Fin Min's new circular expected to propel Vietnam stock market to EM status

Vietnam’s Ministry of Finance is opening a draft circular for comments that contains provisions on intraday securities trading and short selling activity, a move expected to propel Vietnam’s stock market to emerging market (EM) status, stated Bao Viet Securities Company (BVSC).

Short sell and trade at T+0 are expected to help Vietnam gain a further step towards being reclassified as emerging market.

According to the draft circular, short sale transaction with collateral (secured short sale) is a transaction that sells borrowed securities in the securities borrowig and lending (SBL) system of the Vietnam Securities Depository. The seller is then obliged to buy back the securities to repay the loan. The short sale will be executed based on the securities loan transaction contract on the securities loan and lending system at the Vietnam Securities Depository.

A secured short sale transaction must include collateral, borrowing/lending interest rate, loan term, extension, collateral disposal when the investor does not make payment of securities, settling method when a dispute arises, potential risks and losses, and the costs.

Another noteworthy point is the regulation for intraday trading, defined as the buying and selling of the same security with the same volume, on the same account and on the same day. Investors conducting intraday transactions must comply with the provisions not to place orders for simultaneous purchase and sale of the same securities in the same periodic match order, except for orders that have been entered to system at the previous continuous transaction.

If the draft is approved, T+0 trading and short selling is set to be a major boost for the local stock market, especially as it would attract a large number of investors and trigger a surge in trading turnover and liquidity, stated BVSC.

More importantly, being allowed to short sell and trade at T+0 will also help Vietnam improve evaluation criteria under global providers of financial services such as FTSE Russell and MSCI and be reclassified as emerging market.

The new status is set to help Vietnam attract a large amount of foreign capital in the coming time, added the securities firm. 

Vietnam is currently in the Frontier Market group, and was added to the FTSE Russell’s watchlist for possible upgrade to Secondary Emerging Market in September 2018. However, after one year of review, Vietnam only met seven out of nine criteria of FTSE.

At a ceremony marking the 20th anniversary of the establishment of the Ho Chi Minh City Stock Exchange (HoSE) (July 20, 2000 – July 20, 2020) on July 20, Prime Minister Nguyen Xuan Phuc urged stock market authorities to work out measures so that the market can be upgraded to the emerging market status in a near future.

Over the last 10 years, total capital mobilized from the stock market reached over VND2,400 trillion (US$103.77 billion), or 14% of total social investment capital. Notably, it has been the platform to help many local enterprises expand to regional and global stages, such as Vietcombank, Vinamilk, or Vingroup, among others.