What is margin trading at a securities company? Regulations on margin trading in Vietnam

What is margin trading at a securities company? Regulations on margin trading in Vietnam (Internet image) 

1. What is margin trading at a securities company?

According to Clause 10, Article 2 of Circular 120/2020/TT-BTC, margin trading at a securities company (hereinafter referred to as "margin trading”) means the method of buying securities with cash borrowed from a securities company, using the bought securities and other marginable securities of the investor as collateral for the aforesaid loan.

2. Regulations on margin trading in Vietnam

Margin trading on the securities trading system in Vietnam according to Article 9 of Circular 120/2020/TT-BTC are as follows:

- Before the investor conducts margin trading, it/he/she must enter into a margin trading contract with the securities company licensed to grant loans for purchase of securities as prescribed by the law in Vietnam. The margin trading contract is also the contract for loans on the margin trading account.

The margin trading contract must contain at least information about collateral for margin trading, duration of making additional margin, settlement of collateral for margin trading in case of the investor’s failure to make additional margin; methods for settling disputes; specify risks and damage that may occur, and costs to be paid by customers.

- Foreign investors are not allowed to conduct margin trading.

- At each securities company where the investor opens its/his/her securities trading account, the investor is only allowed to 01 margin trading account. The margin trading account is a separate account or is separately managed or recorded as a sub-account of the investor's existing securities trading account.

The securities company must record the margin trading account of an investor separately from the securities trading account of that investor and separately from the margin trading accounts and securities trading accounts of other investors.

- Marginable securities are shares or fund certificates that have been listed or registered on securities trading systems and have fulfilled the basic criteria concerning:

+ Listing time, trading registration;

+ Minimum capital and financial performance of the issuer;

+ Liquidity and price fluctuation (if any);

+ Transparence of information and other criteria set by the SSC.

On the basis of the criteria set by the SSC, the SE shall publish a list of marginable securities or list of securities prohibited from margin trading.

- On the basis of the list of marginable securities or list of non-marginable securities published by the SE, the securities company shall compile a list of securities that are allowed to be traded on margin at the company and make it publicly available as prescribed by law.

- The investor has the obligation to maintain the initial and maintenance margin ratio under the contract with the securities company. If the margin ratio on the investor’s margin trading account is less than the maintenance margin ratio, the securities company shall issue a margin call.

Non-marginable securities shall not be used as collateral when determining the initial and maintenance margin ratio. If the investor fails to make additional margin, the securities company is entitled to sell securities that are collateral under the contract for opening margin trading account.

Before selling securities that are collateral, the securities company shall disclose information as prescribed by law and notify the investor of the result of sale of securities that are collateral for fulfillment of the obligation to report ownership and disclose trading information as prescribed by law (if any).

- The securities company that no longer satisfies the conditions for granting loans for purchase of securities must immediately stop signing new contracts or extending contracts for opening margin trading accounts and granting loans for margin trading, and submit reports to the SSC within 48 hours since the aforesaid event occurred.

- The SSC shall promulgate regulations on guidelines for margin trading at securities companies.

- If the market stabilization is needed, the SSC is entitled to request securities companies to suspend margin trading.

Quoc Dat

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE