Vietnam: Amending and supplementing new regulations on derivative securities

In order to address the difficulties arising in the implementation of the derivative securities market according to the plan approved by the Prime Minister in Decision No. 366/QD-TTg, on March 16, 2017, the Ministry of Finance of Vietnam issued Circular No. 23/2017/TT-BTC amending and supplementing a number of articles of Circular No. 11/2016/TT-BTC dated January 19, 2016 on instructions for certain articles of the Government's Decree No. 42/2015/ND-CP dated May 5, 2015 on derivative securities and derivatives exchanges. New amendments and supplements of Circular No. 23/2017/TT-BTC are as follows:

1. Regulation on opening of the margin account of the investor by the clearing member

According to Point a Clause 4 Article 26 of Decree No. 42/2015/ND-CP of Vietnam’s Government, if margins take the form of cash sums, clearing members are required to open deposit accounts at the account management banks, establish the account system and monitor balances reported to each investor”. This regulation does not specifically mention where the detailed management of funds of each investor should be carried out, whether at a bank or a securities company.

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, in reality, not every bank system where the clearing member opens the account is able to simultaneously meet the requirements of opening and managing margin accounts at the bank and having an immediate freezing mechanism for investor's reserve funds in case the investor is unable to make payment. Therefore, in Circular No. 23/2017/TT-BTC, this regulation has been amended in a way that does not rigidly require securities companies to open a separate margin account for each investor at the bank, but only requires securities companies to open a deposit account for investors in the name of the securities company at the bank. Securities company still has the responsibility to separately manage the margin amount from each investor.

This is one of the most important amendments in Circular No. 23/2017/TT-BTC aimed at removing difficulties and encouraging the participation of securities companies in the securities market.

2. Regulation on general transaction account

Circular No. 23/2017/TT-BTC also supplements regulations on general transaction accounts and cases of application of general transaction accounts. Based on this, the Vietnam Securities Depository (VSD) provides more detailed guidance on the related regulations regarding this type of transaction account in the Regulations on Margin, Clearing, and Settlement of Derivative Securities Transactions. To be specific:

- 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.

- The investor may open an general transaction account when: the fund management company is allowed to open one (01) general transaction account held in the name of the domestic entrusting investor and one (01) general transaction account held in the name of the foreign entrusting 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; other situations that may occur are subject to instructions given by the VSD.

3. Regulation on management of position limit of investors

Circular No. 23/2017/TT-BTC amends and supplements Point c Clause 2 Article 6 of Circular No. 11/2016/TT-BTC, specifically supplementing the handling in case the investor fails to reduce its position when the position limit is exceeded. In this case, the clearing member may perform matched transactions to contribute a portion or all of its positions. In case where the clearing member fails to perform matched transactions to close its position, VSD shall be allowed to perform matched transactions to close part or all of the investor's position held in the name of the clearing member.

4. Supplementing regulation on payment of position-based gain or losses

Circular No. 23/2017/TT-BTC also supplements cases of determination of position-based gain or losses upon the trading date prior to the expiration date and upon the expiration date to Points a, b Clause 1 Article 9 of Circular No. 11/2016/TT-BTC to ensure the adjustment of all situations arising in practice. Specifically, the calculation and payment of position-based gain or losses is carried out in the following 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.

5. Supplementing the handling for cases where the seller/buyer of the Government bond futures contract in the form of transferring the underlying asset is unable to make payment

Circular No. 23/2017/TT-BTC amends Point b and supplements Point c Clause 3 Article 19 of Circular No. 11/2016/TT-BTC, which are applicable to payment of Government bond futures contract in the form of transferring the underlying asset, as follows: (i) 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 and (ii) Where the clearing member have neither enough money to make such payment nor Government bonds to make such transfer, the VSD may make cash payment for a Government bond futures contract. To that extent, the clearing member at fault shall be responsible for paying the clearing member concerned a compensation sum which is not less than 5% of contract settlement value through the VSD.

Moreover, Circular No. 23/2017/TT-BTC also amends some provisions to comply with current regulations, ensuring consistency with related documents such as: (i) amending the regulations on interest payment to align with the new provisions of the Civil Code 2015 for the amount used from the Compensation Fund in case the clearing member is unable to make payment; (ii) supplementing the responsibility of the clearing member to fully return to VSD the assets used to support payment from the Compensation Fund, risk reserve, and other sources.

Source: Bao Nhan dan

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