TECHNICAL PROBLEMS CLOSE HCMC STOCK EXCHANGE

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000519 SENSITIVE SIPDIS STATE FOR EAP/MLS AND EEB/IFD/OMA USAID/ANE/EAA FOR DONOVAN USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO SINGAPORE FOR TREASURY TREASURY FOR SCHUN STATE PASS USTR FOR BISBEE E.O. 12958: N/A TAGS: ECON EFIN PGOV SOCI VM SUBJECT: TECHNICAL PROBLEMS CLOSE HCMC STOCK EXCHANGE HO CHI MIN 00000519 001.2 OF 002 ¶1. (SBU) Ho Chi Minh City Stock Exchange's (HoSE) trading system software failed on May 27, bringing weeks of falling prices to a temporary halt. This isn't the first time the platform has experienced problems, but the three previous interruptions lasted just hours each. With the market trending down and inflation on the rise, a few conspiracy theorists frame this as an intentional break. Most HCMC financial sector professionals, however, believe the episode is nothing more than a timely reminder that Vietnam's financial markets still need a lot of work before they can be considered reliable and efficient. After close of business on May 29, the HoSE announced the problem had been solved and trading will resume on May 30. A major system upgrade has been scheduled for June for some time. End summary. Down for the Count -------------- ¶2. (SBU) The State Securities Commission (SSC) Market Development Department Director General Mr. Nguyen Son told Hanoi EconOff that HoSE trading was suspended on May 27 for technical reasons, when technical experts from HP and Internet.Com checked and found out that there were errors in the operating system software. According to a senior finance reporter who spoke with ConGen EconOff, HOSE was also conducting technical trials that would enable securities companies to enter remote orders from their company offices when the system failed early on May 27. The reporter added that Thailand Stock Exchange (TSE) experts were in town to provide technical support to HoSE when the system went down, and have diagnosed the software as the source of the problem. Media reports note that technical glitches previously halted trading for several hours in December 2006, and February and August 2007, prompting HoSE to begin looking for a new, more reliable software system that it intends to install by June 2008. ¶3. (SBU) HoSE's International Cooperation Office explained that HoSE is modeled on the Thai Stock Exchange. HoSE receives regular technical assistance and sub-licensed its current software from TSE, which licenses the software from the Chicago Stock Exchange. HoSE purchased trading system hardware from a Thai company called Internet.Com. Most Say Just A Case of Growing Pains -------------- ¶4. (SBU) On balance, the HCMC financial professionals we spoke with were annoyed at the interruption, but consider technical problems a risk of doing business in many countries, not just Vietnam. Dragon Capital Director Dominic Scriven took the exchange to task in the press, saying investors expect a stock market to be stable and free of technical problems. One Vietnamese securities firm director told EconOff that HoSE sends a terrible message when it does not employ a back-up system; this is causing HCMC investors to worry about the quality and technology of the trading system. One trader saw the silver lining in this cloud, noting that "at least the index didn't go down again today." But Conspiracy Theories Abound -------------- ¶5. (SBU) Many domestic investors need to sell, another Vietnamese securities company told us, and every day without trading hurts them. One local brokerage issued a report on May 28 in which they state that the quantity of unfilled sale orders is placing the bourse out of equilibrium. Some traders believe that HoSE made up an excuse to suspend trading given the non-stop fall of the Vietnam index. Broader inquiries around HCMC repeatedly tapped a deep vein of skepticism that asserts "the government" is deliberately stalling, just waiting while crucial political decisions are under consideration in Hanoi. Comment -------------- ¶6. (SBU) This episode serves to remind that Vietnam's financial markets are still developing and have a long way to go. With persistently high inflation and growing concern over Vietnam's current account deficit and foreign exchange regime, investors already on edge will worry about this latest bit of news. Any trading interruption, no matter the cause, makes players increasingly nervous in business that lives on accurate and timely information. End comment. 7.(U) This cable was coordinated with Embassy Hanoi and the HO CHI MIN 00000519 002.2 OF 002 regional financial attache. FAIRFAX