Short selling of equities may soon be allowed on Vietnam’s equity markets under proposals put forward by the Vietnam Ministry of Finance, boosting chances of the country moving to the “Emerging Markets” category.
A draft of the measures that was posted on the ministry’s website on Monday 24th August mulls over legalising short selling on both of Vietnam’s stock exchanges and highlights the ways that investors can participate in the activity. Short-selling allows trades to borrow shares in hopes of selling it and buying it back later at a lower price, creating a profit from the transaction as a result.
Under the new proposal, investors can open a new account (or sub-account) which permits short sell transactions. In order to facilitate these positions, the terms of the loan must include the content of the collateral, loan, loan interest, term and loan extension.
The eight points mentioned in the draft regarding secured short sale transactions are below:
1. Securities loan transaction contracts on the securities loan and lending system at the Vietnam Securities Depository and Clearing Corporation for the purpose of conducting short selling transactions with at least a minimum must include the content of the collateral, loan interest, loan term, loan extension, collateral settlement when investors fail to return their securities, method of resolving disputes arising, stating risks, damages that may incur and cost.
2. An investor shall open a secured short sale transaction account at a securities company provided with securities lending services, where the investor opens a transaction account to conduct secured short sale transactions. The secured short sale account is a separate account or is accounted for in the form of a sub-account.
3. Securities permitted for short sale guaranteed transactions are stocks and fund certificates listed and registered for trading on the Stock Exchange and meeting the criteria of time of listing and trading registration; the size of capital and business results of the issuing organization; liquidity and price volatility (if any); information transparency and other criteria under the guidance of the State Securities Commission. On the basis of criteria established by the State Securities Commission regulations, the Department of Stock Exchange announced the list of securities traded unsecured short selling or securities not traded unsecured short-selling.
4. Entities are not allowed to conduct secured short sale transactions under the guidance of the State Securities Commission.
5. Securities companies must report to the Stock Exchange and the State Securities Commission on secured short selling transactions in accordance with the Regulation of the State Securities Commission .
6. Depending on the market situation, the SSC conducts the sale of secured short sales after obtaining approval from the Ministry of Finance.
7. In cases where it is necessary to ensure the safety of the securities market, the State Securities Commission may request securities companies to suspend the implementation of the secured short sale.
8. The State Securities Commission shall promulgate the Regulation on guidance on secured short selling after obtaining the Finance Ministry’s approval.Source: Vietnam Ministry of Finance
The draft also suggested that investors may be able to perform intra-day transactions after signing “day trading contracts” with securities companies that provide securities lending services. Intra-day trading activities must comply with a range of principles, which include (but are not limited to): investors only being allowed to have one daily trading account; securities companies refusing to execute daily trading orders of investors when it its unable to guarantee that there is enough money for payment and securities to transfer at the payment date; and securities companies having the right to require investors to deposit money or securities before allowing investors to perform day transactions.
Vietnam has been pushing for a promotion to Emerging Market status in recent years, but both MSCI and FTSE have their reservations about promoting the nation to the next tier, with the latter deciding to keep it as a Frontier Market in September 2019, citing issues with foreign ownership limits and clearing/settlement on the market. Vietnam is one of the largest constituents in the MSCI Frontier Markets Index and the FTSE Frontier Markets Index and hold sizable positions in both.
FTSE’s annual Country Classification results will be published on Thursday 24th September where Vietnam awaits its fate on whether or not it will be moved from the Frontier Markets category to the Secondary Emerging Markets category, where it has remained on the Watch List in September 2018. The latest announcements may boost the country’s chances and also lead to large inflows of capital into the market as a result.