“Individual Investors Speak Out on Corporate Bond Trading Restrictions”

Vietnam’s Ministry of Finance is working on a draft law to amend and supplement several articles of the Securities Law, including new provisions for private corporate bond trading. The new regulations require individuals to have a minimum of two years of securities investment experience, with a minimum transaction frequency of ten trades per quarter for the last four quarters, and an annual combined income of at least VND 1 billion in the last two years to be considered professional investors and eligible to participate in corporate bond purchases.

The current law states that individuals holding a listed securities portfolio worth a minimum of VND 2 billion and an annual taxable income of at least VND 1 billion are qualified to be professional investors and, therefore, allowed to purchase corporate bonds. Thus, the draft law adds an extra condition regarding transaction frequency.

“With these conditions, I am sure I won’t qualify to buy corporate bonds, even though I have years of experience and still want to continue investing in this field. Not just me, but many other individual investors will surely be excluded,” said Ms. Ngoc Lan from Hoang Mai district, Hanoi.

For many years, Ms. Lan considered corporate bond purchases as a channel for accumulating assets, similar to bank savings but with higher interest rates and more flexible terms. However, as this is only a side investment channel, she trades a maximum of 2-4 times a year, whenever there is idle money, and cannot meet the requirement of ten transactions per quarter for four consecutive quarters. “It’s already called individual investors, so the capital is small, where can I get to trade ten times a year? This rule really makes it difficult for us,” Ms. Lan shared.

Ms. Lan added that, with the new information, she is considering not buying any more corporate bonds and waiting for further official information and specific regulations from the authorities. At the same time, she is also looking to sell her existing bond holdings, accepting a lower interest rate than the full-term rate.

Similarly, investor Tien Dung from Dong Da, Hanoi, expressed his disappointment with the new draft. Mr. Dung has a habit of buying corporate bonds and holding them for the long term. He often does not have time to calculate and trade up to ten times per quarter for four consecutive quarters. “Even if I have traded for three consecutive quarters, if I don’t trade or don’t trade enough in the fourth quarter, the transaction frequency will have to be calculated from the beginning. This is unreasonable and puts us at a disadvantage, even though it is our asset, and we have the right to trade according to our needs and abilities to avoid risks,” Mr. Dung questioned.

Mr. Dung further asked, “One of the principles of investment is not to put all your eggs in one basket. Therefore, individual investors cannot afford to pour all their money into corporate bonds. So, if the law is stringent, are we not forced to face the risk?”

Likewise, investor Manh Tuong from Nam Tu Liem, Hanoi, believes that if the new regulations are applied, they will undoubtedly affect individual investors, who currently hold nearly 27% of the bond volume. “Corporate bonds are a reputable, safe, and effective investment channel, and individual investors have a considerable demand to diversify their investment portfolios. The new regulations could cause a large number of individual investors to disappear from the market, making the already small capital market even smaller,” Mr. Tuong said.

Many representatives from banks, securities companies, and investment funds agree that adding transaction frequency conditions for stocks to qualify for corporate bond purchases is impractical. If approved, the supplementary regulations will significantly limit the number of individuals allowed to purchase corporate bonds.

Unintended Consequences

Regarding this issue, Lawyer Nguyen Thanh Ha, Chairman of SB Law Company, stated: “The stringent conditions for individual investors to participate in the private corporate bond market aim to protect investors, especially in the context of high market risks, when enterprises cannot guarantee payment ability or have unstable financial health.”

“However, these restrictive regulations can have some negative impacts on the development of the bond market and the interests of small individual investors,” he added.

Mr. Ha elaborated that the restrictions on individual investors would reduce the number of participants, thereby decreasing the amount of capital that businesses can raise through bonds. This is particularly crucial as businesses need capital to recover and develop after the pandemic or when other capital sources, such as bank loans, are limited.

Restricting individual investors’ participation in the bond market could also reduce the market’s liquidity and diversity, making it less attractive and competitive. The fewer participants in the market, the lower the liquidity, and the value of the bonds may be affected.

Instead of limiting the rights of small individual investors, Lawyer Nguyen Thanh Ha suggested requiring issuing enterprises to be more transparent about their financial situation, payment ability, and the risks associated with investing in their bonds. Using the credit rating results of credit rating companies as a reference tool for small individual investors could provide a clearer picture before making investment decisions.

“The state can establish risk assessment standards for corporate bonds based on financial indicators or the company’s operating history. Small individual investors can be encouraged or limited in investing in high-risk bonds but still have access to safer bonds. Capital protection mechanisms, such as bond insurance or guarantee funds, can be introduced to minimize risks for small individual investors in this market,” he said.