Establishing Vietnam Stock Exchange to facilitate market supervision and development

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Vice Chairman of the State Securities Commission (SSC) Pham Hong Son.

In 2020, although the economy as well as world stock market faced many difficulties, Vietnam's stock market showed strong growth;the market even reported explosive growth in the second half of the year. Could you tell us the reason for this growth?

From the second quarter to the end of 2020, as the Covid-19 pandemic showed complex developments, Vietnam's stock market had a positive recovery. The increase in index of Vietnam's stock market and investors' interest stemmed from domestic and foreign factors.

Firstly, thanks to the drastic direction of the Party and the Government, Vietnam has achieved the “dual goals” of containing the Covid-19 pandemic and promoting economic growth. Stable macroeconomics and the increase of 2.91 year-on-year in the gross domestic product (GPD) have put Vietnam among the countries with the highest growth rate in the world. Second, the low interest-rate policy has led to more idle cash flow being invested in the stock market, contributing to increasing purchasing power. Third, many enterprises have taken advantage of investment shift opportunities when Vietnam implements FTAs and new agreements are approved (EVFTA, AVIPA).Thebusiness results of listed companies and registered companies in the first nine months of the year still achieved positive results, 84% of total firmsreported in the third quarter of 2020 were profitable. Fourth, the world stock market has risen and recovered in the last months of 2020. Vietnam's stock market is not out of that trend.

What solutions does the Securities Commission have to control the growth of the market and how will this affect the market in 2021?

Amid the complexdevelopments of the Covid-19 pandemic, as the securities market regulator, the SSC always complies with the policy of restricting market administrative intervention, implements medium and long-term solutions to help the stock market develop in a balanced, transparent and stable manner. Recently, the SSC has implemented the following solutions:

It focuses on completing the legal corridor on the stock market. Currently, threedecrees and 11 circulars detailing the Securities Law have been issued. In addition, it also implements restructuring of securities organisations. In 2020, the SSC issued decisions to terminate the operation of a securities company, to revoke the operation license of two fund management companiesand to suspend operation of one fund management company. At the same time, it strengthens supervision, regularly supervises and handlesviolations on the stock market, contributing to the stable development of the market. The SSC has also workedwith the World Bank to upgrade the market within the framework of the capital market development programme. As a result, FTSE Russell continues to maintain Vietnam amongthe list of markets being considered for upgrading the stock market from frontier market to emerging market. Motivated by these solutions, the SSC believes the stock market will continue to develop stably and fulfill targets.

Market liquidity still tends to increase, but transaction congestion still occurs. What solution does the SSC provide to solve this?

Recently, with the support from positive domestic and foreign information, the liquidity of Vietnam's stock market has continuously increased, so some trading orders of investors through securities companies may not be sent to the trading system of HCM City Stock Exchange. Through assessment, the main reason is the design capacity of the trading system of the Ho Chi Minh Stock Exchange is limited in the number of orders per trading day. Therefore, when demand for transactions spikes, the system will not be able to respond immediately.

To ensure a stable and smooth market, the SSC reported to the Ministry of Finance to direct the HCM city Stock Exchange to synchronously implement many solutions. In the short term, implementing immediate solutions to optimise the number of orders sent to the system, including increasing the trading lot from 10 to 100 shares from January 4 to reduce the odd lot order for the system; coordinating with and requesting securities companies to review and limit errors arising from the company to avoid negative impacts on the system; performing internal reviews, control risks and strengthen shift work during peak transaction times.

In the medium and long term, the SSC requires the HCM City Stock Exchange to build a backup system for the current trading system, ensuring smooth transactions until the KRX system comes into operation. The SSC asked the HCM City Stock Exchange and its units to speed up the operation of the KRX, replacing the current system as quick as possible to thoroughly solve the overloading on the system.

How will the establishment of the Vietnam Stock Exchange affect the stock market in 2021 and beyond?

On December 23, 2020, the Prime Minister issued Decision No. 37/2020/ QD-TTg on the establishment, organisation and operation of the Vietnam Stock Exchange, which will take effect from February 20, 2021. For the official operation of the Vietnam Stock Exchange, the Ministry of Finance has implemented tasks such as: implementing the preparation of organisations and personnel; submitting to the Government for amendments to legal documents on financial management mechanisms, the assessment of performance of the Vietnam Stock Exchange; building a roadmap for reorganising the stock trading market, the bond trading market, the derivative securities market and other types of securities.

The establishment of the Vietnam Stock Exchange in the model of parent company and subsidiary based on the restructuring the Hanoi Stock Exchange and HCM Stock Exchange is the rearrangement of functions and duties of the securities exchanges to focus on professionalising operation and promoting the role of the stock market in economic development. The Vietnam Stock Exchange (the parent company) manages its subsidiaries in accordance with the law and the operation charter of the Vietnam Stock Exchange and performs tasks of development orientation of new technology and new products; issuingregulations after being approved by the SSC. Subsidiaries as the stock exchanges are in charge of operating the securities trading market within their scope.

This is the year for focusing on the establishment of the Vietnam Stock Exchange, forming the important organisational structure, apparatus, charter and regulations. The establishment of the Vietnam Stock Exchange will contribute to creating a centralised and unified stock market, avoiding the overlap of professional skills between the two exchanges as at present, and facilitating market monitoring and development. The establishment of the Vietnam Stock Exchange on a larger scale will raise the position of Vietnam's stock market in the eyes of international friends, contributing to attracting investment capital for the stock market as well as the economy, whileIncreasing the position for Vietnam in linking or negotiating with the international finance and securities.