives and unlisted shares,” he said.

The issuance and implementation of regulations under the Law on Securities would follow the improvement of criteria for listing shares, particularly standards of profitability and corporate governance, Bang said. Minimum charter capital requirements for enterprises to list on the southern bourse would be increased to VND120 billion (US$5.7 million) from the current VND80 billion ($3.8 million), while the requirment in Ha Noi would be tripled to VND30 billion ($1.4 million).

These higher standards would be primarily aimed at improving the quality of new listings, Bang said. For companies already listed, around 30 per cent would fail to meet the above criteria.

“We expect to give them a five-year period in which to meet these new standards,” he said

Bang also noted the urgent need to require separately managed accounts. The commission’s business management division has proposed two methods for separating customer deposits from securities companies’ holdings. Accordingly, securities firms could open an account in a commercial bank for each investor. Or investors themselves could open accounts in banks designated by the brokerages.

Starting next month, Hue said, brokerages themselves would be divided into three groups, categorised as “normal”, “under control” and “under special control”.

The first group would include those with a ratio of usable capital to total risks of over 150 per cent and accumulated losses of less than 30 per cent of charter capital. Companies “under control” would include those with a usable capital ratio under 120 per cent and accumulated losses in excess of 50 per cent of charter capital. These firms would be required to diminish brokerage operations or be dissolved if unable to resolve their difficulties.

“The number of securities firms will definitely be reduced,” Hue said. “However, it will take time to determine how many will be cut.”

Bang said market regulators were paying strict attention to the market’s investor structure.

“We should pay attention to enhancing the quality of institutional investors along with reviewing tax policies for both individual and organisational investors in a manner that encourages long-term investment and investment funds,” he said.

Institutional investors currently accounted for only 4 per cent of total trading accounts and were mainly insurers and investment funds, he said, while open funds, securities development companies and voluntary pension funds had not yet developed.

Exchange-traded funds would also protect the benefits of investors like an open fund and generate purchasing opportunities for market members without the effects of the money flows.

In terms of new products on the market, in addition to derivatives and new kinds of certificates, the commission’s fund management division has suggested insurance services such as export credit insurance, agriculture insurance and life insurance linked with investment.

Meanwhile, the Ha Noi Stock Exchange said yesterday that it would put promisory notes on the Government bond market this May. It also plans to introduce a new index called the HNX30 in the second quarter.

The exchange last year also completed information management systems for its listed companies to disclose information automatically over the internet, with 253 out of 394 enterprises already using the system. The exchange has targeted that all firms participate by the second quarter.

Yesterday’s conference also reviewed the state of the economy.

“Policies to keep the economy stable and curb inflation have achieve positive results, with inflation rate showing signs of easing,” Bang said.

In addition, foreign reserves were increasing, easing exchange rate pressures.

Bang emphasised that issues of credit growth and interest rates had a significant impact on investor psychology and that the application of credit policies to the stock market needed to be flexible, distinguishing the financial and management capacity of each bank.

“That is the optimum way to attract cash flows from the private sector and foreign investors,” he said. “We cannot underestimate the challenge of bad debt ratios in the banking system, especially when we are facing a frozen real estate market.”