Taking appropriate actions to strengthen bond market

Vietnam is currently discussing the secondary market model to ensure development of the corporate bond market. What other details are available on this?

Dr. Nguyen Tri Hieu, independent banking and financial expert

As the Vietnamese financial market is continuously subjected to shocks from bond issuers, several stakeholders paid attention to the development of the secondary market. In fact, Vietnam has already formed a secondary market at a low level. The insider transactions of Trinh Van Quyet, chairman of FLC, took place in this market, not in the primary market. Vietnam also has regulations and sanctions for insider trading in the financial market. The Ministry of Finance (MoF) and the State Securities Commission (SSC) both have tools to detect insider transactions with the potential to manipulate the market and cause instability. Thus, the SSC knows the strengths of FLC and Tan Hoang Minh, so I wonder how it did not see those transactions. However, the operating financial market remains weak in terms of legal framework and transparency. Vietnam has introduced many regulations, such as the Law on Securities and Decree No.153/2020/ND-CP released in December 2020 on regulating private placement and trading of corporate bonds in domestic and foreign markets, but they are incomplete and even include inappropriate regulations.

Decree 153 currently provides regulations related to the issuer’s filing that must provide financial statements and a credit rating, but immediately followed by the phrase “if any”. This creates an opportunity for bond issuers to circumvent the law.

In another provision of Decree 153, individual investors are required to be “professional investors”. Investors do not face any difficulty in implementing this regulation as they can perform intraday buy and sell contracts to obtain professional investor certificates through a securities company.

How is the compilation of the legal corridor for the stock market adjusted to the natural growth rate of the market?

It is true that the legal framework develops very slowly and needs to change soon to develop a healthy financial market. The MoF and relevant agencies must review all current legal regulations on securities and examine legal loopholes leading to cases like the ones of FLC and Tan Hoang Minh. The new regulations must be strict. At the same time, there needs to be a risk warning system for investors, so that they can be wary of high-interest and unsecured bonds, and minimise damage.

What could cause Vietnam to slow down in developing the secondary market?

The government wants to build a healthy secondary market, that’s for sure. But the problem here is control. If too tight, the control will choke the stock market, which is an important funding channel for the economy.

In principle, the primary market is only a part of the market, and the secondary market is the most active one in terms of transactions.

From what angle should the secondary market control issue be viewed?

The secondary market is a buy-and-sell market, which is difficult to control. In the United States, the government controls the secondary market without using any administrative tools to control transactions in this market. The market operates and regulates itself based on the laws and the regulations on issuance and insider trading of the US Securities and Exchange Commission. Market participants are responsible before the law for all transactions on the secondary market.

Meanwhile, Vietnam has almost no separate regulations on the secondary market, apart from some scattered on commercial transactions in the Criminal Code and the Civil Code. Now that Vietnam is entering a market economy, it is possible to learn from the US experience in primary market development.

Can you describe how an investor in the US buys bonds on the stock market?

Investors rely on credit ratings to make decisions in the primary and secondary markets. An investor in the US will look at the credit rating of the company that issues the bond if he wants to buy shares. Usually, they ignore companies with risky ratings and focus on those with good credit ratings. They then seek out information about the issuer through financial statements and other sources, before making an investment decision.

Most investors in Vietnam have not yet formed the habit of checking the credit ratings of bond issuers on the stock market. Part of the reason is that Vietnam has too few credit rating companies. The MoF has only licensed two credit rating companies, FiinRatings, a brand and part of FiinGroup, and Saigon Phat Thinh Credit Rating JSC.