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

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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 institutionmeans 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 valuemeans 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 valuemeans 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 valuemeans 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 valuemeans the total of the market risk value, payment risk value and operational risk value.

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

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

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

9.Issuance underwriting durationmeans 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 securityat 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 positionin 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 valuemeans 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 organizationmeans 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 warrantmeans 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 pricemeans 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 ratiorefers to the volume of warrant needed to be converted into an underlying security unit.

Article 3. Application principles

1. Securities trading institutions shall calculate their prudential ratios and take responsibility for the accuracy of their calculations.

2. Asset ratios and capital sources used in the calculation of the liquidity value and risk values shall be updated as of the time of calculation.

3. Securities trading institutions are not required to calculate the value of various risks against asset ratios which have been deducted from their liquidity under Articles 5 and 6 of this Circular.

4. Securities trading institutions that have affiliated companies shall calculate their prudential ratios based on their financial breakdowns.

5. The prudential ratios report of June 30 shall be reviewed by an accredited audit firm according to the Vietnamese standards on auditing regarding review service contracts. The prudential ratios report of December 31 and prudential ratios report used to prove that the securities trading institution fully meets the conditions for being placed out of the state of warning, control or special control shall be audited by an accredited audit institution according to the Vietnamese standard on auditing regarding special considerations - audit of financial statements prepared in accordance with a special-purpose framework of making and presenting financial statements, and other relevant standards on auditing.

6. Securities trading institutions shall establish their internal information and control systems to fully record, monitor and update financial information and detailed information serving the preparation, review and audit of prudential ratios reports. The boards of directors (management boards) of securities trading institutions shall prepare and present prudential ratios reports in accordance with this Circular.

Chapter II

PRUDENTIAL RATIOS

Section 1

LIQUIDITY

Article 4. Liquidity

1. Liquidity of a securities company shall be determined according to Appendix VI attached to this Circular, specifically as follows:

a) The owner’s contributed capital, excluding the refunded preferred equity (if any);

b) Equity surplus, excluding the refunded preferred equity (if any);

c) Bond conversion option - Capital portion (for securities companies issuing convertible bonds);

d) Other kinds of equity;

dd) Asset valuation difference based on reasonable value;

e) Foreign exchange rate difference;

g) Reserve fund for charter capital supplementation;

h) Financial and professional risk provision;

i) Other funds pertaining to the equity which are set aside in accordance with law;

k) Undistributed profits;

l) Asset markdown provision balance;

m) Fifty percent (50%) of the increased value of fixed assets which are revalued in accordance with law (in case the value of these assets is increased), or subtraction of the whole reduced value (in case the value of these assets is reduced);

n) Deductions specified in Article 5 of this Circular;

o) Increases specified in Article 7 of this Circular;

p) Other kinds of capital (if any).

2. Liquidity of a fund management company shall be determined according to Appendix V attached to this Circular, specifically as follows:

a) The owner’s investment capital, excluding the refunded preferred equity (if any);

b) Equity surplus, excluding the refunded preferred equity (if any);

c) Reserve fund for charter capital supplementation;

d) Development investment fund (if any);

dd) Financial and professional risk provision;

e) Other funds pertaining to the equity which are set aside in accordance with law;

g) Undistributed after-tax profits;

h) Asset markdown provision balance;

i) Fifty percent (50%) of the increased value of fixed assets which are revalued in accordance with law (in case the value of these assets is increased), or subtraction of the whole reduced value (in case the value of these assets is reduced);

k) Foreign exchange rate difference;

l) Deductions specified in Article 6 of this Circular;

m) Increases specified in Article 7 of this Circular;

n) Other kinds of capital (if any).

3. Treasury stocks (if any) shall be excluded from liquidity specified in Clauses 1 and 2 of this Article.

Article 5. Deductions from liquidity of securities companies

1. Margin value.

In case a securities company has security assets for payment guarantee by a bank when issuing covered warrants, the deduction value shall be the smallest of the following values: the bank payment guarantee value and the security asset value determined under Clause 6, Article 10 of this Circular.

2. The value of assets used to secure the performance of obligations of other organizations and individuals which have the remaining validity duration of over ninety (90) days. Such asset value shall be determined under Clause 6, Article 10 of this Circular.

3. The whole marked down book value of financial assets, excluding securities specified in Clause 7 of this Article, resulting from the difference between the book value and the market price, shall be determined according to Appendix II attached to this Circular.

4. Other deductions shall be determined according to Appendix VI attached to this Circular, including:

a) Ratios in long-term assets, except those specified in Clause 6 of this Article;

b) The following ratios in short-term assets:

- Securities specified in Clause 7 of this Article in the short-term financial investment ratio;

- Prepayments;

- Receivables to be recovered or paid after over ninety (90) days;

- Advances to be refunded after over ninety (90) days;

- Other short-term assets, except the cases specified in Clause 5 of this Article.

c) Exceptions with adverse opinions or disclaimer of opinions (if any) in audited or reviewed financial statements on amounts which have not yet been deducted from liquidity under Points a and b of this Clause. In case an audit firm certifies that exceptions no longer exist, the securities trading institution is not required to deduct such amounts.

5. Deductions from liquidity specified at Points a and b, Clause 4 of this Article do not include the following ratios:

a) Assets against which market risks must be identified under Clause 2, Article 9 of this Circular, except securities specified in Clause 7 of this Article;

b) Provision for book value markdown of financial assets;

c) Provision for markdown of other assets;

d) Provision for non-performing receivables;

dd) Contracts and transactions specified at Point k, Clause 1, Article 10 of this Circular.

6. Upon determining ratios of asset to be deducted from liquidity specified in Clauses 1 and 2, and at Points a and b, Clause 4 of this Article, the securities trading institution may mark down the value of deductions as follows:

a) For assets used to secure its own obligation, upon calculation of deductions, the smallest of the following values may be deducted: The market value of these assets determined according to Appendix II attached to this Circular (if any), the book value and the residual value of the obligation;

b) For assets secured with clients’ assets, upon calculation of deductions, the smallest of the following values may be deducted: The value of security assets determined according to Clause 6, Article 10 of this Circular and the book value.

7. The following securities in the ratios of short-term financial assets and long-term financial assets shall be regarded as deductions from liquidity:

a) Securities issued by institutions that have relationships with securities trading institutions in the following cases:

- They are parent companies, affiliated companies of securities trading institutions;

- They are affiliated companies of parent companies of securities trading institutions.

b) Securities to be restricted from transfer for over ninety (90) days from the date of calculation.

Article 6. Deductions from liquidity of fund management companies

1. The whole  marked down value of investments, excluding securities specified in Clause 5 of this Article, resulting from the difference between their book values and market prices, shall be determined according to Appendix II attached to this Circular.

2. Other deductions shall be determined according to Appendix V attached to this Circular, including:

a) Ratios in long-term assets, except those specified in Clause 3 of this Article;

b) The following ratios in short-term assets:

- Securities specified in Clause 5 of this Article in the short-term financial investment ratio;

- Prepayments;

- Receivables to be recovered or paid after over ninety (90) days;

- Advances to be refunded after over ninety (90) days;

- Other short-term assets, except the cases specified in Clause 3 of this Article.

c) Exceptions with adverse opinions or disclaimer of opinions (if any) in audited or reviewed financial statements on amounts which have not yet been deducted from liquidity under Points a and b of this Clause. In case an audit firm certifies that exceptions no longer exist, the securities trading institution is not required to deduct such amounts.

3. Deductions from liquidity specified at Points a and b, Clause 2 of this Article do not include the following ratios:

a) Assets against which market risks must be identified under Clause 2, Article 9 of this Circular, except securities specified in Clause 5 of this Article;

b) Provision for investment markdown;

c) Provision for non-performing receivables;

d) Contracts and transactions specified at Point k, Clause 1, Article 10 of this Circular.

4. Upon determining ratios of asset to be deducted from liquidity specified at Points a and b, Clause 2 of this Article, the securities trading institution may mark down the value of deductions as follows:

a) For assets used to secure its own obligation or the obligation of the third party, upon calculation of deductions, the smallest of the following values may be deducted: The market value of these assets determined according to Appendix II attached to this Circular (if any), the book value and the residual value of the obligation;

b) For assets secured with clients’ assets, upon calculation of deductions, the smallest of the following values may be deducted: The value of security assets determined according to Clause 6, Article 10 of this Circular and the book value.

5. The following securities in the ratios of short-term financial investments and long-term financial investments shall be regarded as deductions from liquidity:

a) Securities issued by institutions that have relationships with securities trading institutions in the following cases:

- They are parent companies, affiliated companies of securities trading institutions;

- They are affiliated companies of parent companies of securities trading institutions.

b) Securities to be restricted from transfer for over ninety (90) days from the date of calculation.

Article 7. Increases

1. The whole marked up book value of investments and financial assets, excluding securities specified in Clause 7, Article 5, and Clause 5, Article 6, of this Circular, resulting from the difference between their book prices and market prices, shall be determined according to Appendix II attached to this Circular.

2. Debts that can be converted into equity include:

a) Convertible bonds, except in the case specified at Point c, Clause 1, Article 4 of this Circular where they are regarded as liquidity, and preferred stocks issued by a securities trading institution which fully satisfy the following conditions:

- Having an initial term of at least five (05) years;

- Being not secured with assets of the securities trading institution;

- The securities trading institution may prematurely redeem these bonds and stocks only at the request of owners or redeem them on the secondary market only after notifying such to the State Securities Commission under Clauses 5 and 6 of this Article;

- The securities trading institution may stop paying interests and carry forward accumulated interests to the subsequent year in case the payment of interests causes business losses in the year;

- In case of dissolution of the securities trading institution, payment may be made to bond and stock owners only after the securities trading institution pays debts to all other secured and unsecured creditors;

- The interest rate increase, including an increase in the interest rate added to the reference interest rate, may only be made five (05) years after the date of issuance for only once throughout the term before these preferred stocks are converted into common stocks;

- Having been registered as an addition to liquidity under Clause 4 of this Article.

b) Other debit instruments which fully satisfy the following conditions:

- Being debts which may, in any circumstances, be paid to creditors after the securities trading institution has paid debts to other secured and unsecured creditors;

- Having an initial term of at least over ten (10) years;

- Being not secured with assets of the securities trading institution;

- The securities trading institution may stop paying interests and carry forward accumulated interests to the subsequent year in case the payment of interests causes business losses in the year;

- The securities trading institution may prematurely pay debts to its creditors only after notifying such to the State Securities Commission under Clauses 5 and 6 of this Article;

- The interest rate increase must ensure the following conditions: For fixed interests, the increase in the interest rate added to the reference interest rate, may only be made five (05) years after the date of issuance for only once throughout the term of subordinated debts. For interests calculated according to formula, the formula must not be changed and its amplitude (if any) shall only be changed for only once after five (05) years from the date of issuance or the date of contract signing;

- Having been registered as an addition to liquidity under Clause 4 of this Article.

3. Limitations upon calculation of increases in liquidity:

a) The value of amounts specified at Points a and b, Clause 2 of this Article shall be incrementally depreciated on the following principles:

- Within last five (05) years before the deadline for payment and conversion into common stocks, 20% of the initial value of amounts specified at Points a and b, Clause 2 of this Article shall be depreciated each year;

- Within last four (04) quarters before the deadline for payment and conversion into common stocks, 25% of the remaining value after the depreciation under the above provision shall be further depreciated each quarter.

b) Total value of amounts specified in Clause 2 of this Article shall be used to supplement liquidity to account for up to 50% of equity.

4. A securities trading institution shall additionally report to the State Securities Commission debts specified in Clauses 2 and 3 of this Article as additions to its liquidity. The report directly sent to the State Securities Commission must comprise:

a) A report, made according to the form provided in Appendix VII attached to this Circular, for addition of convertible bonds, preferred stocks and debts to liquidity;

b) Minutes of meetings and resolutions of the Board of Directors and Members’ Council, and the owner’s decision on addition of debts convertible into the owner’s equity to liquidity;

c) Valid copies of loan contracts or equivalent documents. Loan contracts or equivalent documents must contain commitments of the two parties and all proper contents specified in Clauses 2 and 3 of this Article. These provisions shall not apply to the cases of issuing bonds to the public that are granted the certificate of offering by the State Securities Commission.

5. A securities trading institution may redeem convertible bonds and preferred stocks or prematurely pay debts already added to its liquidity in the following cases:

a) The liquidity ratio after the redemption of convertible bonds and preferred stocks or premature payment of debts registered as additions to liquidity is not lower than 180%;

b) In case the securities trading institution fails to satisfy the requirements at Point a of this Clause, it must have additional capital sources to ensure that the minimum liquidity ratio is maintained at 180% or higher.

6. Securities trading institutions shall report to the State Securities Commission at least fifteen (15) days before redeeming convertible bonds and preferred stocks or prematurely paying debts already added to its liquidity. The report directly sent to the State Securities Commission must comprise:

a) A report specified at Point a, Clause 4 of this Article;

b) Documents specified at Points b and c, Clause 4 of this Article, for new convertible bonds, preferred stocks and debts to be used as additions to liquidity in replacement of convertible bonds and preferred stocks which must be redeemed or debts which must be paid (if any).

Section 2

RISK VALUES

Article 8. Operational risk value

1. Operational risk of a securities trading institution is equal to 25% of such institution’s operation maintenance expenses in twelve (12) months prior to the time of calculation, or 20% of the law-prescribed minimum charter capital for business operations of a securities trading institution, whichever is larger.

2. Operation maintenance expenses of a securities company are total expenses arising in a period minus the following:

a) Depreciation costs;

b) Expenses for or reimbursement of the provision for markdown of short-term financial assets and mortgaged assets;

c) Expenses for or reimbursement of the provision for markdown of long-term financial assets;

d) Expenses for or reimbursement of the provision for markdown of receivables;

dd) Expenses for or reimbursement of the provision for markdown of other short-term assets;

e) Expenses for reduced differences upon revaluation of financial assets recognized through profit or loss;

g) Interest expenses.

3. Operation maintenance expenses of a fund management company are total expenses arising in a period minus the following:

a) Depreciation costs;

b) Expenses for or reimbursement of the provision for markdown of short-term investments;

c) Expenses for or reimbursement of the provision for markdown of long-term investments;

d) Expenses for or reimbursement of the provision for bad receivables.

4. For a securities trading institution that has only operated for less than one (01) year, its operational risk shall be determined to be three (03) times average monthly operation maintenance expenses counting from the time this institution commences its operation, or 20% of the law-prescribed minimum charter capital for business operations of a securities trading institution, whichever is larger.

Article 9. Market risk value

1. At the end of a trading day, a securities trading institution shall determine the market risk value with regard to its assets specified in Clause 2 of this Article.

2. Market risk shall be determined with regard to the following assets:

a) Securities on the dealing account, excluding covered warrants not yet issued (for securities companies) or securities trading account (for fund management companies and securities companies not engaged in dealing operation), entrusted securities and other investment securities. These securities include also securities in transfer from the seller;

b) Securities received as aid from other individuals and organizations in accordance with law, including securities borrowed for the securities trading institution itself and securities borrowed on behalf of other individuals and organizations;

c) Clients’ securities taken by the securities trading institution as security assets and later used or provided as loans to a third party by this institution in accordance with law;

d) Money amounts, money equivalents, negotiable instruments and valuable papers of all kinds owned by the securities trading institution;

dd) Securities the issuance of which is underwritten by the securities trading institution in the form of firm commitment, which remain undistributed and for which full payment is not yet received in the issuance underwriting period.

3. Securities and assets specified in Clause 2 of this Article do not include:

a) Treasury stocks;

b) Securities specified in Clause 7, Article 5 and Clause 5, Article 6 of this Circular;

c) Due bonds, debt instruments and valuable papers on the monetary market;

d) Securities hedged by put warrants or futures contracts; put warrants and put options used to hedge underlying securities.

4. The formula for determining the market risk value with regard to assets specified at Points a, b, c and d, Clause 2 of this Article is as follows:

Market risk value = Net position x Asset price x Market risk coefficient

a) Market risk coefficient shall be determined according to Appendix I attached to this Circular;

b) Asset price shall be determined according to Appendix II attached to this Circular.

5. The market risk value of each asset determined under Clause 4 of this Article shall be increased in case the securities trading institution invests too much in such asset, except securities subject to issuance underwriting in the form of firm commitment, government bonds and government-guaranteed bonds. This value shall be increased on the following principle:

a) An increase of 10% in case the total value of an institution’s stock and bond investment accounts for between 10% and 15% of the securities trading institution’s equity;

b) An increase of 20% in case the total value of an institution’s stock and bond investment accounts for between 15% and 25% of the securities trading institution’s equity;

c) An increase of 30% in case the total value of an institution’s stock and bond investment accounts for 25% or higher of the securities trading institution’s equity.

6. The securities trading institution shall increase stock dividends, bond yields, and the value of preferred rights whenever they arise (for securities), or loan interests (for deposits and money equivalents, negotiable instruments and valuable papers) in the asset price upon determining the market risk value.

7. The market risk value with regard to securities not yet fully distributed during the distribution period and with trading prices lower than issuance-underwriting prices under contracts on issuance underwriting in the form of firm commitment shall be determined according to the following formula:

In which:

Q₀: Undistributed securities or distributed securities for which payment has not been paid

P₀: Issuance underwriting price

V_c: Value of security asset (if any)

R : Issuance risk coefficient

r : Market risk coefficient

P₁: Trading price

a) Trading price shall be determined for each type of security specified in Section 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 21, or 22 of Appendix II attached to this Circular. For initial public offering, including initial auction of equities or bond auction, the trading price is equal to the book value per stock of the issuing institution determined at the latest point of time, or reserve price (if the book value is unidentifiable) or par value (for bonds);

b) Market risk coefficient shall be determined for each type of security specified in Section II, III, IV, V, VI or VII of Appendix I attached to this Circular;

c) Issuance risk coefficient shall be determined based on the remaining period of time up to the time of completion of the distribution under the contract, which must not be beyond the distribution deadline prescribed by law, as follows:

- Counting up to the distribution deadline, if the remaining period of time is over sixty (60) days, the issuance risk coefficient is 20%;

- Counting up to the distribution deadline, if the remaining period of time is between thirty (30) and sixty (60) days, the issuance risk coefficient is 40%;

- Counting by the distribution deadline, if the remaining period of time is less than thirty (30) days, the issuance risk coefficient is 60%;

- During the period from the distribution deadline to the due date of payment to the issuing institution, the issuance risk coefficient is 80%.

d) After the deadline for payment to the issuing institution, the securities trading institution shall determine the market risk value with regard to securities which cannot be fully distributed under Clause 4 of this Article;

dd) The value of security assets of clients shall be determined under Clause 6, Article 10 of this Circular.

8.  A securities company shall calculate the market risk value with regard to outstanding covered warrants it has issued. Such risk value shall be determined according to the following formula:

Market risk value = Max {((P_{0 X}Q₀/k- P_{1 X}Q₁) x r -MD), 0}

In which:

P_o: Average closing price of underlying securities in 05 trading days preceding the date of calculation.

Q₀: Quantity of outstanding warrants of the securities company.

k: Conversion rate

P₁: Price of underlying securities determined according to Appendix II attached to this Circular

Q₁: Quantity of underlying security used by the securities company to secure the obligation to pay for covered warrants which it has issued

r : Market risk coefficient of warrants determined according to Appendix I attached to this Circular

MD: Margin value when the securities company issues covered warrants

a) An underlying security to be used for calculating the market risk according to the above formula must fully satisfy the following conditions:

- Having been included in the issuance plan or registered with the State Securities Commission for use on the dealing account to hedge risks upon the issuance of covered warrants;

- Being the underlying security of covered warrants.

b) In case warrants issued by a securities company bear no interest under Clause 16, Article 2 of this Circular, the securities company is not required to calculate the market risk with regard to its issued warrants but shall calculate the market risk with regard to the underlying security created through the hedging of risks for its issued warrants.

c) A securities company shall calculate the market risk with regard to the positive difference between the value of the underlying security used by the securities company to hedge risks for covered warrants which it has issued and the value of the underlying security needed to hedge risks for such covered warrants. The value necessary for hedging risks for covered warrants must be equal to the hedged value.

9.  The market risk value for a futures contract shall be determined according to the following formula:

Market risk value

= Max {((payment value at the end of the day

- Value of bought security)

x Market risk coefficient of futures contract

- Margin value),0}

Payment value at the end of the day

= Payment price at the end of the day x open interest

In which:

- Value of bought security is the value of the underlying security which the securities trading institution has bought to secure the obligation to pay for the futures contract;

- Margin value is the asset value portion which the securities trading institution deposits for its investment, dealing and market-making transactions.

Article 10. Payment risk value

1. At the end of a trading day, a securities trading institution shall determine the payment risk value with regard to the following contracts and transactions:

a) Time deposits at credit institutions and certificates of deposit issued by credit institutions;

b) Securities borrowing contracts in accordance with law;

c) Securities sale contracts that contain commitments to redeem securities in accordance with law;

d) Securities purchase contracts that contain commitments to resell securities in accordance with law;

dd) Listed securities margin purchase lending contracts in accordance with law;

e) Contracts on issuance underwriting in the form of firm commitment signed with other organizations in an issuance underwriting syndicate in which the securities trading institution is the principal underwriter;

g) Receivables of clients in securities business activities;

h) Mature securities receivables, valuable papers, due debit instruments for which payment has not been paid;

i) Assets beyond the time limit for transfer, including securities in trading activities of the securities trading institution and securities of clients in securities brokerage.

k) Contracts, transactions and amounts using capital other than transactions and contracts mentioned at Points a, b, c, d, dd, e, and g of this Article; Receivables from debt purchase with trading partners other than Vietnam Asset Management Company (VAMC) or Viet Nam Debt And Asset Trading Corporation (DATC).

2. For contracts specified at Points a, b, c, d, dd and g, Clause 1 of this Article, the payment risk value before the deadline for receipt of transferred securities and money and contract liquidation shall be determined as follows:

Payment risk value = Value of assets with latent payment risk x Payment risk coefficient by partner

a) Payment risk coefficient by partner shall be determined based on credit ratings of trading partner(s) on the principle provided in Appendix III attached to this Circular;

b) Value of assets with latent payment risk shall be determined on the principle provided in Appendix IV attached to this Circular. The value of assets with latent payment risk shall be increased with stock dividends, bond yields and the value of preferred rights whenever they arise (for securities), or loan interests and other surcharges (for credits).

3. For contracts specified at Point e, Clause 1 of this Article, the payment risk value equals 30% of the remaining value of unpaid issuance underwriting contracts.

4. For overdue receivables and securities not yet received within the transfer time limit specified at Points h and i, Clause 1 of this Article, including also securities and money amounts not yet received from due transactions and contracts specified at Points a, b, c, d, dd and g, Clause 1 of this Article, the payment risk value shall be determined on the following principle:

Payment risk value

= Value of assets with latent payment risk

x Payment risk coefficient by time

a) Payment risk coefficient by time shall be determined based on the overdue payment period on the principle provided in Appendix III attached to this Circular;

b) The value of assets with latent payment risk shall be determined as follows:

- For securities purchase or sale transactions, for clients or the securities trading institution itself: This value is the market value of contracts calculated on the principle provided in Appendices II and IV attached to this Circular;

- For securities margin purchase lending transactions, securities sale transactions with commitment to redeem securities, securities purchase transactions with commitment to resell, borrow or lend securities: Value of assets with latent payment risk shall be determined on the principle provided in Appendix IV attached to this Circular;

- For receivables, mature bonds and due debit instruments: This value is the value of receivables calculated according to their par value, plus unpaid interests or yields and related expenses, and minus payments actually received (if any) beforehand.

5. Except for transactions and contracts specified at Point k, Clause 1 and Point b, Clause 10 of this Article, a securities trading institution may deduct the value of security assets of its partners and clients when determining the value of assets with latent payment risk under Clause 1 of this Article if these contracts and transactions fully satisfy the following conditions:

a) Partners and clients provide security assets to secure the performance of their obligations and these security assets are money, money equivalents, valuable papers and negotiable instruments on the monetary market or securities listed or registered for trading on the Vietnam Stock Exchange and its subsidiary companies (below referred to as the Stock Exchange), government bonds and bonds the issuance of which is underwritten by the Ministry of Finance;

b) The securities trading institution may dispose of, manage, use and transfer security assets in case its partners fail to fulfill the payment obligation within the time limits agreed upon in contracts.

6. The value of security assets to be deducted under Clause 5 of this Article shall be determined as follows:

Security asset value

= Security asset volume x security asset price

x (1 - market risk coefficient)

a) Asset price shall be determined on the principle provided in Appendix II attached to this Circular;

b) Market risk coefficient shall be determined on the principle provided in Appendix I attached to this Circular.

7. When determining the payment risk value, the securities trading institution may make mutual net offsetting of the asset value with latent payment risk if the following conditions are fully satisfied:

a) The payment risk is related to the same partner;

b) The payment risk occurs with regard to the same type of transaction specified in Clause 1 of this Article;

c) Mutual net offsetting has been agreed upon in writing by the parties.

8. The payment risk value shall be increased in the following cases:

a) An increase of 10% in case the value of deposit contracts, certificates of deposit, loans, receivables which are not due, securities purchase contracts that contain commitments to resell securities and securities sale contracts that contain commitments to redeem securities, and total value of loans provided to an institution or individual and the group of related institutions or individuals (if any), accounts for between over 10% and 15% of equity;

b) An increase of 20% in case the value of deposit contracts, certificates of deposit, loans, receivables which are not due, securities purchase contracts that contain commitments to resell securities and securities sale contracts that contain commitments to redeem securities, and total value of loans provided to an institution or individual and the group of related institutions or individuals (if any), accounts for between over 15% and 25% of equity;

c) An increase of 30% in case the value of deposit contracts, certificates of deposit, loans, receivables which are not due, securities purchase contracts that contain commitments to resell securities and securities sale contracts that contain commitments to redeem securities, and total value of loans provided to an institution or individual and the group of related institutions or individuals (if any), or to an individual and the group of parties related to such individual, accounts for over 25% of equity.

9. In case a partner is totally insolvent, the whole loss calculated based on the contract value shall be deducted from liquidity.

10. Payment risk value for other cases shall be determined as follows:

a) For contracts and transactions specified at Point k, Clause 1 of this Article, the payment risk value shall be determined according to the following formula:

Payment risk value

= Value of total assets with latent payment risk x 100%

b) For advances to be refunded after less than days, the payment risk value shall be determined according to the following formula:

Section 3

LIQUIDITY RATIO AND REPORTING BY SECURITIES TRADING INSTITUTIONS

Article 11. Liquidity ratio and warning levels

1. Liquidity ratio shall be determined on the following principle:

2.  The State Securities Commission shall issue a warning to a securities trading institution under Article 13 of this Circular or issue a decision to place a securities trading institution under control under Article 14 of this Circular or under special control under Article 16 of this Circular. Within twenty four (24) hours after issuing a decision, the State Securities Commission shall post information on such decision on its website, while the securities trading institution shall disclose information on such decision on the websites of the State Securities Commission and Stock Exchange and its own website.

Article 12. Reporting on liquidity ratio

1. Regular reporting

a) A securities trading institution shall send to the State Securities Commission monthly prudential ratio reports at the end of month, made according to the form provided in Appendix V or VI attached to this Circular. A report for a month shall be enclosed with an electronic file and sent via the database system within seven (07) working days after the end of the month.

b) A securities trading institution shall send to the State Securities Commission and concurrently disclose information on its website its prudential ratio reports on June 30 and December 31 made according to the form provided in Appendix V or VI attached to this Circular after such reports are reviewed or audited by an accredited audit firm. Such reports shall be sent to the State Securities Commission via the database system and disclosed at the same time as information on reviewed biannual financial statements or audited annual financial statements.

2. Irregular reporting

a) As soon as its liquidity ratio falls below 180%, a securities trading institution shall send to the State Securities Commission a liquidity ratio report, made according to the form provided in Appendix V or VI attached to this Circular, twice a month (data on the 15^thand 30^thevery month). A report shall be enclosed with an electronic file and sent via the database system within three (03) working days following the 15^thand 30^thevery month.

b) As soon as its liquidity ratio falls below 150%, a securities trading institution shall send to the State Securities Commission a weekly liquidity ratio report, made according to the form provided in Appendix V or VI attached to this Circular. A report shall be enclosed with an electronic file and sent via the database system before 4:00 p.m. every Friday.

c) As soon as its liquidity ratio falls below 120%, a securities trading institution shall send to the State Securities Commission daily liquidity ratio reports, made according to the form provided in Appendix V or VI attached to this Circular. A report shall be enclosed with an electronic file and sent via the database system before 4:00 p.m. every day.

3. Securities trading institutions may make reports on a regular basis under Clause 1 of this Article when their liquidity ratio reaches and surpasses 180% in the reporting periods for three (03) consecutive months.

Chapter III

HANDLING MEASURES FOR CASES OF FAILURE TO ACHIEVE PRUDENTIAL RATIOS

Section 1

WARNING

Article 13. Warning

1. The State Securities Commission shall issue a decision to place a securities trading institution in the state of warning in the following cases:

a) Its liquidity ratio is between 150% and under 180% in all reporting periods for three (03) consecutive months; or

b) Its liquidity ratio reviewed or audited by an accredited audit firm is between 150% and under 180%; or

c) In a prudential ratio report, an accredit audit firm gives modified opinions (or adverse opinions), makes a disclaimer of opinions (or is unable to give opinions), gives qualified opinions on a number of items in such report, and if the impact of qualified opinions on liquidity is done away, the liquidity ratio will reach between 150% and under 180%.

2. The warning period starts from the date on which the securities trading institution is placed  in the state of warning to the date on which the State Securities Commission issues a decision to place such securities trading institution out of the state of warning.

3. A securities trading institution may be considered to be placed out of the state of warning by the State Securities Commission when its liquidity ratio reaches or surpasses 180% for three (03) consecutive months, in which the liquidity ratio in the last reporting period shall be audited by an accredited audit firm and such securities trading institution shall report to the State Securities Commission the remedy of the state of warning according to Appendix XI attached to this Circular.

Section 2

CONTROL

Article 14. Control

1. The State Securities Commission shall issue a decision to place a securities trading institution under control in the following cases:

a) Its liquidity ratio is between 120% and under 150% in all reporting periods for three (03) consecutive months; or

b) Its liquidity ratio reviewed or audited by an accredited audit firm is between 120% and under 150%; or

c) In a prudential ratio report, an accredited audit firm gives modified opinions (or adverse opinions), makes a disclaimer of opinions (or is unable to give opinions), gives qualified opinions on a number of items in such report, and if the impact of qualified opinions on liquidity is done away, the liquidity ratio will reach between 120% and under 150%.

2. The control period must not exceed 12 months from the date a securities trading institution is placed under control.

3. Past four (04) months from the date a securities company being its member is placed under control, a Stock Exchange shall partially suspend transactions of such member company if the latter cannot remedy the situation subject to control. The suspension of a member securities company s transactions by the Stock Exchange will end when the State Securities Commission decides to put such securities company out of control. The order and procedures for suspending transactions of member securities company of a Stock Exchange must comply with regulations of such Stock Exchange.

4. A securities trading institution may be considered to be put out of control by the State Securities Commission when its liquidity ratio reaches or surpasses 180% for three (03) consecutive months, in which the liquidity ratio in the last reporting period shall be audited by an accredited audit firm and such securities trading institution shall report to the State Securities Commission the remedy of the situation subject to control according to Appendix XI attached to this Circular.

Article 15. Remedy plans

1. Within fifteen (15) days after the State Securities Commission issues a decision to place a securities trading institution under control, this securities trading institution shall send to the State Securities Commission a detailed remedy report on its financial status, causes and remedy plan.

2. A remedy plan shall be worked out for two (02) subsequent years, containing a roadmap, conditions, deadline and plans for implementation detailed by month and quarter. The State Securities Commission may request the securities trading institution to adjust its remedy plan any time when it finds this plan unfeasible, unsuitable to market conditions or incompliant with law.

3. A remedy plan must contain the following remedies:

a) Sale of high-risk assets; restriction on or cessation of the purchase of treasury stocks;

b) Recovery of debts; resale of shares or capital contribution portions to creditors;

c) Reduction of operation and corporate governance expenses; reorganization of the managerial apparatus and human resources or staff cuts;

d) Narrowing of the operation scope and area; closure of some subsidiaries or transaction offices; reduction of securities trading operations;

dd) Suspension of the payment of stock dividends and distribution of profits; increase of capital in accordance with law;

e) Consolidation into or merger with another securities trading institution conducting the same business line or of the same type in accordance with law;

g) Other remedies not in contravention of law.

Section 3

SPECIAL CONTROL

Article 16. Special control

1. The State Securities Commission shall issue a decision to place a securities trading institution under special control in the following cases:

a) Its liquidity ratio calculated by itself or reviewed, audited by an accredited audit firm falls below 120%; or

b) It fails to remedy the situation subject to control within the 12-month time limit prescribed in Clause 2, Article 14 of this Circular; or

c) It fails to make prudential ratio reports for two (02) consecutive reporting periods or to have its prudential ratio reports audited or reviewed or to disclose information on its prudential ratio reports reviewed or audited by an accredited audit firm under Point b, Clause 1, Article 12 of this Circular; or

d) In a prudential ratio report, an accredit audit firm gives modified opinions (or adverse opinions), makes a disclaimer of opinions (or is unable to give opinions), gives qualified opinions on a number of items in such report, and if the impact of qualified opinions on liquidity is done away, the liquidity ratio will fall below 120%.

2. The period of special control must not exceed four (04) months after a securities trading institution is placed under special control.

3. Except the case of special control specified at Point b, Clause 1 of this Article, past one (01) months from the date a securities company being a member of a Stock Change is placed under special control, the Stock Exchange shall partially suspend transactions conducted by such member company if the latter cannot remedy the situation subject to special control. The suspension of transactions by the Stock Exchange will end when the State Securities Commission decides to put such company out of special control. The order and procedures for suspending transactions of member securities company of a Stock Exchange must comply with regulations of such Stock Exchange.

4. A securities trading institution may be considered to be put out of special control by the State Securities Commission when its liquidity ratio reaches or surpasses 180% for three (03) consecutive months, in which the liquidity ratio in the last reporting period shall be audited by an accredited audit firm and such securities trading institution shall report to the State Securities Commission the remedy of the situation subject to special control according to Appendix XI attached to this Circular.

5.  Upon the expiration of the special control period specified in Clause 2 of this Article, if the securities trading institution still fails to remedy the situation subject to special control, it shall be suspended from operation.  The order and procedures for operation suspension must comply with the regulations on organization and operation of securities companies and fund management companies.

6. Within twenty four (24) hours after a securities trading institution’s operations is suspended, the State Securities Commission shall disclose information on the suspension on its website.

7. After 06 months from the effective date of the suspension decisions, the State Securities Commission shall issue a decision to revoke the securities brokerage operations in case the securities companies cannot remedy the suspension situation as prescribed in Clause 5, Article 16 of this Circular.

Article 17. Plans to remedy the situation subject to special control

1. Within seven (07) days after the State Securities Commission issues a decision to place a securities trading institution under special control, this institution shall send to the State Securities Commission a detailed report on its financial status, causes and a remedy plan.

2. Remedy plans shall be made under Clauses 2 and 3, Article 15 of this Circular.

Section 4

RESPONSIBILITIES OF RELATED PARTIES

Article 18. Responsibilities of individuals and securities trading institutions placed under control or special control

1. The Board of Directors, Members’ Council, Director General (Director) of a securities trading institution placed under control or special control shall:

a) Work out a remedy plan and organize the implementation of this plan;

b) Continue managing, controlling and administering operation and ensure safety of assets of the securities trading institution in accordance with law;

c) Take responsibility for matters related to the organization and operation of the securities trading institution before, during and after the control or special control period;

d) Provide supports or create favorable conditions for other institutions to perform their responsibilities specified in this Circular and other duties as requested in writing by the State Securities Commission.

2. Before 4:00 p.m. every Friday, securities trading institutions shall report to the State Securities Commission on the implementation of their remedy plans and implementation results.

3. During the control or special control period:

a) A securities trading institution may neither pay stock dividends to its shareholders, nor divide profits to its capital contributors nor give bonuses to members of the Board of Directors, Members’ Council, Control Board, Director General (Director), Deputy Directors General (Deputy Directors), chief accountant, staff members and related persons;

b) A securities trading institution may not convert unsecured debts into debts secured with its own assets;

c) A securities trading institution may neither purchase treasury stocks nor redeem capital contributions from its capital contributors;

d) A securities trading institution may not sign new or extended margin trading contracts, securities purchase lending contracts, contracts on purchase transactions with commitment to resell securities and contracts on provision of loans to clients without security assets and continue performing these contracts and transactions; and may not sign contracts on issuance underwriting in the form of firm commitment;

dd) A securities trading institution may not set up new transaction offices, subsidiaries and representative offices, expand its operation area and add securities trading operations;

e) A securities trading institution may neither contribute capital to establish affiliated companies, nor invest in real estate; is restricted from investing in high-risk assets or conducting business operations to increase its risk value and reduce liquidity.

g) A securities company may only manage money amounts from securities transactions according to the method of its clients opening direct accounts at commercial banks selected by such securities company to manage money amounts from securities transactions.

Article 19. Responsibilities of other related institutions

1. The Stock Exchange, the Vietnam Securities Depository and Clearing Corporation, depository members, supervisory banks, payment banks and other related institutions shall timely provide to the State Securities Commission sufficient information and documents related to the transactions, investment and business operations of securities trading institutions placed under control or special control as requested in writing by the State Securities Commission.

2. The Stock Exchange, the Vietnam Securities Depository and Clearing Corporation, supervisory banks, depository banks and related securities trading institutions shall provide guidance, support and securities services to clients of securities trading institutions placed under control or special control as requested in writing by the State Securities Commission.

3. The Stock Exchange and the Vietnam Securities Depository and Clearing Corporation shall implement the relevant provisions of this Circular.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 20. Implementation provisions

1. This Circular takes effect on January 01, 2021, except the cases specified in Clause 2 of this Article. This Circular replaces the Circular No. 87/2017/TT-BTC dated August 15, 2017 of Finance, prescribing prudential ratios and remedies to be taken by securities trading institutions that fail to achieve these ratios.

2.Point dd, Clause 5, Article 5; Point d, Clause 3, Article 6; Point k, Clause 1, Article 10, and Clause 10, Article 10 of this Circular and the ordinal number 28, Section VII, Appendix I - Market risk coefficient promulgated together with this Circular takes effect on January 01, 2022.

3. Any amendments, supplementations, replacement or repeal of this Circular shall be decided by the Minister of Finance./.

* All Appendices are not translated herein.