Foreign Institutional Investors allowed to trade stocks without full margin deposit

The Ministry of Finance officially released Circular No. 68/2024/TT-BTC dated September 18, 2024, which amends and supplements several articles of various Circulars regulating securities transactions on the securities trading system; the clearing and settlement of securities transactions; and the operations of securities companies (SCs) and information disclosure on the stock market, to take effect from November 2. One of the main points of Circular No. 68 is that foreign institutional investors (FIIs) are allowed to place orders to buy shares without requiring sufficient funds. This change is expected to expedite the process of elevating Vietnam’s stock market from frontier to secondary emerging market status, as per the FTSE Russell criteria.

New move

Article 1 of Circular No. 68 amends and supplements several provisions of Circular No. 120/2020/TT-BTC dated December 31, 2020, issued by the Minister of Finance, which regulates the trading of listed shares, registered transactions, fund certificates, corporate bonds, and listed covered warrants on the securities trading system.

Specifically, the new Circular stipulates that investors must have sufficient funds when placing securities buy orders, except in two cases: (1) margin trading by investors as regulated in Article 9 of the Circular; (2) FIIs participating in the Vietnamese securities market, as regulated in Article 9a of the Circular.

Circular No. 68 adds Article 9a, which outlines “The trading of shares by foreign institutional investors without requiring sufficient funds when placing buy orders.”

The Circular requires SCs to assess the payment risk of FIIs to determine the required amount of funds (if any) when placing buy orders, based on an agreement between the SC and the FII or its authorized representative.

In cases where the FII fails to fully pay for the share purchase transaction, the payment obligation for the shortfall is transferred to the SC where the FII placed the order, through its proprietary trading account, except as regulated in Clause 5 of the Article.

The Circular also specifies that SCs are allowed to transfer ownership outside the securities trading system or sell shares through negotiated transactions on the system if the negotiated sale is not feasible due to share transfer prices falling outside the price range or the share volume not meeting the stock exchange’s minimum negotiated trading volume requirements. This applies to shares that have been transferred to the SC’s proprietary trading account due to the FII’s failure to pay for the share purchase as regulated in Clause 2 of the Article. The transfer must be completed no later than the next trading day after the shares have been booked into the SC’s proprietary trading account, ensuring that the FII’s maximum ownership limit as prescribed by law is not exceeded regarding that shares. If the SC cannot transfer ownership of the aforementioned securities to the FII due to foreign ownership limits being reached or the FII’s refusal to repurchase, the SC must sell the shares on the stock market. Profits, losses, and other costs arising from such transactions, as specified in Clauses 2, 3, and 4 of the Article, are to be handled according to the agreement between the SC and the FII or its authorized representative.

Additionally, Circular No. 68 stipulates that the custodian bank where the FII holds its securities depository account is responsible for covering any shortfalls and related costs (if any) in cases where an incorrect confirmation of the FII’s cash balance with the SC leads to insufficient funds for the securities purchase transaction.

Ensuring payment by FIIs for transactions without sufficient funds

Circular No. 68 also amends and supplements several provisions of Circular No. 119/2020/TT-BTC dated December 31, 2020, issued by the Minister of Finance, regarding the registration, depository, clearing, and settlement of securities transactions.

Specifically, Circular No. 68 adds Article 35a, which governs the payment for share purchases by FIIs under Article 9a of Circular No. 120.

The new Circular states that FIIs placing buy orders must have sufficient funds in their accounts before the depository members transfer funds to the depository member’s bank account for settlement of the securities transaction. Clearing and settlement of share purchase transactions will follow legal regulations and the Vietnam Securities Depository and Clearing Corporation (VSDC) guidelines.

For FIIs that place share purchase orders without sufficient funds as specified in Clause 2, Article 9a, of Circular No. 120, the VSDC will transfer the payment obligation from the FII to the SC where the FII placed the order, through the SC’s proprietary trading account, based on the following notifications: If the FII holds a depository account at the SC, the SC must notify the VSDC of the insufficient funds for the share purchase transaction and request that the payment obligation be transferred to the SC; If the FII holds a depository account at a custodian bank, the custodian bank must notify the VSDC of the insufficient funds for the share purchase transaction and decline to settle the shortfall.

Circular No. 68 states that: “SCs must ensure sufficient funds to settle the transaction as regulated in Clause 2 of this Article. SCs will face sanctions according to legal regulations and VSDC rules if they fail to meet the obligation as regulated in Clause 2 of this Article.”

Securing payment for FII transactions

Circular No. 68 amends and supplements several provisions of Circular No. 121/2020/TT-BTC dated December 31, 2020, issued by the Minister of Finance, regulating SC activities.

Clause 2, Article 3 of Circular No. 68 outlines the limits for accepting share purchase orders without sufficient funds from FIIs at the start of the trading day, and the maintenance of documents and information to establish these limits, specifically:

- The order limit for share purchases equals the total assets that can be converted into cash but does not exceed the difference between double the SC’s equity capital and the margin loan balances.

- Assets convertible into cash include cash at hand, bank deposits, unused government debt instruments, unused deposit certificates for securing financial obligations, available overdraft limits, payment guarantees (if any) provided by domestic and foreign financial institutions, proceeds from pending proprietary securities sales, advances receivable from the sale of listed or registered securities, and the FII’s own funds, as stipulated in Clause 1, Article 9a of Circular No. 120, to ensure payment for their share purchases.

- The equity capital of the SC is determined based on the most recent quarterly financial statements before the calculation date. If the SC is a parent company, its equity capital is determined based on the consolidated quarterly financial statements after excluding the interests of minority shareholders.

Additionally, to comply with cross-ownership regulations under the Law on Enterprises, Circular No. 68 also stipulates that in addition to adhering to the aforementioned order limits, SCs must not accept buy orders for their own shares, nor for shares of their parent company. If subsidiaries of the same parent company as the SC hold shares of the SC, the SC is also prohibited from accepting buy orders from those subsidiaries.

Clause 3, Article 3 of Circular No 68 provides the following investment limit regulations for SCs: “If a SC conducts transactions in accordance with Clause 2, Article 9a of Circular No. 120 that result in exceeding the prescribed investment limit in Clause 4 of this Article, the SC is prohibited from accepting further buy orders for stocks from foreign institutional investors without sufficient funds until the investment limit is met. The SC must implement necessary measures within a maximum of one year to comply with the investment limit.”

Disclosure of information

Circular No. 68 amends and supplements several provisions of Circular No. 96/2020/TT-BTC dated November 16, 2020, issued by the Minister of Finance, which provides guidelines on information disclosure in the securities market.

SCs are required under Clause 2, Article 4, to disclose information regarding FII’s failure to repurchase shares as stipulated in Clause 3, Article 9a of Circular No. 120 on the information disclosure platforms of the State Securities Commission (SSC), stock exchanges, the VSDC, and the SC itself where the FII placed the order, within 24 hours from the time the FII fails to repurchase the shares as required.

SCs that are related parties to insiders of the listed organization or registered trading organization are not required to disclose anticipated transactions under Clause 2, Clause 3 of Article 9a of Circular No. 120. For transactions under Clause 4, Article 9a of Circular No. 120, the exemption from information disclosure applies to transactions carried out within four working days from the date the shares are credited to the SC’s proprietary trading account (Clause 3, Article 4 of Circular No. 68).

SCs that are related parties to insiders of the listed organization, registered trading organization, or the SC itself must disclose information and report to the SSC and stock exchanges and notify the listed organization or registered trading organization when the transaction value reaches VND50 million ($2,020) or more in a day or VND200 million ($8,080) or more in a month, based on face value. This includes cases of transferring ownership outside the securities trading system, within 24 hours from the following times: (1) Completion of payment for the transaction as stipulated in Clause 2, Article 35a of Circular No. 119; and (2) Completion of the sale of shares as stipulated in Clause 3, Clause 4 of Article 9a of Circular No. 120 (Clause 4, Article 4 of Circular No. 68). SCs that are related to internal persons must disclose and report to the SSC and stock exchanges and notify the listed organization when daily transaction values reach VND50 million or monthly transactions reach VND200 million or more.

Public disclosure by public companies in both Vietnamese and English

Circular No. 68 amends Article 5 of Circular No. 96 regarding the language of information disclosure on the securities market, as follows:

The language for disclosing information on the securities market is Vietnamese. Listed organizations, public companies, stock exchanges, and the VSDC must also disclose information in English as stipulated in Clauses 2 and 3 of this Article. The English disclosure must be consistent with the content of the Vietnamese disclosure. In case of discrepancies or different interpretations between the Vietnamese and English versions, the Vietnamese version will prevail.

Circular No. 68 also provides a timeline for public companies to disclose information in English:

- Large-scale listed organizations and public companies must disclose periodic information in English starting from January 1, 2025.

- Large-scale listed organizations and public companies must disclose extra-ordinary information, information on request, and information about other activities in English starting from January 1, 2026.

- Public companies not covered by Point a and b of this Clause must disclose periodic information in English starting from January 1, 2027.

- Public companies not covered by Point a and b of this Clause must disclose extra-ordinary information, information on request, and information about other activities in English starting from January 1, 2028.