Despite nearly 20 years of operation, the trading of commodities through the Vietnam Commodity Exchange has not attracted many investors. Why is this the case?

The commodity exchange model has been established and developed worldwide for a long time, and centralized commodity trading is becoming increasingly popular. This model allows farmers to produce with confidence, helps businesses invest capital effectively, and enables investors to earn profits through price differences.

In Vietnam, this model was first introduced in the 2005 Commercial Law. There were previously several entities such as the Buon Ma Thuot Coffee Trading Center (BCCE), the Saigon Thuong Tin Commodity Exchange (Sacom -STE), and the INFO Commodity Exchange. However, today only the Vietnam Commodity Exchange (MXV) remains operational. This indicates that the trading of commodities through commodity exchanges in Vietnam has not truly developed.

Not commensurate with development potential

Currently, the activities of the Commodity Exchange are governed by Section 3, Chapter II of the 2005 Commercial Law, Decree 158/2006, and Decree 51/2018 which amends and supplements Decree 158/2006.

After more than 19 years of implementing Decree 158/2006, it can be said that commodity trading through the Commodity Exchange in our country has created an environment where businesses engaged in production, trading, and import-export have price hedging tools to proactively manage production, trading, and balance supply and demand.

However, there are still some issues and limitations, such as: The inability to list Vietnamese goods on foreign commodity exchanges; a lack of participation from financially strong investors like investment funds, and very limited participation from foreign investors.

In terms of subjective factors, there has been inadequate attention from state management agencies, businesses, and the public towards commodity trading through the Commodity Exchange. This activity has not been valued as a crucial method and driver for commercial economic development, not matching the potential for market growth in Vietnam amid deepening international integration.

Therefore, essential tools to promote commodity trading through the Commodity Exchange are still lacking, such as: A development strategy for commodity trading through the Exchange; Training programs for human resources in commodity trading; and Publicity and dissemination plans about the Commodity Exchange.

Inadequacies from Legal Framework to Practice

Objectively, the legal framework for commodity trading through the Commodity Exchange has several shortcomings, highlighted by the following key points:

Firstly, there are many unclear and non-transparent areas. For instance, Decree 158 outlines the conditions for establishing a Commodity Exchange, which is crucial for its formation. However, it only specifies requirements related to capital, technical infrastructure, and regulations, without addressing who has the authority to apply for the establishment license.

Additionally, it mentions the revocation of the Commodity Exchange license but lacks procedures for the revocation process.

Such ambiguous regulations create difficulties and confusion for individuals and organizations wanting to establish a Commodity Exchange and for those needing to handle license revocation procedures.

Secondly, the current legal framework for commodity trading through the Commodity Exchange is incomplete and inconsistent.

Decree 158 lacks provisions on several important aspects of commodity trading through the Exchange, such as: conditions for founding shareholders; infrastructure requirements for trading operations; and procedures for investment and trading activities at the Exchange.

For foreign investors, Decree 158 does not specify or lacks details on: investment forms; procedures for investment and trading activities; and management of cash flows, assets, and profit repatriation.

As a result, no foreign investors have opened accounts or conducted transactions on the Commodity Exchange in Vietnam, despite significant demand, especially for major Vietnamese products with large export volumes such as coffee, rubber, pepper, cashew nuts, and rice.

Inadequacies from Legal Framework to Practice

Objectively, it can be seen that the legal framework for trading goods through the Commodity Exchange (Sở GDHH) still has many shortcomings, outlined in several key points below.

Firstly, many aspects are unclear and opaque. For instance, Decree 158 stipulates conditions for establishing a Commodity Exchange, a crucial issue for its establishment, but only specifies conditions related to capital, technical facilities, and regulations, and does not address who has the right to request a license for the establishment of the Exchange.

Additionally, the decree mentions the revocation of the establishment license but does not outline the procedure for revocation.

These unclear regulations create difficulties and confusion for individuals and organizations wishing to establish a Commodity Exchange and when they need to terminate operations if the license is revoked.

Secondly, the current legal framework for trading goods through the Commodity Exchange is incomplete and non-uniform.

Decree 158 lacks provisions on several important issues related to trading goods through the Exchange, such as: conditions for capital contributors; facilities for trading activities on the commodity exchange market; procedures for investment and trading activities at the Exchange.

For foreign investors, Decree 158 does not specify or lacks specifics on issues such as: investment forms; procedures for investment and trading activities; management of cash flow, assets, and profit repatriation.

As a result, no foreign investors have opened accounts or traded on the Commodity Exchange in Vietnam despite a relatively large demand, especially for Vietnam's major export items like coffee, rubber, pepper, cashews, and rice.

Furthermore, Decree 158 specifies two types of fees: membership fees and transaction fees, but to date, the Ministry of Finance, which is responsible, has not issued guidance on these issues.

Additionally, there is currently no strict legal regulation regarding foreign exchange management for transferring payments abroad in commodity trading through foreign exchanges. This leads to difficulties for businesses and investors in declaring, settling taxes, and transferring money abroad.

Thirdly, there are still unreasonable and overlapping regulations. Decree 158 stipulates that the Commodity Exchange is an enterprise established and operating under the provisions of the Enterprise Law and this Decree.

Thus, the Exchange is understood to be established both under the Enterprise Law (by registering as a business) and under Decree 158 (by a license granted by the Ministry of Industry and Trade). Consequently, the Exchange must fulfill the obligations under both the Enterprise Law and the regulations of Decree 158.

This mechanism creates unclear relationships between the business establishing the Exchange and the Exchange itself (which is also an independent enterprise), and imposes significant compliance obligations on the Exchange.

Moreover, related to commodity trading through the Exchange, there is currently Circular 40/2016 from the State Bank of Vietnam regulating the provision of commodity derivative products. This Circular was issued when Vietnamese Exchanges were not yet allowed to connect with international Exchanges. However, Decree 51/2018 has resolved this issue.

Thus, the coexistence of Circular 40/2016/TT-NHNN and Decree 51 is currently causing overlapping regulations between the State Bank of Vietnam and the Ministry of Industry and Trade.

Need for a Specific Law and Development Strategy

In light of the aforementioned issues, devising solutions to promote the development of commodity trading through the Exchange is crucial.

The government has directed and the Ministry of Industry and Trade is leading the drafting of a new Decree to replace Decree 158 and Decree 51.

Therefore, initially, attention should be focused on drafting the new Decree incorporating comprehensive and relevant feedback from agencies, organizations, businesses, especially the Vietnam Commodity Exchange.

However, in the long term, Vietnam needs to develop a strategy and planning for the commodity trading sector through the Exchange to attract investment and support domestic production, business activities, and supply-demand balance.

As the commodity trading sector in Vietnam evolves, it still lacks a development strategy to achieve the goal of becoming a dynamic, transparent, and professional market; attracting both domestic and foreign investors.

Additionally, enacting a specific law to regulate commodity trading through the Exchange is essential. This would ensure the legal system's consistency and alignment with international practices while promoting the development of a promising investment area and a useful tool for risk management for businesses.

Source: Pháp luật TPHCM