Untangling the knot to solve the upgrade problem

Amending the Securities Law: Removing the bottleneck to solve the upgrading problem

Amending regulations to pave the way for clearing and settlement of securities transactions on the market under the central clearing counterparty mechanism is one of the three main groups of contents in amending the Securities Law.

Vietnam's stock market aims to be upgraded by 2025. Photo : D.T

Controversy over the CCP mechanism

At the 8th session of the 15th National Assembly, amending the Securities Law is one of the contents in the Draft Law amending and supplementing a number of articles of the Securities Law; Accounting Law; Independent Audit Law; State Budget Law; Law on Management and Use of Public Assets; Tax Management Law; and Law on National Reserves, which will be submitted to National Assembly deputies in the coming days.

Sharing at the Workshop on contributing opinions on the content of amendments and supplements to the Securities Law recently held, a representative of the State Securities Commission said that completing the legal basis to implement clearing and settlement activities for securities transactions on the market under the Central Clearing Counterparty (CCP) Mechanism on the Vietnamese stock market is one of the three main contents, aiming to remove practical obstacles, promote the development of the stock market to upgrade the stock market.

Simply put, the CCP model is a mechanism that allows the Vietnam Securities Depository and Clearing Corporation (VSDC) to become the buyer of all sellers and the seller of all buyers. CCP has been applied in the derivatives market, but has not been able to be deployed in the underlying market.

“There are different understandings between the banking sector and the securities sector on whether or not commercial banks and foreign bank branches are allowed to be clearing members on the underlying securities market,” the Drafting Committee of the Law Project emphasized.

Specifically, the guiding documents of Point a, Clause 4, Article 56 of the Securities Law in the securities and banking sectors have not yet been consistent in the licensing process to be able to record this business in the licenses granted by the State Bank to commercial banks and foreign bank branches. At the same time, if the current regulations are not changed, there will not be enough legal basis to establish a subsidiary of VSDC to undertake the CCP function. Therefore, it will be difficult to control operational risks when VSDC performs the CCP function for the entire underlying securities market.

Amending and creating a legal basis for the application of CCP in the underlying securities market will allow commercial banks and foreign bank branches to become clearing members and participate in the CCP system. This is in line with international practice, meeting the criteria of ensuring asset safety for foreign investors, thereby attracting more capital flows into the Vietnamese securities market. However, at the meeting to evaluate the proposal to develop this draft law, chaired by the Ministry of Justice, the State Bank proposed to only implement clearing on the derivatives market, because participating in clearing on the underlying market can create many risks in the relationship between banks and affect the liquidity of banks.

Untie the knot

It must also be said that applying the CCP Mechanism is a long-awaited desire of members of the stock market. Circular 68/2024/TT-BTC has just been issued by the Ministry of Finance, paving the way for foreign institutional investors to be able to trade and buy stocks without requiring sufficient funds on the purchase date. This can also be considered a short-term solution to meet the requirements of rating organizations such as FTSE Russell to satisfy the criteria for market upgrade. However, according to experts, in the long term, the fundamental solution is still to implement clearing and settlement of securities transactions according to the CCP Mechanism.

Commenting on the Draft Law amending and supplementing a number of articles of 7 laws, Vice Chairman of the National Assembly Nguyen Duc Hai requested the Government to urgently direct the drafting agency and relevant agencies to study and absorb the opinions of the National Assembly Standing Committee, the opinions of the examining agency and the principles to complete the Draft dossier, narrow down the proposed amendments, ensure that necessary and urgent issues need to be amended immediately, and achieve high consensus.

In fact, new regulations have been added in new laws and decrees over the years, but investors are still waiting for their implementation. A typical example is the story of non-voting depositary receipts (NVDRs) - a very new financial instrument, first identified in the Enterprise Law 2020 and then Decree No. 155/2020/ND-CP detailing the implementation of a number of articles of the Securities Law 2019. NVDRs will be issued by a subsidiary of the stock exchange to foreign investors on the basis of the company's shares. However, after half a decade of promulgation, the implementation of this instrument is still "stuck in place", despite having initial legal bases.

In its 2024 stock market classification report released by FTSE Russell on October 8, in addition to acknowledging efforts to remove bottlenecks in margin requirements, the organization still emphasized the need to improve the account opening registration process. Along with that, an effective mechanism to facilitate transactions between foreign investors related to trading securities that have reached or are close to the foreign ownership limit is also "considered an important measure".

Opening the way for the CCP Mechanism in this law amendment is the first step for a long journey ahead, rather than a direct solution to the upgrade target set for the stock market in 2025. In a recent report, FTSE Russell also emphasized that the Vietnamese stock market needs to maintain its speed if it wants to reach the target of upgrading the stock market in 2025.

Source: https://baodautu.vn/sua-luat-chung-khoan-go-trung-nut-that-giai-bai-toan-nang-hang-d227535.html