VSDC General Director informs about the process of upgrading the stock market

Ms. Ta Thanh Binh affirmed that in case of upgrading to emerging market status, Vietnam’s stock market is expected to receive a large investment flow into emerging markets.

Sharing information about the process of upgrading the stock market at the workshop “Overview of the capital market in 2024 and prospects for 2025” organized by the Vietnam Financial Consulting Association in collaboration with the Vietnam Finance Investment Magazine, Ms. Ta Thanh Binh – General Director of the Vietnam Securities Depository and Clearing Corporation (VSDC) said in a recent working session with representatives of FTSE Russell, the market rating unit, that Vietnam has met 7/9 criteria for upgrading.

Two areas for improvement include removing the requirement for foreign investors to deposit funds before trading (prefunding) and handling failed trades (failed trade management).

Regarding the non-prefunding criteria , Ms. Binh said that the State Securities Commission has coordinated with market participants to make reform efforts. Recently, the Ministry of Finance issued Circular 68, with the important content of removing the mandatory margin requirement for foreign investors.

Updating the situation after one month of implementing non-prefunding, Ms. Ta Thanh Binh said that VSDC has contacted depository members to request information on the transaction situation and payment for stock purchases that do not require sufficient funds when placing orders (NPF transactions) at these units (if any) within 1 month from the date of implementing Circular 68 (November 4, 2024).

“The above information shows that the implementation of Circular 68 has been carried out quite well by VSDC and related parties so far, without any cases of foreign investors lacking money, leading to the need to transfer payment obligations and affecting the payment activities of the market. The provision of services, risk management of NPF transactions by securities companies, brokerage houses as well as the use of NPF transaction mechanisms by foreign investors are basically carried out in a cautious and safe manner,” said the General Director.

With the final criterion for upgrading being failed trade management , according to Ms. Ta Thanh Binh, the solution is to apply the central clearing mechanism (CCP). Regarding this issue, the new regulations in the Securities Law that have just been passed have paved the way for the securities industry to continue implementing upgrading solutions according to MSCI standards (which are more difficult to meet than FTSE Russell standards).

“Within the scope of VSDC’s functions and tasks, with the orientation of ensuring the stability of institutional frameworks, one of the strategic tasks that VSDC needs to carry out is to establish a subsidiary with the function of central clearing partner (CCP) for the underlying securities market. With the CCP mechanism, VSDC will hedge payment risks for the underlying securities market according to the provisions of Circular 119/2020/TT-BTC with many layers of safe financial buffers,” said Ms. Binh.

The VSDC General Director also added that in the third and fourth quarters of 2024, the agency has actively participated in providing comments, proposing supplements and amendments to the Securities Law and Decree 155 to prepare for the establishment of a subsidiary company to perform the function of a central clearing partner (CCP) for the underlying securities market. This is a necessary step for the overall market settlement risk management and continues to move towards upgrading criteria for the Vietnamese stock market in the future. In addition, the regulation on information disclosure in English and its synchronous application according to the roadmap will gradually improve transparency criteria.

Besides FTSE, Vietnam is also pursuing the goal of upgrading its market according to MSCI standards. Regarding MSCI Global’s criteria, by June 2024, Vietnam’s stock market had met 10/18 criteria. “There are some criteria that need to be improved, such as the foreign ownership limit level, the remaining foreign ownership level (Foreign Room Level) and the level of liberalization of the foreign exchange market that has not been met… The amount of work that needs to be implemented is not simple,” said Ms. Binh.

Stock market will receive large capital flows after upgrading

Ms. Ta Thanh Binh affirmed that with institutional reforms, the market will welcome large capital flows. However, this also poses the problem of pressure on the system with large transaction volume and value, and faster transaction frequency. In case of upgrading to emerging market status, the Vietnamese stock market is expected to welcome a large investment flow into the emerging market block.

This capital flow can bring about a large volume of transactions, with a frequency of transactions that can be more frequent and continuous, which can cause considerable pressure on the trading system and the clearing and settlement system. In addition, there are issues related to whether foreign currency conversion is capable of meeting such a large volume of transactions.

However, the pressure to maintain the upgrade when the new rating criteria have been met will also be a challenge for the parties involved. “According to the exchange from FTSE Russel, the rating conditions can be completely changed when necessary, when there is demand from large customers. Thus, the progress towards rating, being rated and then maintaining the rating will depend a lot on the annual assessment of international organizations. In case the conditions change rapidly and more, we need to be ready to propose changes to more appropriate legal regulations, and promptly make systematic adjustments and supplements when necessary,” the VSDC General Director affirmed.

Ha Anh/Market Pulse