THE MINISTRY OF FINANCE
THE SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness
Hanoi, August 15, 2017
Prescribing prudential ratios and remedies to be taken by securities trading institutions that fail to achieve these ratios
Pursuant to the June 29, 2006 Law on Securities;
Pursuant to the November 24, 2010 Law Amending and Supplementing a Number of Articles of the Law on Securities;
Pursuant to the November 26, 2014 Law on Enterprises;
Pursuant to the Government’s Decree No. 58/2012/ND-CP of July 20, 2012, detailing and guiding the implementation of a number of articles of the Law on Securities and the Law Amending and Supplementing a Number of Articles of the Law on Securities;
Pursuant to the Government’s Decree No. 60/2015/ND-CP of June 26, 2015, amending and supplementing a number of articles of the Government’s Decree No. 58/2012/ND-CP of July 20, 2012;
Pursuant to the Government’s Decree No. 42/2015/ND-CP of May 5, 2015, on derivatives and derivatives market;
Pursuant to the Government’s Decree No. 86/2016/ND-CP of July 1, 2016, prescribing the securities investment and trading conditions;
Pursuant to the Government’s Decree No. 87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
At the proposal of the Chairperson of the State Securities Commission;
The Minister of Finance promulgates the Circular prescribing prudential ratios and remedies to be taken by securities trading institutions that fail to achieve these ratios.
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), 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 and expressions below are construed as follows:
1. Securities trading institution means a securities company, Vietnam-based branch of a foreign securities company, fund management company or Vietnam-based branch of a foreign fund management company.
2. Market risk value means a value equivalent to a loss likely to be incurred when the market prices of assets owned and expected to be owned by an institution under an issuance underwriting commitment adversely fluctuate.
3. Payment risk value means a value equivalent to a loss likely to be incurred when a partner is unable to make payment or transfer assets on time as committed.
4. Operational risk value means a value equivalent to a loss likely to be incurred due to a technical or systemic error or a professional procedure breakdown or a human error in the course of performance, or due to a business capital shortage resulting from investment costs or losses or for other objective reasons.
5. Total risk value means the total of the market risk value, payment risk value and operational risk value.
6. Liquidity means equity which can be converted into cash within ninety (90) days.
7. Liquidity ratio means the ratio expressed as a percentage of the liquidity value to the total risk value.
8. Payment guarantee means an undertaking to perform financial obligations in order to secure the payment by a third party.
9. Issuance underwriting duration means a period from the date the issuance underwriting obligation arises in the form of firm commitment to the date of payment to the issuing institution as committed.
10. Net position in a security at a given point of time (below referred to as net position in a security) means a quantity of securities currently held by a securities trading institution after the quantity of lent securities or securities hedged by put warrants or futures contracts is reduced or the quantity of borrowed securities is increased under regulations.
11. Net payment position in a partner at a given point of time (below referred to as net payment position in a partner) means the value of granted loans and receivables after the debts owed and payables to a partner are adjusted.
12. Group of institutions or individuals related to an institution or individual (below referred to as group of related institutions or individuals) includes the following institutions or individuals:
a/ Parent company, affiliated companies, joint-venture companies or associated companies of such institution;
b/ Parents, adoptive parents, spouse, children, adopted children, blood siblings, brothers in law or sisters in law of such individual;
c/ Economic institutions of which 30% or more of charter capital is held by such individual, persons and companies.
13. Margin value means the total of the following values:
a/ Value in cash or in securities which a securities trading institution contributes to the clearing fund of the Vietnam Securities Depository;
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 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 firm means an audit firm accredited by the State Securities Commission to audit public-interest units in the field of securities.
16. Interest-bearing warrant means a call warrant with its exercise price (exercise index) lower than the price (index) of an underlying security or a put warrant with its exercise price (exercise index) higher than the price (index) of an underlying security.
17. Exercise price means a price at which a warrant holder has the right to buy (for call warrants) or to sell (for put warrants) a particular underlying security (a stock or an exchange-traded fund certificate) to an issuing institution, or which is used by an issuing institution to determine an amount to be paid to the warrant holder.
18. Conversion ratio refers to the volume of warrant needed to be converted into an underlying security unit.
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.
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