These proposed amendments have generated widespread debate, with some hailing them as crucial for enhancing investor protection, while others fear they may impose unnecessary hurdles that could stifle investor participation and limit the ability of companies to raise capital.
This article delves into the various facets of the proposed amendments and examines whether the changes are likely to safeguard investors or create additional challenges for the country’s burgeoning stock market.
Tighter Restrictions for Investors
One of the most hotly debated aspects of the amended law is the introduction of more stringent criteria for defining who qualifies as a "professional investor." According to the draft, companies seeking this designation must possess a charter capital of at least VND 100 billion and have been operational for at least two years. For individual investors, the criteria are even more demanding: individuals must have been active in the securities market for a minimum of two years, executed at least 10 transactions per quarter over the past four quarters, and earned an annual income of no less than VND 1 billion for the last two years.
Moreover, the proposed law introduces further limitations on who can participate in buying, trading, and transferring corporate bonds. Only institutional investors, as stipulated in Clause 1 of Article 11 of the Securities Law, will be allowed to engage in these transactions, thereby excluding many individual investors from these opportunities.
Proponents of these changes argue that the new criteria are essential for preventing inexperienced investors from engaging in high-risk transactions they may not fully understand. By ensuring that only financially qualified and experienced investors can participate in certain aspects of the securities market, the MOF aims to enhance investor protection and reduce the likelihood of market instability caused by reckless or ill-informed trading.
However, critics have raised concerns that these restrictions may be overly stringent and could exclude a significant portion of potential investors. For instance, the requirement that investors execute a minimum of 10 trades per quarter is seen as problematic for long-term investors who prefer to hold stocks for extended periods and, therefore, trade less frequently. These investors may have substantial experience and financial capacity but could still be excluded from the market due to their lower trading frequency. By focusing too narrowly on transactional activity, the law risks alienating a segment of investors who contribute to market stability through long-term investment strategies.
Furthermore, the exclusion of individual investors from the corporate bond market could have far-reaching implications. By limiting participation to institutional investors, the law restricts the ability of individual investors to diversify their portfolios and take advantage of opportunities in the bond market. This move also appears to contradict the government’s broader goal of encouraging individual participation in the stock market as a means of promoting the long-term development of Vietnam’s capital markets.
Is the Law Clear Enough?
Another key focus of the amended law is the introduction of stricter regulations aimed at curbing market manipulation. Specifically, the draft amends Clause 3 and adds a new Clause 6a under Article 12, which aims to codify several provisions on stock market manipulation previously outlined in Decree 156/2020/ND-CP. The proposed changes target activities such as buying or selling securities in large volumes during the market's opening or closing (ATO and ATC) to artificially influence the opening or closing prices. Additionally, the law prohibits placing simultaneous buy and sell orders for the same securities on the same trading day, a practice that could be used to manipulate stock prices without actual ownership transfer.
The MOF’s intention to eliminate market manipulation is laudable, as such activities undermine investor confidence and distort market pricing. However, the proposed restrictions have raised concerns among some investors who fear that the law lacks sufficient clarity in distinguishing between legitimate trading strategies and manipulative practices.
For example, many private investors commonly place simultaneous buy and sell orders on the same trading day as part of their normal trading strategies. These transactions are not intended to manipulate the market but rather to optimize their investment positions in response to market conditions. If these practices are swept up in the law’s broad prohibition against same-day trading, it could deter ordinary investors from engaging in otherwise legal and profitable trading activities. This ambiguity could create a chilling effect on market participation, ultimately harming liquidity and overall market efficiency.
Analysts have proposed two potential solutions to address this issue. First, the law should include more specific definitions of market manipulation to provide clearer guidance on what constitutes illegal behavior. This would allow regulators to target manipulative practices without penalizing legitimate trading strategies. Second, the law should introduce stronger provisions for market surveillance and oversight. This would involve enhancing the capacity of regulatory bodies to monitor trading activity, detect suspicious transactions, and initiate investigations when necessary. Such an approach would help protect market integrity while ensuring that the regulatory environment remains conducive to healthy trading activity.
A Barrier to Capital Access
Corporate bonds serve as a vital tool for companies seeking to raise capital, particularly for those that may not wish to issue additional equity or seek traditional bank loans. Under the existing Securities Law, companies that wish to issue bonds to the public must meet a series of strict conditions, including maintaining a minimum charter capital of VND 30 billion, posting a profit in the year preceding the bond issuance, and ensuring they have no overdue debts of more than one year. Companies are also required to present a detailed plan for how the bond proceeds will be used and to commit to listing the bonds on the securities trading system after the issuance is complete.
While these conditions are already quite stringent, the amended law proposes adding even more hurdles for companies seeking to issue bonds. According to the draft, companies must now provide collateral or obtain a bank guarantee to issue bonds, except in cases where financial institutions are issuing bonds as secondary debt. This proposal has sparked significant debate, with many financial experts warning that the new requirements could hinder companies’ ability to raise capital through the bond market.
For companies operating in sectors like insurance, securities, and other financial services—sectors that often have minimal fixed assets—the requirement to provide collateral could prove particularly burdensome. These companies, despite having strong financial fundamentals, may struggle to meet the new collateral requirements, which could limit their ability to issue bonds and, in turn, stifle their growth. The financial sector plays a critical role in the overall economy, and restricting these companies’ access to capital could have far-reaching implications for Vietnam’s long-term economic development.
Moreover, companies that have already demonstrated sound financial management and adhere to strict financial safety ratios under existing regulations should not face additional barriers when seeking to issue bonds. These companies are closely monitored by regulatory authorities to ensure they maintain healthy balance sheets and operate within the bounds of financial prudence. Imposing new collateral requirements on such companies may be both unnecessary and counterproductive, ultimately stifling their ability to raise funds for expansion and investment.
Limiting Individual Investors in Bond Markets
The draft law also proposes significant changes to the rules governing individual investors’ participation in the corporate bond market. Specifically, the law seeks to extend the transfer restriction period for bonds from one year to three years for professional investors. Additionally, only professional institutional investors will be permitted to purchase privately issued bonds, effectively excluding individual investors from participating in this market.
Critics argue that these changes are unnecessary, given that the current legal framework already ensures that individual investors are sufficiently knowledgeable and financially capable before they can participate in bond offerings. Decree No. 153/2020/ND-CP, for example, mandates that investors must sign written confirmations acknowledging their understanding of the risks involved and their responsibility for their investment decisions.
By further limiting individual investors’ access to the bond market, the amended law risks curtailing their investment opportunities and restricting their financial freedom. Individual investors play an important role in Vietnam’s bond market, and excluding them could reduce the overall level of market participation, ultimately slowing the flow of capital to businesses. Given the government’s stated goal of fostering a vibrant and inclusive bond market, these restrictions seem counterproductive.
Moreover, the global trend in bond markets has been toward greater inclusion of individual investors as a means of promoting long-term economic development. By excluding individual investors from privately issued bonds, the MOF’s draft law could put Vietnam at odds with international best practices and hinder the development of its domestic bond market.
The proposed amendments to Vietnam’s Securities Law represent a well-intentioned effort to strengthen investor protection, improve market transparency, and ensure the integrity of the country’s capital markets. However, as with any regulatory overhaul, the devil is in the details. While the law seeks to prevent market manipulation, ensure that only qualified investors participate in high-risk activities, and safeguard bond issuance, there is a real risk that the proposed changes could have unintended consequences.
