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 com-ments and advices. Without these contributions, this thesis would not have been real-ized.

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 col-leagues 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 be-loved daughter Nguyễn Lê Uyễn Nhi for their moral support, sacrifice, and encourage-ment during my studies.

Table of content

Preface and Acknowledgements...................................................................................0Table of content............................................................................................................1Abbreviations................................................................................................................2Executive summary......................................................................................................31. Introduction....................................................................................................4

1.1 Motivation......................................................................................................41.2 Scope and delimitation...................................................................................61.3 Methodology...................................................................................................61.4 Objective.........................................................................................................61.5 Lay-out of the thesis.......................................................................................7

2. Economic background to stock market regulations........................................7

2.1 Functions of stock market with respect to the development of national economy.........................................................................................................8

2.2 IPO and its impacts on a domestic economy..................................................9

3. Legal regulation of IPO in the United Kingdom and Vietnam.....................12

3.1 Management of IPO activities......................................................................143.2 Responsibility of the authority in charge of IPO activities..........................173.3 Requirements for a new applicant................................................................203.3.1 Types of offered issuer............................................................................213.3.2 Issues related to new applicants’ financial matters..................................223.3.3 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.................................324.2 Addition terms to IPO regulation in Securities Law....................................33Table of legislation.....................................................................................................37Bibliography...............................................................................................................38Appendix 1..................................................................................................................41Appendix 2..................................................................................................................43Appendix 3..................................................................................................................44Appendix 4..................................................................................................................45

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1. Abbreviations

CIDE Commision on Innovation and Development of EnterprisesFSA Financial Services AuthorityFSMA 2000 Financial Services and Markets Act 2000HM Treasury Her Majesty TreasuryIPO Initial Public OfferingLR Listing RulesPCD People’s Committee of DistrictPOEs Privately Owned EnterprisesPCP People’s Committee of ProvinceSSC State Securities Commision of VietnamSOEs State Owned EnterprisesUKCA 2006 Companies Act 2006 (United Kingdom)

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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 finan-cial 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 Viet-nam, in consequence, the Government has been occupied both in setting up and im-proving 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 Viet-namese 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 reg-ulations 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 appropri-ate 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 Viet-nam, 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.

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2. Introduction

2.1 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 improve-ment 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 (discussed in Part 2.1 below). In addition,

1 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 Se-curities Trading Central (HaSTC) which was officially opened on 8th March, 2005.

2 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-2008-Tang-cung-kich-cau/1372420.epi

3 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 enter-prises, joint-stock companies, or limited liability companies.

4 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)

5 From May 1996 until June 2007, the Government published 6 decrees relating to the equitiz-ation 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. 7 Appendix 4. Corporate governance and mechanism of regulating of IPO activities in Viet-

nam.

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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.

2.2 Scope and delimitation

To conduct this study, the author will focus on the comparative study on the IPO reg-ulations in the United Kingdom and Vietnam with following issues: (1) managerial

8 On the date of 11 July 2006, the day that Vietnam officially joined the WTO, the real prop-erty 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 uncontrol-lablely. In addition, many commercial banks competed with one another by reducing rate of in-terest (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.gso-media.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)

9 See appendix 1. Chart of VN-index from 2 August 2000 to 31 October 2008.10 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 sup-porting 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 con-trol 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.”

11 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

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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 relat-ing 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 trans-actions 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 mar-ket such as shares purchase rights, securities rights, purchase options, sale options, future contracts, groups of securities and securities indices.

2.3 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 particu-lar. 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 differ-ences. From there, the author will draw appropriate points to optimize the develop-ment 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.

2.4 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.

2.5 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 rela-tionship between a primary market and secondary market; concept of IPO and im-

12 See footnote 10 above.

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pacts 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 compe-tent authority. Section 4 conclusion and proposal, i.e. summarizing of particular is-sues that is an outcome of the study. At the same time, the author has some contribu-tions in the development of IPO regulations of the Law on Securities of Vietnam in near future.

3. Economic background to stock market regula-tions

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.

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.

13 The party that supplies capital (lenders) deposits its funds into banks under fixed rate of in-terest 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) suf-fers the higher rate of interest and demanding conditions from the banks. Therefore, the stock market becomes a more attractive option to both parties.

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3.1 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 buyers 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

14 EFET Gas Commmittee – European Federation of Energy Traders, “Enabling Secondary Market Gas Capacity Trading”, 29 March 2007, p. 1.

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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.

3.2 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 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

15 David E. Upton, “Stock market”, dated 03 May 2008, available at: http://www.reference-forbusiness.com/encyclopedia/Sel-Str/Stock-Market.html

16 This terms is applied to the Decree No.109/2007/NĐ-CP dated 26 June 2007.

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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 activities 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

17 Small Business Encyclopedia, “Initial Public Offerings”, available at: http://www.answers.-com/topic/initial-public-offering

18 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

19 The Gale Group. Inc, “Small Business Encyclopedia: Initial Public Offering - IPO”, avail-able at: http://www.answers.com/topic/initial-public-offering

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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 principles, it must build a good mechanism for operating system which will prevent market abuses for the protection of legitimate interests of investors22.

4. 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.

20 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

21 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

22 Jay R.Ritter - Cordell Professor of Finance University of Florida, “Initial Public Offering”, Edited by Dennis Logue and James Seward, Spring 1998, p. 1.

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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 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,

23 See appendix 4 below.24 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.

25 See appendix 3 below.26 Section 3 of FSMA 2000.27 Listing Rules Instrument dated 16 June 2005 by order of the Board – Amendment on 28

June 2007.28 Section 1 and section 2 FSMA 2000. 29 Ref. “What we do”, dated 04 September 2007, available at: http://www.fsa.gov.uk/Pages/

About/What/index.shtml30 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-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.

31 See from section 3 to section 6 of FSMA 2000.32 Law on Securities 2006, No. 70/2006/QH11 dated 29/6/2006 by national parliament,

validated on 1 January 2007.

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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, accord-ing 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.

4.1 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

33 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.

34 Article 1(1) of the Decree No. 109/2007/NĐ-CP dated 26 June 2007.35 Article 4 of the Decree No. 109/2007/NĐ-CP dated 26 June 2007.36 Article 12(1)(c) of the Law on Securities 2006.37 Section 14 of FSMA 2000.

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FSA38 and to appoint or to dismiss the chairman of the Practitioner Panel39 and Con-sumer 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 parti-cipants, 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.

FSA is organized as a company limited by the shares capital of the firms of finan-cial services industry, FSA is a non-governmental body45, FSA has powers and func-tions under the provision of FSMA 2000. The operation of FSA is based on prin-ciples: 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 mem-bers of the non-executive committee are appointed by FSA47 and all of them are li-able 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 Treas-

38 Par. 2(3) of schedule 1, FSMA 2000.39 Section 9(3) of FSMA 2000.40 Section 10(3) of FSMA 2000.41 Section 8, 9(2) and Par. 8, 9 of schedule 1 of FSMA 2000.42 Section 73(2) and Par. 1(2) of schedule 1 of FSMA 2000. 43 Section 73.—(1) In discharging its general functions the competent authority must have re-

gard to— (a) the need to use its resources in the most efficient and economic way; (b) the prin-ciple that a burden or restriction which is imposed on a person should be proportionate to the be-nefits, considered in general terms, which are expected to arise from the imposition of that bur-den 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 func-tion 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 de-termining the general policy and principles by reference to which it performs particular functions under this Part.

44 Ref. “Who are do”, dated 07 August 2007, available at: http://www.fsa.gov.uk/Pages/About/Who/index.shtml

45 Par. 3 of Schedule 1, FSMA 2000. 46 Section 99 of FSMA 2000.47 Par. 3(2) of schedule 1, FSMA 2000.48 Par. 2(3) of schedule 1, FSMA 2000.

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ury50. 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 regulat-ing of IPO activities in the United Kingdom)

The Board of FSA is steered by the HM Treasury, the FSA is responsible for reg-ulating 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 con-trol 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 over-lapping 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 role 55 in the legislation of the stock market.

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

49 Ref. “Who are we”, dated 7 August 2007, available at: http://www.fsa.gov.uk/Pages/About/Who/index.shtml

50 Par.3(3) of schedule 1, FSMA 2000.51 Section 73(2) of FSMA 2000.52 Par. 7(12) of schedule 1, FSMA 2000.53 Section 17(5), 163(12) and par. 10(3) of schedule 1 of FSMA 2000.54 Par.5(2) of schedule 1, FSMA 2000.55 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.

56 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

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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 Minister60. 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).

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.

58 Article 54(5) of Decree No. 109/2007/NĐ-CP dated 26 June 2007.59 Article 7 of Law on Securities 2006.60 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 Com-mission.

61 Article 2(1) of the Decision No. 63/2007/QĐ-TTg dated 10 May 2007.

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4.2 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 marketThe 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 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 impos-ition of that burden or restriction; (c) the desirability of facilitating innovation in re-spect of listed securities; (d) the international character of capital markets and the de-sirability of maintaining the competitive position of the United Kingdom; (e) the need to minimise the adverse effects on competition of anything done in the dis-charge of those functions; (f) the desirability of facilitating competition in relation to listed securities.

Responsibility for the regulating of the securities market

62 Section 1 and section 2 of FSMA 2000.63 Article 7(2), (3) of the Law on Securities 2006.64 Article 54(5) of the Decree No.109/2007/NĐ-CP dated 26 June 2007.65 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; (d) the international character of capital markets and the desirability of maintaining the competit-ive 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 competi-tion in relation to listed securities.

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The FSA is responsible for making rules66 to implement the FSMA 2000 (Finan-cial 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 applic-ation of applicants if this act will damage to benefits of investors73, the dispending of listing securities, etc.

Responsibility for IPO activitiesThe 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 2007. In accordance with LR 1.1.1R74, in relation to the listing rules, the FSA is au-thorized 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

66 Section 73(2), Para. 1(2) Schedule 1 of FSMA 2000. 67 Transparency Obligations Directive (Disclosure and Transparency Rules) Instrument 2006

(FSA 2006/70), dated 21 December 2006.68 Listing, Prospectus and Disclosure Rules (Miscellaneous Amendments) Instrument 2007

(FSA 2007/40).69 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.

70 Market Abuse Directive (Disclosure Rules) Instrument 2005 (FSA 2005/16), dated 17 March 2005.

71 Section 73(2)(c) of FSMA 2000.72 Para. 4(6) Schedule 1 of FSMA 2000. 73 Section 75 of FSMA 2000 and LR 2.1.3G of Listing Rules Instrument 2005 (FSA 2005/35),

dated 16 June 2005 (Amendment 2007).74 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…).

75 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 spe-cified 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 ma-terial to the relevance or appropriateness of the dispensation or modification. (4) The FSA may revoke or modify a dispensation or modification.

76 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 re-quirement (see LR 2.1.4R) is complied with.

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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 com-ply with requirements of the listing rules or the applicant’s obligations under that list-ing 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 of SOEs). The members of the CES are appointed by the Ministries, the Ministers without portflio, the Government agencies, the Chairmen of people’s committee of province, the Chairmen of the cities under the central government, the board of dir-ectors of corporration, the head of state companies81 under the concrete guidance of the Prime Minister82. The CES’s duties are to coordinate with appropriate authorities in order to re-organize the equitized enterprises according to the Companies Act.

Unlike of SOEs, the IPOs of POEs (Privately Owned Enterprises) which the state does not own 100% charter capital, in accordance with article 17(2) of Law on Se-curities 200683, the responsibilities of organizations related to application file for re-gistration of a public offer of equity shares are the institution advising on the issue, the institution underwriting the issue, the approved auditing organizations and au-thorities. The issuing organization shall be liable for the accuracy of the application file for registration of a public offer of equity shares.

77 LR 2.1.4G (1) The FSA may make the admission of securities subject to any special re-quirement 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]

78 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 securit-ies already listed in another EEA State, the issuer has failed to comply with any obligations under that listing.

79 Section 78(12) of FSMA “Discontinuance or suspension: procedure”: If the competent au-thority decides to refuse an application for the cancellation of the suspension of listed securities, the applicant may refer the matter to the Tribunal.

80 Section 102(1) of FSMA 2000. 81 Article 54(5)(b) of the Decree No. 109/2007/NĐ-CP dated 26 June 2007.82 Article 54(1) of the Decree No. 109/2007/NĐ-CP dated 26 June 2007.83 Article 17(2) of the Law on Securities 2006:

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The responsibilities of governing body related to application file for registration of a public offer of equity shares, in general, the Vietnamese regulations of IPO that are unclear. At the same time, the principles of stock market operation such as transpar-ency, publicity and fairness, etc. are not to stipulate yet in securities regulations84. This leads to the difficulty in application of laws and in the executive that depends on persons in their duty85.

4.3 Requirements for a new applicant

As the analysis in Part 2.2, an issuing organization (issuer) has always occupied the advantage position of management over investors86 who do not have conditions to control directly activities of those company. Thus, the law adjusted to these activities in which it must reduce a market abuse from the IPO of issuers and to protect the in-vestors’interests before approval the registration of IPO. Therefore, this part refers to these issues as follows: (1) type of issuer, (2) issues related to financing of a new ap-plicant, (3) the responsibility of the issuer.

4.3.1 Types of offered issuer This section is concerned with a category of the characteristics of business such as structure of ownership capital, organizational structure and mechanism of operations of enterprises; determination of the level of responsibility (limited liability or unlim-ited liability) effecting on the business of issuers.

According to article 54587 of the Companies Act 2006 (UKCA 2006), the compa-nies having share capital by many shareholders shall have right to offer equity shares to a public if the charter of that company has this stipulation. Under section 617(2)(a), section 620 and 755 of UKCA 2006, a limited company88 having share capital

84 Article 4 of the Law on Securities 2006.85 Decree No.36/2007/NĐ-CP dated 08 March 2007 and Circular No. 97/2007/TT-BTC dated

08 August 2007, these documents refer to the violations of issuers and investors and the panalty under the regulations on punishment of violations. In the Uinited Kingdom law that has instru-ments of this as Market Abused Directive (Disclosure Rules) Instrument 2005, FSA 2005/16 and in USA law has the S-K Program issued by the Securities Exchange Commission (S.E.C).

86 The Board of Management is on behalf of issuer who are entitle to have powers themselves but minority investors who are not entitle to executive the issuer’s business like the Board of Management done.

87 Article 545 “Companies having a share capital” References in the Companies Acts to a company having a share capital are to a company that has power under its constitution to issue shares.

88 In accordance with the UKCA 2006, see section 3(1) and section 4 that: A company is a “limited company” if the liability of its members is limited by its constitution (It may be limited by shares or limited by guarantee) which is called “Private Company” or “Public Company”; However, under section 755 that this limited company, herein, is a public company, exception of section 755(2).

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may increase its share capital by the allotting of new shares only if its members have passed an ordinary resolution. Thus, the type of issuer offered for its equity shares to public, in the United Kingdom law, can only be limited companies with share capital by many shareholders.

The Law on Securities 2006 allows enterprises in its form of joint stock compan-ies which are entitled to offer of its equity shares to the public. In accordance with ar-ticle 77(3) of Vietnamese Companies Act 200589 (VNCA 2005), joint stock compa-nies90 are entitled to offer securities to mobilize capital while its plan is passed by the general meeting shareholders.

For the initial public offerings (IPOs) of State owned enterprises (SOEs), which the state owns 100% charter capital, it is not stipulated clearly what is type of is -suer91. According to article 2 of Decree No.109/2007/NĐ-CP92, the objects for equiti-zation consist of 6 kinds of enterprise as follows: (1) State owned enterprises which are categorized by the management under ministries’ level, industries’ level and local authorities’ level; (2) parent companies of trust company, general state companies (including state commercial banks); (3) parent companies and their subsidiary com-panies; (4) independently operating companies under general state companies autho-rized by the state; (5) dependently operating branches of general state companies, general state companies, parent companies, independently operating member compa-nies of general state companies; and (6) limited companies with 100% charter capital owned by the state.

Under Vietnamese law, the type of issuers allowed to offer equity shares to the public at the first is stipulated differently with two economic divisions: for SOEs, the type of issuers is not stated clearly; for POEs, it has to be joint stock companies. This is a difference between the Vietnamese law and the United Kingdom law on the type of issuers which are allowed to offer equity shares to the public at the first.

89 Companies Act 2005, No.60/2005/QH11 dated 29 November 2005, effective dated 1 July 2006.

90 Article 77(1) Law on Enterprises 2005 that (1) A shareholding company is an enterprise in which: (a) The charter capital shall be divided into equal portions called shares; (b) Shareholders may be organizations or individuals; the minimum number of shareholders shall be three and there shall be no restriction on the maximum number; (c) Shareholders shall be liable for the debts and other property obligations of the enterprise to the extent of the amount of capital con-tributed to the enterprise.

91 Article 1(1) of Decree No. 109/2007/NĐ-CP: transfer the SOEs that the State does not like own 100% charter capital to enterprises within shareholders; to mobilize capital from potential investors (domestic and foreign investors) in order to upgrade financial capacity, to improve technology and management method to achieve effectiveness and competitiveness of economy.

92 Decree No.109/2007/NĐ-CP dated 26 June 2007 Regarding to transfer SOEs to joint stock companies that is replaced Decree No. 187/2004/NĐ-CP dated 16 November 2004.

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4.3.2 Issues related to new applicants’ financial matters This part will concern with 3 following factors: (i) the principle of audit reports; (ii) the financial capacity of an issuer; (iii) the financial managerial skills of an issuing organization or issuer that reflected their past record of self-regulation of capital for its business operation. These criteria can be used to help investors in considering their options before making an investment decision by examining an overview of the business of an issuer beforehand.

Under the United Kingdom law93, the financial reports in the application file of IPO must meet the following requirements94: - A new applicant for the admission of shares or securities at the first must take all reasonable steps to ensure that its auditors are independent of it and obtain written confirmation from its auditors that they comply with guidelines on independence is-sued by their national accountancy and auditing bodies.- A new applicant for the admission of shares or securities at the first must be audited cautiously its accounts at least three years and its period ended not more than six months before the date of the prospectus or listing particulars for the relevant securit-ies. The result of audited accounts has been reported on by the auditors without modification and obtained written confirmation from its auditors complying with guidelines on independence issued by their national accountancy and auditing bodies.

The assessment of financial capacity of a new applicant, according to the Listing Rules95, is not based on the charter capital, but it is based on the relationship between the amount of working capital and the response to the needs of capital to a new ap-plicant’s business for at least the next 12 months from the day the issuer publishes the prospectus or listing particulars for the shares.

The capacity of the financial management of an applicant will be considered in the relationship between the use of its assets for business and the generating of its profits with following criteria: At least 75% of the applicant's business activities is

93 Listing Rules Instrument 2005 (FSA 2005/35), dated 16 June 2005 (Amendment 2007).94 LR 6.1.3R of Listing Rules (Investment entities interim regime) (Amendment) Instrument

2007 issued by the Board of FSA that (1) A new applicant for the admission of shares or securit-ies convertible into its own shares must have published or filed audited accounts that: (a) cover at least three years; (b) are the latest accounts for a period ended not more than six months before the date of the prospectus or listing particulars for the relevant securities; (c) are consolidated ac-counts for the applicant and all its subsidiary understakings; (d) have been independently audited, in accordance with the auditing standards applicable in an EEA State or an equivalent standard; and (e) have been reported on by the auditors without modification. (2) A new applicant must: (a) take all reasonable steps to ensure that its auditors are independent of it; and (b) obtain written confirmation from its auditors that they comply with guidelines on independence issued by their national accountancy and auditing bodies.

95 LR 6.1.16R that an applicant for the admission of shares must satisfy the FSA that it and its subsidiary undertakings (if any) have sufficient working capital available for the group’s require-ments for at least the next 12 months from the date of publication of the prospectus or listing par-ticulars (as the case may be) for the shares that are being admitted.

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accounted for generating the earning reported in the financial reports in the registra-tion records of applicant. At the same time, most of its assets has to be used in the business activities to generate this earning96. In addition, if in the period of this busi-ness activities in which a part or all business activities of that applicant had one or more of the six following characteristics97 it would not be granted the certificate of permission.

The criteria related to financial reports or audited accounts of a new applicant are described in LR 6.1.4R, LR 6.1.5G and LR 6.1.7G of Listing Rules indicate clearly ro a new applicant that he must have a good track record of his past project and he should consistently keep financial records of all designated time. In other words, this is to place significant emphasis on three aspects to prevent the market abuse through IPO as follows: First, the issuers cannot exercice self serving purpose by bringing forward a business without solid economic foundation in the past to raise capital for some unclear future project..Second, this stipulation can be used for the authority or the governing body of IPO registration to separate deceitful applicants (if any) from genuine ones. Third, this stipulation can be used for the authority or the governing body of IPO registration in determine the real value of applicant’s business to grant a certificate of IPO to issuer. At the same time, investors will have more appropriate information to make a reasonable assessment on the future prospects of the applic-ant’s business. And investors are able to look at the company’s hictoric revenue earn-ing record in the light of its particular competitive advantages to compare with the others in the same business sector and in the general macro economic climate before making decision on investment options.

For Private owned business sector, article 12(1) of Law on Securities 2006 “Con-ditions for a public offer of equity shares” states that:

96 LR 6.1.4R A new applicant for the admission of shares or securities convertible into its own shares must demonstrate that: (1) at least 75% of the applicant's business is supported by a his-toric revenue earning record which covers the period for which accounts are required under LR 6.1.3R(1); (2) it controls the majority of its assets and has done so for at least the period referred to in paragraph (1); and (3) it will be carrying on an independent business as its main activity. And LR 6.1.5G In determining what amounts to 75% of the applicant's business for the purposes of LR 6.1.4R(1), the FSA will take into account factors such as the assets, profitability and mar-ket capitalisation of the business.

97 LR 6.1.7G If an applicant's business has been in existence for the period referred to in LR 6.1.4R but part or all of its business has one or more of the following characteristics it may not satisfy that rule: (1) a business strategy that places significant emphasis on the development or marketing of products or services which have not formed a significant part of the issuer’s historic revenue earning record; or (2) the value of the business on admission will be determined, to a sig-nificant degree, by reference to future developments rather than past performance; or (3) the rela-tionship between the value of the business and its revenue or profit earning record is significantly different from those of similar companies in the same sector; or (4) there is no record of consist-ent revenue, cash flow or profit growth throughout the historic revenue earning record; or (5) the applicant's business has undergone a significant change in its scale of operations during the period of the historic revenue earning record; or (6) it has significant levels of research and de-velopment expenditure or significant levels of capital expenditure.

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(a) The enterprise must have, at the time of registration of the offer, a minimum amount of paid-up charter capital of ten (10) billion98 Vietnamese dong calculated at the value recorded in the accounting books;

(b) Business operations in the year immediately preceding the year of registration of the offer must have been profitable, and there must not be accumulated losses cal-culated up to the year of registration of the offer.

Article 12(1) sets the criterion at “10 billion VNĐ”, a constant figure, as a prereq-uisite financial condition for a new applicant, this would mean that the legislators did not take in account for the time value of money with the ever existing annual rate of inflation. This is unrealistic and it will lead to change law constantly. And moreover, the requiremret that is “the business operations in the year immediately preceding the year of registration of the offer must have been profitable” is not adequately display the financial capality of a new applicant. Supposing that customers inclined to other products in near future, then the IPO of the new applicant to expand current business would not be no longer feasible99.

Article 14(1)(c) of Law on Securities 2006, “Conditions for a public offer of secu-rities” states “ The issuer must have a plan for capital placement” and “a project for utilization of allocated funds”, which are passed by the general meeting of sharehold-ers.” This is merely a subjective reason of mobilization of capital from an issuer, this is not yet a concrete plan proving the feasibility of the project to ensure mobilization of capital directly relating to an economical foundation. In other words, it must legis-late this criterion about the utilization of capital with specific details from offering of equity shares to the public to a feasible project. With these criteria legally in place, they will be an instrument to deal with two issues as follows. Firstl it is to prevent is-suers from potential market abuses. Second, it is to determine the essential level of market capitalization for businesses in the same sector with the issuer.

4.3.3 Responsibility of the issuer This Part refers to the liability of the issuer for the consequences arising from the IPO which caused damages directly to investors and the community. It is the liability of the issuer for the behaviors in the processing of setting up application file, in the

98 Three years before, article 6(1) of Decree No. 144/2003/NĐ-CP dated 28 November 2003 that conditions for an initial public offer of equity shares shall be the enterprise must have, at the time of registration of the offer, a minimum amount of paid-up charter capital of five (5) billion Vietnamese dong calculated at the value recorded in the accounting books.

99 According to Jennifer Lindsey in her book The Entrepreneur's Guide to Capital, the ideal candidate for an IPO is a small-to medium-sized company in an emerging industry, with annual revenues of at least $10 million and a profit margin of over 10 percent of revenues. It is also im-portant that the company have a stable management group, growth of at least 10 percent annu-ally, and capitalization featuring no more than 25 percent debt. Companies that meet these basic criteria still need to time their IPO carefully in order to gain the maximum benefits, available at: http://www.answers.com/topic/initial-public-offering

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publishing of wrong information to investors, etc. In addition, the issuers are respon-sible for the execution of IPO to the governing body.

Under the Listing Rules, An applicant who has a primary listing of equity shares must satisfy additional requirements for listing for equity securities100.Application for admission

In accordance with the UKLR, under LR 2.1.2 G and LR 2.1.4 R that: the FSA may not grant an application for admission unless it is satisfied the requirements of the listing rules are complied with; and any special requirement (it considers appro-priate to protect investors, the FSA must explicitly inform the issuer of any special requirement that it imposes) is complied with. The FSA may also refuse an applica-tion for admission if it considers the offering of those securities would be detrimental to investors’ interests; or the issuer has failed to comply with any obligations under that listing101.On financial position of applicant and its group

In accordance with LR 8.4.2 R, an applicant has rights and obligations as follows. (1) the applicant has satisfied all requirements of the listing rules relevant to an ap-plication for admission to listing; (2) the applicant has satisfied all applicable re-quirements set out in the prospectus rules unless the home Member State of the ap-plicant is not, or will not be, the United Kingdom; (3) the directors of the applicant have established procedures which enable the applicant to comply with the listing rules and the disclosure rules and transparency rules on an ongoing basis; (4) the dir-ectors of the applicant have established procedures which provide a reasonable basis for them to make proper judgments on an ongoing basis as to the financial position and prospects of the applicant and its group; and (5) the directors of the applicant have a reasonable basis on which to make the working capital statement required by LR 6.1.16 R102. On notifications to FSA

The applicant must ensure that the FSA is informed promptly of the name and contact details of a sponsor appointed in accordance with the listing rules (see LR 8.5.1 R). The applicant must notify the FSA in writing immediately of the resigna-tion or dismissal of any sponsor that it had appointed. (2)  In the case of a dismissal, the reasons for the dismissal must be included in the notification. (3)  The notifica-

100 LR 6.1.2G An applicant for the admission of equity securities to primary listing must sat-isfy the requirements in this chapter (in addition to those in LR 2).

101 LR 2.1.3 G of Listing Rules Instrument 2005 (amendmend 2007).

102 LR 6.1.16 R: an applicant for the admission of shares must satify the FSA that it and its subsidiary understakings (if any) have sufficient working capital available for the group’s re -quirements for at least the next 12 months from the date of publication of the prospectus or listing particulars (as the case maybe) for the shares that are being admitted.

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tion must be copied to the sponsor (see LR 8.5.2 R). The applicant appoints more than one sponsor, the company must: (1) ensure that one of the sponsors that is ap-pointed: (a) takes primary responsibility for contact with the FSA in respect of the entire application or transaction; and (b) appoints a suitably experienced employee and must inform the FSA, in writing, of the name and contact details of the sponsor taking responsibility (see LR 8.5.3 R). If applicant appoints more than one sponsor in relation to a transaction, the FSA will consider all sponsors so appointed as jointly responsible for compliance with the listing rules (see LR 8.5.5 G)

Under the UKCA 2006, section 563 “Liability of company and officers in case of contravention” that:

(2) The company and every officer of it who knowingly authorised or permitted the contravention are jointly and severally liable to compensate any person to whom an offer should have been made in accordance with those provisions for any loss, dam-age, costs or expenses which the person has sustained or incurred by reason of the contravention.

(3) No proceedings to recover any such loss, damage, costs or expenses shall be commenced after the expiration of two years— (a) from the delivery to the registrar of companies of the return of allotment, or (b) where equity securities other than shares are granted, from the date of the grant.

Article 17(1) of Law on Securities 2006 that:

(1) The issuing organization shall be liable for the accuracy, truthfulness and com-pleteness of the application file for registration of a public offer of securities.

And Article 15 “Prospectus”, article 15(3)(a) “Signing of a prospectus”, article 15(4) “Form for a prospectus” and article 16 “Financial statements” stated that: to give prominence to responsibility of a new applicant more than the statutory con-cretization of issuer’s business.

4.4 Responsibility of an approved sponsor

Under Listing Rules only refer a sponsor who serve in audited services, consultative and sponsorial. On competence of a sponsor, LR 8.6.7 R: A sponsor will be compe-tent to perform the services set out in LR 8.2 “When a sponsor must be appointed or its assitance obtained”, LR 8.3 “Role of a sponsor: General” and LR 8.4 “Role of a sponsor: transactions” if it has a broad range of relevant experience and expertise in providing advice to listed companies and on the listing rules.

In accordance the UKLR, where a sponsor has been appointed by an applicant, the sponsor must  provide assurance to the FSA when required that the responsibilities of the applicant under the listing rules have been met; and guide the applicant in under-

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standing and meeting its responsibilities under the listing rules and disclosure rules and transparency rules (see LR 8.3.1 R).

A sponsor will be the main point of contact with the FSA for any matter where the sponsor has been appointed by a listed company or applicant. The FSA expects to discuss all issues relating to a transaction and any draft or final document directly with the sponsor. However, in appropriate circumstances, the FSA will communicate directly with the listed company or applicant (see LR 8.3.2 G).

A sponsor must: (1) deal with the FSA in an open and co-operative way; (2) deal with all enquiries raised by the FSA promptly; and (3) disclose to the FSA in a timely manner any material information relating to the sponsor or to a listed com-pany or applicant of which it has knowledge which addresses non-compliance with the listing rules or disclosure rules and transparency rules (see LR 8.3.5 R).

A sponsor must: (1) ensure that no equity shares are placed with connected clients of the sponsor or of any securities house or other intermediary assisting with the of-fer, unless placed with a market maker or fund manager for the purpose of its busi-ness as such; (2) ensure that the results of any marketing, including the basis of allot-ment where applicable, are notified to a RIS103 before admission is expected to be-come effective; and (3) ensure that if, after an offer for sale, offer for subscription, placing or intermediaries offer, any of the listed company's advisers or any interme-diary becomes interested in 3% or more of any class of equity shares being marketed (calculated exclusive of treasury shares) the interest is notified to a RIS before ad-mission is expected to become effective (see LR 8.4.5 R). In this circumstance, an adviser or intermediary will usually be regarded as having an interest if any market maker in the group of companies to which the adviser or intermediary belongs holds any equity shares of the applicant; and (b) will not have an interest if the holding of the market maker arises solely from holdings of equity shares held on behalf of cli-ents (see LR 8.4.6 R).

A sponsor must not submit to the FSA an application on behalf of an applicant, in accordance with LR 3, while an applicant is not comply with carefully enquiry of Listing applications (see LR 8.4.2 R104 and LR 8.4.8 R105 of UKLR).

103 RIS (Regulated Information Service): an incoming information society service that has its establishment in an EEA State other than the UK and that disseminates regulated information in accordance with the minimum standards set out in article 12 of the TD implementing Directive).

104 As mentioned in the Part 3.3.3 “On financial position of new applicant”.

105 LR 8.4.8 R “Application for admission: further issues” that: A sponsor must not submit to the FSA an application on behalf of an applicant, in accordance with LR 3 (Listing applications), unless it has come to a reasonable opinion, after having made due and careful enquiry, that: (1) the applicant has satisfied all requirements of the listing rules relevant to an application for ad-mission to listing; (2) the applicant has satisfied all applicable requirements set out in the pro-

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In accordance with Decree No.109, article 22 “Consultation and evaluation for equitized SOEs” that indicated the competent bodies as follows. Audit companies, Securities Companies, Assessing organizations and Foreign Developing investment banks and National (hereafter sponsor). These sponsors have appointed in the avail-able list by the Ministry of Finance and then equitized SOE enable to select one of sponsors in this list. The sponsor must ensure that its operation under the rules 106 by Decree No.109.

As mentioned in section 3.2.2 above, article 17(2) of Law on Securities 2006 that re-ferred to the responsibilities of sponsors, including the institution advising on the is-sue, the institution underwriting the issue and the approved auditing organization, concerning its operation to the public offering of equity shares for the services are out of these organizations provided. But its responsibilities are what they is not to stipulate clearly.

5. Conclusion and suggestion

From the bove study, it can be shown that there are similarities between the strategy to develop the stock market in the direction toward “the integration to the global economy”; to establish and expand the stock markets to be close-knit witth domestic and international financial markets in the two legal systems of securities law in the United Kingdom and Vietnam. However, there are differences in socio-economic, cultural and customs aspects in each country, therefore, in this particular case study-ing stock market, there will also be differences from organizing the governing bodies and IPO regulations, etc. as folows:

The United Kingdom built a legal system for securities on the foundation of mod-ern market economy. State only plays a adjusted role of the stock market through the legal instruments which are established and developed from the experiences based on real activities of London Stock Exchange107, a centre of international finance. HM

spectus rules unless the home Member State of the applicant is not, or will not be, the United Kingdom; and (3) the directors of the applicant have a reasonable basis on which to make the working capital statement required by LR 6.1.16 R or a qualified working capital statement in ac-cordance with LR 6.1.17 G (as the case may be).

106 See article 1(3) Decree No.109, subpar , “Publicity, transparecy under market rules”.

107 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: “In general, the principal feature of the regulatory system in the UK is that, within the framework of the law, the authority of the supervising bodies is drawn not from statute but from the consent of the users of the market. It is a system in which the Stock Exchange has throughout played and still fulfils the central role”.

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Treasury is an administrative body, the representative of the Government, to govern the financial services and markets through the Financial Services Authority (FSA). The FSA is a non-government body, the FSA’s members were nominated among market participants (not civil servants), the Chairman of the FSA was appointed by HM Treasury among the members of the FSA108.

The governing of the stock market and the guidance of execution of securities laws, therefore, are entrusted to a professional organization, the Financial Services Authority (FSA). FSA consists of the Board of FSA and the Management of FSA (see Appendix 3). The Board of FSA is responsible for setting up the policies for the development of the stock market, to make the rules for securities activities under Financial Services and Markets Act 2000109. The Management of FSA is responsible for the dealing with day to day operation110. The FSA is a governing body with its functions are directly to the operation for the financial services in general, and the activities of securities in particular. The FSA makes rules and guidelines of the stock market under the provisions of FSMA 2000. At the same time, the FSA looks into details of the IPO activities in the responsibilities of the three subjects that are is-suers, sponsors and a governing body under the Listing Rules111.

The Vietnamese stock market was just formed at the time when the Vietnam opened to join the international community. For the governing of the stock market, hence, the Government has tried to solve the remnants of the former economy (by the ways of equitization of State Owned Enterprises) and at the same time to establish appropriate guidelines for the mechanism of the market economy (setting up and amendments to legal system of the stock market). As we already knew, the manage-ment of securities market is still new to the authority in Vietnam, so that, they in fact are on the job training without guidance from experienced people, their proficiency is not up to par112. The governing of the stock market is still relied on many government offices which are not trained properly so it is not surprised for their competent level with full authority (see Annex 4).

108 Para.3 schedule 1 of FSMA 2000.109 Section 2 (4) of FSMA 2000 that the Authority’s general functions are—(a) its function of

making rules under this Act (considered as a whole); (b) its function of preparing and issuing codes under this Act (considered as a whole); (c) its functions in relation to the giving of general guidance (considered as a whole); and (d) its function of determining the general policy and prin-ciples by reference to which it performs particular functions.

110 See “What we do”, dated 04 September 2007, available at: http://www.fsa.gov.uk/Pages/About/What/index.shtml

111 Para.1(2) of schedule 1 FSMA 2000: For the purposes of this Schedule, the following are the Authority’s legislative functions— (a) making rules; (b) issuing codes under section 64 or 119; (c) issuing statements under section 64, 69, 124 or 210; (d) giving directions under section 316, 318 or 328; (e) issuing general guidance (as defined by section 158(5)).

112 TBKTSG, “Cổ phần hóa DNNN vẫn lúng túng”, dated 15 July 2008, available at: http://tintuc.timnhanh.com/kinh_te/chung_khoan/20080715/35A7DB3E/

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Vietnamese Securities Laws has built on the former command economy and are accepting the rules of market economy. Therefore in the first steps in the process of integration, it is unavoidable to have shortcomings as in present situation. So it is ne-cessary to innovate the ways of governing the securities market as well as the legisla-tion of the securities law for the basis for the mechanism to regulate the market more efficiently in the future. According to Phạm Phan Dũng113, the integration of Viet-namese economy in general and the field of financial services in particular into the economy of countries in the region and in the world is an indispensable trend. In the integration process, aside from opportunities, Vietnam has also encountered many challenges on legal system, policies, administrative system, all of these are not syn-chronized with the ones in the world and particularly domestic enterprises are still weak on financial capacity and poor competitiveness; technological infrastructure and information technology to serve the financial services market are backward”. Therefore, the study to learn experiences from the legal system of securities of the United Kingdom for the development of IPO regulations of Vietnamese securities laws is an essential thing to Vietnamese at present.

Decision No.163/2003/QĐ-TTg114 of the Government was to determine that the stock market is an important channel to mobilize capital for the development of the domestic economy, a component connected closely with the financial markets. Therefore, there must be a scheme for the development of products of the securities market where the quality of product is a key factor. In order for a sustainable devel-opment of the securities market, it is essential to develop both “supply” and “de-mand” for products in stock market. “Supply” of products in stock market related to IPO activities of issuers and listed companies115. Consequently, for these activities to become effective as expected, firstly, there must be an appropriate mechanism for operation and a solid legal framework for all activities in the stock market. As a res-ult, it can attract many investors to participate in the stock market. However, the re-sponsibility of the governing bodies of the stock market, as discussed in Part 3.1, is not prominent and there are no penalty for the fault of its authority116. These may lead to market abuses and becomes negative factors against the Government’s policies.

From the result of the study of the initial public offering (IPO) regulations between the United Kingdom law and Vietnam, we can see there are following dif-ferences: (i) corporate governance of the IPO activities; (ii) mechanism of making

113 Phạm Phan Dũng, “Tự do hóa các dịch vụ tài chính trong tiến trình hội nhập kinh tế quốc tế”, Securities Journal No. 11/2004.

114 Decision No. 163/2003/QĐ-TTg dated 05 August 2003 của Thủ tướng Chính phủ Phê duyệt Chiến lược phát triển TTCK Việt Nam đến năm 2010.

115 Vũ Thị Kim Liên, Securities Journal No. 11/ 2007.116 Điều 7, 8, Luật Chứng khoán năm 2006. Quyết định số 01/2008/QĐ-TTg ngày 07/01/2008.

Quyết định số: 63/2007/QĐ-TTg ngày 10/5/2007.

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rules; and (iii) the IPO regulation in securities law. Consequently, the author would like to suggest some comments on the IPO regulation in Vietnamese securities law below, i.e. these comments are concerned with the IPO regulation of SOEs, which the state owns 100% charter capital, that are stipulated in Decree No.109/2007/NĐ-CP dated 26 June 2007.

5.1 Innovation in the governing method of IPO activities

The article 1 of the Decision No.163/2003/QĐ-TTg which states that

the goals of the development of the stock market are both the scale and its quality in order to create a channel to mobilize a long-term and mid-term capital for the in-vestment and the development of the economy; to contribute to the development of financial markets in Vietnam; to maintain a public order and a sustainable develop-ment; to expand the scope of the stock market; to upgrade a governing and control-ling effectiveness of the stock market; to protect an investors’ interests; to improve step by step the competitiveness and to initiative the integration of global financial markets.

This is a big step forward of the Government for Vietnam in the integration into the international economy. Therefore, for the Vietnamese stock market and the IPO market developing in sustaining manner from various channels of efficient mobiliza-tion of capital from different resources (domestic and foreign investors) in order to develop the economy, then, it is necessary to have the innovation on the governing method in place in the present context of Vietnam.

In the span of history, we see that in the process of society organization, which depends on different conditions, of each country in which the state of each country imposes the controlling of social activities in many different levels. In the process of the regulating of the economy, the state has powers to intervene at three levels: (i) the government intervenes directly in market operation; (ii) the market adjusts itself and the government just intervenes in a part of market activities, or (iii) the goven-ment only establishes a legal framework for the market operating itself under this legal framework and then to entrust this governing of market activities to a governing body in which the members of this body are market participants as the model of the United Kingdom that are presented above.

From two diagrams describing the corporate governance and the mechanism of regulating of IPO activities (see Annex 3 and Annex 4) we can see the corporate tasks of regulating of IPO activities in Vietnam by various government agencies, spreading in many different government agencies, intervening in market activities,. They are not competent to govern market activities. This is easily found in any of the issue of guidelines to implement Securities Law. So it is not professional which will cause shortcomings in the process of promulgation of stock law. Because there will

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be a redundency of different agencies working on the same jobs, while there are no clear responsibility attached. So it is not effective and nobody takes the blame for the wrongdoing.

To restrict this inadequacy, firstly, it becomes necessary to strengthen functions and responsibilities for the State Securities Commission (SSC), the governing body is responsible to deal with all issues which are market requirements. As a result, the general functions of the SSC that are now stipulated in Securities Law 2006 should add a content of article 1 of Decision No.163/2003/QĐ-TTg and special functions of the SSC are competent to be responsible for the governing of the stock market under the Law on Securities. In this case, some articles of the Securities Law can be altered as follows: Article 8(1) is converted into explaining article: "the State Securities Commission is an administrative body directly under the Ministry of Finance." Art-icle 8, Clause 2 of "the structure of the State Securities Commission by the regula-tions of Ministry of Finance." Article 13(2)(c) is cancelled

Supposing that if the contribution above is applied, it will have the effect as fol-lows: the SSC has both shown a high professionalism and just self-responsibility in their functions by provisions of the Securities Law. At the same time, it will avoid an overlap in processing of information when the SSC performs their functions.

5.2 Addition terms to IPO regulation in Securities Law

As in the above analysis in Section 2.1, an IPO market is as an effective channel to mobilize capital for the development of the economy. From the activities of the IPO market, many benefits can be achieved such as to get market capitalization, to create capital for issuer to expand their businesses and to create more jobs for work-ers. If a stock market is to expand in asustainable manner, amendments and modific-ations to the IPO regulation in Law on Securities 2006 are essential. The process of the IPO registration and of the grant a certificate consists of a governing body, issuer and sponsor appointed. Therefore, it is necessary for the clarifying of the role of these three subjects as follows:On the governing body (the SSC)

The State Securities Commission (SSC), an administrative body, is directly under the Ministry of Finance. The exception of the SSC’s functions mentioned in Part 4.1, also need to attach responsibility of this body as follows: (i) any authorized person is acting as a member, officer or member of staff of the competent authority who causes damages or losses to market participants, this person is liable in damages for anything done or omitted in the discharge, or purported discharge, of the authority’s functions; (ii) the new applicant or the listed companiy may start a legal suit against

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authorized persons to the Tribunal if that in duty person refused the application for registration of an applicant or cancellation of the suspension of listed securities, (see Section 75 FSMA 2000117).On the issuing organizations (issuers)

On financial capacity, as stipulated in Article 12(1)(a) of Law on Securities 2006 should be amended as follows: not regulated capital of the issuer at the time of regis-tration of the minimum 10 billion đồng118. Such a stipulation in this Law, it looses the realistic factor which cannot be accounted for such as inflation, changes in economic, macroeconomic policies of the government... and Article 12(1)(b) of Law on Securit-ies 2006: it is not necessary to require the enterprise have to make profits right in the following year of UPO, but rather look at its annual rate of growth of the business 119. To change the the amount of this charter capital, we can make modified regulations as follows: besides, the proceeds earnied from the offer, the issuer must ensure that there is enough working capital to meet the project's business in the period at least 6 months (or 12 months) at the day of the issuer’s prospectus is published (see LR 6.1.16R120). under this regulation, the requirement of the financial capacity of the is-suer will not be depended on market fluctuations.

Addition to the financial management skills as follows: at least 75% of the re-quirements at least 75% of the applicant's business is supported by a former financial reports that controls the majority of its assets and it will be carrying on an independ-ent business as its main activity (see LR 6.1.4R121). This means issuer has really needed capital for their businesses, so the mobilization of capital is necessary for business at the time of the registration of issuer. This is the main reason to mobilize

117 Section 78(12) FSMA “Discontinuance or suspension: procedure”: If the competent au-thority decides to refuse an application for the cancellation of the suspension of listed securities, the applicant may refer the matter to the Tribunal.

118 Three years before, article 6(1) of Decree No. 144/2003/NĐ-CP dated 28 November 2003 that conditions for an initial public offer of equity shares shall be the enterprise must have, at the time of registration of the offer, a minimum amount of paid-up charter capital of five (5) billion Vietnamese dong calculated at the value recorded in the accounting books.

119 The businesses of the new applicant created profits that are not yet good for its financial capicity. Supposing that consumers can be change their interest, they may use replaced products. Consequently, the IPO of the new applicant, in this business sector, is not appropriate to their ex-pectation in near future.

120 LR 6.1.16R that an applicant for the admission of shares must satisfy the FSA that it and its subsidiary undertakings (if any) have sufficient working capital available for the group’s require-ments for at least the next 12 months from the date of publication of the prospectus or listing par-ticulars (as the case may be) for the shares that are being admitted.

121 LR 6.1.4R A new applicant for the admission of shares or securities convertible into its own shares must demonstrate that: (1) at least 75% of the applicant's business is supported by a historic revenue earning record which covers the period for which accounts are required under LR 6.1.3R(1); (2) it controls the majority of its assets and has done so for at least the period re-ferred to in paragraph (1); and (3) it will be carrying on an independent business as its main activity.

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capital for a feasibile project of issuers, it avoid a market abuse or waste of capital by issuer after the IPO.

On the compasation responsibility for the issuer is stipulated in Article 9(6) of De-cree No.36/2008/ND-CP we need additional rules and terms of "material responsib-ility" to the Securities Law with the content as follows: "the organization and the au-thority tending a proposal violating the regulations on the issuance of securities is also responsible in general or personal of adequate compensation for the victim about loss, damage, loss or other costs that it incurred "(see section 563 of Company Act 2006122).

As the analysis in Section 2.1 above, an IPO market is as an effective channel to mobilize capital for the development of the economy. By IPO market, that will up-grade to marketing capitalization, to create capital for issuer expanding their busi-nesses and to create more jobs for workers. To a stock market develops in sustainable manner, thus, the addition terms to IPO regulation in Law on Securities 2006 is an essential. The process of the IPO registration and of the grant a certificate in which consist of a governing body and issuer. Therefore, it is necessary for the clarifying of two these subjects as follows:

On the governing body (the SSC)The State Securities Commission (SSC), an administrative body, is directly under

the Ministry of Finance. The exception of the SSC’s functions mentioned in Part 4.1, also need to attach responsibility of this body as follows: (i) any authorized person is acting as a member, officer or member of staff of the competent authority who cause damages or losses to market participants, these persons are to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the author-ity’s functions123; (ii) the new applicant or the listed companiy may refer authorized persons to the Tribunal if the competent authority who refused an application for reg-

122 Section 563 of Companies Act 2006 “Liability of company and officers in case of contra-vention” that (1) This section applies where there is a contravention of—section 561 (existing shareholders’ right of pre-emption), or section 562 (communication of pre-emption offers to shareholders). (2) The company and every officer of it who knowingly authorised or permitted the contravention are jointly and severally liable to compensate any person to whom an offer should have been made in accordance with those provisions for any loss, damage, costs or ex-penses which the person has sustained or incurred by reason of the contravention. (3) No pro-ceedings to recover any such loss, damage, costs or expenses shall be commenced after the expi-ration of two years— (a) from the delivery to the registrar of companies of the return of allot-ment, or (b) where equity securities other than shares are granted, from the date of the grant.

123 Section 102(1) of FSMA 2000 that (1) Neither the competent authority nor any person who is, or is acting as, a member, officer or member of staff of the competent authority is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the author-ity’s functions.

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istration of applicant or cancellation of the suspension of listed securities, (see sec-tion 75 FSMA 2000124).On the issuing organizations (issuers)

On financial capacity that is stipulated in Article 12(1)(a) of Law on Securities 2006 should be amended as follows: not regulated capital of the issuer at the time of registration of the minimum 10 billion. For months as stipulated in this Law to make the early loss of feasibility by the factors: inflation, changes in economic, macroeco-nomic policies of the government ... and Article 12(1)(b) Law on Securities 2006 : not regulated activities of years must have but need more interest rate of annual growth of the new applicant.

To change the amount of this charter capital, it can regulate as follows: from funds derived from first issue, issuing organization must ensure that working capital minimum to meet the project's business in the period that (may include 6 months or 12 months) from the organization issuing it make me related to the issuance of shares to the public the first time (see LR 6.1.16R ). How this regulation is not dependent on market fluctuations, showing relation between financial capacity with business needs capital for business enterprises.

Supplement the "capacity financial management" as follows: at least 75% of the business organization's release has generated the profits (as mentioned in the finan-cial reports related to records registration issue) and assets of businesses have used in all business activities of enterprises to create the profits related to the financial re-ports that (see LR 6.1.4R). This does business with the capital requirements for the actual production and demand in capital markets is necessary for business at the time of registration IPO. That is the basic reason to mobilize capital for a project eco-nomic feasibility of the issue, avoid waste of funds or misused by organizations is-sued after the IPO.

On the compensation responsibility of the issuer is stipulated in Article 9, Clause 6 of Decree No.: 36/2008/ND-CP need additional rules and terms of "material re-sponsibility" to the Securities Law with content as follows: "the organization and the authority given to the proposal that violate the regulations on the issuance of securit-ies is also responsible for general or personal responsibility of compensation ad-equate for the victim about Mác loss, damage, loss or other costs that it incurred "(see Section 563 Company Law in 2006, UK).

124 Section 78(12) FSMA “Discontinuance or suspension: procedure”: If the competent au-thority decides to refuse an application for the cancellation of the suspension of listed securities, the applicant may refer the matter to the Tribunal.

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Table of legislation United Kingdom

Financial Services and Markets Act 2000.

Companies Act 2006.

Listing Rules and Prospectus Rules (Consequential Amendments) Instrument 2005.

Listing Rules Instrument 2005 (FSA 2005/35), dated 16 June 2005.

Listing Rules (Investment entities interim regime) (Amendment) Instrument 2007.

Listing Rules and Prospectus Rules (Consequential Amendments) Instrument 2005 (FSA 2005/37), dated 16 June 2005.

Listing, Prospectus and Disclosure Rules (Miscellaneous Amendments) Instrument 2007 (FSA 2007/40).

Market Abuse Directive (Disclosure Rules) Instrument 2005 (FSA 2005/16), dated 17 March 2005.

Transparency Obligations Directive (Disclosure and Transparency Rules) Instrument 2006 (FSA 2006/70), dated 21 December 2006

Vietnam

Law on Securities 2006, No. 70/2006/QH11 Approving dated 29/6/2006 by national parliament, effective dated on 1 January 2007.

Law on Enterprises 2005 (No.60/2005/QH11 of 29 November 2005.)

Decree No. 144/2003/NĐ-CP dated 28 November 2003.

Decree No.14/2007/NĐ-CP of dated 19th January 2007, instructing for implement the Law on securities.

Decree No.187/2004/NĐ-CP of 16 November 2004 Regarding to the equitization of SOEs.

Decree No.36/2007/NĐ-CP dated 08 March 2007

Decree No.109/2007/NĐ-CP dated 26 June 2007 Regarding to the equitization of SOEs with 100% charter capital owned by the state.

Circular No. 97/2007/TT-BTC dated 08 August 2007

Decision No.163/2003/QĐ-TTg of 5th August, 2003 about approving the Strategy for the development of the Vietnamese stock market until 2010.

Decision No.127/1998/QĐ-TTg dated on 11st July 1998 Regarding to establishment Ho Chi Minh City Securities Trading Central and Ha Noi

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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.

David E. Upton, “Stock market”, dated 03 May 2008, available at: http://www.refer-enceforbusiness.com/encyclopedia/Sel-Str/Stock-Market.html

EFET Gas Commmittee – European Federation of Energy Traders, “Enabling Sec-ondary Market Gas Capacity Trading”, 29 March 2007, p. 1.

Iain MacNeil. “An Introduction to the Law on Financial Investment”, published by Oxford and Portland, Oregon (2005).

Jay R.Ritter, Cordell Professor of Finance University of Florida, “Initial Public Of-fering”, Edited by Dennis Logue and James Seward, Spring 1998, trang 1, website: http://bear.cba.ufl.edu/ritter/rittipo1.pdf

Jennifer Lindsey, “The Entrepreneur's Guide to Capital”, available at: http://www.an-swers.com/topic/initial-public-offering

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/bookre-views/library/0279

Michael Blair QC, Loretta Minghella, Michael Taylor, Mark Threipland & George Walker, “Financial Services and Markets Act 2000”.

Michael Blair QC and George Walker. “Financial Services Law”.

Phạm Phan Dũng, “Tự do hóa các dịch vụ tài chính trong tiến trình hội nhập kinh tế quốc tế”, Securities Journal No. 11/2004.

Small Business Encyclopedia, “Initial Public Offerings”, available at: http://www.an-swers.com/topic/initial-public-offering

Trần Danh Đáng, “Hạn chế của những cơ chế và phương pháp định giá hiện hành”, Newspaper of Business No. 2(5) May 2004, available at: http://www.kinhdoanh.com.vn/mtkd/So5/5_thaoluan01.htm

The Gale Group. Inc, “Small Business Encyclopedia: Initial Public Offering - IPO” (“Phát hành cổ phiếu ra công chúng lần đầu - IPO”), website: http://www.answers.-com/topic/initial-public-offering

TBKTSG, “Cổ phần hóa DNNN vẫn lúng túng”, dated 15 July 2008, available at: http://tintuc.timnhanh.com/kinh_te/chung_khoan/20080715/35A7DB3E/

Vũ Thị Kim Liên, Securities Journal No. 11/ 2007.

“Who are we”, dated 07 August 2007, available at: http://www.fsa.gov.uk/Pages/About/Who/index.shtml

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“What we do”, dated 04 September 2007, available at: http://www.fsa.gov.uk/Pages/About/What/index.shtml

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Other documents Vu Thanh Tu Anh. Vietnam – The Long March to Equitization, The William David-son Institute at The University of Michigan, April 2005.

Toan Nguyen. A review of Vietnamese IPO Activity, Audencia – Nantes School of Management, International MBA Program, 2006 – 2007.

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Appendix 1

Chart of VN-index from 02 August 2000 to 31 October 2008

* Technical chart of VNDirect drawn according to adjusted stock prices

Source: https://www7.vndirect.com.vn/vndirect-online/online/brokerage/fchart/FlashChart_123321_1230102124831be743b1629e97cbc5b139c89c2856c28.do

Explanation for the big fluctuation of VN-index (from May 2006 to October 2008) as foolows:

On the date of 11 July 2006, the day that Vietnam officially joined the WTO, the real property market started to get hot (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 inter-mediaries) 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 (see 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.gso-media.com/news/?ID=6195). This flow of indirect investment (for stock acquisition) was not controlled

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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 debt of commercial banks. Then according to the Decision No.03/2008/QĐ-NHNN dated 01 Febuary 2008, the 3% of the total debt 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 fall of the VN-index from 1,170.67 points on 12 March 2007 to 322.80 points on 28 October.

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Appendix 2

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Appendix 3

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Appendix 4

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