Comprehensive solutions needed to upgrade stock market

The Ho Chi Minh Stock Exchange (HOSE) has just raised the minimum lot from 100 shares to 1,000 shares to reduce the number of trading orders by 20% to 25%, and lower the load for trading and resolving the current congestion of transactions.
Illustrative photo
Illustrative photo

After a little more than 20 years, perhaps few people know how the Vietnam stock market has grown and developed so rapidly, while recording much progress and achievements as at present. Securities companies, investors, including related ministries and agencies, never thought that liquidity in the stock market would increase so rapidly as it has done at the current moment. The average trading value per session on HOSE in 2019 was only about VND 4,500 bn per session, and at the end of 2020 the number had increased nearly three times, and will be even higher in the first quarter of 2021.

In the current situation of the Covid-19 pandemic, which is affecting all global businesses, in particular all economies, and despite the continuous net sales of foreign investors in 2020 and the first two months of 2021, Vietnam's stock market has continued to serve as an investment channel for thousands of individual investors. The surprise wave of F0 investors rushing to participate in the market made the stock market return to historical peak of 1,200 points, the same as in 2007 and 2018 that it had once reached.

But the worrisome fact is that congestion has continuously occurred on HOSE since early 2020. Securities companies and investors were also quite surprised and did not understand what was happening when the congestion problem came from the trading system on HOSE. The congestion phenomenon also surprised both HOSE leaders and securities companies, because it took place in the context of the raging Covid-19 pandemic. The overload of the system and proposed solutions, such as adjustment of minimum trading lot from 10 shares to 100 shares, and recently a proposal from 100 shares to 1,000 shares, are being paid special attention to by many securities companies, institutional investors, and especially individual investors.

However, we should only consider the proposal to increase the minimum trading lot from 100 shares to 1,000 shares as a particularly urgent solution, and if any, it should only be applied for a very short time. This should not be considered a sustainable solution with a long-term vision. The advantage we all see is that if the application of raising the trading lot to 1,000 shares can reduce the load for the system by 40% or 50%, it seems to limit the congestion in the afternoon sessions on HOSE. However, the downside is obvious and has a great influence on investors, especially for individual investors and it limits transactions of small investors. In particular, small "NAV" investors will certainly not be able to participate or only participate in limited purchases, causing frustration for some investors in the context of the stock market entering the uptrend period.

Although trading on HOSE can bear maximum load of 900,000 orders and allocate these proportionally with member securities companies, it will certainly affect the operation of the securities companies with a number of individual customers. In general, this is not a comprehensive solution, and it is difficult to make the stock market an investment channel for the masses if only the minimum round lot is adjusted on HOSE. Certainly, a new and more stable and modern transaction system, able to bear the load of millions, tens of millions, even hundreds of millions of new orders is the right solution for a developing country like Vietnam. We also have proof of many developed stock markets such as the US, Europe, South Korea, where congestion rarely occurs and the system is modernized and upgraded continuously.

The stock market will continue to develop in quantity and quality. The number of listed companies will continue to increase, and not stay limited to the threshold of 1,700 or 1,800 enterprises on HOSE, HNX, and UPCoM as at present. Especially, the derivative stock market will still develop and many products such as options, short sales, and intraday transactions will be launched to meet the development needs and the needs of investors. Upgrading the system of infrastructure technology is essential and there must always be a comprehensive solution to continuously improving the stock market towards 4.0 arena, internet of things, promoting online transactions, and individual investors. Whether in any region of the country or the world, stocks can be traded. This is the core target for the fledgling stock market but is taking a long step towards upgrading the emerging market in the future.