Unannounced share sale by leader may affect securities market

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Mr. Huynh Anh Tuan, General Director of Dong A Securities Company.

The stock market in recent sessions has fluctuated after the leader of a share seller sold shares without announcing the sale in advance. What is your opinion on this issue?

The share sale without advanced announcement has violated regulations on information disclosure. Some violations are accidental due to slow disclosure of information, small-scale sales or transactions by the leader’s family members, so the impact is not serious. On the contrary, if the chairman of the Board of Directors or the leader of the share seller sells the shares, it will have a great impact on investors.

Because they understand the share seller’s operation. Normally, the leaders and managers of the company selling shares with effective operation only buy the shares, they rarely sell the shares. They only sell the shares on a small scale with a specific roadmap for investors to know that the sale is not due to a bad outlook of the share seller.

Accordingly, when the leader sells stocks on a large scale, it is likely that the company has problems. This also creates a bad image of that leader and the company. The company’s reputation not only reduces in the stock market, but also in its partners’ eyes.

Besides, when the leader sells a large number of shares, it will not only make small shareholders concerned about the company’s operation but also reduce the demand for that stock.

If the leader holds the key position in the company but is no longer a major shareholder, the management will be not effective; the interests of the leader in the company will decline, leading to inefficiency in management. When the leader has few benefits, there is a possibility of profiteering in the business.

Besides the loss of investors in the market, the share seller is also affected.

What consequences will this have for the market?

The unannounced share sale in a large volume by the share seller’s leader will cause panic among investors.

The investors will be confused about the leader’s purpose and will think that the company faces problems and the leader wants to leave the company. At that time, other investors will sell the shares, leading to a drop in share price. For businesses as a part of an ecosystem, this will affect all other stocks in the ecosystem. Therefore, investors will suffer from the loss and the leader will benefit.

Moreover, the investors also have to face cutting off margins and selling off mortgages by securities companies. The investors will suffer serious losses. For the securities companies, if the sale of mortgage is not successful, they will have to make provisions and suffer losses from this margin.

All the above shows the unfairness in the stock market. The market needs trust in the share seller and transparency. This will also affect foreign investors' assessment of Vietnam's stock market.

While competent agencies and market members make great efforts to improve transparency, aiming to bring Vietnam’s stock market to the emerging market group, the illegal sale by the leader will destroy the market landscape.

From the perspective of information disclosure, this is only a small issue, but from other aspects, it is a very serious problem. The market movements in recent sessions have shown the consequences and this also puts great pressure on the market's outlook in the short term.

What recommendations do you have on sanctions to increase deterrence?

Currently, Vietnam’s regulations on sanctions are very strict and I think that we don’t need to amend them. The important issue is the determination of competent authorities in imposing sanctions for this act.

According to regulations, the competent authorities may cancel the transaction, confiscate the profit, impose a maximum fine or transfer the case for criminal prosecution if it has signs of taking advantage of inside information or price manipulation. However, most violations are only fined and the fine is only a maximum of VND1.5 billion, while the profit from this act may up to hundreds of billions of VND and the loss of the market is much higher, excluding the impact on investor sentiment.

In my opinion, the drastic application of strict sanctions to show deterrence and strictness of the law is very necessary. This will help raise the awareness of the leaders and prevent other cases that intend to commit this violation. If only the administrative fine is applied, the situation may continue.

In addition, there is another measure to prevent this situation. The conditional securities depository for shares of the seller or the leader will be required. If the announcement is not sent, the sale will not be executed.