Vietnam to Tighten Control over OTC Market

The Vietnamese Government will make big changes to control the over-the-counter market (OTC) from January 2008. This is an important step in the State Securities Commission’s (SSC) process to build organisation and management plan for securities transactions of unlisted public companies.

 

The SSC Chairman Vu Bang said the stocks of unlisted public companies are put into OTC trading system of the Hanoi Securities Trading Centre (HASTC). These public companies must register their stocks at custody centres and carry out procedures for transaction information at a securities company.

 

An investor is allowed to open only one trading account in a securities company. In case investors have trading accounts for listed stocks, they will be allowed to use these accounts to carry out transactions for unlisted stocks. These accounts will be divided into two sub-accounts including one part for listed stocks and another part for unlisted stocks in order to facilitate the SSC’s supervision. "Before trading on the securities market, players have to deposit money in their accounts to ensure the transactions. The quotation unit is VND100 for shares and VND1 for bonds. The face value is VND10,000 (62.5 US cents) for a share and VND100,000 (US$6.25) for each bond and the fluctuation band of stock price is not limited. The comparative price does not exist as in the official market," Mr Bang emphasised. He added that investors would trade stocks in the mode of agreement. Traders are allowed to buy and sell the same stock in the same trading day.

 

Transaction fees are regulated by securities companies, not surpassing the highest fee level applied for transactions of listed stocks and trading registration. The selling order or buying order is valid in a maximum three consecutive trading sessions, or until being carried out or cancelled. If investors want to change information in their selling/buying orders, securities brokers will cancel the old order and import the new order.

 

Securities transactions will be carried out in the mode of cash payment from buyers along with stock delivery from sellers, in term of T+3. According to Director of the Stock Custody Centre Ms Phuong Hoang Lan Huong, despite of longer payment time than the factual payment time on the OTC market, this regulation emphasizes that after only three days, the delivery of stock to buyers and the payment for sellers will have been finished.

 

The State Securities Commission said that although it has received more than 600 documents for public company registration, few companies have completed the necessary procedures. According to SSC regulations, joint stock firms which have become public companies must register with the SSC before June 30, 2007. Public companies include all listed firms, those which have sold shares to the public, and joint stock companies that have registered capital of VND10 billion or more and having 100 shareholders. These companies must register with the SSC to periodically implement their obligations on information declaration for stakeholders and public and carry out registration procedures.

 

However, the difficulty stems from new instructing documents released in April and May this year; a majority of enterprises have not audited their operation results. Facing this situation, SSC has to allow companies to first register and provide information for investors as stated in the regulation. The audited operating results will be added in the company information declaration later. The Finance Ministry has also required public companies to register before a deadline. After the deadline for registration, public firms will be penalized.

Mr Nguyen Vu Quang Trung, Deputy Director of Hanoi Securities Trading Centre (HaSTC): OTC market is ready for pilot transaction

 

In order to pilot OTC trading management in accordance to new SSC regulations, the centre has basically finished the technical phase and is able to satisfy transactions of some several thousand enterprises.

 

Currently, the official market system has been tightly supervised. For the OTC market, the supervision is ready but its regulation may be simpler than the official market’s. Once the technical system is operational, all information about transactions, including trade volume and value, must be clearly displayed on the electronic board of the system. This method will help investors compare the market price as in the official market, without information truncation.

With this management method, we are able to completely track foreign trading activities. If foreign investors want to trade on the OTC market, they must open their own accounts.

 

Information declaration must be obligatory

The stock trading organisation of unlisted public companies is one measure to enhance supervision on the OTC market, for the sake of healthy and sustainable stock market in Vietnam. However, it is necessary to have a comparative price, maybe the average price in the trading day. The comparative price will be a good reference for investors’ transactions. This regulation will help prevent stock manipulation and protect small investors, as well as create a basis for fee calculation of securities brokers. The State Securities Commission should require public companies to have a clear information declaration to protect investors. Moreover, centres should introduce information provision mechanisms for companies about special transactions such as transactions for commercial joint stock banks group.