Vietnam removes pre-funding rule for foreigner investors in bid for market upgrade
Adds J.P.Morgan quote, prospects for upgrade in paragraphs 8-9
HANOI, Sept 19 (Reuters) -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 .VNI.
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.
Under the reform, listed companies are also required to publish information in English.
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.
FTSE did not immediately reply to a request for comment.
The Southeast Asian nation could still meet its goal of being upgraded by one index in 2025, if FTSE considers current reforms as sufficient by its next regular meeting on the matter in the first quarter of the year.
"We think the changes would enable FTSE to upgrade Vietnam to Emerging markets within the next 12 months, leading to more than $500 million of passive inflows into the market and potential positive revision from MSCI," J.P.Morgan Market Research said in a note.
Foreign investors have urged additional reforms, including the softening of 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.
Reporting by Phuong Nguyen and Francesco Guarascio; Editing by Michael Perry
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