Stock Market's Unnecessary Restrictions Lifted

 

According to Mr Nguyen Duy Hung, Chairman of the Management Board of the Saigon Securities Company, to develop the stock market, in the first selling of shares, the State should give priority to the enterprises founded by the State, namely the staff working at the enterprises, Vietnamese organisations and public. To build the confidence of investors in the initial sale of the State-owned enterprises to the public, appropriate methods should be applied to each kind of enterprise. For instance, in efficient enterprises, common investors should obtain major shares. In enterprises with low efficiency or with complicated management models, strategic investors or professional finance investors can buy major parts of shares to reconstruct the enterprises before selling to the public. In particular, foreign investors should participate in certain areas as strategic investors to obtain their management experience.

 

The current equitisation and auction system, in principle, allows foreign investors to participate in the same manner as local investors. With stronger financial potentials, foreign investors are getting the best profit from the equitisation process. Therefore, Mr Hung proposed that the auction must be held in two stages. The first stage is to be reserved for local organisations and persons to fix the established price. Based on this, intermediary financial organisations can sell the remainder to foreign investors. Consequently, the State can obtain more money and find strategic investors to reconstruct the enterprises.

 

For its part, the State should abandon unnecessary and insufficient restrictions. The finance market is fully dynamic with an incessant flow of capital resources. The prohibition on margin trading, and short sales has seriously affected the capital flow and the development of the securities market. Mr Hung repudiated the argument that the prohibition was in place to reduce risks and prevent manipulation. The stock market is to sell risks of different levels and at different prices. Investors are willing to accept high risks to receive high income. The State should not intervene in the choice of investors.

 

To develop the market, it is important to create a legal framework for new intermediary finance products. At present, there are only two simple forms, shares and bonds. The market management maintains the principle “nothing beyond regulations”. In reality, no detailed law can fully meet the dynamic development of the market such as the stock market. Therefore, the law should define only areas of prohibition, the rest should be free for choice.

 

Mr Hung also insisted that the State should ensure an equal legal framework so that local institutions can compete with foreign counterparts. So far, many regulations and restrictions are imposed on local institutions while foreign institutions have none, making fair competition impossible.