Decision 12/QD-HDTV 2023 guideline on clearing and settlement of derivatives transactions at VSDC

 DECISION

Promulgating the guideline on clearing and settlement of derivatives transactions at the Vietnam Securities Depository and Clearing Corporation

_________

THE BOARD OF DIRECTORS
OF THE VIETNAM SECURITIES DEPOSITORY AND CLEARING CORPORATION

Pursuant to the Law on Securities dated November 26, 2019;

Pursuant to the Government’s Decree No. 158/2020/ND-CP dated December 31, 2020 on derivatives and the derivatives market;

Pursuant to the Government’s Decree No. 155/2020/ND-CP dated December 31, 2020 on detailing and guiding the implementation of a number of articles of the Law on Securities;

Pursuant to Circular No. 58/2021/TT-BTC dated July 12, 2021 of the Ministry of Finance guiding a number of articles of the Government’s Decree No. 158/2020/ND-CP dated December 31, 2020, on derivatives and the derivatives market;

Pursuant to Circular No. 11/2016/TT-BTC dated January 19, 2016 of the Ministry of Finance guiding for a number of articles of the Government’s Decree No. 42/2015/ND-CP dated May 05, 2015 on derivatives and derivatives market, and Circular No. 23/2017/TT-BTC dated March 16, 2017 of the Ministry of Finance on amending and supplementing a number of articles of Circular No. 11/2016/TT-BTC;

Pursuant to Decision No. 26/2022/QD-TTg dated December 16, 2022 of the Prime Minister on the establishment, organization and operation of the Vietnam Securities Depository and Clearing Corporation;

Pursuant to Decision No. 1275/QD-BTC dated June 14, 2023 of the Minister of Finance promulgating the Charter on organization and operation of the Vietnam Securities Depository and Clearing Corporation;

Pursuant to Official Dispatch No. 4664/UBCK-PTTT dated July 17, 2023 of the State Securities Commission approving the promulgation of the Operational the Guideline of the Vietnam Securities Depository and Clearing Corporation;

Pursuant to Resolution No. 09/2023/NQ-HDTV dated August 10, 2023 of the Board of Directors approving the promulgation of operational guidelines and regulations of the Vietnam Securities Depository and Clearing Corporation;

At the proposal of the Chief Executive Officer of the Vietnam Securities Depository and Clearing Corporation.

DECIDES:

Article 1. To promulgate hereunder the “Guideline on Clearing and Settlement of Derivatives Transactions at the Vietnam Securities Depository and Clearing Corporation.”

Article 2. This Decision takes effect from the date of signing and supersedes Decision No. 61/QD-VSD dated May 16, 2022 of the Chief Executive Officer of the Vietnam Securities Depository on promulgation of the Guideline on Clearing and Settlement of Derivatives at the Vietnam Securities Depository.

Article 3. The Chief Executive Officer, the Director of the Ho Chi Minh City Branch, the Head of the Administration Department, Head of the Securities Transaction Clearing and Settlement Management Department, Chief of the Board of Directors’ Office, heads of departments under the Vietnam Securities Depository and Clearing Corporation, relevant organizations and individuals shall be responsible for implementing this Decision./.

GUIDELINE

CLEARING AND SETTLEMENT OF DERIVATIVES TRANSACTIONS AT THE VIETNAM SECURITIES DEPOSITORY AND CLEARING CORPORATION
(Promulgated under Decision No. 12/QD-HDTV dated August 10, 2023 of the Board of Directors of the Vietnam Securities Depository and Clearing Corporation)

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation and subjects of application

1. Scope of regulation

This Guideline specifies a number of contents relating to clearing and settlement activities at the Vietnam Securities Depository and Clearing Corporation for transactions of stock index futures contracts and listed Government bond futures contracts at Hanoi Stock Exchange (HNX), including:

a. Opening member cash margin accounts and member securities margin accounts for derivatives clearing members; registering, deregistering registered trading account information, margin securities account for investors;

b. Trading margin;

c. Novation, clearing and settlement of derivatives transactions;

d. Handling insolvency;

dd. Managing positions.

2. Subjects of application

a. Vietnam Securities Depository and Clearing Corporation.

b. Derivatives clearing members.

c. Relevant organizations and individuals.

Article 2. Interpretation of terms

For the purposes of this Guideline, the terms below are construed as follows:

1. Abbreviations:

a. SSC: State Securities Commission.

b. VSDC: Vietnam Securities Depository and Clearing Corporation.

c. SE: Stock Exchange.

d. SB: Bank for settlement of derivatives transactions.

dd. Clearing member: derivatives clearing member.

e. The Law on Securities: Law on Securities No. 54/2019/QH14 dated November 26, 2019 of the National Assembly.

g. Circular No. 58/2021/TT-BTC: Circular No. 58/2021/TT-BTC dated July 12, 2021 of the Ministry of Finance guiding a number of articles of the Government’s Decree No. 158/2020/ND-CP dated December 31, 2020, on derivatives and the derivatives market.

h. Decree No.158/2020/ND-CP: The Government’s Decree No. 158/2020/ND-CP dated December 31, 2020 on derivatives and derivatives market.

i. Futures: Futures contracts.

k. GB: Government bond.

l. Clearing fund: Clearing fund for the derivatives market.

m. SMA: Securities margin account.

n. Member CSA: Cash settlement account opened by a VSDC member at SB.

o. VSDC’s CSA: Cash settlement account opened by VSDC itself at SB.

2. SB: The commercial bank that meets those conditions as prescribed in Clause 2, Article 69 of the Law on Securities and selected by SSC to manage VSDC’s cash margin account and conduct cash payment for derivatives transactions for which VSDC is the Central Counterparty (CCP).

3. The settlement bank of the underlying securities: The commercial bank that meets those conditions as prescribed in Clause 2, Article 69 of the Law on Securities and selected by SSC for cash payment of transactions of shares, bonds, fund certificates, covered warrants on SEs and other payment activities.

4. Collateral using rate: The rate between margin requirement and the total value of eligible collateral assets.

5. Quantitative method of risk - VaR (Value at Risk): A statistical method based on analysis of historical data to determine the VaR of an investment portfolio in a certain time period with predetermined reliability.

6. Certified authorization (CA): An electronic signature format as prescribed by prevailing regulations on e-transactions used by authorized persons of VSDC or clearing members to verify their outgoing information/data.

7. Electronic documents: Information about business operations at VSDC, which is generated, sent, received and stored by electronic means as prescribed by prevailing regulations on e-transactions in financial operations via VSDC’s ISO message-based gateway and authenticated by CA of authorized persons of VSDC or clearing members. Electronic documents in the Guidelines include: Operational message transfer (MT) and FileAct are data files containing information on business operations, structured in accordance with the ISO 15022 standard and exchanged via VSDC’s ISO message-based gateway.

8. ISO message-based gateway: An application software environment which allows clearing members and VSDC to exchange information on business operational activities using MT, fileAct directly between the business operational system of clearing members and VSDC’s system.

Chapter II

ACCOUNT OPENING, REGISTERING AND DEREGISTERING

Article 3. Opening member cash margin account and member securities margin accounts for clearing members

After completing clearing member registration procedures with VSDC, VSDC shall open member cash deposit accounts (including proprietary cash margin account, client cash margin account, cash settlement account) at the SB and member securities margin accounts at VSDC as prescribed in Clauses 1, 2 and 3, Article 12 of Circular No. 58/2021/TT-BTC.

Article 4. Registering, deregistering information on investors’ trading accounts and member securities margin accounts

1. To trade derivatives, investors are required to open trading accounts at derivatives trading members as prescribed in Articles 5 and 6 of Circular No. 58/2021/TT- BTC and open cash margin account and Member SMAs at clearing members as prescribed in Article 10 of Circular No. 58/2021/TT-BTC.

In cases where an investor opens trading account at a derivatives trading member that is not a clearing member, the investor is required to open margin account at a clearing member designated by such trading member.

2. Clearing members shall register information on SMAs for derivative transactions, and trading accounts of investors that are clearing members’ clients with VSDC to follow and manage collaterals and make settlement for positions on each investor’s trading account. In cases where investors do not have or do not use cash market account for margin and derivatives trading, clearing members need to update information on account opening for investors in VSDC’s depository system as prescribed in the Guideline on securities depository before registering the account as derivatives trading account and SMAs.

3. Upon receipt of sufficient information of investors’ trading accounts and SMAs, VSDC shall inform clearing member of successful registration of account and inform HNX of the list of investor trading accounts so that investors can execute derivatives transactions in the following business day.

4. At investors’ request, clearing members shall register information on omnibus trading account with VSDC as prescribed in Clauses 4, 5 and 6, Article 6 of Circular No. 58/2021/TT-BTC. The dossier for registering information on omnibus trading account is executed in Clauses 5 and 6 of this Article.

5. A dossier for registering information on omnibus trading account for a securities investment fund manager comprises:

a. A written request for registering information on omnibus trading account by the clearing member;

b. A copy of the written request for opening an omnibus trading account sent to the clearing member by the securities investment fund manager;

c. A certified copy of the establishment and operation license of the securities investment fund manager.

6. A dossier for registering information on omnibus trading account for an overseas domiciled securities company comprises:

a. A written request for registering information on omnibus trading account by the clearing member;

b. A copy of the written request for opening an omnibus trading account sent to the clearing member by the overseas domiciled securities company;

c. A copy of the Certificate of trading code issued by VSDC to carry out securities brokerage activities.

7. Clearing members are responsible for the accuracy of dossier for registering information on omnibus trading account. VSDC shall process the dossier for registering information on omnibus trading account within 01 business day from the date of receipt of the complete and valid dossier (based on the postmark or the date of signing on VSDC’s document incoming book).

8. In case of deregistration of SMA information at clearing member, an investor should, at the same time, close his/her/its trading account at the securities trading member. VSDC shall only confirm deregistration of account information of the investor in the system after the investor, clearing member have fulfilled settlement obligations, closing out/transferring all positions and collateral assets (if any).

9. VSDC tracks information on investors’ SMAs based on clearing members’ updating on VSDC’s system as guided on updating information of opening and closing securities trading account of investor at the Guideline on securities depository of VSDC. Derivatives trading investor information shall be managed and adjusted consistently with investor information in accordance with the Guideline on securities depository of VSDC.

10. Registering, deregistering information on trading account, SMAs of investors sent before 03:30 p.m. and after 03:30 p.m. daily shall be handled by VSDC on the same day and the following business day, respectively.

11. The process of registering, deregistering information on trading account, SMAs of investors with VSDC shall be implemented in accordance with Appendix 1 to this Guideline.

Chapter III

MARGIN

Article 5. Types and calculation methods of margin

1. Initial Margin (IM)

a. IM is the minimum collateral value deposited with VSDC to meet requirement of clearing member’s positions which are expected to open before trading, except offset positions of the same trading account. Based on the instructions by VSDC, the clearing member shall calculate IM value for positions which will be opened to pay VSDC according to the IM rate announced by VSDC in accordance with Point dd of this Clause. Method of determining the IM rate and IM value is specified in Appendix 2 to this Guideline.

b. Clearing members can deposit IM in form of cash and securities that ensures the rate of cash collateral out of total value of collateral assets on each account at any time not lower than the rate of minimum cash collateral as prescribed by VSDC and announced on VSDC’s website in accordance with Point c, Clause 1, Article 21 of Circular 11/2016/TT-BTC dated January 19, 2016 of the Ministry of Finance, except bond collateral for delivery upon execution of GB futures as prescribed at Point b, Clause 2.2 of this Article.

c. In cases where clearing members deposit IM in form of securities, securities acceptable by VSDC must meet requirements as prescribed in Article 6 of this Guideline.

d. VSDC shall determine IM rate for index futures and GB futures based on:

- Fluctuation of futures’ trading prices or underlying index (for index futures) or government bond price/government bond index (for GB futures) in the observation period of at least 90 trading days using Value at Risk (VaR) tool;

- Maturity date of futures.

dd. Periodically on the 1^st, 10^th and 20^th of each month, VSDC shall redefine IM rate. In cases where the above dates fall on holidays, the IM redefining time will be the next business day.

IM rate shall be announced on VSDC’s website at least 02 business days before being applied.

In cases where necessary, VSDC may redefine IM rate based on actual market fluctuation and the IM rate is applied on the business day after the announcement date.

2. Delivery Margin (DM)

2.1. DM is the margin value which the selling clearing members and the buying clearing member must deposit with VSDC from the final trading day (E+1) and maintain until the final settlement day (E+3) to assure the contract settlement obligation, replacing the IM as prescribed in Clause 1 of this Article.

2.2. Form of DM collateral deposit

a. Cash collateral

Clearing members shall deposit cash collateral into VSDC member cash margin account opened at the SB. Margin value shall be determined based on DM rate, number of maturity month contracts, and final settlement price and contract multiplier as prescribed in Appendix 2 to this Guideline.

DM rate shall be announced on VSDC’s website at least 02 business days before being applied.

b. Bond collateral (bonds in the list of deliverable bonds).

Clearing members deposit collateral bonds into Member SMA for each GB future according to the following principle:

- Depositing 01 bond code included in the list of deliverable bonds;

- The number of deposited collateral bonds equals 100% of the deliverable bonds.

These bonds will be managed separately from other collateral securities by VSDC.

c. Buying clearing member has to deposit DM in form of cash. Selling clearing member may deposit DM in form of cash or bond in the list of deliverable bonds.

3. Variation Margin (VM)

a. VM shall be determined on the basis of position profit/loss during trading session of open positions on investor’s account as follows:

- For existing positions in the account: the difference between the trading price updated in trading session (except the price of negotiated transactions) and final settlement price of the previous trading day (for positions available on account at the end of previous trading day), or settlement price of opening positions (for positions opened during the day);

- For closed positions during the day: the difference between the settlement price of closing positions and final settlement price of previous trading day (for positions available on account at the end of previous trading day), or settlement price of opening positions (for positions opened during the day).

b. VM is only added to the margin requirement in cases where the position of portfolio in investor’s account is in loss status.

4. Margin Requirement (MR)

a. MR means the total margin value which is deposited by a clearing member to maintain positions under clearing member’s name and calculated during trading session for the position portfolio in each investor’ trading account and the clearing member’s proprietary, including:

- Initial Margin.

- Delivery Margin as prescribed at Point a, Clause 2.2 of this Article (only applied for futures contracts for which deliverable bonds have not been deposited for settlement).

- Variation Margin.

b. An investor can open new positions in trading account if collateral using rate of account is below the level 3 warning threshold. If collateral using rate is at the level 3 warning threshold, the investor’s account shall be suspended from trading and the clearing member has to reduce positions by opening new offset positions to close existing positions or depositing additional collaterals to VSDC. Warning thresholds and measures for handling cases of breaching warning thresholds are prescribed in Article 13 of this Guideline.

Article 6. Requirements for securities collateral

1. Types of securities which are eligible to be deposited as collateral approved by VSD:

a. Government bonds, Government-guaranteed bonds, excluding treasury bills.

b. Securities listed on SEs (equities, fund certificates excluding ETFs).

2. Collateral securities prescribed at Point b, Clause 1 of this Article should meet the following requirements:

a. Being in the list of eligible collateral securities identified by VSDC in each period of time based on their liquidity identified as in Appendix 3 to this Guideline.

b. Meeting conditions as prescribed at Points b, c, d, Clause 3, Article 14 of Circular No. 58/2021/TT-BTC;

3. The list of eligible collateral securities (including the discount rate) is determined and published on VSDC’s website every 6 months and remains unchanged until the next publishing period. In special cases, those securities that no longer satisfy the conditions prescribed at Point b, Clause 2 of this Article will be considered to be excluded from the published list of acceptable collateral securities.

Article 7. Evaluation of collateral assets

1. The value of eligible collateral shall be calculated according to the following formula:

Where:

V_KQ is the value of eligible collateral.

C is the amount of cash collateral.

x is the minimum cash margin rate.

Q_KQ is the quantity of securities collateral.

P is the price of securities collateral as prescribed in Clause 2 of this Article.

H is the haircut rate of securities collateral as prescribed in Article 8 of this Guideline.

2. The price of securities collateral (P) for evaluation of collaterals as prescribed in Clause 1 of this Article is updated on a daily basis upon trading session closure:

a) Where securities collaterals are Government bonds, Government-guaranteed bonds, P is calculated by applying the model of Yield Curve for Government bonds by Hanoi Stock Exchange.

b) Where securities collaterals are securities listed on SEs, P is the closing price on the trading day.

Article 8. Securities collateral haircut rate

1. The haircut rate applied in evaluating securities collateral, except for securities on ex-right date, shall be as follows:

a. Government bonds, Government-guaranteed bonds: 5%.

b. Securities in the VN30/HNX30 baskets: 30%.

c. Other securities: 40%.

2. For cases subject to reference price adjustment on ex-right date as regulated by SEs, after trading closure on the preceding business day before the ex-right date, the haircut rate for collateral securities in Clause 1 of this Article shall be adjusted in accordance with the formula in Appendix 4 to this Guideline. Clearing member has responsible for adding collateral before the adjustment executing day to assure collateral asset value as required.

3. VSDC can adjust the haircut rate mentioned in Clause 1 of this Article based on the liquidity and risk level of each type of securities). In case of changing the haircut rate, VSDC shall send clearing members written notice within 01 business day before the effective date.

Article 9. Blocking and unblocking collateral securities for derivatives transactions by investors

1. Pursuant to the agreement with investors on collateral securities for derivatives transactions, clearing members shall be responsible for blocking and unblocking securities on investors’ SMAs, and simultaneously send electronic messages to VSDC for recording accordingly at VSDC.

In cases where an investor opens a depository account at a DM that is not a clearing member, the investor has to transfer securities to the margin securities account at a clearing member before blockade for derivatives transactions as prescribed by VSDC's Guideline on securities depository activities.

2. The process of blocking and unblocking collateral securities in the margin securities account at the clearing member is implemented in accordance with Appendix 5 to this Guideline.

Article 10. Collateral deposit

1. Cash collateral deposit:

a. A clearing member deposits cash collateral of the clearing member itself and its clients into the member cash margin account under the name of VSD at the SB. Requirements for cash deposit of clearing member have to clearly states the deposit and has the following information: type of cash margin account (proprietary, client), details of cash collateral value for each margin account registered with VSD by the clearing member.

b. Based on cash deposit by the clearing member, the SB shall notify VSDC of the money amount that clearing member has deposited into the proprietary cash margin account and/or the money amount that clearing member deposited into the client cash margin account (cash deposit for clearing member’s client transactions). The cash margin deposited before 04:30 p.m. of business days will be notified to VSDC by the bank for handling in the same day, those deposited after 04:30 p.m. of business days will be notified to VSDC for handling in the next business day.

c. Upon receipt of the notice from the SB, VSDC shall check information in the margin account and record increase of the collateral value in the margin accounts of the clearing member, each investor and send notification messages to the clearing member.

d. In cases where the investor’s margin account information sent by the SB does not match with the information on VSDC’s system, VSDC shall notify the SB to refund the cash margin to the relevant clearing member.

2. Securities collateral deposit:

a. Depending on the type of margin (IM or DM for GB futures), a clearing member shall send message to VSDC requesting securities transfer from investors’ SMA. Particularly, in cases where the clearing member uses borrowed bonds from VSDC’ securities borrowing and lending system for the purpose of DM for GB futures, the clearing member shall send VSDC the request for securities transfer (using Form 01/PS-TTBT attached to this Guideline) into Member SMA.

The request for securities transfer should be sent to VSDC by 04:00 p.m. in business days with full information on the securities code and quantity, type of margin and investor securities margin account.

b. Pursuant to the clearing member’s request for securities transfer, VSDC shall record the increase of securities in the Member SMA. Then, VSDC shall notify the clearing member to record accordingly.

3. Process for information exchange between VSDC and the SB and clearing members as regards cash/securities collateral deposits mentioned in Clauses 1, 2 of this Article is implemented as guided in Appendix 5 to this Guideline.

Article 11. Withdrawal of collateral

1. A clearing member may withdraw collateral once meeting the following requirements:

a. The collateral using rate after withdrawal below level 3 warning threshold prescribed in Clause 1, Article 13 of this Guideline;

b. The withdrawn quantity should be less than or equal to that deposited in the Member SMA (in case of withdrawal of collateral securities).

c. The account from which collateral securities are withdrawn is not in trading suspension status because of breach of collateral using threshold, breach of position limit or default.

2. Cash collateral withdrawal

A clearing member shall send VSDC cash withdrawal request with detailed information on the value of money collateral withdrawn by margin account of each investor from 08:00 a.m. to 04:00 p.m. during business days. Pursuant to Points a and c, Clause 1 of this Article, VSDC shall check the clearing member’s request. In case of invalid request for cash collateral withdrawal, VSDC shall send notification message to the clearing member clearing stating the reason. In case of valid request for cash collateral withdrawal:

a. VSDC shall instruct the SB to pay the clearing member, and at the same time, separating the proposed withdrawn cash collateral to exclude eligible collateral value when defining the collateral using rate of that clearing member.

b. Based on the VSDC's instructions, the SB transfers cash collateral from member cash margin account to the cash collateral withdrawal account registered by the clearing member and send notification message to VSDC accordingly.

c. Based on debit reporting message of the SB, VSDC shall decrease cash collateral value on the corresponding margin account and notify the relevant clearing member.

3. Withdrawal of collateral securities

The clearing member sends VSDC the request message to withdraw collateral securities which clearly states detailed information on securities code, quantity of collateral securities to be withdrawn by each SMA of investors from 08:00 a.m. to 04:00 p.m. on business days. Pursuant to Clause 1 of this Article, VSDC shall check the clearing member’s request to withdraw collateral securities. In case of invalid request for cash collateral withdrawal, VSDC shall send notification message to the clearing member clearing stating the reason. In case of valid request for cash collateral withdrawal, VSDC shall transfer securities from the Member SMA to investor SMA and notify the relevant clearing member accordingly.

4. The process of information exchange between VSDC and the SB, clearing members related to activities of cash withdrawal and securities withdrawal prescribed in Clauses 2, 3 of this Article is implemented in accordance with Appendix 5 to this Guideline.

Article 12. Replacement of collateral securities

1. A clearing member may replace collateral securities provided that the replacement can meet requirements for securities collateral as prescribed in Article 6 of this Guideline.

2. Compulsory cases of replacing collateral securities:

a. The collateral securities fail to meet requirements as prescribed in Clause 2, Article 6 of this Guideline;

b. Government bonds/Government-guaranteed bonds reach maturity.

3. In case of being forced to replace collaterals as prescribed in Clause 2 of this Article, VSDC shall send a written request for replacing collateral securities (using Form 02/PS-TTBT attached to this Guideline) by email and post to clearing member.

4. From the date on which the clearing member receives VSDC’s request (either via email or post), the clearing member shall implement replacement procedures for collateral securities:

a. Within 02 business days, for those securities that fail to meet the conditions because of re-identifying the portfolio of collateral securities based on the liquidity or mature government bonds/Government-guaranteed bonds;

b. During the business day, those securities that fail to satisfy the conditions prescribed at Point b, Clause 2, Article 6 of this Guideline.

5. Replacement of collateral securities shall be conducted by submitting new collateral securities and withdrawing collateral securities to be replaced in accordance with the collateral deposit and withdrawal procedures prescribed in Articles 10 and 11 of this Guideline.

Article 13. Supervising the collateral using rate

1. VSDC sets three (03) warning thresholds to monitor the using rate of collateral in each investor's account in the trading session as follows:

a. Warning level 1: as collateral using rate reaches 80%;

b. Warning level 2: as collateral using rate reaches 90%;

c. Warning level 3: as collateral using rate reaches 100%;

2. As the collateral using rate reaches level 1 or level 2 warning thresholds, VSDC shall send warning notice to the clearing member to increase control of margin rate of investors as regulated.

3. As the collateral using rate reaches level 3 warning threshold, VSDC shall apply the following measures:

a. Sending HNX notification message requesting trading suspension of violating account;

b. Sending the clearing member notification message requesting clearing member not to open new position for breaching account, except offset transactions to offset positions and/or deposit additional collateral to reduce the collateral using rate. In cases where a clearing member executes offset transactions to reduce the collateral using rate, the clearing member has to send VSDC written notification (using Form 03/PS-TTBT attached to this Guideline) of detailed offset trading order to be placed so that VSDC shall request HNX to restore trading status of the violating account. Clearing members shall be fully responsible for the proper execution of offset trading orders notified to VSDC and may send written notification to VSDC by fax or email before sending the original document. The maximum time for clearing member to apply the above measures is 03 business days.

Beyond the above deadline, if clearing member cannot take remedy actions, VSDC shall request another clearing member to close position of the violating account. VSDC shall notify the replacement clearing member of details regarding what positions under the name of default clearing member need to be closed, liquidated for executing offset trading. After the transaction is successfully implemented, all offset positions shall be transferred to the default clearing member for offsetting. An agreement has to be reached between VSDC and the replacement clearing member for closing, liquidating position of defaulted clearing member.

4. After the collateral using rate is below level 3 warning threshold, VSDC shall send the clearing member notification message and request HNX to immediately restore trading status for the violating account.

5. The process of information exchange between VSDC and HNX, clearing members on warning, temporarily suspending and restoring the trading status of the accounts violating collateral using rate shall be in accordance with Appendix 6 to this Guideline.

Article 14. Allocation of related rights and benefits arising from collaterals

1. Investors and clearing members are allowed to receive rights and benefits arising from collaterals as follows:

a. The rights arising from collateral securities of clearing member and investors shall be included into the list of deposited securities holders with entitlements generated on the record date as prescribed in VSDC’s Guideline on corporate actions for securities holders.

b. Interests on the cash margin account under the name of VSDC at the SB shall be automatically paid to the collateral return account registered by the clearing member upon availability. This interest is calculated based on non-term interest rate announced by the SB.

2. In cases where a clearing member is in the process of default handling or membership terminating, the handling and distribution of related rights and benefits from collateral assets shall be decided by VSDC.

Article 15. Reconciliation of balance of cash margin accounts with that of the SB

1. On daily basis, VSDC receives information from the SB for reconciling:

a. Balance of proprietary cash margin account under the name of VSDC at the SB with the balance in clearing member’s proprietary cash margin account recorded at VSDC.

b. Balance of client cash margin account under the name of VSDC at the SB with the balance of client cash margin account recorded at VSDC.

c. The number of debit and credit transactions on cash margin and settlement accounts under the name of VSDC at the SB with the corresponding number of the transactions processed at VSDC.

2. In case of incurring mismatch, VSDC and the SB shall coordinate to verify and make necessary adjustments.

3. The process of reconciliation between VSDC and the SB shall be in accordance with Appendix 7 to this Guideline.

Article 16. Reconciliation of information on positions and collaterals with that recorded at clearing members

1. By the end of each trading day, a clearing member receives reports on positions, collaterals on VSDC’s system to check and reconcile the following information by each client account and the clearing member’s proprietary account:

a. Balance of positions.

b. Balance of collaterals (cash, securities).

2. In case of incurring mismatch, the clearing member shall be responsible for informing VSDC by 08:30 a.m. of the following business day to coordinate with VSDC to verify and make necessary adjustments. After the above cut off time, information shall be considered to be exact, and the clearing member shall be responsible for arising errors and losses (if any).

3. The process of information reconciliation between VSDC and clearing member shall be in accordance with Appendix 7 to this Guideline.

Chapter IV

NOVATION, CLEARING AND SETTLEMENT OF DERIVATIVES TRANSACTIONS

Article 17. Receiving trading result and novation

1. After being matched on HNX, trade orders will be sent to VSDC for checking before novation.

2. VSDC shall check the validity of information on trading account (registered on VSDC’s system), information on products (valid) for trading results sent by HNX and only valid trades are novated. All ineligible trades and unrecognized trades resulting from technical error will be rejected and a notification message will be immediately sent by VSDC to HNX for remedy.

Article 18. Position offsetting

1. VSDC shall offset the positions in trading accounts of clearing member and clearing member’s clients on the principle of offset positions under the same futures contract and the same maturity date in the same trading account will be automatically offset to determine net positions, except omnibus account prescribed in Clause 2 of this Article.

2. VSDC only clear offset positions in an omnibus account as requested by clearing member.

3. Position offsetting in omnibus account is prescribed in Appendix 9 to this Guideline.

Article 19. Settlement of position profit and loss

1. Settlement of position profit and loss for clearing members and clearing members’ clients is in cash form on the following business day of profit and loss announcing date.

2. Principle for determining position profit and loss:

a. The settlement value of profit and loss shall be determined basing on the principles stated in Clause 1, Article 9 of Circular No. 58/2021/TT-BTC.   

b. Settlement obligation of position profit and loss is determined separately for each investor’s account, and then being netted to calculate net final settlement obligation by clearing member.

3. VSDC shall send the calculating result of day-end position profit and loss settlement obligation to clearing members and the SB to make payment on the settlement day with the principle that paying clearing members have to transfer sufficient cash to VSDC for paying receiving clearing members.

4. Settlement of position profit and loss is made between cash settlement accounts under the name of VSD opened for each clearing member and cash settlement account for clearing derivatives transactions of VSD at the SB. Clearing members are responsible for completing allocation of position profit for investors (for profit cases) in the settlement day upon the SB’s finish of position profit and loss settlement.

5. By the end of the business day, after the payment activities have been completed, if the cash settlement account balance of clearing member is positive (due to excess payment by the clearing member), the SB shall automatically transfer back to the collateral return account registered by the clearing member.

6. Process and procedure for position profit and loss settlement is detailed in Appendix 9 to this Guideline.

Article 20. Index futures settlement

Index futures settlement will be completed upon the completion of profit and loss settlement on the last trading day.

Article 21. GB Futures settlement

1. GB futures is settled via underlying asset delivery with the settlement date is the third business day since the last trading day (E+3).

2. Clearing members are responsible for depositing and maintaining DM for GB futures settlement as prescribed in Clause 2, Article 5 of this Guideline.

3. On the last trading day

3.1. VSDC will identify the buying clearing member, selling clearing member who are obliged to pay by investor account.

3.2. By 03:30 p.m., buying clearing member is obliged to provide VSDC with documents proving their paying ability with the amount of money not less than the contract value calculated by face value of bonds, specifically:

a. Confirmation by the bank on the blockade of money for settlement of GB futures of investor in the cash settlement account under the name of clearing member; or

b. Guarantee letter from the bank regarding settlement obligations for mature GB futures of the clearing member. The guarantee letter is valid for at least for 04 business days from the last trading day and has to state the unconditional irrevocable settlement commitment to VSDC of any amount within the guarantee amount once receiving VSDC's written notice of the settlement obligation violating clearing member within the valid guarantee period.

3.3. The selling clearing member is responsible for providing VSDC with the list of bonds eligible for transfer (using Form 04A/PS-TTBT attached to this Guideline) from the following sources:

a. Bonds on SMAs of investors at the clearing member;

b. Bonds expected to be purchased or borrowed.

The confirmed bond codes need to be included in the deliverable bond list determined by HNX and published on the website of HNX and VSDC.

4. On day E+2

4.1. By 03:30 p.m., the selling clearing member using the bond from the source prescribed at Point b, Clause 3.3 of this Article is to certify the list of deliverable bonds (using Form 04B/PS-TTBT attached to this Guideline) and commit transfer of deliverable bonds arising from purchasing and borrowing results as soon as receiving them on the depository account.

4.2. VSDC shall generate the list of bonds to be transferred to buying clearing member by investor account in a random manner (automatically implemented by the system) and calculate final cash settlement obligation for buying clearing member based on the allocation list.

5. On final settlement day (E+3):

Selling clearing members have to transfer confirmed bonds in sufficient amount and the right type to the SMA under the name of VSDC, buying clearing members have to make full cash payment to the cash settlement account at the SB.

6. Settlement procedure and formula to determine settlement obligation for GB futures of buying clearing member and selling clearing member are implemented as prescribed in Appendix 9 to this Guideline. Clearing members have to complete cash allocation arising from bond selling for investors on the settlement day upon the SB’s complete payment of GB futures.

7. By the end of the business day, after the payment activities have been completed, if the cash settlement account balance of clearing member is positive (due to excess payment by the clearing member), the SB shall automatically transfer back to the collateral return account registered by the clearing member.

8. Cash settlement for GB futures

8.1. VSDC makes cash settlement in the following cases:

a. The buying clearing member does not provide documents to prove solvency as prescribed in Clause 3.2 of this Guideline;

b. The selling clearing member neither provides the list of expected deliverable bonds nor mobilizes sufficient bonds to be transferred from the source of purchasing or borrowing in accordance with Clauses 3.3 and 4.1 of this Article.

8.2. The trading account holding offset positions in the cash settlement Government bond futures is prescribed by VSDC in a random manner.

For the case mentioned at Point a, Clause 8.1 of this Guideline, after determining the payment obligation (profits and losses) of the related parties, VSDC shall transfer the position from selling clearing member’s trading account to that of buying clearing member to close position.

8.3. The settlement of GB futures in cash is completed upon completing settlement of position profits and loss on the last trading day.

In addition, buying clearing member failing to prove their solvency are responsible for compensation for related clearing member with the amount calculated by the following formula:

Compensation = 5% x FSP x Contract multiplier x Number of contracts

In which: FSP is the final payment price as prescribed in Article 22 of this Guideline.

8.4. On the final settlement day, the clearing member’s compensating party has to transfer the full amount prescribed in Clause 8.3 of this Guideline upon VSD's notice. After receiving full compensation, VSDC shall transfer to the related clearing member. In cases where the clearing member does not transfer the full compensation amount in time, VSDC shall take measures in accordance with Guideline on clearing members by VSD.

Article 22. Daily settlement price and final settlement price of future contract

1. Daily settlement price (DSP) and final settlement price (FSP) are used to calculate daily profit and loss of positions and settlement value when implementing index futures and IF and GB futures.

2. DSP is calculated by VSDC based on trading price provided by HNX. In cases where the trading price is not enough for calculation, VSDC may use theoretical price as replacement or another price upon SSC’s approval.

3. FSP is determined by VSDC based on following principles:

a. For index futures: The simple arithmetic average of the index during the last 30 minutes of the last trading day (including 15 minutes of continuous order matching and 15 minutes of periodic order matching (closing call auction)), after excluding 3 highest index values and 3 lowest index values of the continuous order matching session. FSP is rounded to the nearest hundredth.

b. For GB futures: The DSP of contract determined on the last trading day.

 4. Method to determine DSP is prescribed in Appendix 8 to this Guideline.

5. Every day, after making and sending daily payment report to clearing members in accordance with Point I, Section C, Appendix 9 to this Guideline, VSDC shall announce DSP and FSP (if any product reaches maturity) on VSDC’s website.

Article 23. Electronic documents

1. Electronic documents in this Guideline are prescribed in Appendix 10 to this Guideline. Wherever necessary, clearing members are able to request to convert electronic document into paper documents as regulated by legal documents on electronic transactions in financial activities.

2. When being converted into paper document, electronic document of VSDC will be as follows:

3. In cases where clearing members cannot receive electronic documents as regulated in this Guideline due to the disconnection of the ISO message-based gateway with VSDC, the receipt of information will be conducted via the email address that clearing members have registered with VSDC.

Chapter V

HANDLING OF DEFAULTS

Article 24. Cases of default

1. Clearing members and clearing members’ clients are default in one of the cases as prescribed in Clause 1, Article 15 of Circular No. 58/2021/TT-BTC.

2. Default handling as prescribed at Point a, Clause 1, Article 15 of Circular 58/2021/TT-BTC is executed in accordance with Article 25 of this Guideline, specifically:

a. The cut-off time for defining balance of member cash settlement account at the SB to identify the solvency for position loss/profit, or executing contracts of clearing members is 09:30 am on the settlement date.

b. The cut-off time for defining balance of member cash settlement account at the SB to identify the solvency for position loss/profit, or executing contracts of clearing members is prescribed in Clause 5, Article 21 of this Guideline is 11:00 a.m. on the settlement date.

3. Default handling as prescribed at Point b, Clause 1, Article 15 of Circular No. 58/2021/TT-BTC is executed as follows: Within 01 business day from the date of receiving clearing members’ report or the competent authority's notice of the clearing members' insolvency, VSDC shall propose a solution for each case in accordance with Decree No. 158/2020/ND-CP and Circular No. 58/2021/TT-BTC, and report to SSC for approval before implementing.

4. Handling clearing members’ default as prescribed at Point c, Clause 1, Article 15 of Circular No. 58/2021/TT-BTC is executed as follows: VSDC shall report to SSC each arising case for approval before handling.

Article 25. Handling defaulted clearing members

1. When a clearing member is in default, VSDC will apply measures as prescribed in Clause 5, Article 28 and Clause 1, Article 35 of Decree No. 158/2020/ND-CP and Clauses 2, 3, 4, and 5, Article 15 of Circular No. 58/2021/TT-BTC.

2. Using supporting sources as prescribed in Clause 2, Article 15 of Circular No. 58/2021/TT-BTC to guarantee settlement when a clearing member or a clearing member’s clients are default is executed as follows:

a. Using cash collateral of defaulted clearing member or clearing member’s clients:

- When a clearing member or the clearing member’s client are default, VSDC shall check cash balance on proprietary cash margin account at the SB and request the SB to transfer cash to settlement account to implement settlement obligation of clearing member.

- In cases where investors who are clearing member’s clients are default while the cash balance on proprietary cash margin account is not enough to fulfill settlement obligation, VSDC shall check the clearing member’s client cash collateral balance on VSDC’s system and request the SB to transfer cash from the client cash margin account to the cash settlement account within the settlement obligation of the relevant client to fulfill obligation settlement of the clearing member. Cash in the client cash margin account is only used in default event only when the relevant clearing member has identified and notified VSDC of specific default client(s).

b. Using cash contribution to Clearing fund of the defaulted clearing member:

- VSDC shall check the cash contribution balance to the Clearing fund after subtracting unrefunded support amount of the related clearing member (if any) and instruct the SB to transfer that amount to the cash settlement account to fulfill the clearing member’s settlement obligation.

c. Using cash contribution to the Clearing fund by other clearing members (excluding the contribution to the Clearing Fund by those clearing members who are in the process of executing procedures for membership cancellation in accordance with VSDC’s Guideline on management and usage of the Clearing fund) according to the following principles:

- VSDC shall determine the shortage amount of the defaulted clearing member (TV_m) for fulfilling settlement obligation and calculate cash contribution of other non-defaulted clearing members to be used (TV_k) for supporting in pro-rata manner by the following formula:

Supporting cash amount of TV_k = S_k × Shortage cash

Where:

(*) excluding interest on deposits and interest on using of clearing fund not yet allocated to the contribution balance of clearing member.

- After determining the amount needed to be supported by other non-defaulted clearing members, VSDC shall request the SB to transfer that amount to the cash settlement account to fulfill settlement obligation of the defaulted clearing member, and at the same time notify related clearing members details on the usage of their cash contribution to the Clearing fund for supporting the defaulted clearing member on the same day.

- Defaulted clearing member shall pay interest on the usage of Clearing fund as prescribed in VSDC’s Guideline on management and usage of the Clearing fund.

d. Using the business operation risk contingency fund and other legal capital sources of VSDC as prescribed at Points d and dd, Clause 2, Article 15 of Circular No. 58/2021/TT-BTC.

3. Sending a notice to HNX requesting suspension of trading orders to open new positions for proprietary accounts and clients’ default accounts of clearing member (if any) as prescribed at Point b, Clause 3 and Point b, Clause 4, Article 15 of Circular No. 58/2021/TT-BTC.

4. Closing positions, liquidating positions of clearing members, clearing members’ clients in cases where clearing members get default prescribed in Clause 5, Article 28 of Decree No. 158/2020/ND-CP are executed as follows:

a. VSDC may require defaulted clearing member to place order to close part of positions or liquidate all positions under the name of clearing member or instruct other clearing members to act on behalf of the defaulted clearing member.

b. In cases where the defaulted clearing member executes offset trading to close or liquidate positions under its name, clearing member has to send written notice (using Form 03/PS-TTBT attached to this Guideline) to VSDC of detailed information on the planned offset trading orders so that VSDC can request HNX to restore trading status of violating account. Clearing members shall be fully responsible for the proper execution of offset trading orders notified to VSDC and may send written notification to VSDC by fax or email before sending the original document.

c. When requesting other clearing members to carry out offset trading on behalf of the defaulted clearing member, VSDC shall notify the replacement clearing member of details regarding what positions under the name of the defaulted clearing member need to be closed, liquidated for executing offset trading. After the transaction is successfully implemented, all offset positions shall be transferred to defaulted clearing member for offsetting. An agreement has to be reached between VSDC and the replacement clearing member for closing, liquidating positions of the defaulted clearing member.

5. The transfer of client’s collaterals and open positions from a default clearing member to the replacement clearing member prescribed at Point dd, Clause 5, Article 28 of Decree No. 158/2020/ND-CP is implemented in accordance with Article 29 of this Guideline.

6. Defaulted clearing members shall be subject to punishment as regulated and be responsible for returning all assets used from Clearing fund, contingency fund and other sources to guarantee payment and bearing all related costs (if any). In cases where the related clearing member fails to pay in a sufficient or timely manner as required, VSDC shall apply handling measures pursuant to current regulations.

7. The sale of securities collaterals and contributions to the Clearing Fund by defaulted clearing members in order to return the used resources and cover costs of incurred financial losses (if any) in the process of handling default prescribed in Clause 5, Article 15 of Circular No. 58/2021/TT-BTC by VSDC is executed as follows:

a. VSDC sells securities collaterals and contributions to the Clearing Fund of the defaulted clearing member on SEs through designated trading members or off-exchange ownership transfers at the price decided by VSDC or competitively auctioned or offered.

b. The transfer for securities settlement is made directly from the securities margin account, the management account of securities contributed to the Clearing Fund under the name of VSD. The proceeds from the sale of securities in case of securities sale via a designated trading member shall be recorded to VSD's cash deposit account opened at the settlement bank of the underlying securities. In other cases, the proceeds are recorded to VSDC's deposit account at the SB.

c. The proceeds gained at Point b of this Clause shall be used by VSDC to fulfill financial obligations of the defaulted clearing member, refund the used amount as prescribed at Points c, d Clause 2 of this Article and to compensate for other financial losses caused by the defaulted clearing member (including transaction, payment, transfer and other costs, if any). The remaining balance (if any) is returned by VSDC to relevant clearing member into the account registered with VSDC by the clearing member.

Chapter VI

POSITION MANAGEMENT

Article 26. Position limit

1. Position limit level

VSDC shall apply the position limits for each investor’s trading account by account type (individual investors, institutional investors, professional securities investors) and future contract type. VSDC, in coordinating with Vietnam SE, shall determine position limit for each group upon the approval from SSC. Position limit level shall be published on VSDC’s website at least 30 days before effective date.

2. Principles to determine number of contract available on each trading account for position limit management purpose are set as follows:

a. For normal trading accounts: the total positions of future contract with the same underlying assets, the same multiplier but different contract months (offset positions of future contracts with the same underlying assets, the same multiplier but different contract months are offset when determining).

b. For omnibus account: the total positions of future contract with the same underlying assets, the same multiplier but different contract month, of which the number of positions of each contract month of a future contract is determined by the number of long positions or short positions of that future contract, depending on which is higher.

Article 27. Establishing position limit for professional securities investors

1. VSDC establishes position limits for professional securities investors upon request by clearing members for customers who meet the conditions of professional securities investors as prescribed in Article 11 of the Law on Securities and Articles 4 and 5 of Decree No. 155/2020/ND-CP dated December 31, 2020 of the Government detailing the implementation of a number of articles of the Law on Securities, and have demand for establishing position limits by account type of professional securities investors.

2. VSDC shall set position limit for professional securities investors within 01 business day from the date of receiving a clearing member’s written request (based on postmark or the signing date in VSDC’s incoming documents book).

3. After completing establishment of position limits for professional securities investors on the clearing and settlement system for derivatives transactions, VSDC is responsible for informing the relevant clearing members for implementation.

Article 28. Handling violation of position limit

1. VSDC sets three (03) levels to supervise position limits on each trading account during the trading session:

a. Level 1 warning threshold: when the number of contracts determined in accordance with the principle stated in Clause 2, Article 26 of this Guideline reaches 80% of the position limit;

b. Level 2 warning threshold: when the number of contracts determined in accordance with the principle stated in Clause 2, Article 26 of this Guideline reaches 90% of the position limit;

c. Level 3 warning threshold: when the number of contracts determined in accordance with the principle stated in Clause 2, Article 26 of this Guideline reaches 100% of the position limit.

2. In cases where the trading account falls into level 1 or 2 warning threshold, VSDC shall send a warning message to clearing member for controlling investor’s position as regulated.

3. In cases where the trading account falls into level 3 warning threshold, VSDC shall apply the following measures:

a. Sending message to HNX requesting to temporarily suspend the position limit violating account.

b. Sending message to the relevant clearing member requesting to reduce positions on the violating account by placing offset order to close position within 05 business days. Clearing member shall have to send written notice to VSDC (using Form 03/PS-TTBT attached to this Guideline) notifying detailed information on offset orders planned to place for VSDC to request HNX to restore trading status for the violating account. Clearing members shall be fully responsible for the proper execution of offset trading orders notified to VSDC and may send written notification to VSDC by fax or email before sending the original document.

Beyond the above deadline, if clearing member cannot take remedy actions, VSDC shall request another clearing member to close position of the violating account. VSDC shall notify the replacement clearing member of details regarding what positions under the name of default clearing member need to be closed, liquidated for executing offset trading. After the transaction is successfully implemented, all offset positions shall be transferred to the default clearing member for offsetting. An agreement has to be reached between VSDC and the replacement clearing member for closing, liquidating position of defaulted clearing member.

4. If the number of contracts held on the account is identified to be below the level 3 warning threshold, VSDC shall send message to the relevant clearing member and request HNX to immediately restore trading status of the related violating account.

5. During the time of handling position limit violation, the relevant clearing member is still responsible for meeting margin requirement, making settlement of positions under the name of the clearing member on violating account, even those are investors’ accounts.

6. Information exchange procedure between VSDC and HNX, the relevant clearing member about suspending and restoring trading status for position limit violating account is pursuant to Appendix 6 to this Guideline.

Article 29. Position transfer

1. Position transfer shall be made by VSDC in the following cases:

1.1. Position transfer as prescribed at Point b, Clause 3, Article 13, Clause 8.2, Article 21, Point c, Clause 4, Article 25 and Point b, Clause 3, Article 28 of this Guideline.

1.2. Transferring all positions, collateral to close the investor’s trading account and margin account in the following cases:

a. Upon request when changing the general clearing member as prescribed in Clause 1, Article 17 of Circular No. 58/2021/TT-BTC;

b. Clearing member is in default, suspended or subject to membership suspension/cancellation to move to a replacement clearing member as requested by the clearing member or appointed by VSDC as prescribed in Clauses 3 and 5, Article 28 of Decree No. 158/2020/ND-CP.

2. As regards the transfer stated in Clause 1.1 of this Guideline, VSDC shall only transfer the position, not collaterals.

3. The position transfer stated in Clause 1.2 of this Article is implemented at the same time with transfer of all collaterals (cash and securities) from investors to the replacement clearing member. Those clearing member’s clients that violate position limits, collateral using rate or get default will not be able to transfer positions to the replacement clearing member but have to implement offset transaction for position closing.

3.1. Transfers stated at Point a, Clause 1.2 this Article:

a. The transferring party’s clearing member sends VSDC the request for transfer (using Form 05/PS- TTBT attached to this Guideline) after the receiving party's clearing member has opened the SMA for the relevant client.

b. During the time of implementing the procedures for position and collateral transferring to close investor’s trading and margin accounts, relevant clearing members have to ensure collateral using rate as regulated.

3.2. Cases of position transfer mentioned at Point b, Clause 1.2 this Article:

a. The transferring party’s clearing member sends VSDC the request for transfer (using Form 05/PS-TTBT attached to this Guideline) after the receiving party's clearing member has opened the SMA for the relevant client.

b. In cases where position transferred upon VSDC’s request, the replacement clearing member is responsible for opening the SMA for each investor within the prescribed time frame before VSDC’s transfer making.

c. During the time of implementing the procedures for transferring position and collateral for account closing, warning of collateral using rate shall not be applied for related clearing member clients’ accounts until completion of transfer.

4. The transfer process is prescribed in Appendix 11 to this Guideline.

Article 30. Closing position in case of membership suspension/cancellation

Those clearing members subject to membership suspension/cancellation as prescribed in the Guideline on derivatives clearing members who request for executing offset transactions to close position shall have to send written notification (using Form 03/PS-TTBT attached to this Guideline) to VSDC notifying detailed information on the offset trading orders for VSDC to request HNX to restore trading status of the relating accounts. Clearing members shall be fully responsible for the proper execution of offset trading orders notified to VSDC and may send written notification to VSDC by fax or email before sending the original document.

Chapter VII

IMPLEMENTATION ORGANIZATION

Article 31. Implementation provisions

1. In the process of implementation, if there is any problem, related parties shall contact VSDC for instructions and solutions.

2. The Chief Executive Officer of VSDC shall decide on amending and supplementing this Guideline upon the approval of SSC./.

Appendices: