06 principles for ETF exchange transactions in Vietnam

Regarding this matter, LawNet would like to answer as follows:

1. What is exchange trading?

According to the provisions of Clause 7, Article 4 of Circular 98/2020/TT-BTC on the definition of the term "exchange trading" as follows:

Exchange trading means the exchange of a basket of component securities for an exchange-traded funds (ETFs) creation unit or vice versa. This transaction is conducted between an ETF and its authorized participant or investor meeting relevant requirements laid down in the fund’s charter.

In there:

- Component securities means underlying securities included in the structure of benchmark indexes of an ETF, excluding derivatives.

- ETF creation unit includes at least 100.000 ETF certificates. The ETF creation unit is the trading unit used in exchange transactions between an ETF and its authorized participants/investors.

2. 06 principles for ETF exchange transactions in Vietnam

According to the provisions of Clause 2, Article 43 of Circular 98/2020/TT-BTC, exchange transactions in Vietnam shall be conducted according to the following principles:

(1) Only authorized participants are allowed to conducted exchange transactions directly with the fund management company;

(2) Investors may only conduct exchange transactions at authorized participants where their securities trading accounts are opened and after they have entered into service contracts for conducting exchange transactions;

(3) Exchange trading unit is an ETF creation unit. The minimum number of ETF certificates of an ETF creation unit prescribed in the fund’s charter is 100.000 ETF certificates. If permitted in the fund’s charter, the fund management company may adjust the number of ETF certificates in an ETF creation unit.

New creation units shall be applied at least 15 days after information about the scale of a new creation unit is published on the websites of SE, Vietnam Securities Depository and Clearing Corporation (VSDCC), fund management company, authorized participants and distribution agents;

(4) Authorized participants shall only receive trading orders from investors when order forms are filled with complete and accurate information according to the form in Appendix XVI enclosed with Circular 98/2020/TT-BTC. Order forms shall be kept by authorized participants in accordance with regulations of the Law on Securities. The time of receiving orders and information about receivers must be also recorded in an adequate, accurate, timely and explicit manner. Receipt of investor’s trading orders via telephone, fax, electronically or by other electronic devices and transmission lines must comply with regulations on electronic transactions, and order forms shall be stored in the form of data files.

(5) An exchange trading order shall be executed when the following conditions are satisfied:

- The exchange trading order is completed and sent by the authorized participant to the fund management company or the transfer agent service provider before the closing time of the order book. Orders received after the closing time of the order book shall be either cancelled or executed on the following exchange transaction day as prescribed in the fund’s charter and prospectus;

- VSDCC has confirmed that the investor or authorized participant has sufficient component securities baskets or creation units, and the supervisory bank has confirmed the investor’s or authorized participant’s payment made on the settlement date.

In case of redemption of ETF certificates, the remaining number of ETF certificates of the authorized participant shall not be lower than the minimum number of ETF certificates (if any) required to maintain the status of the authorized participant under terms and conditions of the agreement signed with the fund management company.

(6) Exchange of a basket of component securities for ETF creation units and vice versa shall be executed in the form of entries on depository accounts of authorized participants, investors and the ETF at VSDCC.

The transfer of baskets of component securities and ETF certificates shall be carried out according to the procedures in the prospectus or the summary prospectus and guidelines of VSDCC and supervisory bank.

At the same time, Within 30 days from the date on which the fund is listed, the fund management company shall conduct ETF exchange transactions of investors.

Exchange transactions must be conducted on a periodical basis prescribed in the fund’s charter and announced in the prospectus or summary prospectus. The exchange trading frequency is at least twice a month.

Best regards!

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