Vietnam Cracks Down on Securities Fraud

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Aug. 15 – In an effort to enact protection mechanisms to lower the risk investors may be exposed to with regard to securities-related crimes, the Vietnamese government promulgated Circular No. 10, which comes into effect today and contains new regulatory guidelines regarding:

  • Intentional disclosure of false information;
  • Insider trading; and
  • Manipulation of securities prices.

The circular embodies the joint effort by the Ministry of Justice, the Ministry of Public Security, the Supreme People’s Court and the Ministry of Finance to crack down on securities fraud.

Under the circular, three tranches of violations were established ranging from “serious” to “extremely serious.” Specifically, any misconduct that results in damages of at least VND1 billion (US$47,100) will be categorized as a “serious” offense; misconduct resulting in damages of at least VND3 billion (US$141,500) will be considered “very serious”; and offenses resulting in damages above VND3 billion will be considered “extremely serious.”

Insider Trading

The circular defines “insider trading” as any transaction, including the inducement of another to transact, on the basis of information yet to be disclosed to the public.

While the circular applies to anyone engaged in insider trading, special emphasis is placed on the need to monitor auditors, securities companies and securities funds, as these entities have the greatest potential to influence market prices.

Disclosure of False Information

Any financial publication that is issued by a publicly listed company, a securities company or any other financial institution under the regulatory authority of the State Securities Authority (SSC) must not intentionally disclose misleading information or withhold information pertinent to the investment at hand. Penalties for the disclosure of false information may be levied against institutions as well as individuals, including members of the board of directors and the chief financial officer.

In addition to outlining specific activities to be prohibited, the circular also protects investors against any intangible action that results in reduced investor confidence, interference with market regulations and any other action that results in creating an unfair advantage for one party over another.

Stock Market Supervision

Along with the release of Circular No. 10, the Ministry of Finance has also released a draft proposal to further bolster investor confidence and strengthen regulatory control over Vietnam’s stock markets. The circular, entitled “Guidelines for the Financial Management and Evaluation of Performance of Stock Exchanges and the Vietnam Securities Depository Centre (VSD),” seeks to increase market transparency by increasing the requirements faced by publicly listed companies.

Under the draft proposal, quarterly and annual financial reports will become mandatory, and companies will also have to verify their tax code compliance on a regular basis.

If approved, the draft will come into effect starting January 1, 2014.

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