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July 5, 2024

Vietnam’s Draft Circular on Securities Transactions

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In April 2024, Vietnam’s Ministry of Finance published a draft circular concerning securities transactions, clearing and settlement of securities transactions, activities of securities companies, and information disclosure on the securities market (the “Draft Circular”) for public feedback. The Draft Circular, if adopted, will amend several regulations impacting public companies and the securities market. Some of the more notable amendments are discussed below.

Relaxing Pre-Funding Requirement for Foreign Institutional Investors

To place orders to purchase securities, investors are currently required to have sufficient cash in their securities trading accounts to pay 100% of the cost of the transaction, except in cases of:

  • Margin trading (applicable to Vietnamese investors only); and
  • Transactions in which there is a settlement guarantee or confirmation from the custodian bank on accepting the settlement request.

The Draft Circular allows foreign institutional investors (“FIIs”) to purchase securities without 100% pre-funding their securities trading accounts, based on a signed agreement with a securities company. However, the State Securities Commission of Vietnam (“SSC”) has the right to temporarily reinstate the 100% pre-funding requirement if measures for securities market stabilization are required.

The Draft Circular also specifies that securities companies must (i) assess the capacity of FIIs to determine the pre-funding requirement under relevant agreements signed between them, and (ii) be responsible to settle the shortfall of a securities purchase order through their proprietary trading account(s) if the FIIs are unable to fully pay for such securities purchase order, except in certain circumstances.

Further, a securities company cannot directly exempt or authorize other entities to exempt an FII from the 100% pre-funding requirement if the FII purchases securities of (i) such securities company, (ii) a company in which such securities company is a majority shareholder, or (iii) the parent company of such securities company.

The 100% pre-funding requirement for FIIs in securities trading under the prevailing laws is considered a bottleneck for Vietnam’s securities market. Thus, the proposed amendment of the Draft Circular will mitigate restrictions and attract more foreign investment.

English-Language Information Disclosure

Currently, public companies in Vietnam are required to make information disclosures in Vietnamese language only. To ensure the information access rights of foreign investors, the Draft Circular requires that, starting from January 1, 2025, public companies must make information disclosures in Vietnamese and English, subject to the type of public company and information to be disclosed.

Exception to Insider Trading Disclosures

Insiders of public companies, public securities investment companies, and public funds, and related persons of the insiders, are currently required to disclose information and submit reports regarding their planned insider sale or purchase of securities to their respective companies, the SSC, and the stock exchanges at least three business days before the expected insider transaction date.

The Draft Circular provides an exception to this information disclosure obligation for securities companies as related persons making payment on behalf of FIIs without 100% pre-funding of the securities trading account. As the payment obligations for the shortfall of the FIIs in these situations are automatically assumed by the securities companies, and must be settled immediately, the current disclosure timeline is not practical. Hence, the proposed amendment is considered reasonable for the operation of the securities companies.

Outlook

The Draft Circular, which is expected to be adopted in late 2024, aims to enhance information access rights and participation of foreign investors in the Vietnam securities market, which will help encourage foreign investment into this area in the coming years.

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