Time for a stock market overhaul

Vietnam’s stock exchange operations have barely been modernised over past decades. Photo: Le Toan

A flood of individual investors has led to outages and trading overload issues for the Ho Chi Minh City Stock Exchange (HSX), with service disruptions coming during a period of frenetic trading.

Appetite for a better trading infrastructure has been seriously hampered by repeated problems which have not been addressed over the years. These outages generate inevitable criticism among traders and call into question the stability of the function’s capacity.

Last week, the Vietnam Association of Financial Investors (VAFI) urged the Ministry of Finance (MoF) to replace HSX managers with overseas experts in a bid to resolve trading congestion.

“The HSX has been unable to cope with the daily transaction volume for three months now, and the blame for this lies with the poor management. A new system has been in the works since 2012 but has yet to be installed, though it typically takes only a few years,” VAFI said in a letter to the MoF.

The association publicly criticised the HSX’s top management, stating that the head of the bourse “could not understand the stock market or business management.”

“Their incompetence has meant investors are unable to get correct demand-supply data or place orders,” the VAFI added.

The Vietnam Exchange (VNX), the newly-established parent company overseeing the HSX and the Hanoi Stock Exchange (HNX), should be listed and become independent of the ministry and securities regulator, it added.

Suitable experience

According to Nguyen Hoang Hai, vice president of VAFI, the HSX is not only incapable in technology management, but many of its activities also prove inefficient, such as market surveillance with market manipulation (pump-and-dump) fraud.

“Junk stocks are selected for the VN30 index, the 30 largest-cap stocks, easily. While HSX management can justify that they choose because these stocks generate good liquidity, actually the so-called good quality is inauthentic and being controlled by the price manipulation team’s securities company to lure inexperienced retail investors,” said Hai.

VAFI believed hiring people with experience in other countries is a common practice elsewhere, and has been applied at the stock exchanges of both Hong Kong and Singapore.

The association also proposed to quickly equitise the Vietnam Stock Exchange and the Vietnam Securities Depository so that these subsidiaries would be better facilitated with international standards.

“Regulators should choose a reputable foreign stock exchange in the most developed stock market as a strategic shareholder. Shareholders will now be responsible for transferring top-notch technology management skills and training personnel,” it said.

In addition, the association suggested that the major bourses and the Depository Centre after equitisation must operate publicly and transparently like a listed company, must be independent and truly separate from the MoF and the State Securities Commission of Vietnam (SSC), and must be subject to special supervision and management from authorities.

The recent euphoria that had swept most stocks higher the past few months has caused congestion in the retrieval and display of order information on the HSX system, as skyrocketing liquidity far exceeds market expectations.

“There are major problems getting orders through and trade confirmation. My buy and sell orders could hardly be matched,” Le Khanh Linh, a mom-and-pop investor, told VIR.

Last December, SSC chairman Tran Van Dung confirmed that it was speeding up implementation of new infrastructure with support from the Korean Exchange (KRX) based on an agreement with the HSX in 2012. The fresh adoption of the new system was due to be completed by 2020, but the pandemic has delayed progress.

More than 20 years ago, the Stock Exchange of Thailand (SET) helped the HSX build a trading system, which has continued to operate until now. To improve trading capacity, market watchdogs believed Thai experts should come to Vietnam to fix the situation because it uses Thai technology.

Feasible solutions

Last week, Minister of Finance Dinh Tien Dung reaffirmed that it is necessary to quickly handle the trading congestion of orders on the HSX.

The MoF has simultaneously collaborated with other relevant parties to offer immediate and long-term solutions to ensure safe operation of the system. The ministry also commissioned FPT Corportation, Vietnam’s major IT behemoth, to offer solutions to address clogged-up trading.

FPT chairman Truong Gia Binh expressed a positive outlook on a feasible solution to deal with technical problems with the bourse within three or four months.

Duong Dung Trieu, chairman of FPT Information System (FIS) under FPT Corporation, also highlighted that his company is considering developing an alternate system to host the HSX’s transactions until it installs a new system from South Korea.

FPT is capable of providing a safe solution for the problem since it has over 20 years of developing software for the stock market, according to domestic media. FIS previously developed the major trading system for the HNX in 2004, the Unlisted Public Company Market in 2009, and the government bond market in 2012.

On the other hand, Nguyen Duy Hung, chairman of Vietnam’s largest securities firm SSI, cast doubt on social media. “After three months, if FPT cannot address the issues, who will be held responsible?”

Hung’s question has triggered a heated debate among investors, who are eager to see how domestic technology could alter the landscape.

“There is an excessive expectation that investors do not fully understand the trading system or how the market operates,” Hung added. “If it was that simple, congestion would have already been handled. Fixing the systematic problems within three months is unlikely to happen, in my belief.”

One of three solutions developed by the MoF which is considered suitable for FPT’s plan has been analysed, evaluated, and discussed by related parties.

Local authorities have rejected a proposal to increase the minimum trading lot size on the main stock market, and instead asked FPT to temporarily resolve the chronic congestion.

Previously, Le Hai Tra, CEO of the HSX, suggested an increase to the board size lot from 100 to 1,000 shares per board lot. He believed that the move could reduce 40-50 per cent of the total number of trading orders, thus enhancing market liquidity and better protecting retail investors. However, this idea has been gone against the tide of common belief.

According to Bao Viet Securities (BVSC), raising the minimum trading slots is a counter-trend movement against the global trend, as many stock exchanges in other countries are trying to reduce the trading slots. For example, the Singapore Stock Exchange reduced the board lot size from 1,000 to 100 in 2015, and its Tokyo counterpart also reduced it by the same amount in 2018.

Nonetheless, assuming a new trading system is not yet ready to be implemented, an increase in the board size lot could safeguard the trading system from collapse and failed trades – both obvious negatives when it comes to trying to promote Vietnam to an emerging market from a frontier market by both the FTSE and MSCI, BVSC noted.

The idea, however, has thus far been refused by the MoF.

“There is no proposal to raise the board size lot. We are encouraging HSX-based listed companies to voluntarily move their stocks temporarily to the HNX in a bid to lower the number of orders in the former’s system,” Minister Dung said.

Nguyen Thi Tra My, general director of The PAN Group said that the company will temporarily transfer its shares and those of seven members in its ecosystem, such as Sao Ta Food, Southern Seed, Bibica, and Lafooco to the HNX.

Do Ngoc Quynh, CEO of VNDIRECT, said, “These stocks are still listed on the HSX but temporarily transferred to trading in the HNX system to help alleviate high trading order and clogged-up trading for the HSX. Then the Ho Chi Minh bourse would be better prepared create a new trading system. Therefore, the transaction from the HSX to HNX will not change the listing standards or the quality of the transferred shares.”