Securities clearing regulation amendment proposed

The Ministry of Finance has proposed amending a regulation on securities clearing under the Securities Law to support the upgrade of the Vietnamese stock market to emerging market status.

The ministry has proposed amending Clause 4, Article 56 of the Securities Law, which regulates securities transaction clearing.

Specifically, the ministry proposes allowing commercial banks and foreign bank branches to clear securities transactions on both the underlying and derivative markets or allow the Vietnam Securities Depository and Clearing Corporation (VSDC) to establish a separate legal entity to implement its central counterparty (CCP) mechanism for securities transactions.

According to a March 2024 report of FTSE Russell, one criterion that the Vietnamese stock market has yet to meet to for emerging market status is the limited payment cycle.

Experts also noted the Vietnamese stock market needs to soon complete the legal framework for securities clearing to achieve the Government’s goal of an upgrade to emerging market status.

Chairman of VSDC’s board of members, Nguyễn Sơn, emphasised the necessity of completing legal regulations, especially to allow commercial banks and foreign bank branches to become direct clearing members in the underlying market.

"The application of the VSDC’s CCP model is necessary to ensure transparency and efficiency in the clearing process, as well as to meet international requirements on the securities market," Sơn noted.

Amending Point A, Clause 4, Article 56 of the Securities Law will ensure that commercial banks participating in the CCP as clearing members in the underlying market align with international practices, as money and stocks only need to be transferred to securities companies on the payment date, rather than to securities in advance. The change will meet the principle of delivery versus payment (DVP).

Therefore, when custodian banks are clearing members, they will meet the criteria for ensuring asset safety for foreign investors, which will help attract more foreign investors to the Vietnamese stock market.

The implementation of the CCP mechanism is a key criterion for maintaining the stock market ranking after an upgrade, contributing to developing a safe, effective and sustainable stock market. This solution also helps the clearing mechanism of the Vietnamese stock market to be similar to that of many stock markets in the world.

In addition, having commercial banks as clearing members within the CCP mechanism underscores Việt Nam’s policy of attracting and accomodating large foreign institutional investors, such as global investment funds, to make indirect investments in the country.

Currently, under EU and US regulations, investors' assets must be managed by custodian banks and cannot be transferred to other entities, such as securities companies. Clearer regulations on the issue in the Securities Law will officially recognise the right of commercial banks to become clearing members. The change will further demonstrate Việt Nam’s policy of creating favourable conditions for indirect foreign investment capital.

According to experts, upgrading the stock market would send an important signal to the international community, increasing both the quantity and quality of investors through participation by investment funds and large international investment organisations with long-term goals.

A stock market upgrade will provide domestic securities companies, market participants and listed enterprises access to substantial foreign investment capital for indirect investment, strengthening their corporate governance and promoting investment and production activities in the country. — VNS

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