HANOI : Vietnam will remove a requirement for full pre-funding on equity transactions of foreign investors from Nov. 2, its finance ministry said, the country’s latest effort to boost the chances to be reclassified as an emerging market.
Currently, overseas investors must fully transfer funds before buying securities, a hurdle that has hampered for years the upgrade of the Ho Chi Minh City Stock Exchange.
Both the MSCI and FTSE indices currently classify Vietnam as a frontier market, preventing many funds, family offices and others from investing in companies listed there.
Under the new rule stated in a finance ministry’s circular issued late on Wednesday, brokers are allowed to vouch for foreign investors when they buy shares.
“Brokerage firms will assess the risk to determine the pre-funding ratio for foreign institutional investors when placing purchase orders. If an overseas investor fails to complete the payment, the liability will be assumed by the brokerage,” the circular said.
The move comes ahead of FTSE’s announcement on market classification on Oct. 8 although three sources familiar with the matter said it was unlikely that FTSE would announce the upgrade for Vietnam in the October report.
After the removal of pre-funding requirement, key reform needed for the upgrades remains, with strict limits on foreign ownership of listed companies.
Last year the World Bank estimated that upgrades could trigger net inflows of between $5 billion and $25 billion to the $200 billion market by the end of the decade.