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Current Level of Investor Protection in Vietnam


Table 2.15 Current level of investor protection in Vietnam


Target

Business Law

Point

Each share is equivalent to one vote:

Joint stock companies are allowed to issue common shares and preferred shares, including preferred shares.

vote

Unknown

Shareholders can vote by proxy

or send ballots by mail (collect shareholders' opinions in writing)

There are regulations

1

Shareholders do not have to deposit the shares they hold before the Shareholders' Meeting:

Shareholders entitled to attend the meeting only need to hold shares on the record date of the shareholders' meeting.

winter

1

Pooled voting mechanism

Not specified

0

Mechanism that allows shareholders to have

right to sue managers

Not specified

0

Minimum number of shares held 10% to be able to convene the General Meeting of Shareholders

abnormally cold:

There are regulations

1

Total score


3/5

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Current Level of Investor Protection in Vietnam


Source: Author's synthesis.

Thus, with a score of 3 out of a total of 5, the level of shareholder rights enforcement in Vietnam is relatively high compared to the average of 49 countries (2.44) but still lower than the group of countries with legal systems following the UK (3.39).

However, the weakest point in protecting investors' rights is the issue of enforcing legal regulations on protecting investors' rights.


The International Finance Corporation's annual business environment report rates Vietnam as consistently ranked lowest among countries in terms of investor protection in recent years.

Table 2.16 Data on Vietnam's business environment and investor protection rankings for the years 2006-2010

Year

2006

2007

2008

2009

2010

Number of countries surveyed

175

178

181

181

183

Ease of doing business ranking

business

104

91

92

92

93

Investor protection level rating

private

170

165

170

170

172

Disclosure level index

(0-10)

4

6

6

6

6

Board accountability index

Director (0-10)

0

0

0

0

0

Ease of suing index

sentence (0-10)

2

2

2

2

2

Composite Investor Protection Index

(0-10)

2

2.7

2.7

2.7

2.7

Source: [76],[77],[78]


The data in Table 2.16 show that Vietnam ranks in the low average in terms of the overall ease of doing business among the countries surveyed. However, it is more noticeable that the ranking in terms of investor protection is always considered one of the weakest countries, Vietnam is always in the group of 10 countries with the lowest level of investor protection. In terms of each specific factor, the index on the level of information disclosure has improved in 2007, increasing by 2 points. This result is achieved because Vietnam has issued a more stringent system of legal documents since the Securities Law (2006) and its implementing documents. Index on accountability


The level of board of directors’ responsibility and the ease of litigation in Vietnam are very low and much lower than the region as shown in Table 2.17. Another point worth noting is that the level of investor protection in Vietnam has not changed in the past 3 years, as shown by the unchanged composite investor protection index.

Table 2.17 Comparison of investor protection indicators between Vietnam and the region in 2008


Index

Vietnam

Average of East Asia Pacific countries

Positive

Country average

OECD

Publicity level index

information (0-10)

6

5.1

5.9

Accountability Index

of the Board of Directors (0-10)

0

4.6

4.0

Ease of suing index

go to court (0-10)

2

6.3

6.6

Investor Protection Index

total (0-10)

2.7

5.3

5.8


Source: [122]

The above figures show that the level of investor protection, especially for small investors in Vietnam, is still very low. Here are some specific examples of investor protection in different aspects of capital market operations:

1) In August 2007, the Vietnam Oil and Gas Group, a major shareholder holding 60% of the equity capital of the PetroVietnam Fertilizer and Chemicals Joint Stock Company (Phu My Fertilizer), sent a document requesting Phu My Fertilizer to hand over 28 hectares of land for the group to use. The right to use this 28 hectares of land belongs to Phu My Fertilizer and was stated in the Prospectus of this company when it issued shares to the public for the first time in March 2007. The request for land recovery by the Vietnam Oil and Gas Group is not in accordance with the Law on Enterprises, and causes damage to the interests of other shareholders. Under pressure from public opinion and


According to the Vietnam Association of Financial Investors (VAFI), the land acquisition by the Oil and Gas Group was unsuccessful, and the right to use 28 hectares of land still belongs to Dam Phu My.

2) The case of Bach Tuyet Cotton Joint Stock Company. In 2004, 2006, 2007 and the first 6 months of 2008, the company continuously incurred losses. The company's audited financial statements for 2005 showed a profit, but this profit did not accurately reflect the company's operating results. The 2006 financial statements prepared by the company showed a profit, but when re-audited, the 2006 after-tax profit was a loss. This company continuously violated regulations on information disclosure on the stock market, such as not submitting annual reports for 2004 and 2005. The Board of Directors and the Board of Management of the company committed violations in activities related to stock issuance and were dishonest in preparing and publishing financial statements. The company's shares were then delisted from HOSE from August 2009.

3) Ben Tre Forestry and Aquatic Products Import-Export Joint Stock Company. On September 22, 2008, the website of the Ho Chi Minh City Stock Exchange (HOSE) posted information that this company was accepted to refund 233 billion VND from the initial public offering of shares and that the company had received the above amount and had accounted for it in the company's capital surplus account on September 12, 2008. The information disclosure was too slow, allowing those with inside information to buy shares at low prices during the period from September 12 to September 22. Then in March 2009, the Chairman of the State Securities Commission decided to fine this company 20 million VND, and fine 4 individual investors who used insider information to buy securities 30 million VND/person. This is the lowest fine in the penalty range for individuals violating regulations on insider trading. This Decision does not mention the application of additional penalties of confiscation of illegal profits from insider trading as stipulated in Decree 36/2007 on administrative sanctions for violations in the field of securities and the securities market.

4) As of October 30, 2008, Ho Chi Minh City Stock Exchange discovered 18 cases of insider shareholders trading without disclosing information, 3 shareholders


Large companies were slow to disclose information, 3 companies ordered treasury stocks against regulations, 111 cases violated regulations on securities trading by ordering and selling the same type of securities on the same trading day. In addition, this Exchange also continuously warned and punished trading members due to errors in canceling orders in the same matching session.

The above facts show that the mechanism for monitoring and implementing regulations on transactions as well as enforcement activities for law enforcement in the capital market in Vietnam is still lacking and not really strict with acts that harm the interests of shareholders.

2.2.3.2 Market management and supervision


Supervision activities in the Vietnamese capital market are carried out according to a two-level model: supervision by the Stock Exchange and supervision by specialized units under the State Securities Commission.

According to the Law on Securities and Decision 63/2007 of the Prime Minister, "The State Securities Commission ... performs the function of state management of securities and the securities market; directly manages and supervises securities activities and the securities market" and the Stock Exchange/Center has the function of organizing and supervising the trading activities of listed securities at the Stock Exchange/Center. The Law on Securities also stipulates 5 subjects that need to be supervised in the stock market, including: trading market, public companies, securities companies, fund management companies, investment funds, investment companies; organizations that operate and provide services for the primary market are the Stock Exchange/Center, and the securities depository center.

At the first level of supervision, through the daily transaction monitoring system, the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange detect unusual transactions and report to the State Securities Commission for monitoring, inspection and handling. At the same time, the Stock Exchanges supervise member securities companies and listed companies to


ensure compliance with legal regulations of these organizations through reporting, information disclosure and on-site inspections.

At the Ho Chi Minh City Stock Exchange, transaction monitoring activities have been carried out to detect market manipulation and insider trading based on analysis of unusual stock movements. The detected violations are listed in Table 2.18.

Table 2.18 Results of monitoring activities in 2007-2008


Behavior detected

2007

2008

Market manipulation trading

2

0

Insiders and related persons trading shares

listed company's shares but not announced

39

27

Major shareholders do not report transactions

3

4

Investors violate regulations on opening accounts

183

0

Securities company staff open trading account

at other securities companies

74

0

Place orders for foreign investors beyond the stock exchange

possession by regulation

11

0


Source: [43],[44],[121]


At the Hanoi Stock Exchange, transaction monitoring activities are also carried out continuously. In 2007, the Center discovered nearly 2,000 cases of investors simultaneously placing buy and sell orders for the same type of securities, 150 trading accounts of investors opened 2 accounts. In 2008, the Center discovered 6,409 cases of investors simultaneously placing buy and sell orders for the same type of securities in the same trading session; 7 cases of violations in reporting transactions of major shareholders; 41 cases of violations in trading


Transactions of internal shareholders and related persons; 8 companies violated regulations on treasury stock transactions.

At the second level of supervision, the SSC monitors compliance by all market participants with the Securities Law and its sub-law documents. At this level, enforcement is carried out by the Securities Inspectorate and supervision is carried out by the following four functional units:

1. The Business Management Board supervises the licensing activities of the establishment and operation of securities companies and organizations providing securities depository services.

2. The Board of Management of fund management companies and securities investment funds supervises compliance with regulations on licensing the establishment and operation of fund management companies, funds and organizations providing ancillary services.

3. The Issuance Management Board shall supervise compliance with regulations on offering, information disclosure and corporate governance of public companies.

4. The Securities Market Supervision Board supervises compliance with regulations on the organization and operation of Stock Exchanges and entities participating in the securities trading process on the market.

The work of supervision, inspection and handling of violations in the years 2007-2009 achieved certain results, shown in Table 2.19.

Although securities transaction supervision activities have achieved certain results in strengthening the healthy, transparent and fair operation of the capital market, according to the assessment of the State Securities Commission, supervision activities still have the following limitations:

One is that between the two levels of supervision, a consistent and synchronous supervision process has not been established, and the scope, responsibilities and authority of each level have not been clearly defined.


Table 2.19 Data on handling violations in the securities sector in the years 2007-2009

Violation

2007

2008

2009

Violation of regulations on public companies, public offering of securities; violation of regulations on reporting regime and

Public company information disclosure, listed company

56

94

115

Violation of regulations on securities transactions such as trading

fake, market manipulation, insider trading without notice

20

19

31

Violation of regulations on securities trading activities of securities companies; violation of regulations on reporting and disclosure regime.

Securities company information disclosure

6

11

12

Total

82

124

158

Source: [43],[44],[56],[121]


Second, the monitoring of transactions at the Stock Exchanges/Centers has not been carried out based on clear monitoring criteria and without the support of an automatic monitoring information technology system, so only simple and obvious violations such as violations of information disclosure regimes and violations of the trading regulations of the Stock Exchanges/Centers can be detected. The detection of more sophisticated violations such as insider trading and price manipulation based on monitoring unusual trading developments is still limited.

Third, market surveillance is carried out manually, mainly based on periodic reporting, without objective inspection, monitoring based on criteria and risk factor analysis.

To overcome the above limitations, on December 31, 2008, the Ministry of Finance issued the Regulation on Supervision of Securities Transactions on the stock market to enhance the capacity to supervise the activities of the stock market. This Regulation has provided specific regulations on the scope and subjects of transaction supervision, the supervision model, and the management of securities transactions.

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