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Preface and Acknowledgements I would like to thank Dr.Nguyễn Văn Vân and Dr.Christoffer Wong for being my supervisors who have spent time guiding me through this study with constructive comments and advices. Without these contributions, this thesis would not have been realized. I would like to extend my thanks to Dr. Mai Hồng Quỳ and Prof. Dr. Bengt Lundell, the SIDA Program Directors, and the professors of both universities who have helped me during my study in the Joint Swedish-Vietnamese Master Programme. I would also like to thank HCM University of Law and Lund University, the two best law schools I have both opportunities to attend for broadening my knowledge, and opening up a new bright future for me. And I would like to thank my fellow students and my colleagues who have shared weal and woe in my study. In additon, I would also like to thank Mr. Nguyễn Thái Dũng, my English Teacher who has been devoted generously his time helping me. Last but not least, I would also like to send my special gratitude to my parents, Mr. Nguyễn Pha and Mrs. Nguyễn Thị Định who have raised me up to become educated man despite so much difficulties and all of my brothers and sisters who have given me a lot of supports, and I am indebted to my wife, Mrs. Lê Thị Kiều Hưng and my beloved daughter Nguyễn Lê Uyễn Nhi for their moral support, sacrifice, and encouragement during my studies. Table of content Preface and Acknowledgements .................................................................................. 0 Table of content ........................................................................................................... 1 Abbreviations ............................................................................................................... 2 Executive summary ...................................................................................................... 3 1. Introduction.................................................................................................... 4 1.1 1.2 1.3 1.4 1.5 Motivation...................................................................................................... 4 Scope and delimitation................................................................................... 6 Methodology .................................................................................................. 6 Objective ........................................................................................................ 6 Lay-out of the thesis....................................................................................... 7 2. Economic background to stock market regulations ....................................... 7 2.1 2.2 Functions of stock market with respect to the development of national economy ......................................................................................................... 8 IPO and its impacts on a domestic economy ................................................. 9 3. Legal regulation of IPO in the United Kingdom and Vietnam .................... 12 3.1 3.2 3.3 3.3.1 3.3.2 3.3.3 Management of IPO activities ..................................................................... 14 Responsibility of the authority in charge of IPO activities .......................... 17 Requirements for a new applicant................................................................ 20 Types of offered issuer ............................................................................ 21 Issues related to new applicants’ financial matters ................................. 22 Responsibility of the issuer ..................................................................... 25 3.4 Responsibility of an approved sponsor ........................................................ 27 4. Conclusion and suggestion .......................................................................... 29 4.1 Innovation in the governing method of IPO activities ................................. 32 4.2 Addition terms to IPO regulation in Securities Law.................................... 33 Table of legislation..................................................................................................... 37 Bibliography............................................................................................................... 38 Appendix 1 ................................................................................................................. 41 Appendix 2 ................................................................................................................. 43 Appendix 3 ................................................................................................................. 44 Appendix 4 ................................................................................................................. 45 Page 1 of 46 Abbreviations CIDE FSA FSMA 2000 HM Treasury IPO LR PCD POEs PCP SSC SOEs UKCA 2006 Commision on Innovation and Development of Enterprises Financial Services Authority Financial Services and Markets Act 2000 Her Majesty Treasury Initial Public Offering Listing Rules People’s Committee of District Privately Owned Enterprises People’s Committee of Province State Securities Commision of Vietnam State Owned Enterprises Companies Act 2006 (United Kingdom) Page 2/46 Executive summary The economical integration of Vietnam has led to a turning-point of a new era of this country and it could be seen a proper choice along with the general trend of financial development of many countries in the world. The guideline of the integration from the Vietnamese Government has resulted in the establishing of a multilateral financial market which has been expressed strongly in such stock exchanges as Ho Chi Minh Securities Trading Central (later changed the name to Ho Chi Minh Securities Exchange - HoSE) and Hanoi Secuurities Trading Central (HaSTC). The Vietnamese stock market has been grown up strongly in quantity and quality within a relatively short period, however, the stock market is still fairly new to Vietnam, in consequence, the Government has been occupied both in setting up and improving the legal system of the stock market. Thus, it is not surprising that there have been quite a few missteps observed during this period of infancy of this stock market, especially in the areas of managerial method and statute law at the activities of the primary listing of equity shares which is also known under the name of the initial public offering (IPO) in the United States of America. As a result, these weak-points have been impacting on the economical situation of the whole country. This is the initiative that motivates the author to study certain respects of managerial method and legal regulation of initial public offering from counties with theirs stock market existed for a long time such as the well-known London Securities Exchange (LSE), in the United Kingdom, a country with an over 200 years old stock market, in order to learn from their experiences. In this thesis, the author will examine and analyze IPO activities in the Vietnamese stock markets to identify for shortcomings of the securities law in general and the IPO law in particular. Furthermore, the comparative method to the legal regulations of IPO in the United Kingdom and Vietnam law to will be utilize to find out the similarities and the differences. From these results, the author will draw appropriate points to optimize the development of the IPO regulations of the Vietnamese stock market in order to reduce the problems of IPO activities occurring as at the present time. The result of the this work will serve to an end in which the author will contribute some suitable proposals to modify the stock market regulations of Vietnam, the contributions are drawn from the experiences of the United Kingdom once it has undergone a similar road as Vietnam going through at the present time. Page 3 of 46 1. 1.1 Introduction Motivation Vietnam is a country with an emerging economy with its current stock market which is only in existence for approximately 8 years1. In a short time, especially from 2006 to 2007, the Vietnamese stock market has grown strongly in its initial public offering (IPO) market2 with the going public of many enterprises consisting of State Owned Enterprises (SOEs)3 and Privately Owned Enterprises (POEs)4. Along with the growth of the stock market, the Government has step by step strived for an improvement of the legal system5 and its infrastructure for the integration of the Vietnamese stock market into the global market. However, an anomaly observed in the Chart of VN-index which is the plateau occurred in the time interval from January 2006 to October 2008 in which the VN-index shot up three times and then droped four times is needed to be explained6. The author’s interpretation of this anomaly is that this anomaly could be a result of shortcomings which had arisen from IPO market with the following reasons (i) the structure and the governing mechanism of IPO activities are not defined clearly in administrative bodies which may be not competent7; and (ii) the IPO regulations are not fully based on economical background, they are not yet reflected all functions of stock market Decision No.127/1998/QĐ-TTg dated on 11st July 1998 Regarding to establishment Ho Chi Minh City Securities Trading Central and Ha Noi. Later changed the name to the Ho Chi Minh City Securities Exchange (HoSE) which was officially opened on 28th July, 2000 and Hanoi Securities Trading Central (HaSTC) which was officially opened on 8th March, 2005. Hoàng Xuân, “Chứng khoán 2008: Tăng cung, kích cầu” (“The Vietnamese stock market of 2008: increasing stocks – stimulating trade”), dated 12 February 2008, vnEconomy, available website: http://beta.baomoi.com/Home/ChungKhoan/www.vneconomy.vn/Chung-khoan-2008Tang-cung-kich-cau/1372420.epi SOEs, in this case, are firms where the government owns 100% of the total chartered capital. Under the Law on Enterprises of Vietnam 2005, SOEs could be in the form of state-owned enterprises, joint-stock companies, or limited liability companies. POEs are firms where the Government is not own 100% of the total chartered capital and theirs form is joint-stock companies, the owners of POEs can be either foreign investors or/and the Vietnamese. (State or/and individuals) From May 1996 until June 2007, the Government published 6 decrees relating to the equitization of State Owned Enterprise such as Decree No. 28/CP dated 07/5/1996, Decree No. 25/CP ngày 26/3/1997, Decree No. 44/1998/NĐ-CP dated 29/6/1998, Decree No. 64/2002/NĐ-CP dated 19/6/2002, Decree No. 187/2004/NĐ-CP dated 16/11/2004 and Decree No. 109/2007/NĐ-CP ngày 26/6/2007. And the Law on Securities 2006 approved by national assembly on 29 June 2006, effective dated 1 January 2007. 6 Appendix 1.Chart of VN-index from 02 August 2000 to 31 October 2008. Appendix 4. Corporate governance and mechanism of regulating of IPO activities in Vietnam. Page 4/46 (discussed in Part 2.1 below). In addition, the legal regulations of securities are not synchronously compatible8. These factors would likely create a barrier which reduced the growth of Vietnamese stock market eventually leading to crises over time9. This is a paradox in expectation between the Governmental policy10 and its implementation in reality. In order to contribute to the remedy of the shortcomings previously discussed, we can learn the experiences of managerial method and legal regulations of IPO from countries with well established stock markets, for example, the United Kingdom, a country with a stock market, i.e. the Lodon Securities Exchange (LSE), which has been existing over 200 years11. However, there has been no research on the IPO in Vietnamese law in comparasion to the United Kingdom law so far. Hence, this led to the choice of this topic for the thesis of the author. On the date of 11 July 2006, the day that Vietnam officially joined the WTO, the real property market started to get hot (ref. Vietnamnet, “Nghịch lý của thị trường đất đai”(the paradox of the land market [in Vietnam]), dated on 02 November 2007, available at: http://www.vietnamnet.vn/kinhte/2007/11/752668/). Many speculators mobilized capital loaned from commercial banks (non-governmetal financial intermediaries) for stock acquisition, since the value of stock was based on value of land but the land market was getting hot uncontrollablely. In addition, many commercial banks competed with one another by reducing rate of interest (ref. TNCK, “Bất động sản: vùng trũng tín dụng” (the real property: the sunken zone of commercial credit), dated on 13 November 2007, available at: http://stock.gsomedia.com/news/?ID=6195). This flow of indirect investment (for stock acquisition) was not controlled closely by the government. As a result, this chain of events could lead to the getting hot of the stock market booming in a short time which reflected in the suddent increase from 399.80 points on 02 August 2006 to 1,170.67 points on 12 March 2007 of the VN-index. To halt this phenomenon, the Governor of the State Bank issued the Circular No.03/2007/CT-NHNN dated 15 August 2007 to enforce the stock market by limiting the total loan for stock acquisition which had to be under 3% of the total loan balance of commercial banks. Then according to the Decision No.03/2008/QĐ-NHNN dated 01 Febuary 2008, the 3% of the total loan balance of commercial banks was replaced by the 20% of the total charter capital of commercial banks. Thus, the commercial banks raced to increase their charter capital that led to the increase up the rate of interest and eventually, the tightness of credit has been more hard. As a result, many speculators unloaded their stocks immediately to deal their debt with creditors (commercial banks) leading to the free fall of the VN-index from 1,170.67 points on 12 March 2007 to 322.80 points on 28 October 2008. (ref. the chart of VN-index in appendix 1) See appendix 1. Chart of VN-index from 2 August 2000 to 31 October 2008. Article 1 of Decision No.163/2003/QĐ-TTg dated 05 August 2003 Approving the Strategy for the development of the Vietnamese stock market until 2010: “Developing the stock market with its quantity and quality for building as a channel to mobilize long terms and short terms supporting to developed investment, and to contribute in the development of Vietnamese Financial Market; to maintain in order, in safe; to expand range, to enhance effective management, to control for protection of the lawful rights and interests of investors; in order to upgrade compettion and to integrate step by step into the financial market in the world.” Larry Neal, “Review of Ranald C.Michie, The London Stock Exchange: A History.” EH. Net Economic History Services, 10 August 2000. URL: http://eh.net/bookreviews/library/0279 Page 5 of 46 1.2 Scope and delimitation To conduct this study, the author will focus on the comparative study on the IPO regulations in the United Kingdom and Vietnam with following issues: (1) managerial method and governing of IPO activities; (2) requirements for new applicants to go public (initial public offering of equity shares); and (3) resposibility of bodies relating to IPO activities such as authority in charge, new applicants, sponsors. In other words, the author will not concern with the official listing and the transactions on securities market, i.e. not to discuss on the issuing of bonds, investment fund of certificates and the derivative instruments which are traded on securities market such as shares purchase rights, securities rights, purchase options, sale options, future contracts, groups of securities and securities indices. 1.3 Methodology The author will examine and analyze IPO activities in the Vietnamese stock markets to identify shortcomings of the securities law in general and the IPO law in particular. Furthermore, the author will use comparative method to the legal regulations of IPO in the United Kingdom and Vietnam law to find out the similaries and the differences. From there, the author will draw appropriate points to optimize the development of the IPO regulations of the Vietnamese stock market in order to reduce the problems of IPO activities occurring at the present time. In addition to the IPO regulations of the United Kingdom law and Vietnam, the data used for supporting this research including the Vn-indexes from August 2000 to October 2008, the figures of the State Securities Commission of Vietnam, securities information editing in websites, Securities Journal, securities theses and newspapers for explaining to phenomena of IPO in Vietnam. 1.4 Objective Through this study, the author will draw the experiences of managerial method and legal regulations of IPO process from the United Kingdom, in which the United Kingdom has gone through similar steps to Vietnam going through at the present time in order to cut short the time of the process of integration of this country into the global market, to promptly reach objectives which are determinated in Decision No. 163/2003/QĐ-TTg12. At the same time, the author also hopes that this thesis would be a useful contribution to anyone having interest in the Vietnamese stock market. See footnote 10 above. Page 6/46 1.5 Lay-out of the thesis The rest of the thesis is organized as follows: Section 2 economic background to stock market regulations, i.e. showing that main functions of a stock market and relationship between a primary market and secondary market; concept of IPO and impacts of IPO on the economy of a country. Section 3 legal regulation of IPO in the United Kingdom and Vietnam, i.e. indicating similarities and differences in respects of managerial method of the stock market and of IPO activities among law from both countries (the United Kingdom and Vietnam) about; legal regulation to individuals and bodies relating to IPO activities, including a new applicant, sponsor and competent authority. Section 4 conclusion and proposal, i.e. summarizing of particular issues that is an outcome of the study. At the same time, the author has some contributions in the development of IPO regulations of the Law on Securities of Vietnam in near future. 2. Economic background to stock market regulations The birth and subsequent development of documents of asset value from issuing organizations and its trading on the market were arisen from the facts to regulate directly the relationship of supply and demand between the investors (lenders) and the enterprises (borrowers). This is basis in establishing an early capital market in a market economy. In the present market economy, the relationship between lenders of capital (investors) and borrowers (enterprises) in earlier times through financial intermediaries (banks, credit agencies, holding companies) became inappropriate due to this out of date mode of dependance on financial intermediaries13, since it gave them no opportunity to deal directly with each other in their businesses. When the two parties (investors and enterprises) did not come to financial intermediaries for their transaction, these enterprises were actively seeking capital by issuing securities (stocks, bonds, etc.), thus, these investors would have direct opportunity for their investment with expectation of higher profits. The party that supplies capital (lenders) deposits its funds into banks under fixed rate of interest that only produces restricted profit due to limited options, at the same time, the investors can not control their flow of cash in the economy. The party that needs capital (borrowers) suffers the higher rate of interest and demanding conditions from the banks. Therefore, the stock market becomes a more attractive option to both parties. Page 7 of 46 Under the economic point of view, the capital and mechanism of its distribution are essential factors for the development of economy. Therefore, a government of a country in the world should make a policy to determine measures to intervene, if necessary, in the activities of the capital market. As a result, stock market regulations are an essential instrument of governments which plays an important role in relation to the capital market in general and the stock market in particular. 2.1 Functions of stock market with respect to the development of national economy A stock market is the marketplace where happens transactions as the buying and the selling of securities (documents asset value that represents on a long term capital and short term) between participants in a market. The trading starts with IPO market where investors obtained stocks issued by issuers, and continues on the secondary market where the selling or/and buying of the stocks previously issued for sale to the public from IPO market take place (hence also called listed stock market). Looking under the angle of form, the stock market is a marketplace where activities of buying and selling securities occur to realize the transfer of ownership of securities. Based on the flow of capital transfer, the stock market can be divided into two types: primary market (IPO market) and secondary market and economic functions of each market is defined as follows. The IPO market that is a marketplace where buyings and sellings of initially issued securities between investors and issuer or investors and sponsor occur. In the IPO market, the capital of investors will transfer into the issuer through the purchase of securities by investors. The IPO market is considered as a chanel to raise capital effectively for expanding business of the issuer. This way, the issuer will mobilize directly capital from investors but not through the banking system, that means reducing the interest to pay and reducing pressure at the due date of the issuer’s debt due. Besides, the IPO market was to provide a good oppotunity for investors to take advantage of their idle money to invest along with issuer, to create new jobs for the society, to contribute into the development of economy. The secondary market that is a marketplace for trading of previously issued securities from IPO market. The indices in secondary market manifest a business performance of issuers hence the course of growing (or declining) level of a country’s economy. In turn, the secondary market plays a vital role in shaping the primary market by means of supporting market participants to adjust the equilibrium of their financial needs to meet business requirements to reach the price’s agreement between bu- Page 8/46 yers and sellers. This process will be take in full advantage to optimize the IPO stock prices and to eliminate unsatisfactory stock issued from IPO market14. Investors participating in the IPO market is the aim of achieving the desired profit expectation acquired stocks from dividends and increases of value in future. As such, to achieve high profit level from dividends the issuers must show they should have potential projects with optimum profit, and to achieve higher future price than initially offered price of stock, their business would grow. On the other hand, if the secondary market was not guaranteed the liquidity of stocks, meaning that stock prices on the secondary market did not meet the profit expectation of investors, that means the businesses of issuer did not grow or did not to bring perform effectively as desired. In summary, the IPO market deals with investment needs between issuers and investors, and the secondary market deals with capital liquidity when a financial needs of financial transfer are arisen among buyers and sellers by the means of listed securities. The interaction between these two markets shows: the feasibility of economic project and managerial skills are two basic factors that reflect strength of the stock market in its operation and development. (see Appendix 2). So that, for sustainable development of a stock market to become as a driving force in the national economy, some specific legal aspects of IPO process must be appropriately legalized on the basic of socioeconomic benefits to the parties who participate in the process of IPO. 2.2 IPO and its impacts on a domestic economy Under Companies Act 2006, following concepts: “issued share capital” are shares of a company that have been issued; “allotted share capital” are shares of a company that have been allotted. And “issued or allotted shares”, or “issued or allotted share capital” include shares taken on the formation of the company by the subscribers to the company’s memorandum. According to Richard Wilson15, the process of issuing shares capital to the public at first time for creating capital of company (issuer) is called Initial Public Offering (IPO). Thus, IPO could be understood as follows: It is the shares capital of company which are sold to the public at the first time to raise capital, to serve the capital needs of issuer’s business that lead to change the structure of ownership of capital company. These companies are usually small companies which have just emerged, in need of capital for expanding of their business. These companies can also be national EFET Gas Commmittee – European Federation of Energy Traders, “Enabling Secondary Market Gas Capacity Trading”, 29 March 2007, p. 1. David E. Upton, “Stock market”, dated 03 May 2008, available at: http://www.referenceforbusiness.com/encyclopedia/Sel-Str/Stock-Market.html Page 9 of 46 companies (State Owned Enterprises - SOEs) now wanting to change the ownership of capital, that is from a sole owner, the state, to many independent owners, private investors. The process that changes the struture of capital ownership of SOEs through the issuance of equity shares to the public also known as “the equitization of SOEs16”. IPO is in a transitional period of growing stage of company, therefore, its price of stocks on secondary market will depend very much on business effectiveness of issuer in future. The investors who purchase shares in the IPO market are ready to accept the game rule: high risks and high gains, because it is difficult to predict how these stocks will do in the future. According to the law of many countries, to offer shares to the public, the issuer must ensure to have essential elements in place and to make necessary procedures at the request of authorities, this process is called “going public”. Going public is a very important milestone, it marks a transition from a small company to a large company with its ownership shared by many shareholders. Going public is a very meaningful period to the development of many enterprises, it gives a good opportunity to company to join the capital market as well as increase the trust of the company before public eyes17. IPO relates to the distribution of capital ownership for each shareholders, and it relates to the purchase of securities among insiders (existing shareholders) in the company. The existing shareholders may be aware of the information which has not been announced and there could be many problems arisen from the imparity in information among existing shareholders and outside investors18 (potential investors). Thus, the participating of investors in IPO market could be seen as a form of direct investment with high risks, because of uncertaintly to force what happen might become in the future of the shares. However, the IPO is always a good opportunity for many investors to get higher profits on their capital and the IPO coin could well be landed on the other side of gaining, the lossing side in which fact is a loss of capital to issuers from investors19. In general, the flow of capital in principle will move from one investment chanel with lower yield to the other with higher yield, in particular, the nature of stock investment in the IPO market does not lie outside of the priciple above. It is the activiThis terms is applied to the Decree No.109/2007/NĐ-CP dated 26 June 2007. Small Business Encyclopedia, “Initial Public Offerings”, available at: http://www.answers.com/topic/initial-public-offering Jay R.Ritter, “Initial Public Offering”, Edited by Dennis Logue and James Seward, Spring 1998, p. 1, available at: http://bear.cba.ufl.edu/ritter/rittipo1.pdf The Gale Group. Inc, “Small Business Encyclopedia: Initial Public Offering - IPO”, available at: http://www.answers.com/topic/initial-public-offering Page 10/46 ties of investors who put their idle money invested to issuers’ businrss with the expectations that they will receive a larger sum of revenue in the future than the initially invested capital. Therefore, before making decision of in stock investment, investors can look for competitive advantages of the issuers over competitors (at the present and in the future) and evaluate all business activities of issuers in the general context of economy, etc. In reality, it can be shown that going public has a large influence on the national economy, issuers and investors in both positive and negative ways. If IPO activity is a healthy factor that will contribute to the growth of capital for the expanding of business leading to the prosperity to issuer, bringing expected profits to investors, in actual facts, it will contribute significantly to the economic growth. On contrary, going public could be a means for to issuers to abuse to get money from investors, then this would lead to unexpected economic consequences, causing eventually market crisis, economy downturn and wasting of scarce resources, namely time and money etc., affecting not onlt investors, but also the whole population in a country, or even in the whole world in worst case scenario. So, issuers want to attract capital from investors besides the management skills of the board of directors20, the first requirement is that the issuers have to prove to the public the feasibility of their business project and secondly this project will bring the best benefits to investors21 in comparison with their investments in other projects or simply depositing their money in banks’s accounts. Thus, the information on feasible business projects of issuers, mentioned here, are a very important factor for the investors to have advanced knowledge to be able to consider various choices where they should invest in any issuer’s company, with any amount of shares before they actually made decision on investment. If this criterion is not satisfied, i.e. the issuers have no a feasible business project, this will cause losses to issuer, investors and damages to the economy. Therefore, in the certification of IPO, the authority must determine the feasibility of business project to assess the necessity of the capital mobilization of issuers. And also, the authority must evaluate the effectiveness of the using of the proceeds earned from the offer based on the predicted growth of the issuer’s projects. In legislation, it is necessary to set out pricinples such as fairness, open, transparency, etc. along with these princi- Bharat A.Jain and Filiz Tabak, “Factors influencing the choice between founder versus non-founder CEOs for IPO firms”, Journal of Business Venturing 23 (2008), p.21-45, available at: http://www.sciencedirect.com Trần Danh Đáng, “Hạn chế của những cơ chế và phương pháp định giá hiện hành”, Newspaper No 2(5) May 2004, available at: http://www.kinhdoanh.com.vn/mtkd/So5/5_thaoluan01.htm Page 11 of 46 ples, it must build a good mechanism for operating system which will prevent market abuses for the protection of legitimate interests of investors22. 3. Legal regulation of IPO in the United Kingdom and Vietnam In real life, it can be shown that the legislation from many countries all over the world is constituted with the influence of the cultural, historical and socioeconomic conditions of each invidual country which is known as “spirit of law” of that country. The securities regulation of Vietnam was born in the circumstance when the conomy was switching from the command economy to the socialist oriented market economy, so that, it is inevitable that the some habits of former procedures23 still lingered on. For the United Kingdom, a country with a market economy in existence for a long time, the state used “the law” as a tool to regulate macroeconomics24, the state does not involve directly in the management of market25. Below are the differences of the legal system to regulate to activities on the stock markets between the rwo countries. Under the United Kingdom law, the activities relating to the financial sector26, including banking, foreign exchange, securities, etc. are regulated by Financial Services and Markets Act 2000 (referred to as FSMA 2000). Accordingly, the securities activities in general, and IPO activities in particular27 are regulated by FSMA 2000. Thus, the regulation of the securities activities are held in uniform by the Financial Services Authority28 (referred to as FSA) which is a directly regulatory body to the stock market29 making rules30 under the FSMA 2000. The regulatory objectives of Jay R.Ritter - Cordell Professor of Finance University of Florida, “Initial Public Offering”, Edited by Dennis Logue and James Seward, Spring 1998, p. 1. See appendix 4 below. Chapter 1, “The Policy Background” in Blackstones Guide to the Financial Services and Markets Act 2000, Michael Blair QC, Loretta Minghella, Michael Taylor, Mar Threipland & George Walker. See appendix 3 below. Section 3 of FSMA 2000. Listing Rules Instrument dated 16 June 2005 by order of the Board – Amendment on 28 June 2007. Section 1 and section 2 FSMA 2000. Ref. “What we do”, dated 04 September 2007, available at: http://www.fsa.gov.uk/Pages/About/What/index.shtml Section 157(1) FSMA 2000: 157.—(1) The Authority may give guidance consisting of such information and advice as it considers appropriate— (a) with respect to the operation of this Act and of any rules made under it; (b) with respect to any matters relating to functions of the Au- Page 12/46 FSMA 2000 are to maintain confidence in the financial system, to promote awareness of the benefits and risks associated with different kinds of investment or other financial dealings, to secure the appropriate degree of protection for consumers and to reduce financial crimes31. Under Vietnamese law, securities activities and stock market, in general, are regulated by the Law on Securities 200632. However, there are differences between the two business sectors: the State Owned Enterprises (SOEs) and Privately Owned Enterprises (POEs) on the management and regulation of IPO activities. That is, SOEs are regulated by Decree No.109/2007/NĐ-CP33 and POEs are regulated by the Law on Securities 2006. Accordingly, the goals of these IPOs (SOEs and POEs) are different. The IPO objectives of SOEs are conversion of the enterprises that the Government does not need to keep 100% of charter capital to the type of business with many owners; to mobilize capital from domestic investors and foreign investors for the improvement of financial capacity, innovation of technology and application of new method of management in oerder to improve efficiency and competitiveness of the whole economy34. Accordingly, the IPO of SOEs is seen as a means of renovating the struture of ownership which will be implemented in one of three ways35: (i) keeping state shares capital and issuing new shares to increase charter capital; (ii) selling part of the existing state shares or detaching and then selling parts of an SOE and issuing new shares to increase charter capital; and (iii) selling off all state shares to workers and private shareholders or detaching and then selling parts of an SOE and issuing new shares to increase charter capital. On the other hand, the IPO objectives of POEs is are to mobilize long-term capital to expand investment and development of issuer’s business. IPOs of POEs are based on issuing plan and plan for utilization of the proceeds earned from the offer, tranche of the issuer that is passed by the general meeting of shareholders36. Thence, according to the structure of regulatory bodies of stock market as well as IPO activities, there are few basic distinctions between both the two countries as follows. thority; (c) for the purpose of meeting the regulatory objectives; (d) with respect to any other matters about which it appears to the Authority to be desirable to give information or advice. See from section 3 to section 6 of FSMA 2000. Law on Securities 2006, No. 70/2006/QH11 dated 29/6/2006 by national parliament, validated on 1 January 2007. Decree No. 109/2007/NĐ-CP dated 26/6/2007 regarding to transfer SOEs to Joint stock companies that replaced Decree No. 187/2004/NĐ-CP dated 16 November 2004. Article 1(1) of the Decree No. 109/2007/NĐ-CP dated 26 June 2007. Article 4 of the Decree No. 109/2007/NĐ-CP dated 26 June 2007. Article 12(1)(c) of the Law on Securities 2006. Page 13 of 46 3.1 Management of IPO activities The management of IPO activities is the tasks of governing bodies under the law to the control of other bodies which are the participants in IPO process (not encompass issuer’s activity of share allocation). It is the control of an application file provided by issuer or sponsor appointed with its responsibility for a primary listing of equity shares of an applicant. Under the Financial Services and Markets Act 2000 (FSMA 2000), Her Majesty Treasury (MH Treasury) is a administrative body to governing the stock market through Financial Services Authority (FSA), i.e. to approve a collective investment scheme37, to appoint or to dismiss the chairman and other members of the Board of FSA38 and to appoint or to dismiss the chairman of the Practitioner Panel39 and Consumer Panel40. The FSA is a managemental body41, i.e. to make rules42 under FSMA 2000. In accordance with section 73(2) of FSMA 200043, FSA is a body which manages directly the Stock Market as well as IPO activities. FSA’s functions are to provide fully information for listed companies or applicants, investors and other market participants, including objectives, plan, policy and principle that are displayed on FSA’s website. All operation of FSA aims at strategical objectives as follows: to promote efficient, orderly and fair markets; to help retail consumers achieve a fair deal; and to improve its business capability and effectiveness under FSMA 200044. Section 14 of FSMA 2000. Par. 2(3) of schedule 1, FSMA 2000. Section 9(3) of FSMA 2000. Section 10(3) of FSMA 2000. Section 8, 9(2) and Par. 8, 9 of schedule 1 of FSMA 2000. Section 73(2) and Par. 1(2) of schedule 1 of FSMA 2000. Section 73.—(1) In discharging its general functions the competent authority must have regard to— (a) the need to use its resources in the most efficient and economic way; (b) the principle that a burden or restriction which is imposed on a person should be proportionate to the benefits, considered in general terms, which are expected to arise from the imposition of that burden or restriction; (c) the desirability of facilitating innovation in respect of listed securities; (d) the international character of capital markets and the desirability of maintaining the competitive position of the United Kingdom; (e) the need to minimise the adverse effects on competition of anything done in the discharge of those functions; (f) the desirability of facilitating competition in relation to listed securities. (2) The competent authority’s general functions are— (a) its function of making rules under this Part (considered as a whole); (b) its functions in relation to the giving of general guidance in relation to this Part (considered as a whole); (c) its function of determining the general policy and principles by reference to which it performs particular functions under this Part. Ref. “Who are do”, dated 07 August 2007, available at: http://www.fsa.gov.uk/Pages/About/Who/index.shtml Page 14/46 FSA is organized as a company limited by the shares capital of the firms of financial services industry, FSA is a non-governmental body45, FSA has powers and functions under the provision of FSMA 2000. The operation of FSA is based on principles: publicity and transparency; the funds of the operation’s FSA is provided by the fees of the listed companies and the fees that are designated by FSA46. The members of the non-executive committee are appointed by FSA47 and all of them are liable to removal from office by HM Treasury48. The structure of FSA (a governing body) consists of the Board of FSA and the Management of FSA49. The chairman of FSA’s Board, who is a person from among its members, is appointed by HM Treasury50. The functions of the Board are to set overall policy and to make rules for the market51, but day-to-day decisions and management of the staff are the responsibility of the Executive. The FSA is accountable to Treasury Ministers52, and through them to Parliament53. (see Appendix 3 – Corporate governance and Mechanism of regulating of IPO activities in the United Kingdom) The Board of FSA is steered by the HM Treasury, the FSA is responsible for regulating to financial services and the stock market, and for making rules under FSMA 200054. This delegation of management responsibility is able at the same time to control all the leads of the governance of the market’s operation as well as to pinpoint the personal responsibility of each official. Consequently, the promulgation of legal guidance documents from the authority on regulating stock market could avoid overlapping of contradicted inconsistencies to enhance the ability to enforce the law. This experience is learned from the UK where the promulgation of legal documents from the authority on stock market is based on the ideas taken from those involve directly in the stock market. It is a model where the Stock Exchange plays a key role55 in the legislation of the stock market. Par. 3 of Schedule 1, FSMA 2000. Section 99 of FSMA 2000. Par. 3(2) of schedule 1, FSMA 2000. Par. 2(3) of schedule 1, FSMA 2000. Ref. “Who are we”, dated 7 August 2007, available at: http://www.fsa.gov.uk/Pages/About/Who/index.shtml Par.3(3) of schedule 1, FSMA 2000. Section 73(2) of FSMA 2000. Par. 7(12) of schedule 1, FSMA 2000. Section 17(5), 163(12) and par. 10(3) of schedule 1 of FSMA 2000. Par.5(2) of schedule 1, FSMA 2000. Chapter 1 “The Policy Background” in Blackstones Guide to the Financial Services and Markets Act 2000, Michael Blair QC, Loretta Minghella, Michael Taylor, Mar Threipland & George Walker. Page 15 of 46 For IPOs of the enterprises which the Government owned 100% charter capital (SOEs), the State Securities Commission (SSC) are not directly to the IPOs of SOEs56. Under article 54(5) of the Decree No.109/2007/NĐ-CP dated 26 June 2007, the Commision of the Equitization of SOEs (CES)57 is a governing body to the IPOs of SOEs. The members of the CES that are appointed by the Ministers, Chairmen of people’s committee of provinces and Chairmen of the cities under the Central Government, the Board of the corporations of business, the head of state companies. The functions of CES are stipulated by the Government58. Unlike the case of SOEs, the IPOs of POEs (Privately Owned Enterprises which the Government is not own 100% charter capital) are regulated under the Law on Securities 2006. Consequently, the Government shall control concensusly the State Administration of Securities and Securities Market; the Ministry of Finance shall be responsible before the Government to also control consensusly the State Administration of Securities and Securities Marketl; Ministries and ministerial equivalent bodies shall, within the scope of their respective duties and powers, co-ordinate with the Ministry of Finance to supervise the State Administration of Securities and Securities Market; at the same time, People’s committees at all levels shall, within the scope of their respective duties and powers,also supervise the State Administration of Securities and Securities Market within their localities59. Seen at structure level, the SSC is a governing body, directly under the Ministry of Finance; but the key personnel of this body is directly appointed by the Prime Mi- Article 13(2)(c) of Law on Securities 2006 that (2)the following public offer of securities shall not be required to be registered: A public offer of shares by a State owned enterprie converting to a shareholding company. And article 4(1) of Decree No.14/2007/NĐ-CP dated 19 January 2007 that the enterprises, which the State owned 100% charter capital, are transferred to a shareholding company within a public offer of shares, complied to regulations of the equitization of SOEs. 57 Article 54(5)(a) of Decree No. 109/2007/NĐ-CP dated 26 June 2007: (a) the CES (Commission on the Equitization of SOEs) has powers and responsibilities as follows: to help some SOEs and to guide them to carry out an equitization as stipulated in this Decree; to be used the seal of authorities while carrying out their duty; to establish a associate team for the implementation of equitization at all SOEs; to report on the equitization of SOEs to the authority to select from an appropriate method of IPO; to construct directly for setting out a plan of the equitized enterprises and to make a first draft constitution of Jonit stock companies which are equitized enterprises; to inspect and to submit the authority to declare the value of the equitized enterprise and to make a decision of equitized plan; to direct equitized enterprise within the coordinating financial intermediaries for the carrying out the auction of the equitized enterprises; to report on results in the auction of equitized enterprises; to submit to the authority about adjusted decisions of equitized plan and the adjusted decision of the value of equitized enterprises after transfer to a joint stock company; to review, to select, to propose and to coordinate the authority to appoint a representative of state shares capital contributing in those business. Article 54(5) of Decree No. 109/2007/NĐ-CP dated 26 June 2007. Article 7 of Law on Securities 2006. Page 16/46 nister60. Seen at function level, the SSC is charged as an administrative body with its functions to manage directly the stock market as well as IPO activities. Thus, CES and SSC are two governing bodies in charge of IPO activities and their functions are stipulated by the regulations of securities and at thesame time by the Prime Minister and the Ministry of Finance with the following official documents: Decrees, Circulars, Decisions. Besides, the SSC shall, within the scope of their respective duties and powers of the framework of securities, make draft documents to submit to the Minister of Finance or the administrative levels in authority for the issue of instruments in implementation of Law on Securities61. (see Appendix 4 – Coporate governance and mechanism of regulating to IPO activities in Vietnam). 3.2 Responsibility of the authority in charge of IPO activities In accordance with the United Kingdom law, the governing and the regulating of IPO activities in which entrust to the FSA (Financial Services Authority) and its reponsibities that are indicated clearly in FSMA 200062. Contrary to the United Kingdom law, under the Vietnamese law, the the governing and the regulating of IPO activities of POEs are entrusted to the SSC (State Securities Commission) under directly to the orders of the Ministry of Finance and the Government63 and the IPOs of SOEs are entrusted to the CES64. (Commission of the Equitization of SOEs) Under the FSMA 2000, the services that are concerned about the financial activities as well as IPOs where belong to the governing body which is called the Financial Services Authority. Consequently, within the scope of its respective functions, the liability for the securities activities that is stipulated as follows. Responsibility for the governing of the securities market The FSA plays on the role of administrative body to exercise its respective duties, under the FSMA 200065, in which must have regard to the following issues: (a) the Article 8(2) of Law on Securities 2006 and ref. the Decision No.63/2007/QĐ-TTg dated 10 May 2007 Regarding to the functions, duties powers and structure of the State Securities Commission. Article 2(1) of the Decision No. 63/2007/QĐ-TTg dated 10 May 2007. Section 1 and section 2 of FSMA 2000. Article 7(2), (3) of the Law on Securities 2006. Article 54(5) of the Decree No.109/2007/NĐ-CP dated 26 June 2007. Section 73(1) of FSMA 2000: In discharging its general functions the competent authority must have regard to (a) the need to use its resources in the most efficient and economic way; (b) the principle that a burden or restriction which is imposed on a person should be proportionate to the benefits, considered in general terms, which are expected to arise from the imposition of that burden or restriction; (c) the desirability of facilitating innovation in respect of listed securities; Page 17 of 46 need to use its resources in the most efficient and economic manner; (b) the principle that a burden or restriction which is imposed on a person should be proportionate to the benefits, considered in general terms, which are expected to arise from the imposition of that burden or restriction; (c) the desirability of facilitating innovation in respect of listed securities; (d) the international character of capital markets and the desirability of maintaining the competitive position of the United Kingdom; (e) the need to minimise the adverse effects on competition of anything done in the discharge of those functions; (f) the desirability of facilitating competition in relation to listed securities. Responsibility for the regulating of the securities market The FSA is responsible for making rules66 to implement the FSMA 2000 (Financial Services and Markets Act 2000), for setting the principles of securities market out of FSMA 2000 as Transparency Rules67, Disclosure Rules68, Listing Rules69, Market Abuse Directive70, general policy71, etc. The FSA is to exercise administrations which are entrusted by MH Treasury72 such as the maintaining of listed securities, the approval or disapproval of the application of applicants if this act will damage to benefits of investors73, the dispending of listing securities, etc. Responsibility for IPO activities The responsibilities of FSA to IPO activities and the listing that are stipulated in section 74(4) of the FSMA 2000 and the Listing Rules Instrument 2005, amendment (d) the international character of capital markets and the desirability of maintaining the competitive position of the United Kingdom; (e) the need to minimise the adverse effects on competition of anything done in the discharge of those functions; (f) the desirability of facilitating competition in relation to listed securities. Section 73(2), Para. 1(2) Schedule 1 of FSMA 2000. Transparency Obligations Directive (Disclosure and Transparency Rules) Instrument 2006 (FSA 2006/70), dated 21 December 2006. Listing, Prospectus and Disclosure Rules (Miscellaneous Amendments) Instrument 2007 (FSA 2007/40). Listing Rules Instrument 2005 (FSA 2005/35), dated 16 June 2005 (Amendment 2007); Listing Rules and Prospectus Rules (Consequential Amendments) Instrument 2005 (FSA 2005/37), dated 16 June 2005. Market Abuse Directive (Disclosure Rules) Instrument 2005 (FSA 2005/16), dated 17 March 2005. Section 73(2)(c) of FSMA 2000. Para. 4(6) Schedule 1 of FSMA 2000. Section 75 of FSMA 2000 and LR 2.1.3G of Listing Rules Instrument 2005 (FSA 2005/35), dated 16 June 2005 (Amendment 2007). Page 18/46 2007. In accordance with LR 1.1.1R74, in relation to the listing rules, the FSA is authorized body within its functions stipulated in FSMA 2000 (at part VI, from section 72 to section 103). Consequently, the FSA modifies merely the Listing Rules when there are a change of EU Directives or/and FSMA 200075. Under LR 2.1.2G76 and LR 2.1.4R77, the FSA may not give a legal permission for admission of applicants unless the applicantion files of applicants are complied with the requirements of the listing rules and any special requirements required by the FSA. These special requirements must be appropriate to protect investors’ interests, at the same time, the FSA must inform a clear statement for issuer to understand. The FSA may also refuse an application for admission if the application would not comply with requirements of the listing rules or the applicant’s obligations under that listing are not comply with78. In the case, if the FSA declined, cancelled, suspended applications, the applicants would have entitled to against at particular penal79. The members of the FSA (the members of Board, the officers and the staffs) who are responsble for compensation of damages by their implementation or not fully implementation in the scope of their duty80. For IPOs of SOEs (State Owned Enterprises) which the state owns 100% charter capital, the governing of these are entrusted to the CES (Commission on Equitization LR 1.1.1R “…FSA performing functions as competent authority. Note: In relation to the listing rules, the FSA is performing functions as the competent authority under Part VI of the Act (see section 72(1) of the Act…). LR 1.2.1R: (1) The FSA may dispense with or modify the listing rules in such cases and by reference to such circumstances as it considers appropriate (subject to the terms of EU directives and the Act). (2) A dispensation or modification may be either unconditional or subject to specified conditionsection. (3) If an issuer or sponsor has applied for, or been granted, a dispensation or modification, it must notify the FSA immediately it becomes aware of any matter which is material to the relevance or appropriateness of the dispensation or modification. (4) The FSA may revoke or modify a dispensation or modification. LR 2.1.2G Under the Act, the FSA may not grant an applicantion for admission unless it is satisfied that: (1) the requirements of the listing rules are complied with; and (2) any special requirement (see LR 2.1.4R) is complied with. LR 2.1.4G (1) The FSA may make the admission of securities subject to any special requirement that it considers appropriate to protect investors [Note: article 12 CARD] (2) The FSA must explicitly inform the issuer of any special requirement that it imposes. [Note: article 12 CARD] LR 2.1.3G: Under Act, the FSA may also refuse an application for admission if it considers that (1) admission of the securities would be detrimental to investors’ interests; or (2) for securities already listed in another EEA State, the issuer has failed to comply with any obligations under that listing. Section 78(12) of FSMA “Discontinuance or suspension: procedure”: If the competent authority decides to refuse an application for the cancellation of the suspension of listed securities, the applicant may refer the matter to the Tribunal. Section 102(1) of FSMA 2000. Page 19 of 46
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