IMPROVING AND PROMOTING THE EFFECTIVENESS OF

VIETNAM SECURITIES MARKET

1. Overview of the securities market

1.1. The basic knowledge on the securities market
The securities market is considered a center of the modern corporate
economy nowadays. In the developed economies, securities markets have
established more than 100 years ago and have become an important part of
the socio-economic life. An effective securities market will create many
opportunities for the people to invest their savings as well as facilitate to
mobilize domestic and foreign capitals to provide funds to well-done
enterprises. Almost countries in transition from central planning economies
to the market ones have established securities market as a channel to mobilize
efficiently capitals for the enterprises. In the renovation process of the market
oriented economy, securities market in Viet Nam also has been established
and developed in the last decade.
1.1.1. The concept of securities market
Briefly, securities market is a place to buy and sale shares of common
ownership enterprises. However, ‘securities market’ also is used to show a
place to exchange all stocks, bonds, sometimes including other valuable
documents and derivates securities tools.
Securities market in many cases is called in the same name with the stock
exchange. In essence, the stock exchange is an organization (or company) has
a function to link the buyers and the sellers and help them implement
transactions. The big stock exchanges in the world are placed at economic
centers such as New York, London, Frankfurt, Zurich, Tokyo, Hong Kong. In
which the New York stock exchange is the biggest one with the total value of
market capitalization reached more than USD 21,000 billions in 2006,
including 7,000 billions of companies outside the US. The stock exchanges
are considered as an important of modern market economies.
The trends in the securities market are followed by stock price indices,
usually calculated by average values of an important corporate stock group in
the transaction day. The US stock markets such as Dow Jones and Standard
and Poor are indices which are followed most closely; because the fluctuation
of the US securities market has strong impact to the world economy as the
whole. Securities markets in other countries also are monitored by indices
such as Nikkei of Japan, Hansen in Hong Kong,…
1.1.2 The entities participating in the securities market
The entities participating in the securities market include from small
individual investors to the large organizations, such as governments,
corporations, investment funds,… The organizations and individuals involved
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in the securities market could be spited into the following groups: issuers,
investors, and the organizations related to the securities market.
- The issuers: They are organizations who mobilize capitals through the
securities market such as governments and local authorities in the cases of
issuing government and local bonds; companies in the cases of issuing
corporate shares and bonds; and financial organizations when issuing
financial tools such as bonds, value documents…
- The investors: They are people who buy and sell in the securities
market. The investors could be divided into two kinds: individuals and
organizations.
- The organization operating in the securities market includes securities
companies, stock investment funds and immediate financial organizations.
In addition, there are organizations related to the securities market such as
state management agencies, stock exchanges, stock businessmen
associations,…
1.1.3 Characters and nature of the securities market
Similar to any good markets, the securities market is adjusted by the
supply- demand rule. Due to securities market’s nature is a place to deal in
long-term value documents and the investment decisions are mainly made by
expectations, the securities market’s character is that big profits always
associated with high risks.
Modern economic theories on the securities market are gathered into an
effective market theory. The effectiveness here is understood that information
is absorbed quickly but not means that resources produce maximum outputs
such as in economic fields. The effective market is a place all new
information are hold by people involved into the securities market and
reflected into the stock prices. In the other words, effective market theory
supposes that market prices contain all information available. In the effective
market, it is impossible to make profit by looking at old information and price
fluctuation in the past.
All countries expect to have stable securities market. One securities
market is considered a stable one and high quality must guarantee the
following factors: 1- high liquidity; 2- low risk due to price changes; 3-
effectiveness, where information is disseminated rapidly and reflected into
prices; and low cost for exchange transaction.
1.1.4. The securities market’s functions
Along with the monetary market, the securities market is an important part in
the financial market of each nation. The financial system undertakes three
main functions: firstly, undertaking payment; secondly, transforming savings
into investment to seek profits; and thirdly, reducing economic risks of
companies in relations with profit goals of the participants.

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Therefore, securities market is strong supporting tool for both households and
companies in dealing with financial risks as well as allocating more
reasonably consumption spending by the times. The financial market in
general and securities market in particular nowadays have become an
important part of the infrastructure for all modern societies. The normal
operation of these markets will facilitate for economic growth, where the
lowest costs and risks will promote goods production, services and job
creations. By this manner, the securities market contributes to make the
nations more prosperous.
The basic functions of the securities market as the followings:
Firstly, the securities market is an important capital source to help companies
mobilizing medium and long-term investment capital to develop their
productions and businesses. This capital source has more advantages
compared to that borrowed from banks which are usually short -term.
Secondly, the securities market provides favorable investment environment to
the public. The most prominent benefit which the securities market bringing
about directly or indirectly through funds is investment opportunities.
According to statistics, in the recent decades, shares account for increasingly
rates among main assets of the households in many countries. In the
developed countries, this rate accounts for above 50%. The common trend in
the world also shows that savings have been transformed from traditional
banking deposit (guaranteeing by governments) to stocks ownership. The
popular investment way of the people is through organizational investment
ways of the organizations, such as pension funds, multi-support funds,
investment funds,…
Thirdly, the securities market makes securities have high liquidity. The
securities market is a place where sellers and buyers meet and they are
guaranteed by legal foundations. Therefore, buying and selling stocks easily
encourage people to own stocks as a profit –making saving way and help
companies and governments mobilizing capitals easily for their investment
projects.
Fourthly, the securities market helps to assess enterprises’ activities. When
one company issues and sells stocks to the people, the most important factors
deciding the added value of stocks are profit and development possibility.
This information must be open so that people (including stockholders) can
monitor, assess and make investment decisions for themselves. When stock
prices go up, that means many people buy stocks with the belief that the
better performance of that company will bring about more dividends for the
amount of stocks they hold.
In fact, the stocks which have high value usually belong to those companies
which have good business and production, bring about more profit to the

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stockholders and rapid growth, or in the industries which have high growth
rate accepted by many investors with high prices.
Fifthly, the securities market creates a favorable environment to support the
government implementing macroeconomic policies. In the developed
economies, the securities market is considered the measure of the economy
due to its close relationship with the economy. Moreover, the securities
market is considered an important part of the financial market. Therefore, the
central banks have a tendency to control and monitor the behaviors of the
securities market and, in general, based on the smooth operations of the
financial market to issue macro policy adjustment.
1.1.5. Relationship between the securities market and the economy
Actual experiences show that stock and other asset prices are important parts
of the driving forces to economic growth. For example, the rise of stock
prices has positive effects to the increased investment of enterprises
(excluding too high speculation and imperfect information).
Stock prices also have effects to the wealth of the households and their
spending. Therefore, the main effects of the securities market to the economy
is through that so called “wealth effect”: the households will increase
consumption spending when their asset values go up. The economists
estimate that this effect is equal to 3-4% the total value added of the assets. In
short, when stock prices go up, the richness of the households increases
leading to spending increasingly for consumption and as a result GDP (along
with the common prices) increase.
The important point having significant meaning to the macro-policy makers is
the relationship between securities market and market interests- one
important index of macro economy. Interest has negative effect with the
securities market. Interest increases leading to the reduce of stock prices. In
terms of macro economy, the higher interest is, the lower economic growth is.
Low economic growth will affect to the company activities to reduce sale
revenues and profit of the company. Therefore, higher interest will lead to
that people expect the lower level of dividend increase and the stock prices
must go down to reflect the new situation.
Interests also affect on stock prices due to opportunities costs. When interests
go up, profits from other investment also increase. Interests of saving deposits
and other assets gaining interests rise which make the dividend profits of
stocks lower. The people who have saving deposits can transfer a part of their
money from stocks to other assets gaining interests. Sometimes the expected
changes in the market interests also play a critical role in deciding the
investors’ decisions similar to the changes of actual interests. If everybody
believes that interests will go up in the future, the stock prices at present will
reflect these expectations and the securities market will go down.

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Moreover, stocks are a form of long term saving which have high risk level;
therefore it requires each individual must have ability to manage risks very
well. The stock price fluctuate very strongly; it is quite different from the
stability of the deposit saving or government bonds (guaranteeing the
government). Therefore, in the case that the stock prices change dramatically,
not only individual investors or households but the economy as the whole will
be affected adversely.
1.1.6. Behaviors of the securities market
Due to the character of the securities market is a high risk and affected
strongly by the expectation factor of the investors; it can be seen that the
investors can push the stock prices beyond the long-term trend. The investors’
expectation is decided by psychological factor leading to the over reflection
in the securities market; therefore the overoptimistic attitude can make the
prices go up or pessimist spirit can make the prices go down too much.
The psychological factors can accelerate the stock price fluctuation. Many
researches have shown that people are driven by the rumor or “whispers”
way. In the present situation, it means that good news about one company can
make the investors have too positive reflection (unexplainable high prices).
The promising profit will strengthen the investors’ belief, reducing the level
of risk warning (in terms of psychological factor).
On phenomena also results from the psychological factor is the “crowd
thinking”. One buys or sells because all people do that. When the stock prices
go up, everybody runs to buy and when the prices go down, all people
together sell. This case leads to the phenomenon that the stock prices all go
down or go up which is difficult to explain.
The securities market, similar to any market, is not a place for people who
lack knowledge. The inexperience investors facing difficulties when looking
forward to receiving support from the government or professional investors.
Due to a main part of the securities market including unprofessional
investors, sometimes the market has a tendency to reflect unreasonably with
the economic news, even when the news has no any affect on technical value
on the stocks themselves. Whereas, the securities market can be nominated by
this direction because of media news, rumors or the public turmoil.
Moreover, the securities market often faces distorted information. In the
short-term, stocks and other value documents can be distorted or floated by
any even which makes the market change quickly, driving the securities
market into the dangerous situation. Therefore, it is very difficult for the
people who lack investment skills on financial issue and times to understand
well the market’s technical signals. In the case the securities market collapses
due to the investors’ psychological fearful factors, the economic and social
consequences are adverse.
The main purpose in the securities market management is how to make the
securities market becoming easier and safer for the unprofessional investors.
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But in fact this is very difficult. However, to reduce the financial market’s
imbalances, the important thing is that it’s needed to have legal, supervising
and regulating infrastructure which operates completely, smoothly and
objectively; especially ensures to disseminate related information timely and
exactly.
1.2. Experiences on developing institutions for the securities market in
some countries
Due to limited spaces of the paper, this part just introduces briefly the
experiences to develop the securities market institutions in some countries;
they are the US as one of the most developed market, following is the
Thailand securities market and China securities market which are two
countries nearby Viet Nam.
1.2.1-The US securities market
The US securities market has been formed rarely early and so far considered
the most developed market in the world with the sophisticated legal system
and infrastructure. By the beginning of the 20th century, there were millions
dollars of the stock values exchanged in the US securities market. The
securities market developed rapidly and boomed through 1920s until it
collapsed in 1929. In the dark Tuesday 29 October 1929, the New York
securities market went down at the record level 12%. Within a month, the
investors had loss of 100 billions USD in their accounts. Many people had
nothing left and many among them committed suicide. This collapse marked
the end of the booming of the securities market and began the period of Great
Recession lasting until 1933.
In the year 1934, the US government decided to regulate the securities market
to protect investors. In that year, the Assembly passed the Securities Act and
Securities Exchange Act. These acts provided to establish a government body
named Securities and Exchange Commission- SEC) having a task to
promulgate regulations on exchange securities. The agency also has a
function to supervise investors and provides needed information to the
potential investors. SEC also manages daily activities of the securities market.
With the regulations and protection the investors’ interests in the laws, the
securities market has facilitated all people participating. It is the increasingly
trend that many people own securities, a new investment, along with the
traditional ways such as house ownership or deposit savings.
The US Securities Act 1933 has two main objectives:
- Require companies to provide fully information needed related to the
offering of securities to public
- Forbidding defeat, wrong description and other faults when selling
securities.
According to the Act, one company (that means issuers) offer to sell
securities must provide fully information about the company itself as well as
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securities to the potential investors to help them deciding investment with the
fullest information. To achieve this objective and encourage equal exchange
in the securities market, the act also ask issuers must announce all full
information about the company itself and conditions related to the securities
issued. The information announcement also has other benefit is to prevent
distorted behaviors resulting from hiding information. The information
announcement is undertaken through the securities register with the SEC.
SEC is a governmental agency having responbilities to supervise the
securities market and enforce securities laws.

So far, the legal system on the securities market of the US has developed very
strongly and become one of the most complicated and sotiphicated system in
the world. This helps the US securities market stable and well development.
However, the most sotiphicated system also can not help the US to avoid the
financial defaults such as Enron or Worldcom.

1.1.2 The Thailand securities market

Under the umbrella of the WB, in the year 1974, the Thai Government passed
a law making precondition to establish the Stock Exchange of Thailand
(SET). The securities exchange began after a year latter. In that time SET is
an agency to undertake securities transactions in the same time regulating the
securities market.

Just until 1992, when the Securities and Exchange Act was promulgated, Thai
Securities and Exchange Commission (SEC) has been established separately,
with the functions to promote and develop the securities market. This Act of
Thailand has many points similar to the US securities regulation system.
Concretely, it provides clearly the role of SET as an agency to regulate the
securities market and SEC to supervise the securities issuing, IPO (Initial
Public Offer), investment companies, as well to prevent behaviors to
dominate the market and internal transactions. The Thailand securities market
is considered rather little regulated except some limitations, such as: not
allowing to “sell early” securities, the ceiling and floor prices are provided of
10% compared to the closing prices of the previous section; the share holding
of foreigners is limited by the rate of 25% shares in the financial
organizations and 49% in the other sectors.
After the Act passed, investment into the Thai securities market goes up
dramatically, especially from the foreign investors. From 1991 to 1994 was a
period the Thai securities market reached the top, the SET index increased
from 600 to 1759, nearly 3 times. Many analyses comment that, with such
growth speed, Thailand would become the 8th richest country in 2020. But it
not happened in the fact, the Asian financial crisis emanating from Thailand
in 1997 led to the collapse of the securities market. Within a month, the
securities market went down up 65% when the investors run to sell their
financial assets. Until 5 years latter, the Thailand economy still not fully

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recovers from this economic disaster. Apart from direct causes leading to the
crisis such as domestic currency was anchored too long, inconstant financial
liberalization, the main cause making the Thailand securities market collapse
is the untransparency of the securities market.

Due to this reason, in the years after the crisis, the Thai government has
followed a legal reform strategy. The most noted issue in the securities
market regulation is that SEC and SET have been transformed to the remote
supervising regulation system based more on open announcement
information. The new roles of the agencies are to reduce the role of justices
and increase the roles of policies. This has advantage is to use effectively
resources of the regulating agencies because the investors themselves must
take responbilities with their decisions based on information. The old
supervising system often leads to the fact that many investors misunderstand
there is the guarantee of the government on the securities market operations.
After taking the new jobs, SEC has a lot of effort to make information open
of the listed companies; and all violations in terms of information such as
wrong financial reports or delays are punished very hard. The violations of
administration rules from the issuing companies or securities companies also
are punished heavily. The SEC also asks the listed companies to establish
independent auditing commissions to supervise the information
announcement as well as the implementation accounting processes.
1.2.3.The China securities market
The development history of the China securities market began from 1860s
when foreign traders bringing securities trading into China, in the same time
of the establishment of the securities exchange in some European countries.
By the end of the Thanh dynasty 1911, China experienced 40 actual years of
the stockholding companies and the securities market. However, the first
Securities Act of China just was promulgated in 1914 under the public
government of Ton Trung Son. In 1918, the Peking Stock Exchange was
established and operated in Beijing. In September 1919, the Shanghai Stock
and goods Exchange was established. In November 1920, it was renamed as
Shanghai Chinese Stock Exchange. Securities trading in China was
interrupted within 7 years under the occupation of Japan (1937-45).
After the success of the Revolution, the People Public government of China
re-establish the ThienTan Stock Exchange in 1949 and the Peking Stock
Exchange in 1950, with 10 and 6 kinds of stock respectively. However, then
the Chinese government supposed that the securities market had the
speculation character which was again the economic principles of Marxism,
therefore two markets were closed in 1952. In that time, China had a policy to
nationalize private enterprises, and to 1958, China almost had no private
enterprises or shareholding companies but state-owned enterprises left.
Until the beginning of the 90s of 20th century, 10 years since China embarked
to reform its economy towards market, the securities market was reconsidered
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after many years of arguments. Since the establishment the stock exchanges
in 1991, the China securities market has developed very rapidly. In terms of
total market capitalization, the securities market development grows more
compared to the economic development speed of the country.
So far, the China securities market has become the third biggest market in
Asia in terms of total market capitalization. Total market capitalization of the
listed companies reached more than USD 3,5000 billions (about USD 500
billions) by the end of 2006 with the total value of circulated stocks up to
USD 1,2000 billions. The value of the stock index also reached the top in
June 2001 with 2218 points. But from there, this index continued to go down
to the bottom of 1000 points in July 2005.
In 2006, the Chinese companies had revenues of more USD 53 billions
through IPO, increasing many times compared to the level USD 24 billions of
the previous year. Among them there was the biggest IPO in the history: The
China Incombank offered IPO in Hong Kong and Shanghai with the stocks
valued of USD 22 billions.
The increasingly importance of the China securities market in the last decade
mainly come from the fact that China applies many measures to accelerate the
SOEs equitilization process. The SOEs transformation into equitization
companies facilitated them to have more opportunities to mobilize capital to
reform and modernize, reducing the dependence on bank borrowing and
improving corporate management. The establishment of the securities market
is the way to overcome the weak operations of the credit market in China. It
is truly with the fact that the private-owned companies are hardly to seek
capitals from the banking system which is mainly hold by the state; therefore,
the stock offering is the way to mobilize capitals rather effectively. Although
the China securities market has had institutional framework for the relative
stable development, but there are many problems left which should be
improved more. Some comments on the China securities market as the
followings:
Firstly, the China securities market emanating from a planning economy, so
that it could not avoid the inherent weaknesses of such economy. Typically,
the securities market suffers too much interference of the state but not by the
market to decide for expanding or narrowing too rapidly. The government
keeps the decisive role when there are market changes
Secondly, in a mature securities market, the amount of IPO and the prices
setting by the investment banks and the listing companies are decided by the
market conditions. But in China, the government still controls the time ranges
and the IPO price setting. When the market goes down, the government often
announce to delay the IPOs and in many cases, the prices are decided by the
administrative measures which always higher than the market prices leading
loses for the investors. Moreover, before 2002, the government applied IPO
quotas allocation. Every year, the national IPO agency allocates quotas

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equally to the 32 provinces and cities under the central level. This fact leads
to the bribes and accounting faults commonly.

Thirdly, the development of the China securities market still lacks of

systematic laws to adjust the normal development of the market. In the first
years, the securities market was under the regulations of fragmented and
inconsistent legal system and suffered the political affects which created the
unstable and unpredicted environment and lacked openness. Due to
ineffective laws, there were many phenomena to dominate the market, the
sues related to the securities and the corporate management were not treated
seriously.
Fourthly, the China securities market still is under the domination of the
private investors and they usually have “crowd behaviors” leading to uneven
changes of the stock prices. Meanwhile, the organizational investors usually
are the investment funds who have short term profit visions and speculation
characters, and lacking of the investment organization with long-term visions
such as pension funds and insurance companies. Recently, the China
government allowed the insurance companies to tender IPO and exchange in
the secondary market. This fact will help to reduce uneven price changes of
the securities market.
2. The Vietnam securities market
2.1. The organizational setting and operations of the Vietnam securities
market
The state securities commission (SSC)
In November 1996, the SSC officially was established under the Decree
75/CP dated 28/11/1996. This commission has responsibilities to organize,
develop and monitor the securities market. It can be said that, this is a model
of state management agencies on securities which is professional and reflect
the indirect involvement of the state into the securities market as a macro
manager.
However, during the period after the establishment, SSC has functioned as a
belonging Prime Minister agency and due to some causes resulting from its
organizational setting; SSC has revealed some weaknesses in regulating the
securities market. Some difficulties are that the SSC has no functions to
promulgate legal documents and link necessary tools and financial policies to
develop, manage and monitor the market. Therefore, to implement more
effectively the task of coordinating the activities of the functional ministries
in promoting the securities market, in 19 February 2004, the government
promulgated the Decree 66/2004/ND- CP to move the SSC into the Ministry
of Finance.
The tasks and authorities of the SSC are stipulated in the Decision No

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 The HCM city securities exchange centre and HaNoi securities exchange
centre (SEC) have been established according to the Decision No
127/1998/QDTTg dated 11/7/1998. Despite of its names but at that point of
tine, the organizational model as well management council model were
designed similar to that of securities exchange agencies from countries which
have developed securities markets such as New York, Tokyo, Hong Kong
securities exchanges. The securities exchange centres are under the SSC
control. The operating costs are covered partly by the state. SECs take charge
to organize, operate and monitor the securities exchange activities at their
places. According to the Decree 144/2003/ND-C P dated 28/11/2003, the
authorities and responsibilities of the SECs as the following:

- Organizing, managing and monitoring the listed securities exchanges;

- Managing securities exchange system;
- Managing and monitoring the listed securities;
- Managing and monitoring information announcement of the listed
companies;
- Managing and monitoring activities of the members of the SEC;
- Organizing, managing and announcing information.
The securities companies
As stipulated, the securities companies can be established in the form of stock
companies or limited companies. Moreover, the main activities of the
securities companies include sefl-bussiness making, securities investment list
management, securities issue guarantee and securities consultancy.

The securities companies are licensed by the SSC and have rights to register
as a member of SEC. The important point is that only the member of the SEC
has right to buy and sell securities through the system of the SEC. To receive
the license, some requirements must be fulfilled:
- having relevant infrastructure to do securities business;
- having minimum legal capital for each securities as stipulated;
- the directors and deputy directors and professional staff must fulfill
standards and must have securities operation certificates issued by the
SSC.

According to the newest regulations (the Decree 14/ND-CP dated 19/1/2007),

if on securities company want to have license of securities business, the
minimum legal capital must be 300 billions VND. At present, there are 55
securities companies in which 43 in place with the average chapter capital is
77 billions VND/company.

Listing requirements

To make sure that the SECs are honest and trust, the government focuses
strongly on the quality of the listed companies by issuing the standards and

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regulations for the listing. Each company must comply with all listing
requirement to receive the licenses. According to the Decree 144/2003/ND-
CP, a company must fulfill the following standards:
- being a stock company with the minimum capital of 5 billions VND;
- continuous 2 years with profits before the year of applying for listing;
- the members in the management councils, board of directors and board
of supervisors must commit to keep at least 50% their stocks within 3
years from the listing day;
- there are at least 50 outside investors, keep at least 20% of the total
stocks of the company, for the stock company, the stock capital at leas
100 billions VND or 15%.

The companies applying for listing must submit some documents to the SEC,
including the financial report with the clarifying of auditing agencies,
organizational settings, company charters, statements with information
similar to the requirements of the developed countries.

Prior to the 15/4/2003, the foreign investment companies were not allowed to
establish the stock companies, therefore they do not have a right to list in the
securities market. Recently, the Ministry of Planning and Investment has
allowed to transfer the foreign investment companies to the stock companies
which have right to list. The standards for listing of the foreign companies are
similar to those of the domestic ones.

Information announcement of the listed companies

The listed companies are asking to announce openly all important information
affecting on the investors’ decisions. The SECs have implemented fully the
information announcement policy, facilitating the investors to receive full and
accurate information to guarantee the transparency and honesty of the market.
In fact, the information announcement is undertaken through the media or the
newsletters of the SECs. The listed companies’ information can be divided
into two groups: common and uncommon information:

The common information includes the quartly semi-annual and annual

financial reports. As stipulated, within 10 days after accomplishing the annual
financial report, the listed companies must announce openly audited financial
information in the continuous 3 issues of a newspapers at national-wide scale
or local newspaper where the headquarter of the listed company located or in
the newsletters of the SECs. For the quarter and semi-annual reports, the
listed companies must announce in the newsletters of the SECs within 5 days
after accomplishing the reports. The uncommon information includes any
information related to the unforeseen events and affects on the investors’
decisions. The listed companies also are asked to announce this information
within 24 hours since the following events happen:

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 - there are significant changes on the business activities;
- losing of 10% up compared to the total capital of the company’s owner;
- the listed company, the member of the management council, member
of the director board, member of the supervisors board, and chief
accountant are investigated by the legal agencies, prosecuted related to
the company’s activities; and violates tax rules;
- There are changes in the strategies and business scales;
- There are decisions to expand business scales, big investment with
value of 10% up into other company’s stock capital, or buy or sell fix
assets value of 10% the capital of that company owner;
- Falling in bankrupting, there are decisions to merge, take over, divide
and dissolve;
- Sign borrowing contracts or issuing bonds value up to 30% of
company owner’s capital;
- Replacing the president of the management council or replace more
than 1/3 of the total management council members or replace the
general director;
- Approving the resolution of the stockholder conferences;
- There are other events considered having affects on the stock prices or
interests of the investors;
- Distributing stocks, extra issuing to increase registered capital.

Foreigners participation

The foreign investors (organizations or individuals) can buy or sell stocks in

the SECs through the securities companies. In the last time, the ownership
(total of ownerships of all foreign investors) in the listed companies just is
limited up to 30% of company owner capital. However, since 9/ 2005 up to
now, the government has expanded the limitation of securities ownership for
the foreign investors from 30% up to 49% (except the banking field). Besides,
the foreign investors want to participate into the securities market must
register through a company which is allowed to keep securities on behalf of
the foreign investors. Moreover, the foreign securities business organizations
are allowed to buy stocks of the Vietnam securities companies and/or
investment fund management companies, or contribute capital to establish
securities joint venture companies with the Vietnamese counterparts.
However, the capital contributing rate of a joint venture does not exceed 49%
of the company’s charter capital. According to the WTO access
commitments, Vietnam will open under the roadmap for the foreign financial
organizations, securities companies to participate into the securities market.
The SSC is a body to help the government build the WTO integration
roadmap in the securities field and the roadmap will be 5 years since Vietnam
access the WTO, the foreign securities service companies and fund
management companies are allowed to establish enterprises with 100% of
foreign capitals to do business in Vietnam.

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2.2. The achievements of the Vietnam securities market (1998-2007)

The Vietnam official securities market operate with two exchange centers
namely HCM city securities exchange center (SEC) and Hanoi securities
exchange center which were formed in 11/ 1998. The HCM SEC official has
operated since 28/7/2000 and the Hanoi SEC just has launched in 8/3/2005.
Therefore, up to now, the securities market has reached 7 years in operation.
In that period of time, the securities market has experienced a rise and fall.
This part will focus on describing the achievements of the HCM SEC and
Hanoi SEC. The followings are some comments and assessments.

2.2.1 The achievements of Vietnam securities market in the last years

In the first trading sections of the HCM SEC, there were only two stock kinds
of REE and SACOM traded. The growth of the market in terms of amount of
the listed companies in the beginning period was very slowly. By the end of
2000, there were only 5 stockholding companies listed; in 2001 there were
more 5 companies and 2002 with 10 more listed companies. Therefore, from
2001 to 2003, there were only 21 stockholding companies listed with total
capitals of 1086 billions VND. If the government bonds included, the total of
market capital just reaches the value of more than 8,700 billions VND.

The important point in the period that after the securities market was opened,
all listed stock prices go up day by day. Therefore, the VN- INDEX has
grown strongly and continuously, from the basic level of 100 to the record
one of 571.04 in 25/6/2001 within a year. The main reason to explain the
strong increase of the stock prices was that there was big imbalance between
stock demand and supply and investors’ pschycology put very high
expectation on the new investment form.

It seemed that the too rapid increase of the stock index in the too short time
has pushed the stock price too high compared to the real value. Therefore, to
adjust the market, the SSC has introduced a series of measures, such as
increasing stock supply, reducing transaction margins, set up the maximum
stock exchange for each kind of stock. These measures have affected
immediately to make the stock prices go down. However, the reduce is rather
strong and in the long period. In fact, the VN-INDEX has continuously gone
down from 5771,04 to the bottom 130,9 in 24/10/2003. The securities market
has experienced a dark period in more than a year. The cause of this situation
partly comes from the incomplete legal framework for the securities market;
the procedures to offer securities to the public are still complicated, the
conditions to issue are still high. On the other hand, the market scale is too
small with very few goods, the market liquidity is not high; this situation
makes the stockholding companies could not see the advantages of the
securities market as a effective capital mobilization channel to foster them to

14
be listed. Besides, the fact that the market has prolonged in the stagnation
also reduces the investors’ belief into the securities market.
By the end 2003, there were 14,000 transaction accounts opened at 12
securities companies, in which there were more than 90 organizational
investors, taking account of 0.6% and 35 foreign investors. Total market
capitalization just reached 0.5% GDP. Therefore, with the too small market
scale in this time, the Vietnam securities market could not be called as a
channel to mobilize capital for the economy, especially through stock issuing
channels of the companies.

The market progress in 2004 had no special things. After reaching the bottom,
V N-INDEX had recovered a little bit and kept stable at the level of above
200 from the January 2004. In 2004, the number of the stockholding
companies listed went up to 25 companies, bringing total trading value in
2004 reached up 11,887 billions VND with the average daily trading value at
6.8 billions.

The year 2005 witnessed the securities market’s brightness. As of

30/12/2005, VN- INDEX reached 307,50. Particularly, in this year, the
market scales had expanded significantly. By the end of 2005, there were 32
shareholding companies allowed to list at Ho Chi Minh Exchange Securities
Center, which are mainly restructured SOEs through equitization. The total of
market capitalization reached 6,337.478 billions VND in 31/12/2005, taking
account of 2% GDP. The daily trading value reaches 13.12 billions VND in
2005.
In the beginning of 2006, the securities market had a turning point with the
Vinamilk participation that made total stock value traded in the HCM SEC
increased twice, about 16,000 billions. The important thing is that the
securities market has attracted the participation of big companies and to a
certain extent they have realized that the securities market is an effective
channel to mobilize capital. Under many promoting measures of the
government, including the permission to the foreign investors to list in the
securities market, the year 2006 marked the dramatic rise of the listed
companies. By the end of 2006, there were 193 companies listed in the
securities markets in HCM and HN SECs in which there are many companies
with their capital reaches billions thousands VND such as PhaLai Power
Company. Total stocks circulated in the markets increase 8 times compared to
the whole previous period.
However, the securities market progress in the first half of 2006 had no
special apart from the fact that the VN –INDEX increased rather rapidly. By
October 2006, this index reached 500, but this level also was attained 5 years
ago.
The end of 2006 and the beginning of 2007 mark the most spectacular
development in the securities market development history so far. Beginning
15
from the event that Vietnam organized the APEC Conference in November
2007 and some special events such as VietNam becoming the WTO member
which promises a bright perspective for attracting foreign investment into
VietNam in which the securities market included. Along with impressive
economic development in the last time as well as the perspective
development in the next years, these important events have affected directly
on the infant securities market of VietNam. The securities investment has
attracted the investors so much which never happened before. Just only in the
short period, the VN-INDEX of HCM Exchange Floor increases sharply from
511.54 points in the last day of October 2006 up to the top of 1,17067 points
in 13 May 2007. The increase level within 4 years (except the Tet holiday)
reached nearly 130%. In the HN securities exchange floor, HATTGCK-
INDEX also increases from 241.92 in the first trading day in 2007 up to the
highest level of 459.36 in 19 March 2007.
However, after a seemingly growth short period, matching with expectations
of many foreign and domestic experts, the Vietnam securities market has
been entering into the period of self-adjustment. After reaching the top with
VN-INDEX 1170 by the middle of March, the market has gone down
continuously and after more than a month, the VN-INDEX has returned the
level of 900 (As of 23 April 2007). The securities market has attracted the
public attention when the VN- INDEX exceeds 1000 in May 8 2007.
However, according to the experts, the strong increase momentum in the two
continuous trading sections can stretch the sustainability of the circles.
The total market capitalization by the end of 2006 reached 340,000 billions
VND or 13.8 billions USD (equivalent to 22,7% GDP), and up to April 2007
was equivalent to 24.4 billions USD, 20 times compared to the year 2005.
The increasing speed of market capitalization has exceeded far from the level
10-15% proposed by the government in the Development Strategy for the
securities market up to 2010.
The number of the listed companies went up from 41 in 2005 to 193 in 2006.
The number of the trading accounts of the investors at the securities
companies was above 120,000 by 12/2006, 3 times compared to by the end of
2005 and 30 times compared to the beginning year. In the first quarter of
2007, there were 60,000 accounts has opened, equivalent to the number of the
whole beginning period (2000-05). The account number of the individual
foreign investors also rises strongly in that period with 1,700 accounts and
they are holding about 30% of stock amount of the listed companies. As for
the organizational investors, so far there were 55 securities companies, 35
investment funds, in which 23 foreign investment funds.
One thing is not least important is that the market’s liquidity has improved
significantly; in the first 3 months of the year, the total stock trading value at
HCM exchange floor reaches 1,000 billions VND/section; the HN exchange
floor reaches 300 billions VND/section, meanwhile from 2005 back, the stock

16
trading value each section just fluctuated from several millions to billions
VND.
2.2.2 Assessment on the Vietnam securities market achievements
Although the Vietnam securities market till is in the beginning period to
develop, it can be said that the results of the market in the last time are
significant.
- Some problems of the current securities market
Firstly, the market scale is small;
Secondly, the average P/E index of the listed companies are at too high levels
compared with the actual business results of the listed companies.
Thirdly, In spite of the liquidity of the securities market expressed in the
stock transaction values increases rapidly in the last time, but the rate
compared to the market capitalization total still is too small.
Fourthly, The equitized SOEs take a main part among the listed companies,
in which the rate of stocks held by the State is relatively high.
Fifthly, The Vietnam securities market still is dominated by individual
investors (up to 90%) and mainly small ones.
Sixthly, The securities market grows too rapidly in the very short time (from
by the end of 2006 so far).
Seventhly, the role of foreign invidual investors at the securities market needs
to be promoted as an international capital source to add to the domestic one.
However, it’s necessary to launch a remote effectively monitoring
mechanism to this foreign capital source.
Eighthly, many problems posed which need to be solved, such as the
interference of market management agencies is too deep and direct; the
management and supervising market are still weak...
Ninthly, the Vietnam securities market still lacks of some important
institutions such as the pension funds,...
Lastly, the capital souces flow into the securities market in the last time
is very huge; it means that the amount of money kept by public still very big.
-Perspectives of the securities market in the next time
Based on the brightness of the securities market in the last time, it can
be said that the securities market has played a significant role in the socio-
economic life in Vietnam. This also means that the development prospective
of the Vietnam securities market in the long-term will be very bright.
3. Some solutions to develop and improve the effect of the Vietnam
securities market
The policies to develop the Vietnam securities market 2006-2010

17
 The development objectives of the Vietnam securities market 2006-
2010 as the following:
• Expanding an organized securities market; narrowing free markets;
striving up to 2010 the organized securities market’s capitalization value total
reaches to 10-15% of GDP.
• Improving transparency of the stock market ; applying the best
practices on corporate governance for the public companies and securities
business agencies.
• Expanding scales and capacities of the securities business and
service agencies to meet development requirements of the securities market.
• Openning the securities service market under the commited
roadmap for integration ; applying the principles on managing securities
under the recommendations of the International Organization of Securitities
Commitees which are consistent with certain development period of the
market.
Some measures to make the securities market really becomming long-term
capital supplying source for enterprises, investors and the economy as the
whole
On the macro factors: stabilizing the political and economic environment to
promote the public’s investments and savings.
On the micro factors : building a complete legal framework with full and
clear legal documents to regulate the securities market’s activities ; providing
an effective transaction mechanism through the arrangements and operations
of the Securities Exchange Centers; establishing some organizations to
support the market development, such as credit rating agencies, auditing
organizations, …
The measures to mitigate risks, guarantee stability and avoid big and
sudden changes ot the securities market
Firstly, the governement plays a role as a person to direct information
and lead the market. The government should not use administrative measures
to interfer into the securities market, but should provide to the public timely
and objective information through the media to adjust the securities market’s
behaviours.
Secondly, adjusting the market by relevant tools. One function of the
State Capital Investment Coporation to mobilize domestic and foreign capital
sources in order to supplement business capital through issuance of corporate
bonds or project bonds, or setting up of investment trust funds can be used as
a tool to interfer into the securities market.
Thirdly, Guaranteeing safety for the whole system. The development
of the securities market always relates closely with the other parts of the
18
financial market, especially the banking system. Therefore, it’s necessary to
tie the measures to make sure safety for the entire banking system.
Fourthly, developing and implementing the derivative tools on
securities. These derivative tools include: options, swap and futures.
However, the development of these tools requires the support of the advanced
and modern technology. In the development condition for the Vietnam
securities market at present, applying gradually the derivative tools are
possible and relevant.
3- Solutions to develop effectively and bring into play the effects of Việt
Nam securities market
3.1 Policies to develop the Việt Nam securities in the period of 2006-2010
In 20 February 2006, the Minister of Finance signed the Decisions 898/QD-
BTC on issueing the Plan of Việt Nam securities market development 2006-
2010. Although there are some small adjustments in the plan,such as the
objective of securities market’s total market capitalization (due to the market
develops too fast in the recent months), it can be said that this is rather
comprehensive development strategy for the securities market, involved the
factors making sure for the development with high quality of the securities
market, and suitable with the context of a securities market in the first steps
of Vietnam.
According to the plan, the objective of Vietnam securities market 2006-2010
as the followings:
- Expanding the organized securities market, narrowing the free market;
striving up to 2010 the total market capitalization reaches the level of
10-15% GDP.
- Increasing the transparency of the securities market, applying the best
practice on corporate governance on the public companies an the
securities market busisness organizations.
- Expanding the scale and capacities of the stock service business
organizations fufilling the need to develop securities market.
- Implementing for stock register of the public companies operating in
the organized securities market at the stock center.
- Opening the stock service market under the commited integration
roadmap; appying the principle on securities market management
according to the recommendations of the International Organization of
stock Commission consistent with each of development period of the
securities market.
19
To attain these general objectives, the Plan also sets up the sollutions to
implement including:
- Developing commodities for the securities market
a- Completing the legal framework and policies to make sure the State
manages unitedly the offering stocks to the public and the public
companies; applying the corporate governance rules to the public
companies.
b- Pursuant to the Program of SOEs reform 2006-2010, building and
implementing the plan to link the equitization of SOEs with the listing
in the securities market; transfering the foreign capital enterprises into
the stockholding companies and listing in the securities market; selling
the stocks which the State does not need to hold in the listed companies
according to the List of sectors and areas regulated by the government.
c- Improving the way to issues government bonds in the direction of
increasing the tender shares. Completing the legal framework, selecting
and guiding the local governments, big enterprises to issue bonds for
capital investment mobilization.
d- Developing other goods in the securities market including stock
investment funds’ certificates, derivative stocks.
-Developing the securities exchange market
a- Transfering the HochiMinh city SEC into the Securities Exchange
undertaking the functions of listing and exchange stocks of the big
companies.
b- Completing the organizational setting and operations of the HaNoi
SEC by the model of non-concentrated market.
c- Guiding and managing, monitoring the stock exchange activities
which are not listed at the stock companies.
d- Building and completing the bond exchange market, especially the
government bonds.
- Developing the stock business and service organizations
a- Progmulating regulations to build legal base for the stock companies to
restructure in the direction of increasing capital scale, developing of
human resources, expanding the scale and network to provide stock
services.

20
 b- Building and developing the system of the market founders; system of
the professional bond business traders.
c- Expanding the professional scale and scale of the fund management
companies; the fund management companies implement the funtions
of managing investment lists and funds. Promoting the commercial to
establish fund management companies; diversifying the collective
investment types.
d- Applying corporate governance according to the best practice to the
stock business, service orgnizations; making standards the internal
control, risk management and working process; implementing the Rule
of professional moral on stock business.
-Developing the supporting organizations
a- For the Stock Deposit Center
- Preparing all necessary conditions to activate the Stock Deposit Center
from 2006 to implement the works of registering, deposit,
conpensating, stock payment which are undertaken by the Stock
Exchange Centers.
- Completing the legal framework, professional process to implement
the tasks of registering stocks of the public companies at the Stock
Deposit Center from 2007.
- Undertaking research to transfer the Stock Center into the company
model, in which there is the state’s ownership capital; diversifying the
professional works of the Stock Deposit Center.
b- For the deposit members
Developing the deposit member network (stock companies, deposit
banks) to provide the stock service guaranteeing property safe and
implement rights of investors.
-Developing investors
a- Developing the professional stock investment organizations,
promoting these organizations to establish fund management
companies and stock investment funds, striving to make the
investment shares into securities market of these organizations reach
the level of 20-30% of the total value of the listed securities market in
2010.

21
 b- Disseminating knowlegdes on stocks and securities market to the
public, improving the public’s understandings on the roles, interests,
risks of the investment type through stock investment funds.
-Developing the securities market IT infrastructure
a- Completing and applying the mordern stock exchange system for the
SEC, Stock Deposit Center from 2008
b- Building and guiding to implement the IT standards applied for the
stock business and service, making sure to provide service and
transparent information on the securities market to all investors.
c- Completing the building of concentrated databases serving the market
management; computerizing the exchange and update data.
Strenthening to apply IT in the market management and monitoring.
• International integration on the securities market
a- Implementing the integration program on ASEAN capital market in the
period of 2006-2010, including some contents: undertaking the initiation
on Asian Bond Fund; harrmonizing the standards for issuing, listing,
announcing information in the securities market; connecting
transations,cross-listing among ASEAN Security Exchange; preparing to
form the common second market for transacting ASEANcountries’
bonds; striking for having enterprises participating the list of 100 leading
listed companies of the ASEAN countries.
b- Implementing to open the service securities market under the commited
roadmap at the bilateral and multilateral agreements.
c- Implementing rights and obligations of the IOSCO’s member; signing the
Memory of Understanding on the bilateral cooperation with the Securities
Commitees in the regions; signing Memory of Understanding on the
multilateral cooperation with the IOSCO.
- State management on the securities market
a- Drafting the Securities Law and guiding documents to submit the state
authority agencies to progmulate in 2006.
b- Shifting the organizational setting and operations of the stock exchange
centers under the regulations of the Securities Law.
c- Increasing the transperancy, openess and equity of the securities market’s
activities based on the completion and implementation the rules of
information announcement, corporate governance for the public
companies.
22
d- Improving the capacity for making policy, strengthening the
effectiveness of the monitoring and auditing works and law violations
treatments on the stocks and securities market; perfecting and applying
the standards to assess the effectiveness of the stock companies, fund
management companies, warning the unusual transations in the securities
market.
e- Applying the securities market management principles under the
recommendations of IOSCO on the areas: management of issuing stocks,
collective investment funds, immediate market organizations, secondary
markets.
f- Implementing the Proposal of training the staff who do stock businesses
and disseminating knowledge on securities market to the public in the
period of 2006-2010 approved by the Ministry of Finance.
3.2. The measures to make securities market really being the channel to
supply longterm capitals to the enterprises, investors and the economy.
As mentioned in the part 1, the effective securities market is a place where
the organizations can mobilize longterm capital for the manufacturing and
business activities through the selling stocks to the public. To have an
effective securities market, it needs some core conditions as the following:
- In terms of macro factors: the stability of political environment and macro
economic to promote investment and savings of the public; the inflation rate
is curbed at the reasonable rate to maintain the development of the economy;
the budget deficit in the safe limitation, the economic development strategies,
poverty reduction and job creations have been implemented effectively.
- In terms of micro factors:
+ Consistent and complete legal framework with the full and clear legal
documents regulating all activities of the securities market to help the
securities market to be safe, protect the rights and legal interests of the
entities participating into the market.
+ The network of the middle organizations operating in the securities market
such as stock companies, investment fund management companies,… plays a
role as a bridge among investors, implementing the work of the stock middle
men in the concentrated market, providing other supporting services to the
investors such as lending, information provision, and services relating to
stock transactions to the investors such as stock investment consultation,…
+ Providing a mechanism for effective transactions through organizal setting
and operations of the stock exchange centers and departments including the
23
transaction, monitoring, information announcement system. The system’s
operations have significant effect to the development of the market through
the quick and exact treatments for the market transactions, helping to increase
the speed of circulating capital in the market.
+ The organizations support to the market development, as midle institutions
such as credit rating organizations, auditing organization, consultations,
payment banks,…
Besides, the market needs the participation of the professional investors
playing the roles of leading and intervening the market at the time of
unbalance for the supply and demand relationship.
In the last time, the securities market was not really a channel to mobilize
midterm and longterm capital for the economy due to some causes as the
following:
. The barriers from the state policies for issuing stocks to the public, the
procedures are too complicated, lacking legal bases for the issues resulting
from the stock issuing process.
. The difference between lending interests from the banks and expected
divident of the stockholders is not high. Therefore, capital mobilization
through the securities market is rather expensive and difficult to implement.
. The information announcement in the market has a lot of shortages such as:
information is not exact and timely,…
. The OTC market is formed without management. Therefore, the
transactions in the OTC market taken place under many forms and having
high risks for the investors.
From above analyses, to make Viet Nam securities market really becoming a
capital mobilization channel for the economic development, it needs to solve
the following issues:
- Strengthening the management and supervising mechanism for announcing
information in the market, creating a transparent market helping investors be
able to make decisions based on the full, exact and systematic information.
- Continuing to perfect the legal corridor for the market, forming the stable
and consistent legal environment for the stock business. Strengthening the
efficiency of the legal documents in the stock business area. Pushing forward
the auditing and monitoring works and punish strongly for the violations.
- Establishing an attractive environment for the investors, listed companies,
fund management companies, stock companies through the build of stable
24
economic environment, avoiding the frequently changes of policies which
will create the negative attitude to the government. Besides, the SSC should
not intervene too deep into the operations of the members in the markets.
- Developing the OTC market by improving experiences of the market
participants, the level of paying attention and understandings of the public.
On the other hand, re-organizing the market to increase stock supply for the
investors, facilitating for the companies which are not able to list to have a
chance to access the market. However, the OTC market development must be
accompany with the close management, such as:
+ Asking all public companies (including those not listed yet) to register to
the Stock Center; organizing for train, listing openly, in the same time require
to audit, announcement information and corporate governance under the rules
of the Law on Securities. Applying the measures to punish violations
according to the new regulations for the cases which do not register and
comply with the current rules.
+ Implementing concentrated deposit and register for the public companies to
reduce payment risks in the free market.
+ Applying the Proposal for transactions to stocks which are not listed yet,
using stock companies as clues, shifting transactions to the Hanoi SEC and
implementing deposit payment though Center of Stock Deposit. Step by step
making the free market’s activities open and gradually attaching to the
official market.
+ Submitting the government to promulgate solutions on separate issuing and
free transaction, in which suggesting the Ministry of Planning and Investment
and the Ministry of Finance to issue the Decree to guide the Law on
Enterprises on separate issuing and release on the website the financial
situation of the company,...
- In fact, in the both transaction floors Ho Chi Minh City and Hanoi, the
amount of listed stocks has reached nearly 200 codes. However, the amount
of the listed companies which have large chapter capital are still moderate.
3.3 The measures to mitigate risks, guarantee stability and avoid big and
sudden changes of the securities market
Firstly, the governement plays a role as a person to direct information
and lead the market. The government should not use administrative measures
to interfer into the securities market, but should provide to the public timely
and objective information through the media to adjust the securities market’s
behaviours.

25
 Secondly, adjusting the market by relevant tools. One function of the
State Capital Investment Coporation to mobilize domestic and foreign capital
sources in order to supplement business capital through issuance of corporate
bonds or project bonds, or setting up of investment trust funds can be used as
a tool to interfer into the securities market.
Thirdly, Guaranteeing safety for the whole system. The development
of the securities market always relates closely with the other parts of the
financial market, especially the banking system. Therefore, it’s necessary to
tie the measures to make sure safety for the entire banking system.
Fourthly, developing and implementing the derivative tools on
securities. These derivative tools include: options, swap and futures.
However, the development of these tools requires the support of the advanced
and modern technology. In the development condition for the Vietnam
securities market at present, applying gradually the derivative tools are
possible and relevant.

26