Viewpoints and Goals of Strengthening the Management of Fraudulent Behaviors in the Vietnamese Stock Market

In addition, most fraudulent acts such as insider trading, price manipulation, falsification of documents, etc. are related to or manifested through violations in information disclosure. When information disclosure is strictly managed, it will ensure that information on the market is accurate, complete, and timely, helping investors to receive information fairly to make the right investment decisions. On the contrary, if information disclosure violations still have the opportunity to become frequent and widespread, it will create conditions for fraudulent acts to be carried out. In addition, the penalties for information reporting regimes for internal shareholders and related persons are too low, while proving insider trading acts is very difficult, leading to the situation of not properly assessing and determining the level of fraudulent acts, many insider transactions are only punished for "violations in information disclosure" with an amount of several tens of millions. Therefore, internal shareholders often justify "not reporting transaction information in time", showing an attitude of non-compliance with the law, not taking penalties seriously, causing loss of confidence for outside investors.

- Outdated monitoring methods and techniques

A trading order includes the following basic elements: order time, order price, order volume. If these elements are separated during the analysis process, the analyst will not be able to have a complete view of the phenomenon occurring in the trading activity. Comparing price with price, volume with volume as it is now, invisibly separates the components of the order in particular and the trading activity in general for separate analysis, then using the separate results to synthesize, leading to inaccurate results, making it difficult to explain the nature of the order activity as well as the nature of the transaction whether it is an unusual transaction or not. If only analyzing the price alone without the volume factor, the analysis results will not accurately reflect the liquidity factor of the stock at the time of analysis. On the contrary, if only analyzing the volume without combining it with price analysis, the analysis results will not clearly show the trend of the stock during the analysis period.

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The analysis is not based on actual data that has occurred and is recorded in detail for each order and the time of placing the order to clarify the market conditions at the time of the transaction as well as the purpose and ability of the order to affect the trading of that stock. Therefore, the exact cause of the unusual fluctuations in stock prices has not been determined to narrow down the direction of handling the situation for these cases.

The warning criteria system is also being adapted, limiting the effectiveness of early identification of unusual transactions. For example, before 2010, there were many stocks that continuously increased to the ceiling, but after 2010, there were not many cases of such developments.

This trend and most of them are in the period of hot market, high liquidity, many accounts participating in transactions so it is very difficult to prove the impact of the accounts. The method of analyzing transactions based on the most traded accounts is starting to lag behind the development of the market. Normally, the accounts in the top trading will be the accounts that mainly manipulate stock prices, but currently, if we only focus on analyzing this group of top trading accounts, it is difficult to detect unusual transactions because the subjects have known to divide orders in many stages in many accounts and many different securities companies to avoid detection. In addition, cases of stock price manipulation and internal transactions are increasingly being carried out by mixed methods, using manipulation to carry out internal transactions and vice versa.

Due to the limited capacity of intraday monitoring, exchanges mainly rely on multi-day monitoring criteria. Therefore, when the comparison results exceed the allowable threshold accumulated in (n) trading sessions, the system is capable of identifying abnormal signs for that stock. Because the comparison period is too long, when it is detected, the fraudulent behavior (if any) is already completed.

- The information technology system does not have the ability to give early warning.

Because every information technology system is just a process of simulating all the business activities and monitoring criteria set by humans. Only when the monitoring criteria system has the ability to give early warning can an information technology system be established to perform this function. Meanwhile, the integration capacity between the information technology application systems of the State Securities Commission and the Stock Exchanges and Securities Depository Centers is still low, limiting the ability to exchange immediately between market operators and securities market management and supervision agencies. The low level of interconnectivity also causes difficulties for entities when having to disclose information to many different contacts. There is no connection or data exchange between the information technology application systems of the State Securities Commission, affecting the coordination between different functional units of the State Securities Commission.

3.4.3.2 Objective causes

- Investors' capacity and awareness are not high.

Many investors in the Vietnamese stock market have crowd investing behaviors such as trading securities with insiders or those who are believed to have inside information, trading with foreign investors, trading based on consulting information on stock forums, and trading based on broker recommendations. This behavior unintentionally turns investors into subjects exploited in price manipulation schemes and other fraudulent acts.

In addition, the awareness of individuals participating in securities investment is still low. Qualitative analysis also shows that a significant number of investors do not care to learn about the provisions of the law on securities and have been lured and exploited to carry out market manipulation acts. There are investors who lack awareness of law enforcement and do not cooperate when involved in cases, which has greatly affected the handling results of the authorities.

- The quality of governance of the issuing organization is low.

Issuers are the source of supply and information on the stock market, but the quality of governance of issuers in Vietnam is still low compared to the general level in the region. Enterprises are still not proactive in publicizing information. The implementation and application of accounting and auditing standards still have many shortcomings. Differences in financial statements before and after auditing are common, affecting the interests of investors and transparency in the market.

Issuers, even large-scale enterprises, have only stopped at the level of complying with regulations and have not proactively ensured the rights of shareholders. Enterprises often do not have a policy for managing unpublished internal information, leading to its exploitation for personal and group purposes. The collusion of issuers, insiders, and securities companies is also the cause of many fraudulent acts in the Vietnamese stock market. The issuer's failure to control internal information well allows those who possess internal information to conduct insider trading and price manipulation.

- Responsibility of securities trading organizations is still weak

Securities trading organizations such as securities companies and consulting units play an important role in detecting fraudulent acts. However, in many cases, securities trading organizations have violated ethics and professional principles such as colluding with insiders and issuers to manipulate prices.

securities, falsifying records and documents... In fact, the relationship between listed companies and securities companies is increasingly close through corporate financial consulting activities, and also through activities to protect corporate stock prices for many purposes: issuance, merger for backdoor listing, anti-takeover when book value is high but stock price is low, dealing with the value of mortgaged assets such as stocks for bank loans is decreasing in value... especially behind the cases of stock price manipulation are all related to listed companies. In the analysis of the situation, it is also shown that many brokers have colluded with subjects to commit fraudulent acts in the stock market. For example, in the case of some securities company brokers assisting Ms. NVG in manipulating stock prices, or colluding with LVD in manipulating DVD stock prices. In the DVD case, the securities company that advised on the issuance for DVD also had responsibility. The consulting company usually understood the company it was advising quite well. If the company was good, the consulting company usually tried to become a major shareholder after advising on the issuance, but this company reduced its ownership from 9.11% to 2.08% after DVD went public. Thus, some securities trading organizations were not aware of participating in preventing and limiting fraudulent acts and even coordinated to commit fraudulent acts to seek illegal profits. Part of the underlying reason was that the financial capacity and competitiveness of securities companies were still low. 87% of the revenue of securities companies in Vietnam came from brokerage and self-trading; 68% of the market revenue belonged to the 10 largest securities companies and over 85.7% of the total market revenue belonged to the 20 largest securities companies. Competitive pressure for market share, along with weak financial capacity, causes many securities companies to use "collusion" to create group interests or attract customers.

- The role of the association of securities traders is quite vague.

The Vietnam Association of Securities Dealers was established in 2005 with the aim of promulgating, managing and unifying general regulations, properly implementing transactions in the market, with the aim of protecting the interests of market members and the stability and development of the common market. However, the role of this organization in managing, preventing and limiting fraudulent acts is very vague. The appearance of this self-governing organization in detecting fraudulent acts has almost never been seen. Meanwhile, in countries around the world, the association of securities dealers plays a direct and very important role in preventing and limiting fraudulent acts, ensuring that common rules are enforced to ensure transparency and fairness in the stock market.

Chapter 3 Summary

Chapter 3 analyzed the current status of fraud and the current status of state management of fraud in the Vietnamese stock market. Thus, in chapter 4, the author answered research questions 5, 6, 7, 8, 9 of the thesis.

Chapter 3 outlines the development of the Vietnamese stock market from 2000 to present; analyzes fraudulent situations such as insider trading; price manipulation; false information disclosure; falsification or forgery of securities records and documents. Points out opportunity factors, methods of committing fraud, characteristics of fraudulent acts in the Vietnamese stock market. Quantitative research assesses the impact of opportunity factors leading to fraudulent acts in the Vietnamese stock market in the following order: the factor "Opportunity from insiders and issuing organizations" is the factor with the greatest impact on fraudulent acts, followed by the factor "Opportunity from market management and supervision" and finally the factor "Opportunity from investors". At the same time, the quantitative research results show that there is no difference in the perception of fraudulent acts of investors according to their educational level and survey subjects. However, men have higher awareness of cheating behavior than women.

In Chapter 3, the author also analyzed and evaluated the current management status of the State Securities Commission regarding fraudulent acts in the stock market. He clarified the limitations and causes of the limitations. From there, he proposed solutions and recommendations in Chapter 4.

CHAPTER 4

SOLUTIONS TO STRENGTHEN STATE MANAGEMENT AGAINST FRAUDULENT ACTS IN VIETNAM'S STOCK MARKET

4.1 Viewpoints and goals of strengthening the management of fraudulent acts in the Vietnamese stock market

4.1.1 Perspectives on the development of Vietnam's stock market

- Developing the stock market to become a solid pillar in the financial and monetary market system; associated with the socio-economic development strategy, contributing to promoting economic development in an effective, sustainable and modern direction.

- Develop the stock market with a suitable trading market structure, diversified products and improved access to the stock market for organizations, businesses and investors.

- Perfecting institutions including the legal system on securities and the securities market, along with the organizational system for management and supervision of the securities market, and the coordination and information sharing mechanism at all levels to ensure consistency and effectiveness.

- Continue to promote publicity and transparency in securities and stock market activities.

- Build and perfect the mechanism for managing and supervising the stock market on the basis of applying new technology and approaching international practices.

On February 28, 2019, the Prime Minister issued Decision No. 242/QD-TTg approving the Project "Restructuring the securities market and insurance market until 2020 and orientation to 2025".

The general objective of the Project is to continue comprehensive restructuring so that the stock market becomes an important medium- and long-term capital channel for the economy, build a reasonable and balanced structure between the money market and the capital market, between the stock and bond markets, between government bonds and corporate bonds; actively support the restructuring process of state-owned enterprises, innovate the economic growth model and promote economic development; increase openness and integration with regional and world markets.

4.1.2 Objectives of strengthening the State Securities Commission's management of fraudulent acts in the Vietnamese stock market

Strengthening the management of fraudulent acts will create stable, fair, transparent and effective conditions for the stock market to develop in accordance with the above-mentioned objectives. As the agency directly implementing the tasks and authorizations of the Ministry of Finance, the State Securities Commission's goals of strengthening management of the Vietnamese stock market include:

- Complete the draft and submit to superiors for promulgation of Decrees and documents guiding the implementation of Securities Law No. 54/2019/QH14 as a legal basis for implementing the management of fraudulent acts in the securities market;

- Perfect the coordination mechanism between the State Securities Commission and the Stock Exchanges in monitoring, detecting and handling violations of manipulation, insider trading, violations of information disclosure obligations, etc.; coordinate between the State Securities Commission and prosecution agencies in the fight against crimes in the securities sector, especially the four securities crimes stipulated in the Criminal Code.

- Under the impact of the 4.0 industrial revolution, the provision and formation of securities products and services are increasingly diverse and complex. Therefore, it is necessary to gradually shift the management and supervision model of the State Securities Commission from compliance management and supervision to a risk-based management and supervision model to optimize resources, focus on identifying, monitoring and handling risks that can affect the market. This approach also helps the agency to manage and supervise more effectively under conditions of limited resources.

- Shift from post-control market management and monitoring mechanism to real-time monitoring mechanism for prevention and containment with the application of artificial intelligence;

- Complete the securities market supervision system based on clearly defining responsibilities, building securities trading organizations into first-level supervisory units in the market. Review and amend regulations on classification of securities trading organizations, on establishing and operating risk management systems for securities trading organizations, on corporate governance for securities trading organizations;

- Strengthen supervision, inspection and examination of public companies, securities issuing organizations, securities trading organizations, securities practitioners, auditing organizations and auditors practicing auditing financial statements of public interest organizations in the securities sector. Take the lead and coordinate with relevant agencies to strictly handle organizations and individuals violating the provisions of law;

- Promote the application of information technology in the management and supervision of the stock market. Especially the supervision of public companies and the supervision of transactions on the market. Develop and implement a master plan on information technology for the State Securities Commission;

- Develop and implement training and development strategies for civil servants working in management, supervision, inspection and enforcement. Strengthen coordination with international financial institutions and foreign securities management agencies in supporting training for civil servants of the State Securities Commission.

- Strengthen regular exchanges and consultations with professional associations, take the lead in coordinating with professional associations in disseminating, training, promulgating professional ethics standards, and inspecting and supervising to improve the quality of practice and professional ethics of organizations and individuals participating in the securities market;

- Actively coordinate with media agencies, increase information provision to the public, and propagate policies on securities and the stock market;

- Implement international commitments on information exchange and cross-border investigation coordination among securities market management agencies. Effectively implement international economic integration commitments in the securities sector and ongoing cooperation programs with international organizations and partners.

4.2 Some solutions to strengthen the management of the State Securities Commission against fraudulent acts in the Vietnamese stock market

4.2.1 Perfecting the management process

There is a need to move from a management process based on analysis, input assessment and events to a broader coordination and cooperation based on proactive and continuous principles.

In order to collect data sources and market information, the State Securities Commission needs to establish a reporting income center with a model of a Public Service Unit with the task of collecting reports from information sources including official information from public companies, securities companies, fund management companies and investment funds... information from securities forums, investors. There is a hotline channel to receive timely, simple and quick feedback from investors about unusual fluctuations, risk factors of fraudulent behavior, implementing a culture of denunciation and reporting crimes. Because whistleblowers play an important role in detecting fraud. Qualitative research results also show that denunciation letters from investors play an important role in detecting fraud.

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