CIRCULAR

PRUDENTIAL INDICATORS AND ACTIONS AGAINST SECURITIES-TRADING ORGANIZATIONS THAT FAIL TO ACHIEVE THE PRUDENTIAL INDICATORS

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 functions, tasks, powers and organizational structure of the Ministry of Finance;

At the request of the President of the State Securities Commission (SSC);

The Ministry of Finance promulgates a Circular on prudential indicators and actions against securities-trading organizations that fail to achieve the prudential indicators.

Chapter I

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Article 1. Scope and regulated entities

1. Scope

This Circular provides guidance on the determination of prudential indicators, regulation on report on prudential indicators of securities-trading organizations, actions against and responsibilities of relevant parties to securities-trading organizations that fail to maintain the prudential indicators. This Circular does not apply to determination of tax liabilities of securities-trading organizations.

2. Regulated entities

a) Securities companies, branches of foreign securities companies in Vietnam (below collectively referred to as “securities companies”), securities investment fund management companies, branches of foreign fund management companies in Vietnam (below collectively referred to as “fund management companies”);

b) Relevant organizations and individuals.

Article 2. Definitions

For the purposes of this Circular, the terms below shall be construed as follows:

1. “securities-trading organizations” are securities companies, branches of foreign securities companies in Vietnam, securities investment fund management companies, branches of foreign fund management companies in Vietnam.

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3. “settlement risk value” means a value equivalent to a loss likely to be incurred when a partner fails to settle or transfer assets on schedule as committed.

4. “operational risk value” means a value equivalent to a loss likely to be incurred due to a technical, systematic or professional procedure breakdown or a human error in the course of performance, or due to working capital shortages resulting from investment costs or losses or for other objective reasons.

5. “total risk value” means the total of the value at risk, settlement risk value and operational risk value.

6. “liquid capital” means the equity which can be converted into cash within ninety (90) days.

7. “liquid capital ratio” means a percentage of the liquid capital value to the total risk value.

8. “payment guarantee” means a commitment to fulfill financial obligations in order to secure the payment by a third party.

9. “underwriting period” means a period from the date on which the underwriting obligation arises in the form of firm commitment to the date on which the underwriter is paid as agreed.

10. “net position in a security at a specific time” (hereinafter referred to as “net position in a security”) means the number of securities currently held by a securities-trading organization after the number of lent securities is reduced, the number of securities is protected by put warrant or futures contract, and the number of borrowed securities is increased in accordance with regulations of law.

11. “net payment position in a partner at a specific time” (hereinafter referred to as “net position in a partner”) means the value of loans and receivables after debts owed and payable to such partner are adjusted.

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13. “margin value” is the total of the following values:

a) The value in cash or securities contributed to the clearing fund of the Vietnam Securities Depository and Clearing Corporation (VSDCC) by a securities-trading organization;

b) The value in cash or securities accepted as by a securities-trading organization as margins for investment, self-trading and derivatives market making;

c) The margins in cashes and the payment guarantee value of a depository bank in case a securities-trading organization issues a covered warrant.

14. “open interests of a derivative at a specific time” (hereinafter referred to as “open interests”) is the number of derivatives which is traded at that time, is yet to be liquidated or closed.

15. “accredited audit organization” means an independent audit organization on the list of audit organizations accredited by SSC in accordance with the Law on Securities and regulations of law on independent audit.

16. “interest warrant” is a call warrant whose executed price (executed parameter) is lower or higher than the price (executed parameter) of underlying securities.

17. “executed price” is the price at which the warrant holder has the right to buy (call warrant) or sell (put warrant) an underlying security (shares or ETFs) to the issuing organization, or that is used by the issuing organization to determine the amount payable to the warrant holder.

18. “conversion ratio” is the number of warrants needed in order to be converted into one unit of the underlying security.

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1. Securities-trading organizations shall calculate their prudential indicators and take responsibility for the accuracy of their calculations.

2. Assets and capital sources used for calculation of the liquid capital value and risk values up to the time of calculation shall be updated.

3. Securities-trading organizations are not required to calculate the value of various risks against assets which have been deducted from liquid capitals as prescribed in Articles 5 and 6 of this Circular.

4. The securities-trading organization that has subsidiaries shall calculate prudential indicators according to its own financial terms.

5. The prudential indicator reports of June 30 shall be examined by accredited audit organizations according to Vietnam’s Audit Standards for examination contracts. The prudential indicator report of December 31 and the prudential indicator report used for proving that a securities-trading organization is eligible to have warning, control or special control lifted must be audited by an accredited audit organization according to the Vietnam’s Audit Standard - Special considerations – Audits of financial statements prepared in accordance with special purpose frameworks and other relevant Audit Standards.

6. The securities-trading organization must establish an internal control and information system for recording, monitoring, and updating the financial information and detailed information serving the preparation, examination, and audit of the prudential indicator reports. The Board of Directors (management board) of the securities-trading organization shall be responsible for the preparation and presentation of prudential indicator reports prescribed by this Circular.

Chapter II

PRUDENTIAL INDICATORS

Section 1. LIQUID CAPITALS

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1. The liquid capitals of a securities company shall be determined according to Appendix VI enclosed herewith. To be specific:

a) Equity, excluding refunded preferred equity (if any);

b) Share capital surplus, excluding refunded preferred equity (if any);

c) Options on – conversion from bond to stake (for the securities company issuing convertible bond);

d) Other equity;

dd) Differences upon asset valuation according to the reasonable value;

e) Foreign exchange differences;

g) Additional reserve fund of charter capital;

h) Operational risk and financial reserve funds;

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k) Undistributed profits;

l) Provision for impairment of assets;

m) Fifty percent (50%) of the increase in value of fixed assets which are revalued in accordance with regulations of law (in case the value of these assets is increased), or the whole decrease in 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 capitals (if any).

2. The liquid capitals of a fund management company shall be determined according to Appendix V enclosed herewith. To be specific:

a) Paid-in capital, excluding refunded preferred equity (if any);

b) Share capital surplus, excluding refunded preferred equity (if any);

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d) Investment and development fund (if any);

dd) Operational risk and financial reserve funds;

e) Other funds which are established in accordance with regulations of law;

g) Undistributed profit after tax;

h) Provision for impairment of assets;

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

k) Foreign exchange differences;

l) Deductions specified in Article 6 of this Circular;

m) Increases specified in Article 7 of this Circular;

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3. The liquid capitals specified in Clause 1 and Clause 2 of this Article shall be adjusted to reduce treasury stock (if any).

Article 5. Deductions from liquid capitals of a securities company

1. Margin value.

In case a securities company has secured assets in order for the bank to guarantee payment when issuing covered warrants, the deduction value equals the minimum value of payment guarantee value of the bank; secured assets value determined as prescribed in Clause 6, Article 10 of this Circular.

2. The asset value used for securing other organizations and individuals’ obligations has the remaining term of over ninety (90) days. Asset values shall be determined in accordance with Clause 6 Article 10 of this Circular.

3. The whole decrease in value of financial assets according to their book value, excluding the securities specified in Clause 7 of this Article, shall be calculated according to the difference between the book value and the market price determined according to Appendix II enclosed herewith.

4. Other deductions shall be determined according to Appendix VI enclosed herewith, including:

a) Long-term asset indicators, except for those specified in Clause 6 of this Article;

b) The following short-term asset indicators:

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- Prepayments;

- Receivables with the payback period or remaining maturity of over ninety (90) days;

- Advances that must be returned within over ninety (90) days;

- Other short-term assets, except for those specified in Clause 5 of this Article.

c) The amounts mentioned in qualified opinions, adverse opinions or disclaimer of opinions (if any) are included in the audited and examined financial statements but are yet to be deducted from the liquid capitals as prescribed in Points a, b of this Clause. In case the audit organization confirms that it no longer has qualified opinions, the securities-trading organization is not required to deduct these amounts.

5. The following indicators are not included in the deductions from liquid capitals specified at Points a and b, Clause 4 of this Article:

a) Assets against which market risks shall be identified as prescribed in Clause 2, Article 9 of this Circular, except for the securities specified in Clause 7 of this Article;

b) Provision for impairment of assets recorded at book value;

c) Provision for impairment of other assets;

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dd) The contracts and transactions mentioned in Point k Clause 1 Article 10 of this Circular.

6. When determining assets to be deducted from liquid capitals specified in Clause 1, Clause 2, Points a and b of Clause 4 of this Article, the securities-trading organization may reduce the value of deductions as follows:.

a) For the asset used for securing the obligation of the securities-trading organization, upon calculation of deductions, the minimum value of the market value of these assets determined as prescribed in the Appendix II enclosed herewith (if any), book value and remaining value of the obligation may be deducted;

b) For the asset secured by client’s property, upon calculation of deductions, the minimum value of the market value of these assets determined as prescribed in Clause 6, Article 10 of this Circular and book value may be deducted.

7. The following securities classified as short-term and long-term financial assets shall be considered deductions from liquid capitals:

a) Securities issued by organizations that are related to the securities-trading organization in the following manners:

- They are parent companies, subsidiaries, joint-venture companies of the securities-trading organization;

- They are subsidiaries of the parent company of the securities-trading organization.

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

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1. The whole decrease in value of investments, excluding the securities specified in Clause 5 of this Article, shall be calculated according to the difference between the book value and the market price determined according to Appendix II enclosed herewith.

2. Other deductions shall be determined according to Appendix V enclosed herewith, including:

a) Long-term asset indicators, except for those specified in Clause 3 of this Article;

b) The following short-term asset indicators:

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

- Prepayments;

- Receivables with the payback period or remaining maturity of over ninety (90) days;

- Advances that must be returned within over ninety (90) days;

- Other short-term assets, except for those specified in Clause 3 of this Article.

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3. The following indicators are not included in the deductions from liquid capitals specified at Points a and b, Clause 2 of this Article:

a) Assets against which market risks shall be identified as prescribed in Clause 2, Article 9 of this Circular, except for the securities specified in Clause 5 of this Article;

b) Provision for investment markdown;

c) Provision for non-performing receivables.

d) The contracts and transactions mentioned in Point k Clause 1 Article 10 of this Circular.

4. When determining assets to be deducted from liquid capitals specified in Point a and Point b, Clause 2 of this Article, the securities-trading organization may reduce the value of deductions as follows:

a) For the asset used for securing the obligation of a securities-trading organization or third party , upon calculation of deductions, the minimum value of the market value of these assets determined as prescribed in the Appendix II enclosed herewith (if any), book value and remaining value of the obligation may be deducted;

b) For the asset secured by client’s property, upon calculation of deductions, the minimum value of the market value of these assets determined as prescribed in Clause 6, Article 10 of this Circular and book value may be deducted.

5. The following securities included in the ratio of short-term and long-term financial assets shall be considered deductions from liquid capitals:

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- They are subsidiaries of the parent company of the securities-trading organization.

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

Article 7. Increases

1. The whole increase in value of investments and financial assets according to the book value, excluding the securities specified in Clause 7, Article 5, Clause 5, Article 6 of this Circular, shall be calculated according to the difference between the book value and the market price determined according to Appendix II enclosed herewith.

2. The debts which can be converted into equity include:

a) Convertible bonds, except for those considered liquid capitals specified in Point c, Clause 1, Article 4 of this Circular and preferred stocks issued by a securities-trading organization which satisfy all of the following conditions:

- The initial term is at least five (05) years;

- They are not secured by assets of the securities-trading organization;

- The securities-trading organization may only early redeem these bonds and stocks at the request of the holder or redeem them on the secondary market after informing SSC as prescribed in Clauses 5 and 6 of this Article;

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

- The interest rate, including the interest rate and the reference interest rate added shall only be increased after five (05) years after the date of issuance and increased once throughout the term before these preferred stocks are converted into common stocks;

- They have been registered liquid capital as increases in liquid capital as prescribed in Clause 4 of this Article.

b) Other debt instruments which satisfy all of the following conditions:

- It is the debt which shall, in any circumstances, be paid to a creditor after the securities-trading organization has paid debts to other secured and unsecured creditors;

- The initial term is at least ten (10) years;

- They are not secured by assets of the securities-trading organization;

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

- Increases in interest rates: Fixed interest rates, including the reference interest rate, shall only be increased once after five (05) years from the issuance date or contract conclusion date throughout the term of the secondary debt; For interest rates calculated by a formula, the formula must not change and the value in the formula may only be changed once after 05 years from the issuance date or contract conclusion date;

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3. Limitations upon calculation of increases in liquid capitals:

a) The value of debts specified in Points a and b, Clause 2 of this Article shall be gradually depreciated according to the following rules:

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

- Within the last four (04) quarters before the deadline for payment and conversion into common stocks, the remaining value after the depreciation according to the abovementioned regulation shall be  decreased  by (an additional) 25% on a quarterly basis.

b) Total value of the debts specified in Clause 2 of this Article liquid capital used for increasing liquid capital must not exceed 50% of equity.

4. The securities-trading organization shall send reports on addition of debts prescribed in Clauses 2 and 3 of this Article to liquid capitals with SSC. The following reports shall be directly sent to SSC:

a) Report according to the form in Appendix VII on use of convertible bonds, preferred stocks and debts for increasing liquid capitals;

b) A meeting minute, Resolution of the Board of Directors, Board of Members, holder's decision on the use of debts convertible into equity for increasing liquid capitals;

c) Valid copies of loan agreements or equivalent documents. Loan contracts or equivalent documents must contain commitments made by the two parties and all proper contents specified in Clauses 2 and 3 of this Article. This does not apply to public offering of shares granted the offering certificate by SSC.

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a) The liquid capital ratio after the redemption of convertible bonds and preferred stocks or early payment of debts registered for increasing liquid capitals must not be lower than 180%;

6. The securities-trading organization shall submit a report to SSC at least fifteen (15) days before redeeming convertible bonds and preferred stocks or early paying debts registered for increasing liquid capitals. The following reports shall be directly sent to SSC:

a) The reports mentioned in Point a Clause 4 of this Article;

b) The documents specified in Points b and c, Clause 4 of this Article about new convertible bonds, preferred stocks and debts that are used for increasing liquid capitals 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. The operational risk of a securities-trading organization is either 25% of such trader's operating costs in twelve (12) months by the time of calculation or 20% of the minimum charter capital for business operations of the securities-trading organization, whichever is greater.

2. The operating cost of a securities-trading organization equals (=) the total costs incurred in a period minus (-):

a) Depreciated cost;

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c) Cost or reversal of provision for impairment of long-term financial assets;

d) Cost or reversal of provision for impairment of receivables;

dd) Cost or reversal of provision for impairment of other short-term financial assets;

e) Decreases due to revaluation of financial assets recorded as profit/loss;

g) Loan interest.

3. The operating cost of a fund management company equals (=) the total costs incurred in a period minus (-):

a) Depreciated cost;

b) Cost or reversal of provision for impairment of short-term investments;

c) Cost or reversal of provision for impairment of long-term investments;

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4. In case a securities-trading organization that has operated for less than one (01) year, its operational risk shall be either three (03) times the average monthly operating cost beginning from the time this trader commences its operation or 20% of minimal charter capital for business operations of the securities-trading organization, whichever is greater.

Article 9. Value at risk

1. At the end of a trading day, a securities-trading organization shall determine the value at risk of its assets specified in Clause 2 of this Article.

2. Market risk of the following assets shall be determined:

b) Securities provided by other individuals and organizations in accordance with regulations of law, including securities borrowed by the securities-trading organization itself and securities borrowed on behalf of other individuals and organizations;

c) Clients’ securities used by the securities-trading organization as secured assets. The trader may either use such securities or lend them to a third party in accordance with regulations of law;

d) Cash, cash equivalents, negotiable instruments and valuable papers owned by the securities-trading organization;

dd) The securities which are underwritten by the securities-trading organization in the form of firm commitment, which remain undistributed and to which full payment has not been made throughout the underwriting period.

3. The securities and assets specified in Clause 2 of this Article shall not include:

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b) The 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) The securities that have been prevented from risks with call warrant or futures contract. The call warrant and warrant agreement shall be used for preventing risks from underlying securities.

4. The value at risk of the assets specified at Points a, b, c and d, Clause 2 of this Article shall be determined according to the following formula:

Value at risk = Net position x Asset price x Market risk coefficient

a) Market risk coefficient shall be determined according to Appendix 1 enclosed herewith;

b) Asset price shall be determined according to Appendix 2 enclosed herewith.

5. The value at risk of each asset determined as prescribed in Clause 4 of this Article shall be increased in case the securities-trading organization invests too much in such asset, except the securities underwritten in the form of firm commitment, government bonds and government-guaranteed bonds. The value at risk shall be increased in the following cases:

a) Increased by 10% in case the total investment in an organization's shares and bonds accounts for from over 10% to 15% of the securities-trading organization’s equity;

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c) Increased by 30% in case the total investment in an organization's share and bond accounts for more than 25% of the securities-trading organization’s equity.

6. The securities-trading organization shall aggregate the value of stock dividends, bond yields, and the value of preferred rights whenever they arise (applicable to securities), or loan interests (applicable to deposits and cash equivalents, negotiable instruments and valuable papers) with the asset price upon determination of the value at risk.

Value at risk = (Q₀ x P₀ - V_c) x R x (r +  x 100%)

Where:

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

P₀: underwriting price

V_c: Value of security asset (if any)

R: Issuance risk coefficient

r: Market risk coefficient

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a) The trading price shall vary according to the types of securities prescribed in Sections 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 21, 22 of Appendix II hereof. In case of initial public offering, including initial equity auction or bond auction, the trading price equals the book value per stock of the issuing organization, which is determined at the nearest time, or reserve price (if the book value is unidentifiable) or par value (applicable to bonds);

b) Market risk coefficient shall be determined according to the corresponding securities prescribed in the sections II, III, IV, V, VI, VII of the Appendix I enclosed herewith;

c) The underwriting risk coefficient shall be determined according to the remainder of the distribution period, including its ending day under the contract, which must not exceed the distribution deadline prescribed by law. To be specific:

- If the remainder of the distribution period, including its ending day, is more than sixty (60) days, the underwriting risk coefficient is 20%;

- If the remainder of the distribution period, including its ending day, is between thirty (30) and sixty (60) days, the issuance risk coefficient is 40%;

- If the remainder of the distribution period, including its ending day, is over sixty (30) days, the issuance risk coefficient is 60%;

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

d) After the deadline for paying the issuing organization, the securities-trading organization shall determine the value at risk of the securities which cannot be fully distributed as prescribed in Clause 4 of this Article.

dd) The clients’ secured asset value shall be determined as prescribed in Clause 6, Article 10 of this Circular.

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Value at risk = Max {((P₀ x Q₀/k- P₁ x Q₁) x r -MD), 0}

Where:

P₀: Average closing price of underlying securities in 05 trading days before the calculation date.

Q₀: the number of outstanding warrants of a securities-trading organization.

k: conversation ratio

Q₁: the number of the underlying securities used by a securities-trading organization as guarantee of the obligation to make payment for the covered warrant issued by such trader.

r: the market risk coefficient of the warrant, which is determined according to Appendix I enclosed herewith

MD: the margin value in case the securities company issues the covered warrant

a) The underlying securities used for calculation of market risk according to the abovementioned formula must satisfy the following conditions:

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- The underlying securities of the covered warrant.

b) In case the warrant issued by a securities company is unprofitable as prescribed in Clause 16, Article 2 of this Circular, the securities company shall not calculate the market risk of the issued warrant but shall calculate the market risk of the underlying securities derived from management of risks to the issued warrants.

c) The securities company shall determine the value at risk of the positive difference between underlying security value used for management of risks to its covered warrants by such company and the value of underlying securities that is sufficient for management of risks to the covered warrants. The value of underlying securities shall be proportional to the value of risks.

9. The value at risk of the futures contract shall be determined according to the following formula:

value at risk = Max {((Daily settlement value - Buy-in security value) x Market risk coefficient of futures contract - Margin value), 0}

Daily settlement value = Daily settlement price x Open interests

Where:

- Buy-in securities value is the value of underlying securities which a securities-trading organization buys in to guarantee the obligation to settle the futures contract;

- Margin value is the value of asset accepted by a securities-trading organization as margins for investment, self-trading and derivatives market making.

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1. At the end of a trading day, the securities-trading organization shall determine the settlement risk value of the following contracts and transactions:

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

b) Securities borrowing agreement in accordance with regulations of law;

c) Securities sale contracts which contain commitments to redeem securities in accordance with regulations of law;

d) Securities purchase contracts which contain commitments to resell securities in accordance with regulations of law;

e) Firm commitment underwriting agreement signed with other organizations in an underwriting syndicate in which the securities-trading organization is the principal underwriter;

g) Receivables of clients in securities trading business;

h) Receivables from mature bonds, valuable papers, mature debt instruments for which payment has not been paid;

i) Assets the lime limit for transfer of which has expired, including securities in trading activities of the securities-trading organization and securities of clients in securities brokerage;

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2. For the contracts specified in Points a, b, c, d, dd and g, Clause 1 of this Article, the settlement risk value before the deadline for transfer of securities, cash and contract liquidation shall be determined as follows:

Settlement risk value = Value of assets with potential settlement risk x Settlement risk coefficient by partner

a) The settlement risk coefficient by partner shall be determined according to credit ratings of trading partner(s) under the rules prescribed in Appendix III enclosed herewith;

b) The value of assets with potential settlement risk shall be determined according to Appendix IV hereof. The stock dividends, bond yields and the value of preferred rights whenever they arise (applicable to securities), or deposit interests, loan interests and other surcharges (applicable to credits) shall be included in the value of assets with potential settlement risk.

3. For the contracts specified in Point e, Clause 1 of this Article, the settlement risk value equals 30% of the remaining value of unpaid underwriting agreements.

4. For the overdue receivables and securities that are yet to be transferred on schedule as prescribed in Points h and i, Clause 1 of this Article, including securities and cash that are yet to be received from due transactions and contracts prescribed in Points a, b, c, d, dd and g, Clause 1 of this Article, the settlement risk value shall be determined according to the following rules:

Settlement risk value = Value of assets with potential settlement risk x Settlement risk coefficient by time

a) The settlement risk coefficient by time shall be determined according to the overdue settlement period under the rules prescribed in the Appendix III enclosed herewith;

b) The value of assets with potential settlement risk shall be determined as follows:

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- For receivables, mature bonds and due debt instruments: This value is the value of receivables calculated according to their par value. The unpaid interests and related expenses shall be added, and actually received payments (if any) shall be deducted.

5. Except for the transactions and contracts specified in Point k Clause 1 and Point b Clause 10 of this Article, a securities-trading organization may deduct the value of secured assets of its partners and clients upon determination of the value of assets with potential settlement risk prescribed in Clause 1 of this Article if these contracts and transactions satisfy the following conditions:

a) Partners and clients provide secured assets to ensure the fulfillment of their obligations and these secured assets are cash, cash equivalents, valuable papers and negotiable instruments on the monetary market or securities listed or registered for trading on the Vietnam Exchange and its subsidiary companies (hereinafter referred to as “VNX”), government bonds and bonds underwritten by the Ministry of Finance;

b) The securities-trading organization may dispose of, manage, use and transfer secured assets in case its partners fail to fulfill the settlement obligation within the time limit under the contracts.

6. The value of secured assets to be deducted as prescribed in Clause 5 of this Article shall be determined as follows:

Value of secured asset = Volume of secured assets x Asset price x (1 - Market risk coefficient)

a) The asset price shall be determined according to the rules provided in Appendix II enclosed herewith;

b) The market risk coefficient shall be determined according to the rules provided in Appendix I enclosed herewith.

7. When determining the settlement risk value, the securities-trading organization may make mutual net offsetting of the asset value with potential settlement risk if the following conditions are satisfied:

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b) The settlement risk arises during the same type of transaction specified in Clause 1 of this Article;

c) The mutual offsetting has been agreed upon in writing by the parties.

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

b) Increased by 20% in case the value of deposit contract, certificates of deposit, loans, due receivables, securities purchase contract with a commitment to resell securities, sale contract with a commitment to repurchase securities, total value of loans provided for an organization, individual and group of relevant organizations or individuals (if any), accounts for from 15% to 25% of the equity;

c) Increased by 30% in case the value of deposit contract, certificates of deposit, loans, due receivables, securities purchase contract with a commitment to resell securities, sale contract with a commitment to repurchase securities, total value of loans provided for an organization, individual and group of relevant organizations or individuals (if any), or an individual and parties related to him/her (if any), accounts for more than 25% of the equity.

9. In case a partner is totally insolvent, the loss calculated according to the contract value shall be deducted from liquid capitals.

10. The value of assets with potential settlement risk in other cases shall be determined as follows:

a) For the contracts and transactions specified in Point k Clause 1 of this Article:

Settlement risk value = Value of all assets with potential settlement risk x 100%

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Value of assets with potential settlement risk

Risk weighting

Settlement risk value

Value of all advances

accounts for 0% - 5% of equity at calculation time

8%

Settlement risk value = Value of assets with potential settlement risk x Risk weighting

accounts for more than 5% of equity at calculation time

100%

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Article 11. Liquid capital ratio and warning levels

1. The liquid capital ratio shall be determined according to the following rules:

Liquid capital ratio

=

Liquid capital

x

100%

Total risk value

Article 12. Liquid capital reporting

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a) The securities-trading organization shall submit monthly reports on prudential indicator made using the form provided in the Appendix V or VI enclosed herewith to the SSC. Electronic reports shall be sent via the database system within 07 working days from the end of the month.

b) The securities-trading organization must submit prudential indicator reports of 30 June and 31 December made using the form provided in the Append ix V or VI enclosed herewith and publish the reports on its website after they have been examined and audited by an accredited audit organization. These reports shall be sent to SSC via the database system and disclosed together with the examined biannual financial statements and audited annual financial statements.

2. Unscheduled reporting

a) Since its liquid capital ratio falls below 180%, a securities-trading organization shall submit an liquid capital ratio report made using the form provided in the Appendix V or VI enclosed herewith to the SSC twice a month (on the 15^th and 30^th). Reports shall be sent electronically via the database system within 03 working days after the 15^th and 30^th every month.

b) Since its liquid capital ratio falls below 150%, a securities-trading organization shall submit a weekly report on liquid capital ratio made using the form provided in the Appendix V or VI enclosed herewith to the SSC. Reports shall be sent electronically via the database system before 16:00 every Friday.

c) Since its liquid capital ratio falls below 120%, a securities-trading organization shall submit a weekly report on liquid capital ratio made using the form provided in the Appendix V or VI enclosed herewith to the SSC. Reports shall be sent electronically via the database system before 16:00 every day.

3. The securities-trading organization may prepare periodic reports as prescribed in Clause 1 of this Article when its liquid capital ratio reaches or surpasses 180% during the reporting periods for three (3) consecutive months.

Chapter III

ACTIONS AGAINST SECURITIES-TRADING ORGANIZATION THAT FAILS TO ACHIEVE PRUDENTIAL INDICATOR

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Article 13. Warning

1. The SSC shall issue the decision to issue warning to a securities-trading organization in the following cases:

a) The liquid capital ratio reaches from 150% to below 180% during the reporting periods in three (03) consecutive months; or

b) The liquid capital ratio that has been examined or audited by an accredited audit organization reaches from 150% to below 180%; or

c) The prudential indicator report about which the accredited audit organization issue a dissenting or contrary opinion, or a disclaimer of opinion, or fails to give any opinion, or issues a qualified opinion, the liquid capital ratio is from 150% to below 180%, if the exceptions are not included in the liquid capitals.

2. The warning period begins when a warning is issued against the securities-trading organization and ends when SSC issues a decision to lift the warning.

3. SSC will consider lifting the warning when the securities-trading organization’s liquid capital ratio reaches 180% or more in three (03) consecutive months, the liquid capital ratio during the last reporting period has been audited by an accredited audit organization, and the securities-trading organization has submitted a report according to Appendix XI hereof to SSC.

Section 2. CONTROL

Article 14. Control

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a) The liquid capital ratio reaches from 120% to below 150% during the reporting periods in three (03) consecutive months; or

b) The liquid capital ratio that has been examined or audited by an accredited audit organization reaches from 120% to below 150%; or

c) The prudential indicator report about which the accredited audit organization issue a dissenting or contrary opinion, or a disclaimer of opinion, or fails to give any opinion, or issues a qualified opinion, the liquid capital ratio is from 120% to below 150%, if the exceptions are not included in the liquid capitals.

2. The control period must not exceed 12 months from the day on which the securities-trading organization is placed under control.

4. SSC will consider lifting the control status when the securities-trading organization’s liquid capital ratio reaches 180% or more in three (03) consecutive months, the liquid capital ratio during the last reporting period has been audited by an accredited audit organization, and the securities-trading organization has submitted a report according to Appendix XI hereof to SSC.

Article 15. Remediation plan

1. Within fifteen (15) days from the day on which the SSC issues the decision to place a securities-trading organization under control, the securities-trading organization shall submit a detailed report on financial condition, reasons and remediation plan to the SSC.

2. The remediation plan shall cover the next 02 years with specific roadmap, conditions and deadline for each month wand quarter. The SSC may request the securities-trading organization to make adjustments to the remediation plan at any time if it is unfeasible or inconsistent with market conditions or regulations of law.

3. The remedial measures include:

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b) Recovery of debts; resale of shares or stake to the creditor;

c) Reduction of operating and corporate governance costs; reorganization of the management apparatus and human resources or staff reduction;

d) Narrowing of the operation scope and area; shutdown of some branches or transaction offices; reduction of securities services;

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 a securities-trading organization conducting the same business line or of the same type in accordance with law;

g) Other measures that are not contrary to regulations of law.

Section 3. SPECIAL CONTROL

Article 16. Special control

1. The SSC shall issue the decision to issue place a securities-trading organization under special control in the following cases:

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b) The securities-trading organization fails to take remedial actions against the special control within twelve (12) months as prescribed in Clause 2, Article 14 of this Circular; or

c) The securities-trading organization fails to prepare prudential indicator reports in two (02) consecutive reporting period, or fails to carry out audits or examine prudential indicator reports or fails to publish information about the prudential indicator reports examined or audited by a accredited audit organization as prescribed in Point b, Clause 1, Article 12 of this Circular; or

2. The special control period must not exceed four (04) months from the day on which the securities-trading organization is placed under special control.

3. In case the special control is placed as prescribed in Point b, Clause 1 of this Article, after two (01) months from the day on which the special control is placed, VNX shall partially suspend the trading of the affiliated securities companies that fail to take remedial actions against the special control. The suspension will be lifted when SCC issues a decision to stop putting the securities company under special control. Procedures for suspension of subsidiary companies shall comply with regulations of VNX.

4. SSC will consider lifting the special control status when the securities-trading organization’s liquid capital ratio reaches 180% or more in three (03) consecutive months, the liquid capital ratio during the last reporting period has been audited by an accredited audit organization, and the securities-trading organization has submitted a report according to Appendix XI hereof to SSC.

5. After the special control period ends as prescribed in Clause 2 of this Article, if the securities-trading organization still fails to take remedial actions against the special control, its operation shall be suspended from operation. Procedures for suspension of operation shall comply with regulations on organization and operation of securities companies and fund management companies.

6. Within twenty-four (24) hours after the securities-trading organization is suspended from operation, SSC shall disclose this information on SSC’s website.

7. After 06 months from the effective date of the suspension decision, SSC shall issue a decision to withdraw the securities brokerage license if the securities company fails to eliminate the causes of suspension as prescribed in Clause 5 Article 16 of this Circular.

Article 17. Remediation plan

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2. The remediation plan shall be implemented as prescribed in Clauses 2 and 3, Article 15 of this Circular.

Section 4. RESPONSIBILITIES OF RELEVANT PARTIES

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

1. The Board of Directors, Board of Members, President, Director General (Director) of the securities-trading organization placed under control or special control shall:

a) Develop a remediation plan and organize the implementation of such plan;

b) Continue managing, controlling and administering operation and ensuring safety of securities-trading organization’s assets in accordance with law;

c) Take responsibility for the issues concerning organizational structure and operation of the securities-trading organization before, during and after the period of control or special control;

d) Provide assistance for or enable other organizations to perform their duties as prescribed in this Circular and perform other tasks at the request of the SSC.

2. Before 16:00 every Friday, the securities-trading organization shall submit a report on the implementation of remediation plan and results.

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a) A securities-trading institution shall not pay stock dividends to its shareholders, divide profits to its capital contributors or give bonuses to members of the Board of Directors, Board of Members, Board of Controllers, Director General (Director), Deputy Director General (Deputy Director), chief accountant, staff members and relevant individuals;

b) The securities-trading organization must not convert unsecured debts into debts secured by its assets;

c) The securities-trading organization must not purchase treasury stocks or redeem the stake from capital contributors;

d) The securities-trading organization must not sign new and extended margin trading contracts, securities lending and purchase contracts, purchase transactions with a commitment to resell securities and contracts on provision of loans to customers without secured assets and continue carrying out these contracts and transactions; and must not sign the firm commitment underwriting agreement;

dd) The securities-trading organization must not establish new transaction offices, branches and representative offices, expand its operation area and provide new services;

e) The securities-trading organization must not contribute capital to establish subsidiaries or invest in real estate; must avoid investment in high-risk assets or business operations that increase its risk value and reduce liquid capitals.

Article 19. Responsibilities of other relevant organizations

1. VNX, VSDCC, depository members, supervisory banks, clearing banks and other relevant organizations shall provide the SSC with sufficient and timely information and documents on transactions, investment and trading operations of the securities-trading organization placed under control or special control at the request of the SSC.

2. VNX, VSDCC, supervisory banks, payment banks and relevant securities-trading organizations shall provide guidance, assistance and securities services for clients of the securities-trading organization placed under control or special control at the request of the SSC.

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Chapter IV

IMPLEMENTATION CLAUSES

Article 20. Implementation clause

1. This Circular comes into force from January 01, 2021, except for the regulations specified in Clause 2 of this Article. This Circular replaces Circular No. 87/2017/TT-BTC of the Ministry of Finance on prudential ratios and actions against securities-trading organizations that fail to achieve the prudential ratios.

2. Point dd Clause 5 Article 5, Point d Clause 3 Article 6, Point k Clause 1 Article 10, Clause 10 Article 10 of this Circular and VII.28 of Appendix I hereof take effect from January 01, 2022.

3. Amendments, replacement or abrogation of this Circular shall be decided by the Minister of Finance./.

PP MINISTER
DEPUTY MINISTER




Huynh Quang Hai

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