New Securities Law: Balancing policy objectives with a greater focus on risk management

January 20, 2025

Highlights

As part of the SSC’s efforts to achieve its broader policy objectives to develop Vietnam’s stock markets, as well as to address current challenges in the stock market, Vietnam amended various laws, including the 2019 Securities Law, on November 29, 2024. The amended law took effect on January 1, 2025.​[1]

Vietnam’s securities markets are currently underperforming the ambitious growth targets set for 2030: 120% of GDP for stock market capitalization and 58% of GDP for bond market debt.  As of 2023, these figures stood at 63% [2] and 28% [3] of GDP, respectively.  Several factors contribute to this stagnation.  Geopolitical tensions, including the Russia-Ukraine war, U.S.-China trade disputes, and Middle Eastern conflicts, have caused global market volatility and capital outflows from emerging markets like Vietnam.  Foreign investors, a critical part of Vietnam’s institutional investor base, have been net sellers since 2023, selling approximately USD 4 billion, including USD 2.6 billion since the beginning of 2024 [4].  Despite a favorable P/E ratio compared to other ASEAN countries, the Vietnamese stock market has seen no profit growth in the past two years among several listed companies, further discouraging investors.  Liquidity also remains low, with daily trading values significantly lower than larger regional markets [5].  This is partly due to the dominance of retail investors, who favor short-term trading, and the limited participation of institutional investors, hindering long-term growth and market development.

The Vietnamese stock market, currently classified as a frontier market by MSCI and FTSE Russell, is actively pursuing an upgrade to emerging market status.  The SSC is targeting a FTSE Russell upgrade in 2025, with a potential MSCI upgrade in subsequent years.  A significant obstacle to the FTSE Russell upgrade—the pre-funding requirement under the T+2 trading mechanism—was removed on November 2, 2024, through Circular No. 68/2024/TT-BTC issued by the Ministry of Finance.  This change enhances investor flexibility and addresses a key concern for foreign investors.  In addition, disclosures in English will be implemented in phases, beginning in January 2025 for periodic disclosures, and January 2026 for other types of disclosures by listed and large public companies.  Other public companies will follow in January 2026 and January 2027 for periodic disclosures and other types of disclosures, respectively.  This change is expected to significantly improve transparency and accessibility of information for foreign investors, further boosting the potential for increased foreign capital inflows. 

In terms of securities violations, the past two years have been marked by intensified enforcement actions in the stock market.  As part of the ongoing anti-corruption campaign, the SSC and other regulatory bodies have ramped up scrutiny, particularly focusing on the real estate, banking, and construction sectors.  Several companies, including Van Thinh Phat, FLC Group, and Tan Hoang Minh, were found to have engaged in activities such as manipulating stock prices, providing misleading information to issue securities, and misusing proceeds of offerings.  These actions impacted thousands of retail investors, leading to social unrest and public outcry [6].  While the investigations caused short-term market disruptions, they also contributed to heightened caution among investors and regulators.  As a result, the pace of transactions in both the stock and bond markets has slowed, with many deals being deferred.

The SSC has two broad policy objectives: (i) support the development of Vietnam’s capital markets and (ii) create a more stable and transparent environment to manage systemic risks and protect retail investors [7]. Balancing these policy priorities is challenging amid changing economic and market conditions.  Recent actions suggest the SSC prioritizes risk management and investor protection over market development.  Due to the lack of class action cases and the generally low sophistication of retail investors in Vietnam, the SSC follows a merit-based approach rather than a disclosure-based one.  More restrictive than the disclosure-based system, this approach involves regulators assessing the disclosure adequacy as well as the “merits” of the securities, evaluating potential returns, risks, and fairness for investors.  As a result, the regulators determine the suitability of investments for retail investors, with prescriptive disclosure requirements.  The amendments to the 2019 Securities Law and proposed amendments to Decree 155 underscore this approach.

Amendments to the 2019 Securities Law

The amendments fall into three categories: tightening rules on securities offerings, with a focus on private placements; increasing accountability for advisors; and codifying securities crimes.

Tightening Rules on Securities Offerings

Public offerings of securities, which require the preparation of prospectuses and registration with the SSC under current regulations, will face stricter scrutiny under the amended law.  For initial public offerings of shares, issuers will now be required to include an additional audited report on their contributed charter capital.[8]  Coupled with enhanced accountability of advisors for ensuring the accuracy and reasonableness of audited matters, this change aims to improve the quality and reliability of information provided to investors.  It also seeks to prevent issues such as those encountered with FLC Group, where the issuer’s capital history was grossly overlooked, and the actual paid-up capital was significantly lower than the registered capital disclosed in the IPO prospectus.  For public bond offerings, the issuer must submit a contract with a bondholders’ representative (akin to a bond trustee in other jurisdictions) to the SSC for review.[9]  This requirement aligns with the documentation standards already applied to private placement bond dossiers.

Private placements are also subject to stricter scrutiny.  However, unlike public offerings, private placements are not required to include prospectuses in the registration dossiers with the SSC.  Under current regulations, only professional securities investors (PSIs) (akin to “accredited investors” in other jurisdictions) and strategic investors approved by a company’s shareholders may purchase securities through private placements.[10]  Securities issued privately to PSIs are generally subject to a 1-year lock up period, except for transfers of securities among PSIs (i.e., a secondary transfer of securities between a PSI and a non-PSI is subject to the lock up).[11]  PSIs include corporates (including banks, finance companies, insurance companies, investment companies, funds and other corporates) and high net worth individuals.[12]  The amendments to the 2019 Securities Law introduce 2 significant changes:

• Restrictions on PSI Bond Purchases: Only institutional PSIs are permitted to buy and trade privately placed and unlisted bonds.[13]  Individual PSIs may only purchase and trade bonds backed by credit ratings with collateral or bank guarantees.[14]  The distinction between individual and institutional PSIs aims to provide individual investors with additional protection from the higher risks associated with privately placed bonds.
• Automatic PSI Status for Foreign Investors: Any foreign investor—regardless of business type, capital, or operating history—automatically qualifies as a PSI [15].  Consequently, foreign investors are no longer required to undergo the PSI status verification process.

The PSI definition and the statutory 1-year lock-up period for private placements remain unchanged under the 2019 Securities Law amendments. An earlier proposal to apply higher PSI qualification standards and extend the lock-up period was ultimately rejected in the face of significant opposition.

Increasing Accountability for Advisors

Securities advisors involved in preparing prospectuses and other registration documents are required to exercise heightened diligence and may face increased civil liabilities (including monetary fines) and criminal liabilities (including imprisonment) for false statements or omissions. For example, the amendments to the 2019 Securities Law impose obligations on securities advisors to ensure the accuracy and reasonableness of the information disclosed in prospectuses and other registration documents [16]. Penalties for violations include monetary fines and imprisonment.

Codifying Securities Crimes

The amendments incorporate the 2015 Criminal Law provisions on “market manipulation” into the 2019 Securities Law [17]. While not a new concept, this codification establishes a direct link between the prohibition on market manipulation and associated criminal and civil consequences. Thus, this amendment aligns with the SSC’s policy objective of protecting retail investors by embedding deterrence and retribution measures within the law itself, particularly for serious violations, such as the market manipulation case involving FLC Group.

Implementing Decree 

Following the changes to the 2019 Securities Law, the Government has introduced several proposed amendments to Decree 155, the implementing decree for the law. These initial draft amendments are still in the early stages and remain open for public feedback [18].

The draft amendments focus on (i) clarifying requirements, conditions, and procedures for public offerings and private placements, adopting a merit-based approach, and (ii) strengthening shareholder protection and improving transparency by raising corporate governance standards.  Additionally, the amendments also restrict a company’s ability to freely set a foreign ownership limit that is lower than its statutory limit.

Requirements, Conditions, and Procedures for Securities Offerings

The draft amendments propose several changes to the public offering and private placement procedures and requirements under Decree 155, aiming to streamline these processes and align them with international standards.

• Parallel IPO and HOSE Listing Procedures: The HOSE listing procedure will run parallel with the IPO process, allowing issuers to work with the SSC (for IPO) and HOSE (for listing) simultaneously.[19]  This change aims to shorten the IPO timeline, as the current sequential process delays listing until after IPO approval.  The delay between the IPO completion and listing has raised concerns about investor rights due to potential changes in the issuer’s financial conditions during the review period.
• Restrictions on UPCOM-to-HOSE Upgrades: UPCOM-listed companies’ ability to upgrade to HOSE will be restricted.  Currently, UPCOM companies can move to HOSE after two years of trading on UPCOM, or earlier through a public offering.[20]  In some cases, this public offering is accomplished by a rights issue to existing shareholders, often as a technical exercise rather than for raising capital.  The proposed changes would eliminate this technical pathway, requiring companies to conduct a proper IPO to qualify for HOSE listing.  Otherwise, the company must remain on UPCOM for at least two years.
• Stricter Requirements for Public Bond Offerings: Public bond offerings will face stricter requirements, including mandatory credit ratings and new financial thresholds, such as debt-to-equity and bond issue value-to-owner’s equity ratios.[21]
• Permissible Delegation of Authority to Boards: For private placements, the proposed amendments clarify that the general meeting of shareholders can delegate authority to the board of directors to allocate shares to specific investors.[22]  This resolves the ambiguity in current regulations regarding whether such delegation is permitted.

Corporate Governance Standards

The proposed changes in corporate governance are intended to provide greater protection to retail shareholders and ensure the transparency of public companies.

• Limits on Board Memberships: Board members of a public company will be restricted to serving on the board of directors or the members’ councils of no more than five other companies.[23] This change aims to minimize conflicts of interest and ensure that board members dedicate adequate time and attention to their responsibilities.
• Requirements for Non-Executive Directors: The regulations introduce specific requirements for non-executive directors on public company boards, depending on the board’s size. Smaller boards must have at least one non-executive director, while larger boards require two or three, proportionate to their size. [24]  This measure promotes independent oversight and ensures diverse perspectives on the board.  Additionally, independent board members for listed companies will be required to submit reports assessing the board’s performance.
• Restrictions on Family Relationships: To further strengthen objectivity and prevent conflicts of interest, a company director cannot be a family member of any manager or controller of the company or its parent company.[25]

Foreign Ownership Limit (FOL)

Under current regulations, the general meeting of shareholders of a public company can set a lower FOL than the FOL prescribed by law.  For example, if the law sets the FOL for a public company at 50%, the general meeting of shareholders can select a lower percentage and register this FOL with the SSC.  Under the proposed amendments to Decree 155, only the authorities, such as the SSC, will be authorized to determine a FOL different from that stipulated by law.  Public companies will no longer have the discretion to independently set a lower FOL which could impact transfers of shares by between foreign investors and potentially reduce market liquidity.

Conclusions

Many in Vietnam are optimistic that FTSE Russell will upgrade the market from frontier to emerging market status in September this year. Additionally, the market is anticipating other positive developments to restore investors’ confidence. However, the amendments to the 2019 Securities Law have been met with mixed reactions. The SSC appears to prioritize systemic risk management and retail investor protection, while the market desires a stronger focus on recovery and development. Policies should encourage investor engagement. Measures like relaxing the FOL, allowing high-quality securities—such as those of FDI companies—to list and conduct IPOs, and shortening regulatory approval timelines would support this goal. A gradual transition from a merit-based system to a disclosure-based one should also be encouraged, as there are alternative ways to mitigate systemic risks and protect retail investors without excessive regulation. In this regard, enforcement is crucial with clear communication that the SSC and other regulators will closely monitor market developments and penalize violations. This approach will ensure that market participants adhere to laws and regulations without reactive legislation driven by public outcry.

[1]    Law No. 56/2024/QH15 (National Assembly, November 29, 2024) amending and supplementing 2019 Securities Law (“Amended Securities Law”), Article 10.1.

[2]    As of 2022, the stock market capitalization as a percentage of GDP for ASEAN countries varies significantly, but for Singapore, Thailand and Malaysia range from 94%-124% of GDP.  At its peak in 2021, the stock market capitalization in Vietnam reached 148% of GDP.  See SSI, Prospects for Upgrading Vietnam’s Stock Market: Striving Towards the Goal, page 2.

[3]   Corporate bonds issued in Vietnam currently account for only 10-11% of GDP, whereas the average in other Southeast Asian countries currently ranges from 25%-50% of GDP.  See Hoang Lan, Bonds of Manufacturing and Trading Enterprises Nearly Vanish from the Market, VnEconomy, July 16, 2024, https://vneconomy.vn/trai-phieu-doanh-nghiep-san-xuat-va-kinh-doanh-gan-bien-mat-tren-thi-truong.htm#:~:text=Quy%20m%C3%B4%20th%E1%BB%8B%20tr%C6%B0%E1%BB%9Dng%20tr%C3%A1i,Nam%20v%E1%BA%ABn%20c%C3%B2n%20kh%C3%A1%20nh%E1%BB%8F.&text=Trong%20qu%C3%BD%202%2F2024%2C%20gi%C3%A1,so%20v%E1%BB%9Bi%20c%C3%B9ng%20k%E1%BB%B3%202023, last access on January 15, 2025.

[4]   Kieu Trang, Dragon Capital Chairman: Foreign Investors Net Sold $4 Billion Due to Lack of Market Upgrade and New Attractive Factors in Vietnam, VnEconomy, July 19, 2024, https://vneconomy.vn/chu-tich-dragon-capital-khoi-ngoai-ban-rong-4-ty-usd-co-phan-do-viet-nam-chua-duoc-nang-hang-khong-co-yeu-to-moi-hap-dan.htm, last access on January 15, 2025.

[5]     SSC, Average Transaction Volume as of August 2024, September 17, 2024, https://ssc.gov.vn/webcenter/portal/ubck/pages_r/m/thngtinthtrng/thngkthtrng, last access on January 15, 2025.

[6]    Kieu Linh, Arrest of Mr. Trinh Van Quyet: Is the Stock Market in Shock?, VnEconomy, March 30, 2023, https://vneconomy.vn/bat-ong-trinh-van-quyet-thi-truong-chung-khoan-co-soc.htm, last access on January 15, 2025.

[7]   Ministry of Finance, Report on Assessment of Impact of the Policy in the Proposal to Draft Law Amending and Supplementing a Number of Articles in the Laws under the Management of the Ministry of Finance to Promote Growth, Control Inflation and Stabilize the Macro Economy, August 20, 2024, https://chinhphu.vn/du-thao-vbqppl/ho-so-de-nghi-xay-dung-du-an-luat-sua-doi-bo-sung-mot-so-dieu-cua-luat-chung-khoan-luat-ke-toan-6824, last access on January 15, 2025.

[8]    Amended Securities Law, Article 18.1(k).

[9]    Amended Securities Law, Article 18.3(i).

[10]    Amended Securities Law, Article 31.1(c).

[11]    Amended Securities Law, Articles 31.1(c) and 31.2(c).

[12]    Amended Securities Law, Articles 11.1, 11.1a and 11.1b.

[13]    Amended Securities Law, Article 11.1a.

[14]    Amended Securities Law, Article 11.1b.

[15]    Amended Securities Law, Article 11.1(e).

[16]    Amended Securities Law, Article 11a.3.

[17]    Amended Securities Law, Article 4.49.

[18] The third draft of Decree Amending and Supplementing a Number of Articles of Decree 155, as issued by the Ministry of Justice on December 30, 2024, https://moj.gov.vn/qt/tintuc/Pages/chi-dao-dieu-hanh.aspx?ItemID=4699 , last access on January 15, 2025 (“Draft Amended Decree 155”).

[19]   Draft Amended Decree 155, Article 111a.

[20]   Draft Amended Decree 155, Article 109.1(b).

[21]   Draft Amended Decree 155, Articles 19.2, 19.3 and 19.4.

[22]   Draft Amended Decree 155, Article 43.2(a).

[23]   Draft Amended Decree 155, Article 275.3.

[24]   Draft Amended Decree 155, Article 276.2.

[25]   Draft Amended Decree 155, Article 291.6.

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