Overview of informal stock market

The World Bank report on the realisation of rules and principles of corporate management in Vietnam was uploaded on the website of the State Securities Commission (SSC), providing an interesting picture about Vietnam’s informal stock market.

The WB specialists drew a rather comprehensive picture of the informal stock market, which is now beyond the management of Vietnam’s securities managers. They held that the non-regulated informal market has not been affected by the establishment of the Ho Chi Minh City Securities Transaction Centre (STC) in 2000.

More active than formal market

Primarily, transacted shares on the market are of equitised SOEs and stock companies of private businesses and investment organisations. They have not been regulated by any securities management bodies, namely the State Securities Commission and Ho Chi Minh City STC.

By December 22, 131 out of nearly 6,700 stock companies were listed on STCs in Ho Chi Minh City and Hanoi. But shares of not-yet-listed companies have been traded on the informal market, which is estimated to be three to six times higher than that on STCs. The daily transacted value is three times higher than that of the official market.

Non-licenced brokers

The unofficial market is an informal network of licenced and non-licenced intermediaries dealing with securities transactions which have not been listed at the Ho Chi Minh City STC. There are two groups of intermediaries on the informal market. One group includes independent and non-licenced go-betweens, about 60 to 80 in Ho Chi Minh City. The majority of the group is financial institutions consisting of licenced securities companies. The other group comprises licenced securities companies which work illegally with non-listed securities and are allowed to trade only listed securities on the official market.

The transactions are conducted with some kinds of documents. The payments in cash are done within a few days of transactions.

High risk

Informal transactions are not protected by law or any legal organisations but depend largely on the prestige of non-licenced intermediaries.

The informal market is unable to protect investors due to its ineffective, unfair, and obscure market mechanism, not like that of STCs. Regulations of stock markets are not applied to non-organised STCs. So the SSC is powerless in informal market management.

The prices of shares are doubtful due to the shortage of report systems and transparent transaction information. The financial and professional capabilities of brokers are not under control and the information on published shares is not identified. Hence, informal transactions are rather ineffective and small scale; however, they still make up the larger part of all transactions throughout the country.

According to the report, another factor preventing companies from listing on STCs are requests to provide transparent listing information. Maintaining vague capital to avoid tax is a desire of numerous companies. It is difficult to motivate them to join the official market unless corporate standards are clear. Moreover, higher listing criteria are necessary to attract investors.

Management, how?

A currently being deliberated measure is raising and applying corporate transparency criteria to all companies, rather than to only listed companies at the moment. This is to create a fair playground for both non-listed and listed companies. This will also help to improve attraction to listing on STCs which will not be seen as a large burden on enterprises. The 2006 Securities Law also regulates all public companies.
Another practical tool in the management of off-STCs transactions is the setting up systems of concentrated registration and private securities brokerage registration.