by Apra Law

The term OTC (Over the Counter) appeared when securities were still being traded manually. However, in the most commonly used understanding today, the OTC market is organized including a network of intermediary brokers and market makers, these organizations are interconnected and connected to the central management center through a wide area electronic computer network. Securities companies will continuously post two-way quotes and the maximum volume of securities that can be bought or sold. With this network, securities companies can also conduct negotiations on prices and trading volumes on the basis of quotations, and notify transaction results to management centers and centers of clearings and depository of securities. The price setting mechanism in this market is mainly by agreement, decentralized buying and selling at many locations while still being well managed and supervised. Thus, the OTC market is an organized market and operates in accordance with the provisions of the law, which is completely different from the “black market” – which is a spontaneous market and is not legally operated.

The goal set for creating a legal framework for Vietnam’s OTC market is to create a favorable environment for the issuance and trading of securities that do not qualify for listing on the stock exchange, in order to encourage the mobilization of domestic and foreign capital sources for national economic development, ensure the safe, fair and efficient operation of the market, and protect the legitimate interests of participating investors. 

The OTC market is not only a very important channel for capitalisation, but it is also a center for processing and amplifying information, spreading fake news on the basis of profiteering and market manipulation of a number of illegitimate investors. Therefore, the creation of a full legal framework needs to consider the steps from the first securities issuance to the intermediary organizations participating in the market such as stockbrokers, proprietary traders, investment advisory, underwriting, portfolio management and clearing services, securities custody…

In the initial time of putting the market into operation, the legal system of the OTC market is not necessarily a complete and detailed legal document for all aspects of operation to avoid hindering the development of the OTC market, but may be substantive documents. In the early stages of formation, to ensure the ability to adjust the law, it is necessary to issue a decree on the OTC market. This is the initial legal basis for the operation of the OTC market in Vietnam while we develop a complete set of securities laws. This is also the legal basis for all subsequent preparatory work related to the establishment of the OTC market and market participants. Therefore, this decree needs to address issues related to transactions, market participants, intermediary institutions, prohibited trading practices and mediator issues.

The regulation of the issuance standards as well as the method of issuing shares and corporate bonds is a matter of concretizing the conditions for the guarantee of the OTC market at the beginning, creating a basic premise for the introduction of high-quality securities to trade. Specifically, the regulation may set standards on capital, profitable business period in a certain number of years, underwriting mechanism as well as share holding ratio of public shareholders and the participation of foreign partners in the OTC market.

Regulation of market participants at the outset, including allowing the establishment of intermediaries, financial institutions engaged in business, and regulations on prohibited conduct in trading will create an effective operating mechanism, thereby limiting negative impacts affecting the market.

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