Rights and obligations of clearing members in Vietnam

Rights and obligations of clearing members in Vietnam (Internet image)

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

1. Who is considered a clearing member?

According to Clause 10, Article 3 of Decree 158/2020/ND-CP, clearing member means a securities company, commercial bank or FBB recognized by Vietnam Securities Depository and Clearing Corporation (VSDCC) as a clearing member to make clearing and settlement for derivative transactions.

In there:

- General clearing member means a clearing member licensed to make clearing and settlement for its own derivative transactions and derivative transactions of its clients, and provide derivative clearing and settlement services for non-clearing members and their clients.

- Direct clearing member means a clearing member only licensed to make clearing and settlement for its own derivative transactions or for derivative transactions of that clearing member and its clients.

(Clause 11 and 12, Article 3 of Decree 158/2020/ND-CP,)

2.  Rights and obligations of clearing members in Vietnam

2.1. Rights of clearing members in Vietnam

Specifically, in Clause 1, Article 31 of Decree 158/2020/ND-CP,, the rights of clearing members are as follows:

- Request investors to provide sufficient margins on a timely manner before placing orders; decide margins according to the nature and scale of each client's transaction provided the margin shall not be lower than the minimum margin required by VSDCC;

Decide types of securities put up as margins in the list of assets accepted as margins; determine method and time limit for providing margins, changing securities used as margins, transferring margins in accordance with regulations of law;

- In case an investor is insolvent, the clearing member is entitled to:

+ Request the investor to close its positions or compulsorily liquidate its open positions. In case an investor fails to do so, the clearing member shall directly close the investor’s positions and compulsorily liquidate the investor’s open positions;

+ Use, sell or transfer the investor’s margins for buying or using them as collateral for loans which are used for fulfilling settlement obligations for the investor's open positions;

- Use the investor’s margins to fulfill obligations to provide VSDCC with margins for the investor's positions according to the rules in Clause 2 Article 33 of Decree 158/2020/ND-CP; use the investor's margins to fulfill settlement obligations or make payments for the investor’s positions that it is holding in its name;

- The clearing member that fulfills contract obligations on behalf of the one whose membership is suspended or canceled as prescribed in Clause 3 Article 28 of Decree 158/2020/ND-CP may receive and manage the investor’s margins transferred from the later.

2.2. Obligations of clearing members in Vietnam

Clearing members shall have to perform the following obligations:

- Act as a representative as authorized by clients, or act on behalf of clients, to fulfill their obligations towards VSDCC;

- Make contributions to the clearing fund; provide sufficient and timely margins for VSDCC for its open positions and open positions of its clients; implement professional assistance measures according to VSDCC’s instructions in case the clearing member or its investor is insolvent or declared bankrupt;

- Establish and maintain internal control system, risk management system and procedure for each business operation; establish and operate the account system to separately manage assets and trading positions of each investor and of investors from those of the clearing member;

- Determine position-based gain or loss, and calculate margins and the value of margins for each trading account of investors; request investors to provide additional margins in a timely and adequate manner; refund the excess amount of margins as requested by investors; supervise and manage positions and margins of investors so as to ensure the compliance with regulations of law;

- Make compensation for investors in case the clearing member fails to fulfill its obligations as prescribed by law and thus causes damage to investors’ lawful interests. The level of compensation shall be agreed upon with the relevant investor;

- Provide VSDCC with the copy of clearing and settlement entrustment contract; adequately retain original documents about clearing and settlement for derivative transactions; adequately, punctually and accurately provide information about open positions and margins of investors and other documents related to derivative trading, clearing and settlement at the request of VSDCC;

- Fully and punctually pay service charges and other expenses to VSDCC as prescribed;

- The clearing member whose membership is suspended or canceled shall transfer all margins and open positions of clients, and provide all necessary information about clients for the substitute clearing member, and continue fulfilling its obligations until completing the transfer of its rights and obligations to the substitute clearing member;

- Disclose information and submit reports as prescribed; provide investors with adequate information about operations on their accounts, margin account balances and statements on a periodical basis or at their request.

(Clause 2, Article 31 of Decree 158/2020/ND-CP)

In addition to the rights and obligations specified in Sections 2.1 and 2.2, a clearing member shall also perform other rights and obligations as prescribed in Clauses 4, 5 Article 56 of the Law on Securities 2019 and its guiding documents.

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