Vietnam Securities Law: Regulations, Updates, and Investor Guide (2024)

Navigating the complexities of a foreign stock market can be daunting, but understanding the legal framework is crucial for success. This guide provides a comprehensive overview of Vietnam’s Securities Law, outlining key regulations, recent updates, and essential information for both domestic and foreign investors.

Legal Framework and Governing Bodies

The foundation of Vietnam’s securities market is the Securities Law No. 54/2019/QH14 (the “Securities Law”), which superseded the previous Securities Law No. 70/2006/QH11 and its amendments. The 2019 law came into effect on January 1, 2021, significantly overhauling the legal landscape for securities activities in Vietnam.

The primary regulatory body overseeing the securities market is the State Securities Commission of Vietnam (SSC). The SSC is responsible for:

• Issuing securities-related licenses.
• Supervising securities market activities.
• Enforcing regulations and handling violations.
• Developing and implementing policies to promote market growth and stability.
• Cooperating with international securities regulators.

In addition to the SSC, the Vietnam Stock Exchange (VNX), a wholly state-owned enterprise, acts as the parent company for the two national stock exchanges:

• Ho Chi Minh City Stock Exchange (HOSE): Primarily lists larger, more established companies.
• Hanoi Stock Exchange (HNX): Focuses on smaller and medium-sized enterprises (SMEs), as well as bonds and derivatives.

The Vietnam Securities Depository and Clearing Corporation (VSDC) is responsible for securities registration, depository, clearing, and settlement services and risk management for transactions on both exchanges.

Key Regulations and Provisions

Public Offerings and Listings

The Securities Law sets out stringent conditions for public offerings of securities, including detailed disclosure requirements, minimum capital requirements, and profitability criteria. Companies must submit comprehensive dossiers to the SSC for approval. The requirements vary depending on the type of security (e.g., shares, bonds) and the listing exchange (HOSE or HNX).

Key requirements commonly include:

• Minimum charter capital.
• Profitability in recent years (typically one or two years).
• A feasible business plan.
• A transparent corporate governance structure.
• Commitment from major shareholders to maintain their holdings for a certain period (lock-up period).

Continuous Disclosure Obligations

Public companies are subject to ongoing disclosure obligations to ensure market transparency. They must regularly report material information, including:

• Financial statements (quarterly, semi-annual, and annual).
• Changes in ownership by major shareholders.
• Transactions with related parties.
• Significant corporate events (e.g., mergers, acquisitions, changes in management).

These disclosures must be made within specific timeframes and through designated channels, typically the SSC’s website and the stock exchanges’ platforms.

Insider Trading and Market Manipulation

The Securities Law strictly prohibits insider trading and market manipulation. Insider trading is defined as using non-public, material information to trade securities for profit or to avoid losses. Market manipulation encompasses a range of activities designed to create a false or misleading impression of the market, such as:

• Spreading false rumors.
• Creating artificial trading volume.
• Engaging in wash trades (buying and selling the same security to create the illusion of activity).

Penalties for insider trading and market manipulation can be severe, including substantial fines, imprisonment, and bans from participating in the securities market.

Foreign Ownership Limits (FOL)

Vietnam maintains foreign ownership limits (FOL) in certain sectors, which can restrict the percentage of shares foreign investors are allowed to hold in a public company. While many sectors have been liberalized, restrictions remain in industries deemed strategically important, such as banking, telecommunications, and aviation, where foreign ownership can be limited 30% or 49%, others have no limit.

Foreign investors need to be aware of these limits and monitor them closely. If the FOL in a particular company is reached, foreign investors may be restricted from purchasing additional shares.

Securities Trading

Securities trading in Vietnam takes place on the HOSE and HNX through a centralized, order-driven system. Trading hours are typically Monday through Friday, with morning and afternoon sessions.

Order Types: Vietnam’s stock exchanges support various order types, including:

• Limit Orders: Specify a maximum buying price or a minimum selling price.
• Market Orders: Executed at the best available price.
• At-the-Open (ATO) and **At-the-Close (ATC)** orders: Executed at the opening or closing price, respectively.
• Market Price Limit Orders (MPLO): Function as market orders if available immediately, changing to limit orders at the latest traded price if execution cannot be completed.

Settlement Cycle: Vietnam operates on a T+2 settlement cycle, meaning that securities and funds are settled two business days after the trade date.

Investor Protection Mechanisms

The Securities Law includes several provisions aimed at protecting investors, particularly minority shareholders:

Disclosure Requirements

As mentioned earlier, strict disclosure rules promote transparency and help investors make informed decisions.

Corporate Governance Standards

Public companies are required to adhere to corporate governance standards that promote accountability and protect shareholder rights. These standards cover areas such as board composition, independent directors, and audit committees.

Related Party Transactions

The law regulates transactions between a company and its related parties (e.g., major shareholders, directors, managers) to prevent conflicts of interest and ensure fairness to all shareholders. These transactions often require independent audits and/or shareholder approval.

Minority Shareholder Rights

The Securities Law grants certain rights to minority shareholders, such as the right to access information, the right to request meetings, and the right to challenge company decisions that may be detrimental to their interests.

Dispute Resolution

Investors can seek redress for grievances through various channels, including:

• Complaints to the SSC.
• Arbitration.
• Litigation in Vietnamese courts.

Recent Updates and Amendments (2024 and Beyond)

Vietnam’s securities market is constantly evolving, and regulations are regularly updated to keep pace with market developments and international best practices. While this guide provides an overview of the current law, it’s crucial to stay informed of any recent amendments or new regulations. Some notable areas of ongoing development and potential future changes include:

• Market Upgrade Efforts: Vietnam is actively working towards upgrading its stock market status from “Frontier Market” to “Emerging Market” by major index providers like MSCI and FTSE Russell. This upgrade would attract significant foreign investment. Requirements for achieving this upgrade involve improved market access, increased transparency, and enhanced investor protection.
• Derivatives Market Development: The HNX is expanding its derivatives market, introducing new products and increasing trading activity. Regulations related to derivatives trading are continually being refined.
• Digital Transformation and Fintech: The SSC is embracing digital transformation and promoting the use of technology in the securities market.
  This includes initiatives related to electronic trading, online account opening, and the use of blockchain technology.
• Green and Sustainable Finance: Vietnam is increasingly focused on promoting green and sustainable finance. Regulations related to green bonds and other ESG (Environmental, Social, and Governance) investment products are being developed.
• Strengthening Enforcement: Continued improvements in enforcement mechanisms are needed to crack down market manipulation.

Guide for Foreign Investors

Foreign investors interested in participating in the Vietnam stock market should be aware of the following:

Market Access

Foreign investors can access the Vietnamese stock market through several channels:

• Direct Investment: Opening a securities trading account with a licensed securities company in Vietnam. This requires completing Know Your Customer (KYC) procedures and obtaining a securities trading code from the VSDC.
• Indirect Investment: Investing through investment funds, exchange-traded funds (ETFs), or other investment vehicles that focus on Vietnamese securities.

Account Opening Process

To open a direct trading account, foreign investors generally need to provide the following documents (which may vary slightly between securities companies):

• Passport (notarized copy).
• Proof of address (e.g., utility bill).
• Investment registration certificate (for certain types of investments).
• Securities trading code application form.

Repatriation of Funds

Foreign investors are generally allowed to repatriate their investment capital, profits, and dividends, subject to Vietnamese foreign exchange regulations. It’s essential to work with a reputable securities company and bank that understands these regulations to ensure smooth repatriation of funds.

Taxation

Foreign investors are subject to certain taxes on their investments in Vietnam, including:

• Capital Gains Tax: Currently, capital gains from securities trading are taxed at a rate of 0.1% on the gross selling price.
• Dividend Tax: Dividends paid to foreign individual investors are subject to personal income tax, and dividend paid to institutional investors are subject to dividend tax, if applicable.

It’s advisable to consult with a tax advisor to understand the specific tax implications of your investments in Vietnam.

Due Diligence

Before investing in any Vietnamese company, foreign investors should conduct thorough due diligence, including:

• Analyzing financial statements: Review the company’s profitability, debt levels, and cash flow.
• Assessing corporate governance: Evaluate the company’s board structure, management team, and internal controls.
• Understanding the business environment: Consider the company’s industry, competitive landscape, and growth prospects.
• Checking regulatory compliance: Ensure the company is in compliance with all applicable laws.

Compliance and Legal Advice

Navigating Vietnam’s Securities Law can be complex, particularly for foreign investors. It is highly recommended to seek professional legal and financial advice from experts familiar with the Vietnamese market before making any investment decisions. Compliance with all applicable regulations is crucial to avoid penalties and ensure a successful investment experience.

This guide is for general informational purposes only and does not constitute legal or financial advice. Always refer to the official text of the Securities Law and related regulations and seek advice to stay up-to-date.