Decision No. 637/QD-UBCK of August 30, 2011, on the promulgation of the regulation guiding the margin trading of securities

• Official number: 637/QD-UBCK
• Legislation Type: Decision
• Organization: The State Securities Commission
• Signer: Vu Bang
• Issued Date: 30/08/2011

THE MINISTRY OF FINANCE THE STATE SECURITIES COMMISSION --------	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ----------------
No. 637/QĐ-UBCK	Hanoi, August 30,2011

DECISION

ON THE PROMULGATION OF THE REGULATION GUIDING THE MARGIN TRADING OF SECURITIES

THE PRESIDENT OF THE STATE SECURITIES COMMISSION

Pursuant to the Law on Securities dated June 29^th 2006;

Pursuant to the Law on amending and supplementing a number of articles of the Law on Securities dated November 24^th 2010;

Pursuant to the Government's Decree No. 14/2007/NĐ-CP dated January 19^th 2007, detailing the implementation of a number of articles of the Law on Securities;

Pursuant to the Government's Decree No. 84/2010/NĐ-CP dated August 02^nd 2010, amending and supplementing a number of articles of the Government's Decree No. 14/2007/NĐ-CP dated January 19th 2007, detailing the implementation of a number of articles of the Law on Securities;

Pursuant to the Prime Minister’s Decision No. 112/2009/QĐ-TTg dated September 11^th 2009 on the defining the functions, tasks, powers and organizational structure of the State Securities Commission affiliated to the Ministry of Finance;

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Pursuant to the Circular No. 226/2010/TT-BTC dated December 31^st 2010 of the Ministry of Finance, specifying the prudential ratios and the solutions for the securities institutions that fail to achieve the prudential ratios; 

Pursuant to the Circular No. 74/2011/TT-BTC dated June 01^st 2011 of the Ministry of Finance, guiding the securities trading;

At the proposal of the Director of the Department of security trading management,

DECIDES:

Article 1. Promulgating together with this Decision the Regulation guiding the margin trading of securities.

Article 2. This Decision takes effect from the date on which it is signed.

Article 3. The Chief officers, the Director of the Department of security trading management, the General Director of the Stock Exchange of Ho Chi Minh city, the General Director of the Stock Exchange of Hanoi, the General Director of the Vietnam Securities Depository, the General Directors (Directors) of securities companies, and relevant parties are responsible for the implementation of this Circular./.

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REGULATION

GUIDING THE MARGIN TRADING OF SECURITIES
(Promulgated together with the Decision No. 637/QĐ-UBCK dated August 30^th 2011 of the President of the State Securities Commission)

Chapter I

GENERAL PROVISIONS

Article 1. Scope of and subjects regulation

1. This Regulation guides the securities companies to the trade securities on margin.

2. This Regulation is applicable to the securities companies, organizations and individuals relevant to the margin trading  of securities.

Article 2. Interpretation of terms

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2. Margin accounts are accounts opens by clients at securities companies for trading securities on margin.

3. Ordinary accounts are accounts opens by clients at securities companies for trading securities without using cash borrowed from the securities companies

4. Margin loan is the total cash in the margin account owed by a client to the securities company.

5. Credit balance in the margin account includes cash and value of securities eligible for depositing in the margin account at market prices after subtracting the margin loan.

6. Initial margin is the ratio of credit balance (before trading) to the contract value (planned) at market prices.

7. Margin is the ratio of the credit balance to the total deposit in the margin account at market prices.

8. Maintenance margin requirement is the minimum ratio of credit balance to total deposit in the margin account at market prices.

9. The Stock Exchange is the Stock Exchange of Ho Chi Minh city or the Stock Exchange of Hanoi.

Chapter II

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Article 3. Reporting margin trading of securities

The securities companies may perform margin trading of securities after sending reports to the State Securities Commission in accordance with Article 5 of this Regulation, and the reception of complete and valid reports on the margin trading made by the securities companies is posted on the website of the State Securities Commission.

Article 4. Conditions for trading securities on margin

A securities company must satisfy the following conditions to trade securities on margin:

1. The securities company is licensed to be established and operate in accordance with Vietnam’s securities laws; is licensed to provide securities brokerage services; is a member of the Stock Exchange and the Vietnam Securities Depository;

2. The gross loss does not reach 50% of the charter capital (according to the latest audited financial statement within 06 months prior to the date on which the report on the margin trading is submitted);

3. The ratio of total debt to equity capital does not exceed 6 times.

4. The liquidity ratio prescribed in the Circular No. 226/2010/TT-BTC dated December 31^st 2010 of the Ministry of Finance must exceed 150% within the latest 03 months prior to the date on which the report on the margin trading is submitted;

5. There are transaction systems serving the margin trading, supervision of margin account; the technical process, and the risk management for margin trading;

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Article 5. Reports on margin trading of securities

1. The report on margin trading of securities includes:

a) The report on the margin trading according to the form in Annex 1 enclosed with this Regulation;

b) The Resolution of the Board of Directors or the Member assembly or the owner of the securities company for the margin trading;

c) The audited annual financial statement or biannual financial statement examined by a accredited audit organization;

d) The report on the prudential ratio over the latest 03 months prior to the date on which the report on the margin trading is made;

e) The presentation on the transaction system serving the margin trading the technical process, and the risk management process serving the margin trading;

f) The decisions on personnel and the profiles of employees in charge of margin trading, including the copies of the securities practice certificates and labor contracts;

g) The valid copy of the certificate of membership of the Stock Exchange and the Vietnam Securities Depository.

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Article 6. Suspending the margin trading

1. When a securities company fails to satisfy one of the conditions prescribed in Article 4 of this Regulation, it must immediately stop signing new contracts to open margin accounts (hereinafter referred to as margin account contracts), stop giving margin loans, and send reports to the State Securities Commission and the Stock Exchange within 48 hours form the occurrence of such event.

The securities company may sign new margin account contracts and give new loans to make margin transactions, extend the margin loans when it provides the State Securities Commission with documents proving that all conditions prescribed in Article 4 of this Regulation are satisfied.

2. Depending on the market developments, in order to ensure the safe and stable operation of the securities market, the State Securities Commission is entitled to request the securities companies to stop signing new margin account contracts, stop giving margin loans, and stop extending the margin loans given.

Article 7. Temporary discontinuation of margin trading

1. When a securities company wishes to stop the margin trading, it must announce the discontinuation at the head office, other licensed offices, on its website, and send a notification to the State Securities Commission of the discontinuation of the margin trading. From the date on which the announcement is made, the securities company shall stop signing new margin account contracts, stop giving margin loans, and stop extending the margin loans given, and request relevant clients to liquidate the unexpired margin account contracts in accordance with the plan and deadline specified in the announcement of the securities company.

2. The securities company shall send the State Securities Commission the report on the settlement of the margin trading within 15 days from the date on which the margin account contracts are liquidated.

3. The report on the discontinuation of the margin trading prescribed in Clause 3 this Article includes:

a) The report on the discontinuation of margin trading according to the form in Annex 2 of this Regulation;

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c) The Decision of the Board of Directors or the Member assembly or the owner of the securities company on the discontinuation of margin trading.

Chapter III.

MARGIN ACCOUNTS AND MARGIN AGREEMENTS

Article 8. Margin accounts

1. The client that wishes to make margin transactions must sign a margin account contract with the securities company where he or she opens the ordinary account.

2. The margin accounts are not available to the following subjects:

a) The following subjects in a securities company: major shareholders, members of the Board of Directors, the Control Board, the General Director (Director), the Deputy General Director (Deputy Director) and the persons related to these subjects;

b) The dissolved or bankrupt legal entities according to current laws;

c) The subjects that violate the margin account contracts according to the regulation of the securities company.

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a) The margin accounts must be separated form ordinary accounts

b) The client must pay a deposit of at least 10,000,000 VND to open a margin account. The specific rate shall be provided by the securities company.

c) The client may only uses cash, securities eligible for margin trading, and the rights relevant to such securities as collateral for the loans serving the margin trading.

d) The client must pay the interest on the margin loan following the methods agreed in the margin account contract;

e) The client may only draw cash from the margin account after paying off all the debts to the securities company, or the balance in the margin account still satisfy the initial margin after the cash is drawn;

f) The cash and balance in the margin account are assets of the client attached to all relevant rights. Bonus shares, dividends, and call options derived from the securities in the margin account are assets of the client;

g) The securities company must promptly and sufficiently notify their clients of the arising benefits relevant to the securities in their margin accounts; send their clients the statement of margin accounts in accordance with the method and time agreed in writing with their clients.

h) The order form of margin trading must be separated from usual order forms, and include the information about the client which is certified by the client. The electronic margin trading must comply with this Regulation and the relevant provisions for electronic transactions. The order form of the margin trading is an integral part of the margin account contract.

Article 9. The margin account contract

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2. The contents of the margin account contract shall be agreed by the securities company and the client, including:

a) The information about the client such as: full name, date of birth, ID number, address, email, fax (if any), phone number;

b) The loan purpose: buying securities on margin;

c) The initial margin;

d) The maintenance margin;

e) The deadline and method of payment upon the request for additional collateral;

f) The loan limit;

g) The loan interest rate;

g) The contract term, the commencement date of the contract and the time when the loan interest begins;

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j) The regulations on the protection of benefits of contracting parties;

k) The method to settle disputes;

l) The method to liquidate contracts;

m) The certification made by the client that the securities company has explained the risks when making transactions using the margin account.

Chapter IV

SECURITIES ELIGIBLE FOR MARGIN TRADING

Article 10. Securities eligible for margin trading

The securities eligible for margin trading include: shares, fund certificates posted at the Stock Exchanges, excluding the securities posted on UpCom systems, and not falling into the following cases:

1. The posting duration is under 06 months from the date on which the list is announced; if the shares are posted on another floor, the posting duration is the posting duration at both the Stock Exchanges;

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3. The income statement of the listed organization show a loss according to the latest financial statement, audited or examined by an audit organization (depending on which one is closer to the considering time); if the listed organization is a public fund, the net asset value of a fund certificate must be smaller than the face value in at least one month, according to the monthly report on the change of the net asset value in 03 consecutive months from the time of selection for margin trading.

Article 11. The selection and announcement of the list of securities eligible for margin trading

1. Based on the conditions prescribed in Article 10 of this Regulation, the Stock Exchange shall announce the of the list of securities ineligible for margin trading  The announcement time shall be decided by the Stock Exchange.

2. Based on the list of ineligible for margin trading announced by the Stock Exchange as prescribed in Clause 1 this Article, the securities company shall select a list of securities eligible for margin trading. The securities company shall announce the list of securities eligible for margin trading on its website and offices.

3. The Stock Exchange shall supervise the list of securities ineligible for margin trading announced by the securities company as prescribed in this Regulation.

Article 12. Restricting the margin trading

1. The securities company must not give loans to their clients making the following margin transactions:

a) The shares and fund certificates of which the issuance is guaranteed by the securities company within 06 months from the end of the issuance.

b) The shares of the listed company that holds at least 50% of the charter capital of the securities company, and trade on margin the shares of the listed company of which at least 50% of the charter capital is held by the securities company.

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d) When the clients fail to meet the margin specified in the margin account contract and this Regulation.

2. If the securities are no longer in the list of securities eligible for margin trading, the securities company must not give new loans for such securities, and put such securities as collateral in the margin accounts for new loans.

Chapter V

LIMITS ON MARGIN LOANS

Article 13. The limits on margin loans

Securities companies must adhere to the limits on margin loans prescribed in this Article. The equity capital of a securities company prescribed in this Article is determined based on the latest audited financial statement within 06 months from the calculating time.

1. The total margin loan given by a securities company must not exceed 200% its equity capital;

2. The total margin loan given by a securities company to a client must not exceed 3% its equity capital;

3. The total margin loan given by a securities company to a kind of securities must not exceed 10% its equity capital;

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Article 14. The time limit for giving margin loans

1. The time limit for a securities company to give margin loans to its client is specified in the margin account contract, but must not exceed 03 months from the date on which the loan is given.

2. The securities company may extend the loan term based on the written request from the its clients, but the extension must not exceed 03 months.

Article 15. The loan interest rate and loan amount

1. The interest rate on margin loans is determined based on the agreement between the securities company and its client, and in accordance with relevant laws;

2. The interest on margin loan starts charging from the date on which the securities company pays for the margin trading until the client pays off the loan.

Chapter VI.

REGULATIONS ON THE MARGINS, THE ASSETS POSTED AS COLLATERAL, AND THE SETTLEMENT OF COLLATERAL

Article 16. The margin

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2. The maintenance margin is decided by the securities company, but not lower than 40%

3. Depending on the operation of the securities market, the State Securities Commission may adjust the margin.

Article 17. Determining the margin

1. The securities company shall determine the maintenance margin applicable to each client at the end of the trading day.

2. The prices of margin securities are calculated as follows:

a) The closing prices of shares and fund certificates listed at the Stock Exchange of Ho Chi Minh city;

b) The average prices in a day of shares and fund certificates listed at the Stock Exchange of Hanoi;

Article 18. The margin call

1. When the margin falls below the maintenance margin, the securities company shall issue a margin call to the client following the methods agreed in the margin account contract. The clients must post more collateral within a period requested by the securities company. Such period must not exceed 03 working days.

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a) The value of additional margin in securities is calculated as follows:

Value of additional margin securities

=

Margin – maintenance margin

x

Total asset value in the margin account

1 – maintenance margin

(At market prices)

b) Additional margin in cash is calculated as follows:

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Article 19. Settling collateral

1. The securities company must sell the securities posted as collateral in the margin account of the client when that client fails to deposit or sufficiently deposit more collateral within the period requested by the margin call.

a) If the client fails to supplement or only supplements part of the collateral, depending on the whether the value of the collateral is smaller or bigger than the total securities value in the margin account, the securities company may liquidate part of or all the margin securities;

b) The securities company must notify the client before liquidating the margin securities. The securities company shall send the result of the margin securities liquidation to the client.

2. If the securities company liquidated all securities in the margin account at the client’s request, or when issuing the margin call, the client may only draw the residual amount (if any) earned from the sale of the securities in the margin account after the margin loan is deducted.

3. In case the total asset in the margin account of the client is not enough to repay the margin loan, and the client fails to repay the residual loan as agreed in the margin account contract, the securities company shall collect the debt according to the method agreed in the margin account contract.

Chapter VII

OBLIGATIONS OF SECURITIES COMPANIES

Article 20. The obligation to manage the margin accounts of clients

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2. The collateral in margin accounts are assets of clients attached to all relevant rights. The securities company must include the assets relevant to the pledged securities in the margin accounts of its clients, including:

a) Bonus shares, dividends in shares, and/or cash and cash equivalents being paid to the securities in the margin accounts;

b) The amount from the sale of pledged securities that remains after all obligations to the securities company are fulfilled.

3. The securities company may only make transactions relevant to the pledged securities at the requests of its client, unless the pledged must be sold for recovering debts.

4. The securities company shall disclose the information about the conditions for the provision of margin trading services, including the list of securities eligible for margin trading, the margin requirements, the loan interest rates, the loan term, and the method of issuing margin calls. Such information must be posted at the head office and other licensed offices of the securities company, and on the website of the securities company;

5. The securities company must make accounting books and separate each margin account, the list of assets therein, and the margin at the end of each trading day; keep the documents, record accurately and in details the transactions on each margin account, including the daily information about the list of margin assets, collateral, market prices, margins, together with the margin calls and order from of margin trading.

6. The information about the margin accounts of the clients shall be kept confidential by the securities company. The securities company may not provide such information to a third party, unless otherwise requested by competent State agencies or agreed by its clients.

Article 21. Obligation to keep, report , and provide information

1. The securities company must sufficiently, accurately record and keep the data about the transactions on margin accounts of its clients for at least 05 years.

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3. The securities company shall make irregular report on the margin trading at the request of the State Securities Commission and the Stock Exchange.

4. The securities company must announce the information at its head office, other licensed offices, and on its website within 24 hours from the occurrence of the following events:

a) The State Securities Commission officially announces the margin trading of the securities company;

b) The securities company suspends the margin trading;

c) The securities company submits a report on the discontinuation of margin trading;

d) The list of securities being traded on margin and other changes if any.

Chapter VIII

HANDLING VIOLATIONS

Article 22. Handling violations

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2. The securities company shall be suspended from margin trading for 12 months if it violates the regulations on account management, loan limits, margin, and kinds of securities eligible for margin trading, and fails to fulfill the obligation to report 3 times.  The State Securities Commission shall post the name of the violating securities companies and the period over which the provision of margin trading services are suspended on the website of the State Securities Commission,.

Chapter IX

IMPLEMENTATION ORGANIZATION

Article 23. Implementation organization

1. This Regulation takes effect on the date on which it is signed.

2. The amendment and supplementation of this Regulation shall be decided by the President of the State Securities Commission.