Vietnam is readying the launch next week of a new stocks trading system that would speed up settlement of transactions, as part of reforms aimed at upgrading the country's stock market and attracting more foreign investors.

The move, if successfully completed, would boost the chances of the Southeast Asian nation being reclassified as an emerging market. Both the MSCI and FTSE indices currently classify Vietnam as a frontier market, preventing many funds, family offices and others from investing in companies listed there.

A new stock trading system provided by the Korea Exchange has been tested for months and is expected to go live on May 2 after securities companies complete the switchover from the old system during a five-day public holiday period starting at the closing of business on April 26, according to a document sent to brokers by Vietnam's main Ho Chi Minh City exchange and seen by Reuters.

The bourse did not immediately reply to a request for comment.

The new system will handle the settlement of transactions within a day, speeding up operations and facilitating trading, especially short selling, which was hampered by the current slower system.

This is part of reforms that could lead to the upgrade of the market. FTSE may make a positive announcement as early as September, with an upgrade for Vietnam to be completed by next year, officials have said. The upgrade by MSCI is expected to take longer.

Last year the World Bank estimated that upgrades could trigger net inflows of between $5 billion and $25 billion to the $200 billion market by the end of the decade. Vietnam's benchmark stock index (VNI) has risen 4.5% so far in 2024 but this month fell by more than 7%.

Key reforms needed for the upgrades are less strict limits on foreign ownership of listed companies and the removal of a prefunding requirement for shares transactions.

A public consultation on a new mechanism to address the latter hurdle will be completed in the second half of May.