Circular 91/2020/TT-BTC prudential ratios of securities trading institutions

CIRCULAR

Prescribing prudential ratios and remedies to be taken by securities trading institutions that fail to achieve these ratios

^___________

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

Pursuant to the Law on Enterprises dated June 17, 2020;

Pursuant to the Government’s Decree No. 87/2017/ND-CP dated July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Up on the proposal of the Chairperson of the State Securities Commission;

The Minister of Finance hereby promulgates the Circular prescribing prudential ratios and remedies to be taken by securities trading institutions that fail to achieve these ratios.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation and subjects of application

1. Scope of regulation

This Circular guides the determination of prudential ratios and regime of reporting on prudential ratios of securities trading institutions, remedies to be taken by, and responsibility of related parties toward, those institutions that fail to achieve these ratios. This Circular does not apply to the determination of tax obligations of securities trading institutions toward the state budget.

2. Subjects of application

a) Securities companies, Vietnam-based branches of foreign securities companies (below collectively referred to as securities companies), securities investment fund management companies and Vietnam-based branches of foreign fund management companies (below collectively referred to as fund management companies);

b) Related agencies, organizations and individuals.

Article 2. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Securities trading institution means a securities company, Vietnam-based branch of a foreign securities company, securities investment fund management company or Vietnam-based branch of a foreign fund management company.

2. Market risk value means a value equivalent to a loss likely to be incurred when the market prices of assets owned and expected to be owned by an institution under an issuance underwriting commitment adversely fluctuate.

3. Payment risk value means a value equivalent to a loss likely to be incurred when a partner is unable to make payment or transfer assets on time as committed.

4. Operational risk value means a value equivalent to a loss likely to be incurred due to a technical or systemic error or a professional procedure breakdown or a human error in the course of performance, or due to a business capital shortage resulting from investment costs or losses or for other objective reasons.

5. Total risk value means the total of the market risk value, payment risk value and operational risk value.

6. Liquidity means equity which can be converted into cash within ninety (90) days.

7. Liquidity ratio means the ratio expressed as a percentage of the liquidity value to the total risk value.

8. Payment guarantee means an undertaking to perform financial obligations in order to secure the payment by a third party.

9. Issuance underwriting duration means a period from the date the issuance underwriting obligation arises in the form of firm commitment to the date of payment to the issuing institution as committed.

10. Net position in a security at a given point of time (below referred to as net position in a security) means a quantity of securities currently held by a securities trading institution after the quantity of lent securities or securities hedged by put warrants or futures contracts is reduced or the quantity of borrowed securities is increased under law regulations.

11. Net payment position in a partner at a given point of time (below referred to as net payment position in a partner) means the value of granted loans and receivables after the debts owed and payables to a partner are adjusted.

12. Group of institutions or individuals related to an institution or individual (below referred to as group of related institutions or individuals) includes institutions or individuals as prescribed in Clause 46, Article 4 of the Law on Securities.

13. Margin value means the total of the following values:

a) Value in cash or in securities which a securities trading institution contributes to the clearing fund of the Vietnam Securities Depository and Clearing Corporation;

b) Value in cash or in securities which a securities trading institution deposits for its investment, dealing or market making transactions in derivatives;

c) Cash deposits and payment guarantee value of depository banks in case a securities company issues covered warrants.

14. Open interest of a derivative at a given point of time (below referred to as open interest) means the volume of a derivative outstanding at a given point of time that has neither been settled nor liquidated.

15. Accredited audit organization means an independent auditing organization on the list of audit organizations accredited by the State Securities Commission for audit in accordance with the Law on Securities and the law on independent audit.

16. Interest-bearing warrant means a call warrant with its exercise price (exercise index) lower than the price (index) of an underlying security or a put warrant with its exercise price (exercise index) higher than the price (index) of an underlying security.

17. Exercise price means a price at which a warrant holder has the right to buy (for call warrants) or to sell (for put warrants) a particular underlying security (a stock or an exchange-traded fund certificate) to an issuing institution, or which is used by an issuing institution to determine an amount to be paid to the warrant holder.

18. Conversion ratio refers to the volume of warrant needed to be converted into an underlying security unit.

Click download to see the full text