Boosting Solutions to Stock Market Upgrading

2:45:07 PM | 21/3/2019

At a recent conference on implementation of stock market development tasks in 2019 held by the State Securities Commission of Vietnam (SSC), Deputy Prime Minister Vuong Dinh Hue assigned the Ministry of Finance and the Securities Commission to deploy solutions to upgrade the stock market from the frontier market to the emerging market according to MSCI and FTSE rankings.

The stock market upgrading is catching great attention from Vietnamese investors and foreign organizations and investors as well. This is considered an important milestone, marking the landmark development of Vietnam's stock market.

Opportunity for market upgrading

Earlier, in September 2018, FTSE Russell Company added Vietnam to the watch list for status upgrading from the frontier market to a second-grade emerging market if the Vietnamese stock market meets the following conditions: Regulatory framework, infrastructure, market quality, trading activity, depository and clearing systems. This is a good step for many investors because Vietnam has made every effort in recent years to make changes toward world standards.

To meet FTSE Russell's requirements, Vietnam must continue to maintain and reform even better nine criteria in at least one year. However, based on rankings of market rankings agencies relative to the criteria of MSCI, which provides financial market analysis tools, the way for Vietnam to upgrade with the stock market status will be long because Vietnam has not yet qualified to be added to its market upgrading watch-list in the review period in June 2018. Thus, in the next review period in the next six months, Vietnam’s stock market still has to make much more effort, especially in qualitative assessment criteria, mainly decided by the investor satisfaction.

Obviously, being an emerging stock market will be a good opportunity for Vietnam to court more stable foreign cash flows, increase its magnet to big financial institutions and investment funds in the world. This also helps stock market regulators with more motivations to step up reforms, upgrade the market and meet more criteria of international stock market index providers.

According to SSC Vice Chairman Pham Hong Son, to further maintain the stock market stability and development in 2019, the SSC will focus on four main objectives and five core solutions. The four main objectives include: Ensuring the stability and sustainability of the stock market; further drastically carrying out the stock market restructuring; developing more products for the stock market; and strengthening international integration, effectively fulfilling international commitments and market upgrading solutions.

Five groups of key solutions for stock market development

First, further improving the legal framework, management and supervision capacity: Completing the draft amended Law on Securities, submitting the draft law to the Government, the Standing Committee of the National Assembly and the National Assembly for consideration and approval at the 8th NA meeting session (October 2019); studying and drafting decrees and documents directing the enforcement of the amended Law on Securities; closely coordinating with authorities to complete the regulatory framework, operating the securities market, exercising oversight and enforcement activities to ensure safety for the stock market.

Second, increasing supply of goods and improving supply quality: For the stock market, further accelerating the equitization and divestment of State capital from enterprises, share listing and trading; strengthening timely review and settlement of enterprises that fail to comply with listing/trading registration commitments after going public; carrying out the Circular No. 40/2018/TT-BTC on initial public offering; applying market-making mechanism, issuing the Code of Corporate Governance (CG code); intensifying inspection and supervision of capital-use information transparency of financial statements of public companies;

For securities products, diversifying products. The SSC needs to implement covered warrants and government bond futures in early 2019. Besides, market regulators need to research and build new index to serve as underlying assets for derivative products such as VNXMid/Small and VNX200, High Dividend Index, CG index, Corporate Governance Index and fund-based indices.

For bond market, further improving and developing the market, focusing on corporate bond trading, completing corporate bond market and drafting regulations on corporate bonds, encouraging companies to list bonds; building corporate bond information portal.

Third, developing and enhancing the capacity of market intermediaries: Carrying out the stock market and insurer restructuring scheme after being approved by the Prime Minister; further restructuring securities business entities to reduce presences and raise service quality. For fund management companies, closely monitoring regulatory compliance, controlling segregation of trust investors’ assets, checking financial safety criteria, placing disqualified fund management companies to control status and special control status.

Third, restructuring market entities, infrastructure and technology: Preparing for the establishment of the Vietnam Stock Exchange under Decision No. 32/QD-TTg dated January 7, 2019 of the Prime Minister, completing central clearing partner model, upgrading information technology system to manage and supervise the stock market.
Fourth, enhancing the effect of stock market management and supervision and strictly handling violations like strengthening coordination between SSC units with two stock exchanges to oversee, detect and strictly punish violation acts of manipulation, insider trading, fraudulence and information reporting.

Fifth, carrying solutions to upgrade the Vietnamese stock market from the frontier market to the emerging market on MSCI and FTSE rankings: Increasing more foreign investment, diversifying and increasing product quality on the market; strengthening publicity and transparency; reducing and simplifying administrative procedures to facilitate and save time and costs for investors.

With the market upgrading goal in 2019, the SSC is focusing on executing many solutions to court foreign funds, especially from foreign strategic investors; removing obstacles to lift up foreign ownership ratio through the upcoming amended Law on Securities; diversifying markets, enhancing product quality on the stock market; raising publicity and transparency, ensuring equal rights to access to information for foreign investors; reducing and simplifying administrative procedures to facilitate, save time and costs for stock investors; actively carrying out activities relating to market upgrading through information cooperation with ratings agencies; actively strengthening information and communications relating to market upgrading in order to build a beautiful image of Vietnam's transparent and sustainable stock market.

Luong Tuan