Circular 23 on derivative securities in Vietnam: Investors are not required to open a separate margin deposit account

On January 19, 2016, the Ministry of Finance of Vietnam issued Circular No. 11/2016/TT-BTC providing guidelines for a number of articles of the Government’s Decree No. 42/2015/ND-CP dated May 05, 2015 on derivatives and derivatives market in order to improve the legal basis for the implementation of the derivative securities market according to the plan approved by the Prime Minister in Decision No. 366/QD-TTg dated March 11, 2014.

However, during the implementation process, the provisions of Circular No. 11/2016/TT-BTC have caused certain difficulties for market participants in building technology systems and processing transactions, such as the requirement to open deposit accounts for investors at banks, regulations on payment of daily position-based gain or losses, the addition of securities lending/borrowing mechanism by the Securities Depository Center, and regulations on the overall trading account, etc. In order to address these difficulties, on March 16, 2017, the Ministry of Finance issued Circular No. 23/2017/TT-BTC amending and supplementing a number of articles of Circular No. 11/2016/TT-BTC on derivative securities.

Some key contents of Circular No. 23/2017/TT-BTC:

Regulation on general transaction account

General transaction account refers to a transaction account of an investor where a long or short position of a futures contract (on the same underlying asset and expiring in the same month) is opened and maintained until a clearing member requests deduction to be made under specified agreements or at the request of the investor.

A securities enterprise established in overseas countries is allowed to open one (01) general transaction account to act on behalf of the foreign investor to perform derivatives brokerage activities.

Regulation on opening of the margin account

According to Clause 1 Article 8 of Circular No. 11/2016/TT-BTC, the clearing member shall open, for each investor, one (01) separate margin deposit account at a bank. However, Circular No. 23/2017/TT-BTC does not require this, but only requires securities companies to open a deposit account for investors in the name of the securities company. Thus, securities companies can open a general transaction account to manage the entire margin amount of investors.

Regulation on payment of position-based gain or losses

Circular No. 23/2017/TT-BTC supplements cases of calculation and payment of position-based gain or losses upon the trading date prior to the expiration date and upon the expiration date in 04 cases: (i) Payment of position-based gain or losses in case of positions that are already opened; (ii) Payment of position-based gain or losses in case of positions that are opened or closed within the same trading date; (iii) Payment of position-based gain or losses in case of positions that are already opened and closed within the trading date; (iv) Payment of position-based gain or losses in case of positions that have been opened within the trading date.

Regulation on forms of payment

Where the clearing member has neither enough money to make such payment nor Government bonds to make such transfer, the Vietnam Securities Deposit (hereinafter referred to as VSD) may make cash payment for a Government bond futures contract.

Mechanism of securities lending and borrowing to settle transactions

The clearing member may use securities borrowed from the system for lending and borrowing securities of the VSD to make such payment in accordance with the VSD’s Statutes.

Therefore, with the issuance of Circular No. 23/2017/TT-BTC, the legal framework for the derivative securities market has been completed in a more open and supportive manner for businesses and investors. Based on this, the State Securities Commission has also approved the Stock Exchanges and VSD to issue 5 regulations guiding the trading and settlement of derivative securities, as well as approved the sample derivative securities contracts for trading when the derivative securities market officially operates. This is a positive signal for the official launch of the derivative securities market in Vietnam in the near future.

Circular No. 23/2017/TT-BTC of the Ministry of Finance of Vietnam takes effect from May 01, 2017.

Source: CafeF

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