Decree No. 42/2015/ND-CP dated May 05, 2015 of the Government on derivatives and the derivatives market

DECREE

On derivatives and the derivatives market[1]

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to the November 26, 2014 Law on Enterprises;

Pursuant to the June 29, 2006 Law on Securities; and the November 24, 2010 Law Amending and Supplementing a Number of Articles of the Law on Securities;

At the proposal of the Minister of Finance,

The Government promulgates the Decree on derivatives and the derivatives market.

Chapter I

GENERAL PROVISIONS

Article 1.Scope of regulation

This Decree provides derivatives and the derivatives market.

Article 2.Subjects of application

1. Vietnamese and foreign institutions and individuals investing in derivatives and operating on the derivatives market in Vietnam.

2. Other institutions and individuals involved in the investment and trading in derivatives and the derivatives market in Vietnam.

Article 3.Interpretation of terms

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

1. Derivatives means a type of securities referred to in the Law on Securities and the Law Amending and Supplementing a Number of Articles of the Law on Securities, including:

a/ Future, which is a listed derivative certifying the commitment between parties to conduct one of the following transactions:

- Buying or selling a specified underlying asset quantity at a specified price with payment occurring on a specified future date; or

- Paying the difference between the value of an underlying asset determined at the time the contract is entered into and the value of such asset on a specified future date.

b/ Option, which is a derivative certifying rights of the buyer and obligations of the seller to conduct one of the following transactions:

- Buying or selling a specified underlying asset quantity at a specified strike price before or on a specified future date; or paying the difference between the value of an underlying asset determined at the time the contract is entered into and the value of such asset before or on a specified future date; or

- Buying or selling a specified quantity of futures at a specified strike price before or on a specified future date.

c/ Forward, which is a derivative of agreement transactions certifying the commitment to buy or sell a specified underlying asset quantity at a specified price on a specified future date.

d/ Other derivatives as guided by the Ministry of Finance.

2. Underlying asset means a security or another asset on which the value of a derivative depends.

3. Derivative trading market (or derivatives market for short) means a place or mode of information exchange to gather buying and selling orders and trade in derivatives or to perform the clearing and payment of derivative transactions.

4. Derivative investment means the purchase or sale of listed derivatives or agreed trading in derivative contracts on the derivatives market.

5. Derivative business means the conduct of one, two or all of the following activities:

a/ Derivative brokerage;

b/ Derivative dealing;

c/ Derivative investment consultancy.

6. Derivative business institution means a securities business institution conducting one or several of derivative business activities.

7. Position of a derivative at a time means the trading status and volume of a valid derivative held by an investor at that time. When an investor buys or sells a derivative, he/she/it is said to be opening a long position or opening a short position of such derivative.

8. Open position of a derivative means that an investor is holding a derivative which remains valid and unliquidated or unsettled.

9. Net position of a derivative at a time is the difference between the open long position and open short position of such derivative at a specified time.

10. Position limit of a derivative means the maximum net position of a derivative or of a derivative and other derivatives based on the same underlying asset which an investor is entitled to hold at a time.

11. Trading order limit of a derivative means the maximum quantity of a derivative which may be placed on a trading order.

12. Accumulated order limit of a derivative means the maximum quantity of a derivative on trading orders pending exercise which may be placed from a trading account.

13. Derivative trading member (below referred to as trading member for short) means a member of the Stock Exchange that may conduct derivative dealing and brokerage activities.

14. Special trading member means a commercial bank and a member of the Stock Exchange that may invest in derivatives on government bonds.

15. Market founding member means a trading member or special trading member that may found a market for one derivative or several derivatives.

16. Clearing member means a securities company, commercial bank or foreign bank branch that may make clearing of or payment for derivative transactions.

17. General clearing member means a clearing member that may make clearing of or payment for its own or its brokerage clients’ derivative transactions and provide services of clearing or paying derivative transactions to non-clearing members and their clients.

18. Direct clearing member means a clearing member that may only conduct clearing of or payment for its own and its brokerage clients.

19. Non-clearing trading member (below referred to as non-clearing member for short) means a trading member that may not act as a clearing member.

20. Clearing or payment entrustment contract means a contract under which a non-clearing member entrusts a general clearing member to conduct clearing of or payment for its and its brokerage clients’ derivative transactions.

21. Clearing fund means a fund formed from contributions of clearing members for the purpose of paying compensations for damage and completing derivative transactions conducted under the names of clearing members in case such clearing members or investors become insolvent.

Chapter II

DERIVATIVE BUSINESS INSTITUTIONS

Article 4.Conditions for derivative business or provision of derivative clearing and payment services

1. The derivative business of an securities business institution must have a certificate of eligibility for derivative business granted by the State Securities Commission. The conditions for an institution to be granted a certificate of eligibility for derivative business include:

a/ Being a securities business institution licensed to conduct all securities business operations in accordance with the Law on Securities;

b/ Financial condition:

- For derivative dealing: Being a securities company having a charter capital or an equity capital of at least six hundred (600) billion VND;

- For derivative brokerage: Being a securities company having a charter capital or an equity capital of at least eight hundred (800) billion VND and licensed to conduct derivative dealing;

- For derivative consultancy: Being a securities business institution having a charter capital or an equity capital at least equal to the legal capital prescribed by the securities law;

- In case of having made business registration for all operations of derivative consultancy, brokerage and dealing, a securities company must have a charter capital or equity capital of at least eight hundred (800) billion VND.

c/ Meeting the Ministry of Finance’s requirements on business result, liquidity capital ratio and professional operation process. Its director or general director and deputy (general) director in charge of professional operations and at least five (5) staff members for each derivative business operation intended to be registered must possess a securities practice certificate and a certificate of training in derivatives and the derivatives market;

d/ Not being in the process of consolidation, merger or dissolution, or placed under control or special control, or subject to operation suspension or termination under a decision of a competent agency.

2. The provision of the derivative transaction clearing or payment service by a securities company, commercial bank or foreign bank branch must have a certificate of eligibility for provision of the derivative transaction clearing or payment service granted by the State Securities Commission. The conditions for an institution to be granted a certificate of eligibility for provision of the derivative transaction clearing or payment service include:

a/ Being a depository member of the Vietnam Securities Depository;

b/ Being a commercial bank or foreign bank branch permitted in writing by the State Bank of Vietnam to conduct the derivative transaction clearing or payment operation; or a securities company possessing a certificate of eligibility for derivative brokerage;

c/ Financial condition:

- For a direct clearing member: Being a commercial bank having a charter capital or an equity capital of at least five (5) trillion VND; or a securities company having a charter capital or an equity capital of at least nine hundred (900) billion VND;

- For a general clearing member: Being a commercial bank having a charter capital or an equity capital of at least seven (7) trillion VND; or a securities company having a charter capital or an equity capital of at least one thousand and two hundred (1,200) billion VND.

d/ Meeting the Ministry of Finance’s requirements on business result and liquidity capital ratio (for securities companies) or capital adequacy ratio and branch capital allocation (for commercial banks and foreign bank branches) and the professional process of derivative transaction clearing or payment operation;

dd/ Meeting the condition prescribed at Point d, Clause 1 of this Article.

3. The Ministry of Finance shall guide the dossier, order and procedures for application for a certificate of eligibility for derivative business and a certificate of eligibility for provision of derivative transaction clearing or payment service.

Article 5.Suspension or termination of derivative business or provision of the derivative clearing or payment service

1. The State Securities Commission shall decide on suspension of one or several of derivative business operations for no more than twelve (12) months in the following cases:

a/ The dossier of application for a certificate of eligibility for derivative business has a forged document or contains an untruthful information.

b/ The business institutions conducts business for improper purposes or outside the scope specified in its certificate.

c/ The business institution fails to meet one or several of the conditions prescribed at Points a, b and c, Clause 1, Article 4 of this Decree for six (6) consecutive months.

d/ The business institution is placed under control or special control, and falls into other cases subject to operation suspension specified in Clause 1, Article 70 of the Law on Securities.

2. An securities business institution shall have its certificate of eligibility for derivative business revoked in the following cases:

a/ It terminates its operation at its own will.

b/ It is compelled to terminate its operation.

3. A securities business institution that wishes to terminate its derivative business shall submit a dossier and obtain the State Securities Commission’s approval before doing so.

4. A securities business institution is compelled to terminate its derivative business in the following cases:

a/ After the duration of derivative business suspension, it still fails to remedy its violations for which its operation has been suspended.

b/ It is dissolved, falls bankrupt, temporarily ceases its operation or has its establishment and operation license revoked; or is divided or split up with its successors failing to meet one of the business conditions prescribed in Clause 1, Article 4 of this Decree.

5. Within 24 hours after receiving a decision on operation suspension, an approval of operation termination or a request for operation termination, a securities business institution shall disclose information on its derivative business suspension or termination. In the course of its operation suspension or termination, a securities business institution shall:

a/ Report and disclose, on a regular basis or at the request of the State Securities Commission, information on its state and related activities; stop all derivative business activities, except the cases specified at Points b, c and d of this Clause.

b/ Transfer collateral assets and the open positions of investors to the replacing securities business institution at the request of the investors; conduct transactions to liquidate and close the position at the request of the investors.

c/ Liquidate and close the position on its dealing account and market founding account (if any), and execute transactions of investors before its own position-closing transactions.

d/ Conduct other activities as requested by the State Securities Commission.

6. The Ministry of Finance shall guide the dossier, order and procedures for derivative trading operation suspension or termination, and the revocation of certificates of eligibility for derivative business; guide the suspension or termination of the provision of the derivative clearing or payment service, and the revocation of certificates of eligibility for provision of the derivative clearing or payment service.

Chapter III

DERIVATIVE TRADING MARKET

Section 1

DERIVATIVES

Article 6.Derivatives to be traded on the derivative trading market

1. Derivatives to be traded on the derivative trading market include:

a/ Futures.

b/ Listed options.

c/ Forwards based on underlying assets being securities traded on the Stock Exchange.

d/ Other listed derivatives and other derivatives of agreement transactions based on underlying assets being securities traded on the Stock Exchange.

2. A derivative to be traded on the derivative market must have the following principal contents:

a/ Information about the underlying asset, including name and code of and other information about the underlying asset.

b/ Information about the derivative, including scope of the contract; trading method; position limit; trading duration, delivery month, last payment date, last trading date, listing date, payment mode; tick size, quotation unit, price band; method of determining daily payment price, reference price, payment price and collateral level.

c/ For options, there must be also information on option type (put or call), option style (European or American), exercise price and exercise duration.

3. The Ministry of Finance shall guide the listing and trading of derivatives based on underlying assets being securities.

4. Depending on the market demand and development conditions and at the proposal of the Minister of Finance, the Prime Minister shall consider and decide on the listing of derivatives based on underlying assets which are not securities.

Article 7.Delisting of derivatives

1. The Stock Exchange shall delist a derivative in the following cases:

a/ The derivative becomes due.

b/ The underlying asset of the derivative is delisted or no longer used as an underlying asset, and other cases specified in the regulations of the Stock Exchange.

c/ The delisting is requested by the issuer.

2. The delisting of a derivative specified at Point b or c, Clause 1 of this Article is subject to approval by the State Securities Commission.

Article 8.Derivative investment

1. Institutions and individuals may freely invest in derivatives available on the derivatives market, except the following cases of investment subject to specific conditions:

a/ A securities company may invest in derivatives only after being granted a certificate of eligibility for derivative dealing by the State Securities Commission.

b/ A fund management company may only invest in derivatives with entrusted capital, capital of an investment fund or a securities investment company in case the investment portfolio management contract or the charter of the investment fund or securities investment company contains a clause permitting the use of entrusted capital or capital of the investment fund or securities investment company for investment in derivatives; a fund management company may not invest in derivatives with its own capital, including also loans and other lawfully raised capital.

c/ A credit institution or foreign bank branch may invest in derivatives only after obtaining written approval from the State Bank.

d/ An insurance enterprise or a foreign insurance enterprise branch may invest in derivatives only after obtaining approval from the Ministry of Finance in accordance with the law on insurance business.

dd/ A state economic group, state corporation, state enterprise or enterprise wholly owned by a state enterprise may invest in derivatives only after obtaining permission from a competent management agency or its owner in accordance with the law on management and use of state capital invested in production or business at enterprises.

2. In the course of derivative investment or business, institutions and individuals shall bear responsibility for risks and abide by law and may not commit prohibited acts prescribed in Article 9 of the Law on Securities.

3. The investment and trading in listed derivatives must comply with this Decree. For an unlisted derivative specified in Clause 1, Article 6 of this Decree, before and after entering into and performing a contract, an investor shall notify such in writing to the Vietnam Securities Depository. The trading, clearing and payment of, and performance of contracts on, unlisted derivatives must comply with agreements between parties to transactions and relevant regulations. In case the Stock Exchange or the Vietnam Securities Depository organizes the trading, clearing and payment of unlisted derivatives, they shall comply with this Decree.

Section 2

ORGANIZATION OF DERIVATIVE TRADING

Article 9.Organization of derivative trading

1. The Stock Exchange may organize trading in derivatives. No institution other than the Stock Exchange and no individual may organize trading in listed derivatives specified in Clause 1, Article 6 of this Decree.

2. The Stock Exchange shall organize and administer the operation of the derivatives market in accordance with the Law on Securities, this Decree, relevant legal documents and its charter.

Article 10.Rights of the Stock Exchange regarding derivative trading activities

1. To design products, list and organize trading in derivatives specified in Clause 1, Article 6 of this Decree and issue professional regulations after obtaining approval from the State Securities Commission.

2. To accept or reject registration, suspend or terminate the membership of trading members, special trading members and market founding members under its regulations or at the request of the State Securities Commission.

A trading member that has its membership suspended or terminated shall reach agreement on and determine a replacing trading member. In case such member cannot do so, the Stock Exchange is entitled to appoint a replacing trading member to take over rights and obligations of such member. Such member shall provide all necessary information on investors to the replacing trading member and continue performing all of its obligations until the transfer of rights and obligations to the replacing trading member is completed.

3. To request the Vietnam Securities Depository to promptly and fully provide necessary information for the supervision and organization of the derivatives market in accordance with law.

4. Other rights provided in Article 37 of the Law on Securities and other relevant laws.

Article 11.Obligations of the Stock Exchange regarding derivative trading activities

1. To ensure an information technology and technical infrastructure system suitable to the operation of the market; to organize the operation of the market, supervise and disclose information on derivative trading in accordance with law.

2. To inspect and supervise the maintenance of operation conditions and compliance with its regulations and relevant regulations by trading members, special trading members and market founding members; to promptly, fully and accurately report on the operation of the market and members to the State Securities Commission under regulations, when so requested or detecting a violation.

3. To coordinate with the Vietnam Securities Depository in ensuring safe and efficient trading activities on the market, clearing and payment of derivative transactions in accordance with this Decree and other relevant legal documents.

4. Other obligations prescribed in Article 38 of the Law on Securities and other relevant laws.

Article 12.Derivative trading

1. The Stock Exchange may organize trading in derivatives specified in Clause 1, Article 6 of this Decree by the trading methods of order matching and agreement.

2. Listed derivative trading activities may be carried out through trading members and the Stock Exchange. Listed derivative transaction clearing and payment activities may be carried out through clearing members and the Vietnam Securities Depository.

3. The Ministry of Finance shall guide derivative trading by investors.

Article 13.Market stabilization measures

1. The Stock Exchange may apply one or several of the following measures to stabilize the market and protect investors:

a/ Changing the number of trading sessions and trading time.

b/ Applying or adjusting order limits or accumulated order limits.

c/ Limiting the opening of new positions.

d/ Ceasing or cancelling trading orders.

2. Market stabilization measures to be applied by the Stock Exchange specified in Clause 1 of this Article shall be guided in regulations of the Stock Exchange after they are approved by the State Securities Commission.

Section 3

TRADING MEMBERS, SPECIAL TRADING MEMBERS

Article 14.Registration of trading members, special trading members, market founding members

1. A securities company registering as a trading member on the Stock Exchange must meet the following conditions:

a/ Having a certificate of eligibility for derivative brokerage granted by the State Securities Commission and meeting the condition prescribed at Point d, Clause 1, Article 4 of this Decree.

b/ Meeting the requirements of the Stock Exchange on information technology infrastructure and professional operation process for derivative trading.

2. A commercial bank registering as a special trading member on the Stock Exchange must meet the following conditions:

a/ Being a trading member on the government bond market of the Stock Exchange.

b/ Being permitted by the State Bank to invest in derivatives.

c/ Meeting the conditions prescribed at Point b, Clause 1 of this Article, and Point d, Clause 1, Article 4, of this Decree.

3. A trading member or special trading member that is concurrently a clearing member may register as a market founding member on the basis of a contract signed with the Stock Exchange.

4. The Stock Exchange may change the number of market founding members, and reject registration of market founding members and extension of market founding contracts.

5. The Stock Exchange shall guide the dossier, order and procedures for registration of trading members, special trading members and market founding members.

Article 15.Rights and obligations of trading members, special trading members and market founding members

1. Rights and obligations of trading members:

a/ To deal in derivatives and provide derivative investment consultancy and brokerage services to investors. Special trading members may invest in derivatives based on underlying assets being government bonds.

b/ To receive and execute trading orders of investors, and provide, on a regular basis or at the request of investors, full information on activities on trading accounts;

A trading member being a non-clearing member shall enter into a contract on entrustment of derivative clearing and payment with a general clearing member before providing the derivative consultancy service.

c/ Other rights and obligations provided in Article 39 of the Law on Securities and guiding documents.

2. Rights and obligations of market founding members:

a/ To enjoy incentives as agreed upon with the Stock Exchange.

b/ To open market founding accounts separately from dealing accounts and trading accounts of investors.

c/ To make quotations under regulations of the Stock Exchange.

d/ Other rights and obligations as agreed upon with the Stock Exchange and relevant regulations.

Article 16.Contracts on opening of derivative trading accounts

1. Trading members shall request investors to provide full and accurate client identification and status determination information before entering into contracts to open derivative trading accounts for their clients.

2. A contract on opening of a derivative trading account must have the following principal contents on clearing and payment entrustment:

a/ The clearing member may use the collateral asset of the investor as a collateral at the Vietnam Securities Depository for the open position of the investor.

b/ In case the investor is insolvent, the clearing member may close the position and use the collateral asset of the investor under Point c, Clause 1, Article 22 of this Decree.

c/ Risks occurring in case the clearing member is insolvent, has its operation suspended, temporarily ceases its operation, is dissolved or falls bankrupt.

3. The Ministry of Finance shall guide the model contract on opening of a derivative trading account for investor.

Article 17.Exercise of transactions

1. Trading members may receive trading orders of investors only after ascertaining that such investors have trading accounts, initial collaterals and sufficient maintenance collaterals as required by clearing members.

2. To maintain positions, trading members shall ensure that investors have sufficient maintenance collaterals as required by clearing members. In case an investor has an insufficient maintenance collateral and fails to promptly supplement the collateral as required by the clearing member, the investor and clearing member shall comply with Point c, Clause 1, Article 22 of this Decree.

Chapter IV

DERIVATIVE CLEARING AND PAYMENT

Section 1

ORGANIZATION OF DERIVATIVE CLEARING AND PAYMENT

Article 18.Organization of derivative clearing and payment

1. Clearing and payment of a derivative transaction under the mechanism of central counterparty clearing may only be conducted through the Vietnam Securities Depository as a trading counterparty, while the clearing party shall act as the other counterparty of the transaction, even in case the transaction is exercised by a third party.

2. The Vietnam Securities Depository shall conduct the clearing and payment of transactions on derivatives specified in Clause 1, Article 6 of this Decree on the following principles:

a/ The clearing and payment of transactions on derivatives listed on the Stock Exchange as specified in Clause 1, Article 6 of this Decree shall be conducted under the mechanism of central counterparty clearing through the Vietnam Securities Depository.

b/ The clearing and payment under the mechanism of central counterparty clearing of transactions on unlisted derivatives specified in Clause 1, Article 6 of this Decree shall be conducted by the Vietnam Securities Depository on the basis of agreements with parties to such transactions.

Article 19.Rights of the Vietnam Securities Depository regarding the clearing and payment of derivative transactions

1. To clear and settle transactions on derivatives specified in Clause 1, Article 6 of this Decree; to issue professional regulations after obtaining approval from the State Securities Commission.

2. To accept or reject registration, suspend or terminate the membership of clearing members under its regulations or at the request of the State Securities Commission.

A clearing member that has its membership suspended or terminated shall reach agreement and determine a replacing clearing member. In case such member cannot do so, the Vietnam Securities Depository may appoint a replacing clearing member to take over rights and obligations of such member. Such member shall transfer all collateral assets and open positions of its clients, and provide all necessary information on its clients to the replacing clearing member and continue performing all of its obligations until the transfer of rights and obligations to the replacing clearing member is completed.

3. Rights of the Vietnam Securities Depository toward clearing members:

a/ To request clearing members to make collaterals and contribute to the clearing fund.

b/ To request clearing members to promptly, fully and specifically report on trading activities, accounts and collateral assets of investors.

c/ To determine and adjust the minimum initial collateral and minimum maintenance collateral and the list of assets accepted as collaterals.

d/ To determine and adjust the position limit for clearing members and investors.

dd/ To exercise matched sale-purchase transactions to close positions under the names of insolvent or bankrupt clearing members.

4. In case of necessity or at the request of the State Securities Commission, the Vietnam Securities Depository may carry out the following activities in order to protect investors and market safety:

a/ In case a clearing member is insolvent:

- Closing or liquidating the position of the clearing member; using, selling or transferring the clearing member’s collateral assets to perform such member’s obligations; using the clearing member’s contributions to the clearing fund to offset financial losses (if any);

- Transferring collateral assets and open positions of clients to the replacing clearing member under Clause 2 of this Article. In case the transfer is impossible, the Vietnam Securities Depository may close or liquidate the position; use, sell or transfer of assets of clients used by the clearing member as collaterals to perform such clients’ obligations or offset financial losses arising from the open position of clients. Collateral assets of clients may only be used to perform financial obligations arising from derivative transactions of such clients.

b/ In case a clearing member is bankrupt: The Vietnam Securities Depository shall act as the creditor with regard to receivables of the clearing member and be the first to receive divided assets in accordance with the law on bankruptcy. The order and procedures for receiving divided assets must comply with relevant laws.

c/ Requesting other clearing members to conduct matched sale-purchase transactions to close the position under the name of the insolvent or bankrupt clearing member, regardless of whether that position is the open position of such clearing member or an investor.

5. The Vietnam Securities Depository may provide the service of managing accounts and collateral assets to clearing members, non-clearing members and clients of non-clearing members, ensuring separate management of accounts and investment portfolios of each client.

6. To request the Stock Exchange and clearing members to promptly provide all information on transactions of such members and investors.

7. To exercise other rights provided in Article 45 of the Law on Securities and other relevant laws.

Article 20.Obligations of the Vietnam Securities Depository regarding the clearing and payment of derivative transactions

1. To ensure the information technology and technical infrastructure system suitable to the clearing and payment of derivative transactions; to organize and supervise the clearing and payment of derivative transactions, ensuring safety, efficiency, fairness and impartiality.

2. To establish and operate a risk management system for derivative clearing and payment activities. To create a payment security mechanism for derivate clearing and payment activities.

3. To inspect and supervise the maintenance of operation conditions and compliance with its regulations and relevant regulations by clearing members; to promptly, fully and accurately report on derivative transaction clearing and payment activities and operations of clearing members to the State Securities Commission under regulations, when so requested or detecting a violation.

4. In the payment and finalization of derivative transactions, to fulfill its obligations and commitments only to clearing members, not to third parties.

5. To establish a system to manage accounts and assets of clearing members separately from its own accounts and assets; separately manage accounts and assets of each clearing member and manage accounts and collateral assets of clearing members separately from those of clients of such clearing members.

6. To deduct no more than 15% of its annual revenues from derivative clearing and payment activities to set up a payment risk provision in order to offset financial losses (if any). Such deduction may be accounted as operation expense for determination of taxable income.

7. To manage and use the clearing fund and payment risk provision under the guidance of the Ministry of Finance.

8. Other obligations prescribed in Article 46 of the Law on Securities and other relevant laws.

Section 2

CLEARING MEMBERS

Article 21.Registration of clearing members

1. Conditions for an entity to be registered as a clearing member include:

a/ Having a certificate of eligibility for provision of derivative transaction clearing and payment services granted by the State Securities Commission and meeting the condition prescribed at Point d, Clause 1, Article 4 of this Decree. A securities company must be concurrently a derivative trading member of the Stock Exchange.

b/ Meeting the requirements of the Vietnam Securities Depository on information technology infrastructure, professional operation process and personnel for derivative clearing and payment.

2. The Vietnam Securities Depository shall guide the dossier, order and procedures for registration of clearing members.

Article 22.Rights and obligations of clearing members

1. Rights of clearing members:

a/ Direct clearing members may conduct clearing and payment for their own and their clients’ derivative transactions. General clearing members may also provide the service of clearing and settling derivative transactions for other investors, including transactions of non-clearing members and clients of such members.

b/ To request investors to promptly and fully contribute collaterals before placing orders and in the course of position maintenance; to determine initial collateral and maintenance collateral levels depending on the nature and size of client transactions, ensuring that these levels are not lower than the prescribed minimum initial and maintenance collateral levels; to select types of securities to be used as collaterals from the list of assets acceptable as collaterals; to determine methods and duration of making and adding collaterals, changing collateral securities and transferring collateral assets in accordance with law.

c/ In case investors are insolvent, clearing members may:

- Request such investors to conduct or conduct by themselves the compulsory closure or liquidation of open positions of investors;

- Use, sell or transfer collateral assets of such investors as security assets or buy security assets for loans for performing payment obligations for open positions of investors;

d/ To use collateral assets of investors to perform the collateral obligation toward the Vietnam Securities Depository for positions of such investors on the principles prescribed in Clause 2, Article 25 of this Decree; to use collateral assets of investors to secure and make payments regarding positions of investors whom they represent.

dd/ In case a clearing member performs contractual obligations for another clearing member whose membership is suspended or terminated under Clause 2, Article 19 of this Decree, collateral assets of investors for the clearing member whose membership is suspended or terminated shall be transferred to the replacing clearing member for management.

2. Obligations of clearing members:

a/ To act as authorized representatives of clients and fulfill on clients’ behalf all obligations toward the Vietnam Securities Depository.

b/ To promptly make sufficient collaterals at the Vietnam Securities Depository for their own and their clients’ open positions; to contribute to the clearing fund and set up hedge funds under Article 24 of this Decree. To provide financial and professional assistance under the guidance of the Vietnam Securities Depository for a clearing member or an investor that falls insolvent or goes bankrupt.

c/ To establish and maintain an internal control system, a system and procedures for risk management in each business operation; to establish and operate an account system to separately manage assets and trading positions of each investor and assets and positions of investors from those of clearing members.

d/ To determine position profits and losses, calculate initial collateral, supplemented collateral and the value of collateral assets for each trading account of investors. To request investors to promptly and fully supplement collaterals in case the value of collateral assets no longer meets the required maintenance collateral level; to refund the collateral asset in excess of the initial collateral level as requested by investors; to supervise and manage positions and collateral assets of investors in accordance with law.

dd/ To pay compensations to investors in case they fail to perform obligations prescribed by law, causing damage to lawful interests of investors, at levels agreed with investors.

e/ To provide the Vietnam Securities Depository with copies of clearing entrustment contracts; to keep all original documents on derivative clearing and payment; to promptly, fully and accurately provide information on open positions and collateral assets of investors and documents relevant to the clearing and payment at the request of the Vietnam Securities Depository.

g/ To promptly and fully pay to the Vietnam Securities Depository service charges and other expenses as prescribed.

h/ To disclose information and make reports under regulations; to provide, on a regular basis or at the request of investors, all information on activities on accounts, collateral account balance, and make statements of collateral accounts for investors.

3. To exercise other rights and perform other obligations under the guidance of the Ministry of Finance.

Section 3

DERIVATIVE CLEARING AND PAYMENT

Article 23.Principles of derivative transaction clearing and payment

1. The Vietnam Securities Depository shall ensure the ability of clearing members to clear and pay for derivative transactions through payment security and risk hedging mechanisms prescribed in Articles 27 and 28 of this Decree.

2. The monetary payment and finalization of derivative transactions between the Vietnam Securities Depository and clearing members shall be conducted in the form of account transfer via payment banks in accordance with law. The transfer of underlying assets being securities traded on the Stock Exchange shall be conducted on the system of depository accounts at the Vietnam Securities Depository.

Article 24.Contributions to the clearing fund, setting up of hedge funds of clearing members

1. Clearing members shall contribute money or securities to the clearing fund. Contribution levels and forms and assets which may be used to contribute to the clearing fund must comply with the requirements set by the Vietnam Securities Depository in accordance with law.

2. Clearing members shall set up hedge funds to hedge losses caused to investors by technical failures or staff errors in the course of operation. Hedge funds shall be deducted from operation earnings under the guidance of the Ministry of Finance.

Article 25.Collaterals of clearing members

1. Clearing members shall promptly deposit sufficient collaterals on accounts held by the Vietnam Securities Depository. Collateral assets of clearing members include money and securities accepted by the Vietnam Securities Depository as collaterals.

2. Collaterals shall be deposited by clearing members for all open positions under their names, including their own open positions and open positions of investors, on the following principles:

a/ The collateral level shall be calculated by the Vietnam Securities Depository for the open position on each trading account of investors and clearing members in order to determine the collateral level required for each clearing member.

b/ Assets deposited by investors as collaterals at clearing members under Clauses 1, 2 and 3, Article 26 of this Decree may only be used by clearing members as collaterals for positions of such investors but not for positions of other investors or their own positions.

3. On a daily basis and in trading sessions with large securities price fluctuations, the Vietnam Securities Depository shall calculate position profits and losses and determine the minimum maintenance collateral asset value on each account and for each position of investors under the names of clearing members and positions of such clearing members, and determine the total minimum maintenance collateral asset value which must be deposited by clearing members and supplemented collateral asset value of clearing members.

4. At the request of the Vietnam Securities Depository, a clearing member shall supplement the collateral in case its total collateral asset value is lower than the maintenance collateral level required by the Vietnam Securities Depository. In case the clearing member fails to promptly and fully supplement the collateral, the Vietnam Securities Depository may close part or the whole of the position under the name of such clearing member.

5. In case the collateral asset value of a clearing member is higher than the collateral level required by the Vietnam Securities Depository, such clearing member may withdraw part of the collateral asset under the guidance of the Vietnam Securities Depository.

6. The minimum initial collateral level, minimum maintenance collateral level, securities acceptable as collaterals, collateral making method and duration, collateral supplementation, change of securities used as collaterals, transfer of collateral assets, method of valuation of collateral assets, determination of position profits and losses, and management of accounts and collateral assets of investors and clearing members must comply with the guidance of the Ministry of Finance.

Article 26.Management of accounts and collateral assets of investors

1. Investors shall promptly and fully deposit collaterals at clearing members according to contracts on opening of derivative trading accounts. Collaterals of investors may be money or securities of such investors. Collateral securities must be securities on the list of assets accepted by clearing members as collaterals.

2. On a daily basis and in trading sessions with large securities price fluctuations, clearing members shall calculate position profits and losses and revaluate collateral assets, ensuring that investors always maintain collaterals as agreed upon in contracts and in accordance with law.

3. At the request of clearing members, investors shall supplement collaterals in case their collateral asset value is lower than the maintenance collateral level. The supplemented collateral level and time limit for collateral supplementation must comply with the guidance of clearing members to ensure that the collateral level after supplementation is not lower than the initial collateral level. In case investors fail to promptly and fully supplement their collaterals, clearing members shall conduct activities specified at Point c, Clause 1, Article 22 of this Decree. In case the collateral asset value is larger than the initial collateral level required by clearing members, investors may withdraw part of their collateral assets.

4. Clearing members shall separately manage accounts and collateral assets of each investor and separately from their own accounts and collateral assets on the following principles:

a/ In case collateral assets are money, clearing members shall open deposit accounts at account managing banks, set up an account system and monitor the monetary balance of each investor. They shall coordinate with account managing banks and request them to promptly, fully and accurately provide the monetary balance on accounts of investors.

b/ In case collateral assets are securities, clearing members shall manage these assets on depository accounts of investors at the Vietnam Securities Depository.

5. In case clearing members fall insolvent in accordance with the law on bankruptcy, collateral assets of investors are not assets of clearing members and may neither be used for handling in accordance with the law on bankruptcy nor divided in any form to creditors of clearing members or to shareholders or capital contributing members of companies. These assets may only be used to pay or secure payment for open positions of investors. Assets left after the payment obligation of investors is fulfilled shall be immediately returned to such investors.

Article 27.Payment security measures

1. In case a clearing member or its client falls insolvent, the Vietnam Securities Depository may use the following support sources to offset in the following order:

a/ Collateral of the insolvent clearing member or client.

b/ Contribution of the insolvent clearing member to the clearing fund at the Vietnam Securities Depository.

c/ Contributions of other clearing members to the clearing fund in certain proportions determined by the Vietnam Securities Depository after obtaining approval from the State Securities Commission.

d/ The payment risk provision of the Vietnam Securities Depository.

dd/ In case assets of the payment risk provision are not enough, the Vietnam Securities Depository may use its lawful capital sources and account them as operation expenses.

2. The Ministry of Finance shall guide the establishment and use of payment security mechanisms specified in Clause 1 of this Article.

Article 28.Risk hedging mechanisms at the Vietnam Securities Depository

1. The Vietnam Securities Depository may apply the following measures to hedge risks for the payment system and protect investors:

a/ Adjusting the prescribed collateral levels.

b/ Requesting clearing members to make additional contributions to the clearing fund.

c/ Adjusting the position limits applicable to clearing members and investors.

d/ Closing part or the whole of the open position of insolvent investors and clearing members.

dd/ Using the clearing fund and taking other measures specified in Clauses 3 and 4, Article 19 of this Decree.

2. The risk hedging measures specified in Clause 1 of this Article shall be guided by the Vietnam Securities Depository in its Regulation after obtaining approval from the State Securities Commission.

Article 29.Coordination between the Stock Exchange and Vietnam Securities Depository

Within the scope of their operation, the Stock Exchange and Vietnam Securities Depository shall coordinate with each other in:

1. Guiding the provisions of Clause 1, Article 6 of this Decree on derivatives listed on the Stock Exchange.

2. Granting identification numbers to investors, trading codes and ISIN to derivatives.

3. Handling the case where a securities company or commercial bank has its trading membership at the Stock Exchange or clearing membership at the Vietnam Securities Depository suspended or terminated.

4. Establishing and managing position limits.

5. Determining payment prices.

6. Sharing information and conducting supervision.

7. Other activities when necessary.

Chapter V

OBLIGATION TO DISCLOSE INFORMATION AND REPORT

Article 30.Subjects obliged to disclose information

The following institutions and individuals are obliged to disclose information on derivatives and the derivatives market:

1. The Stock Exchange.

2. The Vietnam Securities Depository.

3. Derivative business institutions.

4. Trading members, special trading members, clearing members and market founding members.

5. Related institutions and individuals.

Article 31.Requests for information disclosure

1. Information shall be disclosed by at-law representatives of companies or authorized persons. Disclosed information must be adequate, accurate and timely in accordance with law.

2. Documents and reports sent to the State Securities Commission, Stock Exchange and Vietnam Securities Depository may be hardcopy or softcopy as guided by the State Securities Commission, Stock Exchange and Vietnam Securities Depository.

Article 32.Reporting requirements

1. The Stock Exchange, Vietnam Securities Depository, derivative business institutions, trading members, special trading members and clearing members shall keep all documents on their transactions and business operations.

2. The Stock Exchange, Vietnam Securities Depository, derivative business institutions, trading members, special trading members and clearing members shall make reports on transactions, clearing, payment and derivative trading activities on a regular or an extraordinary basis or at the request of the State Securities Commission.

3. The Stock Exchange, Vietnam Securities Depository, derivative business institutions, trading members, special trading members and clearing members shall promptly, adequately and accurately provide information and documents and provide explanations at the request of, and submit to inspection by, the State Securities Commission.

4. Trading members, special trading members and clearing members shall report to the Stock Exchange and Vietnam Securities Depository under the latter’s regulations.

5. Contents and time limits for reporting and document preservation under Clauses 1, 2 and 3 of this Article must comply with the guidance of the Ministry of Finance.

Chapter VI

MANAGEMENT AND SUPERVISION

Article 33.Responsibilities and powers of the State Securities Commission

1. To grant and revoke certificates of eligibility for derivative trading, certificates of eligibility for provision of derivative clearing and payment services; to approve, terminate or suspend activities of trading in derivatives and providing derivative clearing and payment services; to issue professional operation processes and guidance on management and supervision of operations of the derivatives market.

2. To supervise the observance of law by institutions and individuals participating in the market in order to detect and prevent violations of the law on derivatives, protect investor interests and maintain the market order.

3. To assume the prime responsibility for, and coordinate with related institutions in, examining, inspecting and handling according to its competence violations of institutions and individuals showing signs of violation or violating regulations on derivatives.

4. To permit the Stock Exchange and Vietnam Securities Depository to issue professional regulations; to supervise the implementation of such regulations and observance of law by the Stock Exchange, Vietnam Securities Depository, derivative business institutions, trading members, special trading members, market founding members and clearing members.

5. To request the Stock Exchange, Vietnam Securities Depository, derivative business institutions, trading members, special trading members, market founding members and clearing members to report and disclose information, perform statistical work and collect data on activities of the market; to request these institutions to take measures in compliance with this Decree and guiding documents to ensure investor interests and market safety.

Article 34.Supervision by the State Securities Commission of derivative transactions

1. The State Securities Commission shall supervise the derivatives market in terms of:

a/ Derivative transactions.

b/ Operations of the Stock Exchange and Vietnam Securities Depository.

2. The Ministry of Finance shall guide the supervision of securities trading by the State Securities Commission.

Article 35.Management and supervision by the State Securities Commission of derivative business institutions

1. Supervising the observance of the law on securities by derivative business institutions, trading members and clearing members when providing services to investors and trading in derivatives.

2. Supervising the issuance and organization of implementation of processes, regulations and international regulations concerning the risk management and internal control in trading and provision of services to investors by derivative business institutions.

3. Supervising the maintenance of operation conditions by trading members and clearing members; the observance of the provisions on limitations on operation and protection of rights and interests of investors in this Decree and other relevant provisions of the law on securities.

4. Supervising the separate management of accounts and assets of investors from assets of derivative business institutions under this Decree and relevant legal documents.

5. Supervising the archive and management of trading data; and the performance of the obligation to report and disclose information under regulations.

Article 35.Trading supervision by the Stock Exchange

1. The Stock Exchange shall supervise:

a/ The observance of the law on securities and relevant regulations by trading members, special trading members and market founding members.

b/ Trading activities of institutions and individuals on the Stock Exchange in order to detect and prevent abnormal transactions and transactions showing signs of violation of the law on securities.

2. The Stock Exchange shall develop and promulgate a system of criteria for supervision of derivative transactions after obtaining approval from the State Securities Commission.

Article 37.Supervision by the Vietnam Securities Depository

1. The Vietnam Securities Depository shall supervise:

a/ The observance of the law on securities and other relevant regulations by clearing members; the management and supervision of the maintenance of prescribed collateral levels.

b/ The compliance with the regulations on position limits by investors when conducting derivative transactions.

2. Upon detecting signs of abnormal activities in payment for transactions or signs of insolvency of investors or clearing members, to warn and request clearing members to explain, provide relevant documents and information, and promptly report to the State Securities Commission.

Article 38.Trading supervision by trading members and clearing members

1. To coordinate with the State Securities Commission, Stock Exchange and Vietnam Securities Depository in supervising derivative transactions when so requested.

2. To promptly, adequately and accurately provide information on investors and their transactions in accordance with law.

3. To coordinate with the State Securities Commission in inviting investors to collaborate with inspection teams of the State Securities Commission and Stock Exchange on derivative transactions with abnormal signs. Upon detecting transactions conducted in violation of the regulations on securities and securities market, to promptly report them to the State Securities Commission.

Article 39.Obligation to provide information and give explanations upon request

1. Institutions and individuals that conduct derivative transactions or provide derivative trading and transaction payment services shall promptly, adequately and accurately provide information, documents and data on derivative transactions and explain related activities when so requested by the State Securities Commission, Stock Exchange and Vietnam Securities Depository.

2. If institutions or individuals that conduct securities transactions or provide securities trading services fail to coordinate or cooperate with the agencies specified in Clause 1 of this Article, they shall be handled in accordance with law.

Article 40.Mechanism for coordination among related ministries and sectors

Depending on the development demand of the derivatives market, the Ministry of Finance and State Securities Commission shall establish a mechanism for sharing information and coordination with related agencies at home and abroad in order to create a mechanism for safe and stable market management and supervision.

Chapter VII

INSPECTION AND HANDLING OF VIOLATIONS, SETTLEMENT OF DISPUTES, COMPLAINTS AND DENUNCIATIONS AND PAYMENT OF COMPENSATIONS FOR DAMAGE

Article 41.Settlement of disputes, complaints and denunciations and payment of compensations for damage

The settlement of disputes, complaints and denunciations, payment of compensations for damage and initiation of lawsuits about derivatives and derivatives market activities must comply with Articles 131, 132 and 133 of the Law on Securities and other relevant regulations.

Article 42.Inspection and handling of violations

1. The inspection and handling of violations related to the derivative listing, trading, investment and services and derivatives market must comply with Articles 108 thru 130 of the Law on Securities, the Government’s Decree No. 108/2013/ND-CP of September 23, 2013, on sanctioning of administrative violations in the field of securities and securities market, and the law on handling of administrative violations.

2. The sanctioning of violations of derivative trading members must comply with the provisions of the Government’s Decree No. 108/2013/ND-CP of September 23, 2013, on sanctioning of administrative violations in the field of securities and securities market, applicable to securities companies. The sanctioning of violations of clearing members must comply with the provisions of the Government’s Decree No. 108/2013/ND-CP of September 23, 2013, on sanctioning of administrative violations in the field of securities and securities market, applicable to securities companies, depository members and depository banks.

Chapter VIII

IMPLEMENTATION PROVISIONS

Article 43.Effect

1. Derivatives of agreement transactions specified in Clause 1, Article 6 of this Decree which are entered into before the effective date of this Decree may continue to be exercised under contracts between parties. Transactions and contracts on derivatives entered into after the effective date of this Decree must comply with this Decree.

2. This Decree takes effect on July 1, 2015.

Article 44.Organization of implementation

1. The Ministry of Finance shall guide the implementation of this Decree.

2. Ministers, heads of ministerial-level agencies, heads of government-attached agencies, and chairpersons of provincial-level People’s Committees shall implement this Decree.-

On behalf of the Government
Prime Minister
NGUYEN TAN DUNG