“Unraveling the ‘Pre-Funding’ Conundrum: Crafting a Seamless Process for Foreign Investors to Navigate the New Securities Circular.”

On July 26, 2024, at the Ministry of Finance headquarters, Deputy Minister Nguyen Duc Chi chaired a conference to discuss the draft circular amending and supplementing a number of articles of the circulars regulating securities trading on the securities trading system, securities settlement and payment, securities companies’ activities, and information disclosure in the securities market.

Attending the conference, on behalf of the State Securities Commission (SSC), were Ms. Vu Thi Chan Phuong, Chairwoman of the State Securities Commission, and Mr. Bui Hoang Hai, Vice Chairman of the SSC. Representatives from the Ministry of Public Security, the State Bank of Vietnam, the National Financial Supervisory Commission, the Ministry of Planning and Investment; units under the Ministry of Finance and the State Securities Commission; Vietnam Securities Depository and Clearing Corporation (VSDC), and representatives of member securities companies, custodian banks, and designated payment banks were also present.

Opening the conference, Deputy Minister of Finance Nguyen Duc Chi stated that the draft circular amending and supplementing a number of articles of the circulars regulating securities trading on the securities trading system, securities settlement and payment, securities companies’ activities, and information disclosure in the securities market has been published to gather opinions from organizations, individuals, and market members. The amended draft circular, after incorporating the feedback from organizations, individuals, and market members, has been posted on the portals of the Ministry of Finance and the State Securities Commission.

Vice Chairman of the SSC Bui Hoang Hai presented the main contents of the draft amended circular and shared additional information on two key issues in the draft.

First, regarding the criterion of not requiring foreign investors (FIs) to have sufficient funds when placing buy orders, this regulation applies to foreign institutional investors and individual foreign investors, with the margin requirements remaining unchanged from the current regulations. The draft circular specifically regulates the order placement and acceptance process and the handling mechanism when FIs lack funds. To manage risks for the payment system and the payment connection process between parties, the draft circular also stipulates that securities companies assess the payment risks, the level of customer trust, and the payment capacity of each securities company to determine the limit for accepting stock trading orders.

Second, regarding the criterion of ensuring equal access for FIs in investment activities, the draft requires listed companies and public companies to disclose information in Vietnamese and English according to a specific roadmap, targets, and information to be disclosed.

Following this, Mr. Duong Ngoc Tuan, Deputy General Director of the Vietnam Securities Depository and Clearing Corporation, presented the securities settlement and payment process at VSDC when applying the mechanism of not requiring pre-funding for foreign institutional investors.

During the discussion session, the conference received many consensual opinions from representatives of ministries, member securities companies, custodian banks, and designated payment banks.

Speaking at the conference, Chairwoman of the SSC Vu Thi Chan Phuong stated that under the close direction of the Ministry of Finance, the SSC had promptly developed and consulted with relevant ministries and held multiple working sessions and exchanges with market members, experts, and international organizations to finalize the draft circular.

“In the process of developing the draft circular, the SSC has carefully considered and examined to ensure fairness for all investors and market members participating in the securities market”, shared the Chairwoman of the SSC.

Chairwoman Vu Thi Chan Phuong stated that to meet the criterion of pre-funding requirements according to the standards set by rating organizations, the solution of not requiring pre-funding is a short-term solution, and in the long term, the central counterparty (CCP) model will be implemented. Currently, units are coordinating to develop related business processes and techniques for simultaneous deployment when the circular takes effect.

Concluding the conference, the Deputy Minister of Finance highly appreciated the consensus from representatives of ministries, market members, payment and custodian banks, the securities depository corporation, securities companies, and related organizations. He requested the drafting agency to promptly synthesize and finalize the draft circular and prepare business processes for simultaneous application when the circular is signed and issued.