Existing Shortcomings in the Securities Law
The first issue lies in the vague assignment of responsibility to entities and individuals involved in submitting documentation, preparing reports, or participating in regulatory filings. This lack of clarity has created an environment where these stakeholders do not fully comprehend their obligations. Consequently, the quality of the information they provide to investors is compromised. This situation not only hampers the flow of accurate data to market participants but also places a heavy burden on regulatory agencies, which are forced to spend significant amounts of time reviewing and processing subpar documents.
Second, market manipulation has become a growing concern. Recent trends show that certain investors or groups of investors engage in strategic trading on select days with the intent to manipulate the opening or closing prices of specific securities. Even if these manipulative trades occur sporadically, they can have a disproportionately large impact on the stock market, distorting price discovery and undermining investor confidence in the market’s fairness.
Third, the privately issued bond market is currently misaligned with its intended structure. In practice, a large number of privately issued bonds have been sold to thousands of individual investors, many of whom lack the necessary experience and risk awareness. These individual investors typically engage in low-value transactions and are often unfamiliar with the risks inherent in such investments. While the government has attempted to address these issues through Decree 65/2022/ND-CP, which amended Decree 153/2020/ND-CP, the measures have so far proved ineffective. As a result, the Ministry of Finance argues that codifying specific provisions into law is essential to resolving these persistent challenges.
Key Amendments Proposed by the Ministry of Finance
In light of these evaluations, the MOF has proposed three key policies aimed at amending and supplementing the Securities Law, including a third policy focused on upgrading Vietnam’s stock market.
First, one of the major focuses of the proposed amendments is enhancing transparency and efficiency in securities issuance and offerings. Notable amendments include revisions to Article 11, which now stipulates that companies with charter capital exceeding VND 100 billion must have been in operation for at least two years before participating in the stock market. For individual investors, the proposed changes introduce additional requirements, such as: a minimum of two years of active participation in securities trading; a minimum trading frequency of 10 transactions per quarter over the last four quarters; a documented annual income of at least VND 1 billion over the previous two years; an extended lock-up period for the transfer of securities, from one year for professional investors to three years for strategic investors. These changes aim to bring more professionalism into the market by filtering out inexperienced participants and ensuring that those engaged in stock trading have a sufficient level of expertise and financial capacity.
The second major set of amendments focuses on improving oversight and cracking down on fraudulent practices in securities issuance and offerings. The proposed changes seek to clarify the responsibilities of organizations and individuals involved in securities filings and market activities, making it easier for regulators to hold these parties accountable. Clause 3 of Article 12 is amended to codify market manipulation behaviors that were previously only covered by administrative decrees, such as Decree 156/2020/ND-CP. This includes actions like trading large volumes of securities at market open or close to influence the opening or closing prices, or placing simultaneous buy and sell orders for the same security in a single trading day without an actual intention to transfer ownership. These amendments aim to deter manipulative practices by making it easier for regulators to pursue legal action against offenders.
Beyond tightening regulations, the Ministry of Finance is also focused on upgrading Vietnam’s stock market, making it more attractive for international investors and better integrated into the global financial system. The goal is to enhance the market's transparency and protect investors while promoting sustainable growth.
Evaluating the Proposed Amendments
The amendments proposed by the MOF, particularly the two policies that focus on tightening regulations, will undoubtedly elicit a wide range of reactions from the market, both positive and negative. In an era characterized by the rapid development of artificial intelligence (AI) and other disruptive technologies, financial regulations can quickly become outdated, often even before they come into effect. This presents a major challenge for lawmakers, as the Securities Law—and indeed the entire financial system—must focus on strategic, long-term issues to ensure sustainable market regulation.
However, the MOF’s proposed amendments appear to be largely tactical or technical in nature. These changes are primarily designed to address specific market behaviors, such as buying, holding, and trading patterns of market participants. While these are certainly important aspects to regulate, the problem with this approach is that the stock market is constantly evolving, and the law cannot always keep pace with these changes. Constantly revising the Securities Law to address emerging market behaviors runs the risk of making the law obsolete before it even comes into force. Furthermore, the continuous adjustment of securities regulations could destabilize the business environment, creating uncertainty for both investors and companies.
Key Principles for Drafting the Securities Law
When drafting the Securities Law, it is essential to focus on strategic, long-term issues rather than merely responding to short-term market behaviors. There are three core principles that most advanced financial and securities laws aim to address:
First, one of the key objectives of any securities law should be to enhance the accountability of regulatory agencies. Unfortunately, this critical issue is not addressed in the current draft law. Regulatory agencies must take responsibility for monitoring and enforcing market regulations. For example, in cases of market manipulation, such as the infamous FLC Group scandal, the regulatory body should use the case as a precedent to penalize similar behaviors in the future. It is not enough to simply amend the law to provide a basis for enforcement. The regulatory agencies must proactively take responsibility for implementing and enforcing the law.
Second, a well-designed securities law should focus on preventing potential negative market outcomes before they occur, known as ex ante strategies. This involves setting clear rules for market entry, behavior, corporate governance, and information disclosure, as well as establishing micro- and macro-prudential guidelines to manage systemic risks. The goal is to create a market environment where investors have access to accurate and comprehensive information, enabling them to make informed investment decisions. This includes providing detailed descriptions of a company's business operations, assets, management, and securities being offered, along with certified financial statements and disclosure of significant investment risks.
Unlike banking laws, which often focus on managing financial failures, the Securities Law should not prioritize post-failure strategies (ex post strategies). However, the MOF’s draft law does exactly that, placing too much emphasis on empowering the state to regulate transactions in such a way that aims to prevent investors from going bankrupt or defaulting. This fundamentally distorts the purpose of the stock market as a channel for medium- and long-term capital mobilization, which inherently requires investors to accept a certain level of risk.
The core of the Securities Law should be its transparency requirements. The law must clearly define the rules for information disclosure, in order to prevent fraudulent practices and misrepresentation in securities sales. In essence, the Securities Law is a "truth in securities" law.
Third, the Securities Law must also balance the state’s tripartite mission: protecting investors, ensuring a fair market, and maintaining financial stability. However, the MOF’s draft law focuses almost exclusively on protecting investors and regulating companies involved in the stock market, without adequately considering the broader financial system. From a methodological standpoint, this approach is akin to a homeowner laying a solid foundation for their house while simultaneously destabilizing the entire apartment building. Protecting investors is undoubtedly important, but the Securities Law must also safeguard market fairness and promote financial stability.
Since the global financial crisis of 2008, securities laws around the world have increasingly emphasized financial stability. Similarly, Vietnam experienced a crisis of confidence in its bond market just two years ago, which led to a freeze in both the banking credit channel and the capital market. This caused widespread disruption across the entire financial system, underscoring the importance of financial stability in any new legislative framework.
The proposed amendments place too many technical barriers to market entry and trading. As a result, Vietnam's economy is left with few viable options for accessing medium- and long-term capital beyond the banking system. This creates systemic risks, as businesses become overly reliant on bank loans.
Conclusion
When considering the rapid pace of change in global stock markets, no country has experienced more regulatory evolution than the United States. However, each time there is market turbulence, the U.S. does not simply rewrite its securities laws. Since the passage of the Securities Act of 1933, U.S. securities law has undergone numerous amendments, with the most significant changes occurring in 1975 and through more recent legislation such as the Dodd-Frank Act. Yet, these amendments primarily focus on adapting the market to financial innovations, while leaving the core principles of transparency, accountability, and investor protection intact.
The fundamental goal of securities laws remains unchanged: to protect investors by ensuring they have access to accurate and comprehensive information. These laws are updated periodically to address contemporary issues but always return to the foundational principles established in the original Securities Act of 1933. Additionally, micro- and macro-prudential regulations like those introduced by the Dodd-Frank Act ensure that the financial system remains stable.
In conclusion, Vietnam’s revised Securities Law must be designed with a comprehensive vision, encompassing the entire financial and banking system—not just the Ministry of Finance. To achieve this, the law must focus on long-term, strategic goals that promote market transparency, investor protection, and financial stability. Only through a holistic approach can Vietnam’s stock market evolve into a sustainable engine for economic growth.
