REGULATIONS GUIDING SECURITIES MARGIN TRADING

Transcription

1 REGULATIONS GUIDING SECURITIES MARGIN TRADING (Issued with Decision 637-QD-UBCK dated 30 August 2011, effective from date of signing) TABLE OF CONTENTS CHAPTER General Provisions... 1 Article 1 Governing scope and applicable entities... 1 Article 2 Interpretation of terms... 1 CHAPTER Report by Brokers to Commence Conduct of Margin Trading... 2 Article 3 Report by brokers to commence conduct of margin trading... 2 Article 4 Conditions for brokers to conduct margin trading... 2 Article 5 Data required to be reported [by brokers] to commence conduct of margin trading... 2 Article 6 Ceasing a professional margin trading operation... 3 Article 7 Voluntary termination of margin trading operation... 3 CHAPTER Margin Trading Accounts and Margin Trading Contracts... 4 Article 8 Margin trading accounts... 4 Article 9 Margin agreements (contracts opening a margin trading account)... 5 CHAPTER Approved Securities... 6 Article 10 Conditions for securities to be eligible for margin trading... 6 Article 11 Selection and announcement of list of approved securities... 6 Article 12 Restrictions on margin trading... 7 CHAPTER Limits on Financing Margin Trading... 7 Article 13 Limits on financing margin trading... 7 Article 14 Term of financing for margin trading... 7 Article 15 Interest on loans and interest rate... 8 CHAPTER i

2 Provisions on Margin Ratios, Mortgaged Assets and Realization of Mortgaged Assets... 8 Article 16 Margin ratios... 8 Article 17 Fixing margin ratios... 8 Article 18 Calls to client to supplement [mortgaged securities]... 8 Article 19 Realization of mortgaged assets... 9 CHAPTER Obligations of Brokers... 9 Article 20 Obligation to manage client margin trading accounts... 9 Article 21 Obligation of brokers to archive information, provide reports and announce information CHAPTER Dealing with Breaches Article 22 Dealing with breaches CHAPTER Implementing Provisions Article 23 Effectiveness LIST OF APPENDICES ii

3 MINISTRY OF FINANCE State Securities Commission SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness REGULATIONS GUIDING SECURITIES MARGIN TRADING (Issued with Decision 637-QD-UBCK of the Chairman of the State Securities Commission dated 30 August ) CHAPTER 1 General Provisions Article 1 Governing scope and applicable entities 1. These Regulations guide securities companies [brokers] 2 to conduct securities margin trading. 2. These Regulations apply to securities companies [brokers] and to organizations and individuals involved in securities margin trading. Article 2 Interpretation of terms 1. Approved securities 3 means securities which satisfy the conditions prescribed in these Regulations to be eligible for margin trading. 2. Margin trading account means a client account opened at a broker in order to conduct margin trading. 3. Normal trading account means a client account opened at a broker to conduct securities trading without using loan monies of or financing by the broker. 4. Margin debt balance of a client in its margin trading account means the total sum the client owes the broker. 5. Equity of a client in its margin trading account comprises cash plus the market value of approved securities in such account, less the margin debt balance. 6. Initial margin ratio means the ratio of equity (before conducting a transaction) over the value of a transaction contract (proposed to be implemented) calculated at market value. 7. Margin ratio means the ratio of equity over total assets in a margin trading account calculated at market value Allens Arthur Robinson footnote: The Regulations are effective from the date of signing, 30 August Allens Arthur Robinson footnote: "Brokers" is used instead of "securities companies" throughout this translation. Allens Arthur Robinson footnote: The literal translation is "Securities approved for margin trading". 1

4 8. Maintenance margin ratio means the prescribed minimum ratio of equity over total assets in a margin trading account calculated at market value. 9. Stock Exchange ("SE") means both the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange. CHAPTER 2 Report by Brokers to Commence Conduct of Margin Trading Article 3 Report by brokers to commence conduct of margin trading A broker is permitted to conduct margin trading after reporting to the SSC the data described in article 5 of these Regulations and after the SSC has announced on its website that it has received all such valid data and a report from the broker on [commencement of] conduct of margin trading. Article 4 Conditions for brokers to conduct margin trading Brokers must satisfy the following conditions to be eligible to conduct margin trading: 1. Be licensed for establishment and operation in accordance with the Vietnamese law on securities; be licensed to conduct a professional securities brokerage operation; and be a member of the SE and of Vietnam Securities Depository Centre. 2. Not have accumulated losses of 50% or more of charter capital (calculated in accordance with the most recently audited financial statements, not more than 6 months prior to the time of lodging the report to commence conduct of margin trading). 3. Their ratio of total debts over equity must not be more than 6 times. 4. Their liquid capital ratio pursuant to Circular TT-BTC of the Ministry of Finance dated 31 December must have been more than 150% for the previous consecutive 3 month period calculated up to the time of lodging the report to commence conduct of margin trading. 5. Have a trading system to service margin trading and supervise margin trading accounts; and have professional rules [on its margin trading operation] and on risk management during such professional operation. 6. Have at least two members with securities practising certificates in order to conduct margin trading activities. Article 5 Data required to be reported [by brokers] to commence conduct of margin trading 1. The following data must be reported in order to conduct margin trading: 4 Allens Arthur Robinson footnote: Circular 226 regulates prudential requirements applicable to securities business organizations. 2

5 (d) (e) (f) (g) Report on [intention to] conduct margin trading, on the standard form in Appendix 1 issued with these Regulations; Resolution of the Board of Management, Members' Council or company owner of the broker on [intention to] conduct margin trading; Audited financial statements or six monthly financial statements verified by an approved auditor; Report on prudential ratios for the previous 3 month period calculated up to the time of lodging the report to commence conduct of margin trading; Explanatory statement on the trading system to service margin trading; professional rules on margin trading and rules on risk management during margin trading; Decision [appointing] staff and files on the staff who will conduct margin trading, including copies of their securities practising certificates and labour contracts; Valid copy of the broker's certificate of membership of the SE and of Vietnam Securities Depository Centre. 2. The SSC shall, within seven (7) business days of receipt from a broker of valid data and a report on conduct of margin trading as described in clause 1 of this article, make an announcement on its website that it has received all such valid data and a report from such broker on [commencement of] conduct of margin trading. Article 6 Ceasing a professional margin trading operation 1. A broker failing to maintain any of the conditions prescribed in article 4 of these Regulations must immediately cease signing new margin agreements 5 and cease financing margin transactions, and report to the SSC and SE within 48 hours of such failure occurring. The broker shall be permitted to continue signing new margin agreements, to finance margin transactions and extend existing margin trading loans after it has provided complete data to the SSC proving it satisfies all the conditions prescribed in article The SSC has the right, depending on the securities market status and in order to ensure safe and stable operation of the market, to require a broker to immediately cease signing new margin agreements, cease financing margin transactions and cease extending previously signed margin trading loans. Article 7 Voluntary termination of margin trading operation 5 Allens Arthur Robinson footnote: The literal translation of "margin agreements" whenever it appears in this translation is "contracts opening margin trading accounts". 3

6 1. Any broker wishing to terminate its margin trading operation must announce such information at its headquarters, at its other lawful trading locations and on its website, and send a notice to the SSC about such termination. As from the time of announcement of such information, the broker must cease signing new margin agreements, cease financing margin transactions and cease extending previously signed margin trading loans, and require clients to liquidate their margin agreements in accordance with the schedule and deadline specified in the broker's announcement of information. 2. A broker must, within 15 days from the date of completing liquidation of its margin agreements, report to the SSC that it has finalized all margin trading. 3. The following data is required in the report on termination of the margin trading operation as referred to in clause 2 above: Report terminating conduct of margin trading, on the standard form in Appendix 2; Report on results of liquidation of margin agreements; Resolution of the Board of Management, Members' Council or company owner to terminate the margin trading operation. CHAPTER 3 Margin Trading Accounts and Margin Trading Contracts Article 8 Margin trading accounts 1. Any client wishing to conduct margin trading must sign a margin agreement (i.e. contract opening a margin trading account) with the broker where such client has its normal trading account. 2. The following are not permitted to open a margin trading account: Any of the following people within the securities company (i.e. the broker) namely a major shareholder, a member of the Board of Management or Board of Controllers, the General Director (Director) or Deputy General Director (Deputy Director), or any person related to the above; A legal entity which is currently being dissolved or declared bankrupt in accordance with law; Any entity in breach of the rules of the broker on margin agreements. 3. Principles for managing margin trading accounts: The margin trading account of a client must be managed separately from the normal trading account of the client; A client must deposit at least ten (10) million dong in order to open a margin trading account, with the specific amount of such deposit to be decided by the broker; A client may only use cash and approved securities and rights attached as mortgaged assets [to provide security] for financing/loans for margin trading purposes; 4

7 (d) (e) (f) (g) (h) Article 9 A client must pay interest on its margin debt balance in accordance with the particular method agreed in the margin agreement; A client may only withdraw money from its margin trading account after paying out all debts owing to the broker, or it may do so in a case where the initial margin ratio will still be satisfied after withdrawing money from the account; Money and securities in a margin trading account are assets belonging to the client with full rights attached. Bonus shares, dividends and options arising from securities in such account are also assets belonging to the client; The broker is liable to promptly and fully notify clients of their rights arising from securities in the client's margin trading account; and to send clients a list of assets in their margin trading accounts in accordance with the method and deadline agreed in writing with the clients; An order slip for a margin transaction must be distinct from a normal securities transaction order and must contain complete information about the client and must be confirmed by the client. Margin trading via the internet must comply with these Regulations and other relevant regulations on electronic trading. Order slips shall be deemed to be appendices forming an inseparable part of the margin agreement. Margin agreements (contracts opening a margin trading account) 1. A margin agreement (i.e. contract opening a margin trading account) is also a loan contract to provide loans to the client on its margin trading account. 2. A margin agreement shall contain the items agreed between the broker and the client, but must contain the following minimum particulars: (d) (e) (f) (g) (h) (i) Information about the client, namely full name, date of birth, people's identity card number, contact address, and fax number (if any) and a contact telephone number; Objective, namely to purchase securities by way of margin trading; Initial margin ratio; Maintenance margin ratio; Time-limit and method for making payment pursuant to a call to supplement mortgaged assets [securities]; Limit on financing/loans; Interest rate on loans; Term and effective date of the contract, and time for commencing to calculate interest on financing/loans; Method of realizing mortgaged assets in the margin trading account if the client fails to correctly perform the contract, and priority order for using proceeds from sale of mortgaged securities of the client; 5

8 (j) (k) (l) (m) Provision on protection of interests of contracting parties; Method of dispute resolution; Method of contract liquidation; Undertaking from the client that the broker has adequately explained risks arising from conduct of transactions on a margin trading account. CHAPTER 4 Approved Securities 6 Article 10 Conditions for securities to be eligible for margin trading Approved securities for margin trading purchases comprise shares and investment fund certificates listed for trading on the SE, but not securities listed for trading on the UpCom system, and not securities in the following cases: 1. Securities listed for less than six (6) months up until the time of announcement of the list of approved securities; if shares have been transferred from one SE to be listed on another SE, then the period of listing for this purpose shall be the total time of listing on both Stock Exchanges. 2. Securities whose trading has been temporarily suspended, securities which are subject to a warning, securities which have been delisted, and securities placed under special control. 3. The organization listing the securities suffered losses based on the most recently audited financial statements or based on an auditor's verification (whichever is the more recent); in the case of a listing organization being a public investment fund, the net asset value (NAV) of any one unit of fund certificate was less than its par value in at least one month, based on monthly reports on NAV changes during the previous three month period up to the time of selection of such securities as approved for margin trading purposes. Article 11 Selection and announcement of list of approved securities 1. The SE shall, on the basis of the conditions prescribed in article 10, announce a list of securities which fail to satisfy the conditions for margin trading. The SE shall make its own decision on the time-limit for making such announcement. 2. The broker shall select its own list of approved securities for margin trading purposes, based on the list announced by the SE of securities which fail to satisfy the conditions for margin trading purposes. The broker shall then publicly announce the list of securities for which it will conduct margin trading on its own website and also at its other business locations. 6 Allens Arthur Robinson footnote: See the full definition in article 2.1, namely securities which satisfy the conditions prescribed in these Regulations to be eligible for margin trading. 6

9 3. The SE shall supervise lists of approved securities announced by brokers in accordance with these Regulations. Article 12 Restrictions on margin trading 1. A broker is not permitted to finance/provide loans to clients to conduct margin trading of: (d) Shares or investment fund certificates for which such broker underwrote the issue in the period of six (6) months after completion of the issuing tranche; Shares in a listed company which owns more than 50% charter capital of the broker, and shares in a listed company in which the broker owns more than 50% charter capital; Shares which the broker itself issued; When the client fails to ensure the margin ratio/s prescribed in the margin agreement and in these Regulations. 2. When securities are no longer on the list of approved securities for margin trading purposes, a broker must not provide new loans for such securities, and must not include such securities as secured assets in the margin trading account of a client for new loans. CHAPTER 5 Limits on Financing Margin Trading Article 13 Limits on financing margin trading Brokers must comply with the limits on financing margin trading prescribed in this article. Equity limits of brokers referred to in this article shall be determined pursuant to [information in] the most recently audited financial statements but no older than six months from the date of making these calculations: 1. The total loan balance of financing for margin trading of any one broker shall not exceed 200% of its equity. 2. The total amount of financing for margin trading by any one broker to any one client shall not exceed three per cent (3%) of the broker's equity. 3. The total debt balance of financing for margin trading by any one broker in respect of any one type of securities shall not exceed 10% of the broker's equity. 4. The total amount of securities lent for margin trading by any one broker shall not exceed five per cent (5%) of the total number of listed securities of one listing organization. Article 14 Term of financing for margin trading 1. The term of financing/loans for margin trading shall be as agreed by the broker and the client in the margin agreement, but shall not be more than three (3) months from the date of drawdown of loan monies. 7

10 2. A broker may continue to extend the term of financing/loans on the basis of a written request from the client, but not for more than three (3) months. Article 15 Interest on loans and interest rate 1. The interest rate on financing/loans for margin trading shall be as agreed by the broker and the client and shall comply with relevant law. 2. Interest on financing/loans for margin trading shall be calculated from the time the broker makes a disbursement to pay for the margin deal conducted for the client up until the time when the client finalizes [pays out] the loan. CHAPTER 6 Provisions on Margin Ratios, Mortgaged Assets and Realization of Mortgaged Assets Article 16 Margin ratios 1. The broker shall regulate the initial margin ratio which shall not be less than 60%. 2. The broker shall regulate the maintenance margin ratio which shall not be less than 40%. 3. The SSC may adjust margin ratios depending on the operational status of the securities market. Article 17 Fixing margin ratios 1. The broker shall be responsible to fix the maintenance margin ratio of each client at the end of a trading day. 2. The price of margin traded securities shall be fixed as follows: Article 18 Closing price in the case of shares and investment fund certificates listed on the Ho Chi Minh City Stock Exchange; Average trading price during the day in the case of shares and investment fund certificates listed on the Hanoi Stock Exchange. Calls to client to supplement [mortgaged securities] 1. If the margin ratio of the client falls below the maintenance margin ratio, the broker shall issue a call to the client, in accordance with the contact method agreed in the margin agreement, to supplement (mortgaged assets) within a fixed time. The client must then supplement the mortgaged assets within the time required by the broker but no later than three business days. 2. The client must, after receipt of the call from the broker, supplement the mortgaged assets so as to at least satisfy the maintenance margin ratio but with the specific amount of the supplement to be decided by the broker in accordance with the following formula: Deposit additional mortgaged securities in the margin trading account at a value in accordance with the following formula: 8

11 Value of increased securities = Margin ratio Maintenance margin ratio 1 - Maintenance Margin ratio X Total assets in margin trading account at market value Deposit additional cash in accordance with the following formula: Value of increased deposit = Margin ratio Maintenance margin ratio X Total assets in margin trading account at market value Article 19 Realization of mortgaged assets 1. A broker must sell the mortgaged securities in the margin trading account of a client who fails to fully respond on time to the call of the broker to supplement such mortgaged assets. If the client fails to fully supplement or only partially supplements such mortgaged assets, then depending on whether the value of the additionally required mortgaged assets is more or less than the total value of securities in the margin trading account, the broker shall be permitted to release the security and sell all or part of the margin securities; The broker must notify the client before releasing the security and selling margin securities; and thereafter the broker must send the client a list of the results of such sale of margin securities. 2. If a broker releases security on all securities in a margin trading account at the request of the client or on implementing a call from the broker, the client shall only be permitted to withdraw the remaining proceeds of sale of the securities in the margin trading account after the margin debt balance has been paid out. 3. If the assets in the margin trading account are insufficient to clear the margin debt balance after release of security and sale of the securities, and if the client fails to repay the outstanding loan balance in accordance with the provisions in the margin agreement and other relevant laws, then the broker shall have the right to recover the debt in accordance with the methods agreed in such margin agreement, and may also notify other brokers about the contractual breach of its client. CHAPTER 7 Obligations of Brokers Article 20 Obligation to manage client margin trading accounts 1. Brokers must manage money and securities in the margin trading account of a client separately from the money and securities in the normal trading account of such client, and must also manage them separately from the money and securities of the broker itself. Brokers must not use securities in the margin trading account of any one client as security for anything other than margin trading conducted by the broker for such client. 9

12 2. Mortgaged assets in a margin trading account are assets belonging to the client with full rights attached. A broker must conduct full cost accounting for assets associated with mortgaged securities in the margin trading account of a client, comprising: Bonus shares, dividends payable in shares or in cash, and other monies payable on securities in the margin trading account; Residual proceeds of sale of mortgaged securities after fully discharging debts owing to the broker. 3. A broker may only conduct deals related to mortgaged securities on the order of the client, except where it is required to sell the mortgaged securities in order to recover loan monies. 4. Brokers must publicly announce information being the conditions on which they provide margin trading services, comprising the list of approved securities for margin trading purposes, the requirements on margin ratios, financing/loan interest, financing/loan terms, and their method of making calls to clients to supplement mortgaged assets. Brokers must announce such information at their headquarters, at other lawful trading locations and on their websites. 5. A broker must keep accounting books and conduct separate cost accounting for each margin trading account, list the assets in each such account and closing margin ratios on each trading day; and must fully archive files with accurate details of all transactions on each margin trading account including daily information about the list of margin assets, pledged/mortgaged assets in the account, market prices, margin ratios in the broker's calls to clients to supplement mortgaged assets, and order slips for margin trading. 6. Information in margin trading accounts of clients shall be kept confidential by brokers who must not provide such information to third parties, except on request by a competent State authority or when the client consents. Article 21 Obligation of brokers to archive information, provide reports and announce information ] 1. Brokers must fully and accurately record margin trading information and data, and retain information on purchases and sales made on margin trading accounts of clients for a minimum five years. 2. Prior to the fifth trading day of the following month, a broker shall send the SE a list of margin traded securities on the standard form in Appendix 3, and send the SSC an overall report on the status of its margin trading activities in the previous month (written report or electronic file) on the standard form in Appendix Brokers shall be liable to provide one-off reports on their margin trading activities at the request of the SSC or SE. 4. Brokers shall disclose information at their headquarters, other lawful trading locations and on their websites within 24 hours of occurrence of any one of the following events: The SSC officially announces that the broker will conduct a margin trading operation; The broker temporarily suspends margin trading; The broker lodges a report terminating conduct of margin trading; 10

13 (d) [Provision of] the list of approved securities [for margin trading] and any changes to such list. CHAPTER 8 Dealing with Breaches Article 22 Dealing with breaches 1. Brokers in breach of these Regulations shall be fined in accordance with current law and shall be subject to the measure prescribed in clause 2 below. 2. The margin trading operation of a broker shall be suspended for a period of 12 months on breach of the provisions in these Regulations on managing margin trading accounts, on limits on financing margin trading, on margin ratios, on approved securities, or on breaching the reporting provisions more than three times. The SSC shall make an announcement on its website of the name of the broker in breach and the period of suspension of the margin trading operation. CHAPTER 9 Implementing Provisions Article 23 Effectiveness 1. These Regulations shall be of full force and effect as from the date of their signing. 2. The Chairman of the State Securities Commission shall make a decision on any amendments or additions to These Regulations LIST OF APPENDICES (Not translated) No. Description 1. Report by broker to SSC of [intention to] conduct margin trading. 2. Report by broker to SSC terminating conduct of margin trading. 3. Periodical report by broker to SE on list of margin traded securities. 4. Periodical report by broker to SSC on volume of margin traded securities. 11