Regulatory body

Securities activities in Vietnam are regulated by the State Securities Commission ("SSC"), a body formally established in 1996. On February 19, 2004, the government made the SSC a part of the Ministry of Finance. The SSC is responsible for the development of the securities market, licensing of market participants, and the issuance and enforcement of regulations in relation to securities market activities in Vietnam.

Vietnam Stock Exchanges

The Vietnam Stock Exchanges are currently comprised of the HCMC Securities Trading Centre ("HOSTC") and the Hanoi Securities Trading Centre ("HASTC"). As of August 31, 2006, 60 companies and one investment fund were traded on the Vietnam Stock Exchanges, with a total market capitalization of VND 58.6 trillion (US $.3.6 billion). This is a sharp increase from 36 Listed Companies and one investment fund with a market capitalization of VND 6.9 trillion (US$431 million) as of August 31, 2005.

HOSTC commenced trading in July 2000. As of August 31, 2006, there were 48 companies and one investment fund listed on the HOSTC with a total market capitalization of VND46.3 trillion (US$2.9 billion). Trading on the HOSTC is accomplished via an automated call order-matching system, which involves matching orders on a periodic basis rather than a continuous basis, through three regular daily trading sessions, and a special negotiated trading session for large blocks of 10,000 shares or more. Shares trade in lots of 10 shares. Trading limits apply and equities are permitted to trade within a 5.0% range, higher or lower, from the previous session’s closing price.

HASTC commenced trading in March 2005. As of August 31, 2006 there were 12 companies registered for trading on the HASTC with a total equity market capitalization of VND12.3 trillion (US$771 million). Trading on the HASTC is accomplished via an automated continuous order-matching system with a special negotiated trading session for blocks of 1000 shares or more. Shares trade in lots of 100 shares. Trading limits apply and equities are permitted to trade within a 10% range, higher or lower, from the previous session’s closing price.
All securities traded on the HOTSC and HASTC are denominated in Dong. All listed shares are deposited with the Central Depository Centre, a sub-agency of the SSC. Clearance and settlement is centralized using the Bank of Investment and Development of Vietnam, a state-owned commercial bank, and the Central Depository Centre.

The OTC Market

Many Unlisted Companies in Vietnam trade on an informal, non-centralized network of broker-dealers, intermediaries, sellers and buyers. The OTC market acts as an intermediary for the trading of common shares of joint stock companies with acceptable transferability rights that are not listed on the HASTC or HOSTC. Transactions on the OTC market are negotiated and agreed upon directly between buyers and sellers, often with the involvement of facilitating broker-dealers or other intermediaries. These transactions are documented by negotiated share transfer agreements. The clearance and settlement process with respect to securities that trade in the OTC market may be time consuming, often requiring endorsement by officials of the subject company. There is no centralized public reporting of OTC market transactions.

Foreign Ownership Limit

Foreign ownership of Vietnamese companies is limited to specified percentages. In November 2005, the limit on foreign ownership in a Listed Company was increased to 49%. Banks that are listed are subject to a lower limit of 30% of total foreign equity ownership. The limit on foreign ownership of Unlisted Companies is 30%, except in certain limited circumstances, such as for securities or fund management companies which are currently limited to 49.0%.

Securities Trading Code

Foreign investors including an offshore fund, must obtain a securities trading code to be eligible to trade securities listed on the Vietnamese Stock Exchanges. Obtaining the code can be a time-consuming process.  The Investment Manager has obtained the requisite securities trading code.

New Securities Law

On June 23, 2006, a new Securities Law was enacted that took effect on January 1, 2007. The securities law clarifies the legal framework for securities activities and the securities markets based upon the following principles: respect for the freedom to buy, sell and deal in securities and provide securities services; fairness, openness, and transparency.