Foreign institutional investors allowed to buy stocks without 100 percent pre-funding -trading

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The capital capacity of securities companies to meet the investment capital flow from foreign organizations when the stock market is upgraded is very important. Photo: Internet

Foreign institutional investors are allowed to buy Vietnamese stocks without having enough money at the time of purchase

The Ministry of Finance has just issued Circular 68/2024/TT-BTC dated September 18, 2024 amending and supplementing a number of articles of the Circulars regulating securities trading on the securities trading system; clearing and settlement of securities transactions; activities of securities companies and information disclosure on the stock market.

Accordingly, Article 1 of Circular 68 has amended and supplemented a number of articles of Circular No. 120/2020/TT-BTC regulating the trading of listed stocks, registration of transactions and fund certificates, corporate bonds, and covered warrants listed on the securities trading system.

In particular, regarding placing orders to buy securities, Circular 68 adds cases where investors do not need to have enough money before placing orders, including: Investors implement margin trading as prescribed in Article 9 of this Circular; organizations established under foreign law participating in investment in the Vietnamese securities market (foreign institutional investors).

The Circular also stipulates that securities companies shall assess the payment risk of foreign institutional investors to determine the amount of money required when placing orders to buy stocks (if any) according to the agreement between the securities company and the foreign institutional or the authorized representative of the foreign institutional investor.

If the foreign institutional investor does not pay enough money for the stock purchase transaction, the obligation of the payment shall be transferred to the securities company where the foreign institutional investor places the order through the self-trading account, except for the case specified in Clause 5 of this Article.

This amendment is considered a very important step to remove the bottleneck to meet the standards for upgrading the stock market from frontier to secondary emerging according to the criteria of the FTSE Russell.

The Circular also clearly stipulates that securities companies are allowed to transfer ownership of securities outside the securities trading systems according to the provisions of Point q1, Clause 2, Article 6 of Circular No. 119/2020/TT-BTC or sell by agreement on the securities trading system for the number of shares transferred to their own trading account to foreign institutional investors who have insufficient money to pay for stock purchase transactions no later than the trading day following the day the stocks are recorded in the securities company's trading account and ensuring that they do not exceed the maximum limit on the ownership ratio of foreign institutional investors according to the law for those shares.

Losses, profits and other expenses arising from the execution of transactions as prescribed in Clauses 2 and 3 of this Article shall be made according to the agreement between the securities company and the foreign institutional investor or the authorized representative of the foreign institutional investor.

Circular 68 also clearly stipulates that the custodian bank where the foreign institutional investor opens a securities depository account shall be responsible for paying for transactions with insufficient funds and expenses incurred (if any) in the event of incorrect confirmation of the deposit balance of the foreign institutional investor to the securities company leading to insufficient funds to buy stocks.

Securities companies must ensure enough money to pay for transactions

Circular 68 also amends and supplements a number of articles of Circular No. 119/2020/TT-BTC regulating the registration, depository, clearing and payment of securities transactions.

Specifically, Circular 68 adds Article 35a after Article 35 on payment for stock purchase transactions of foreign institutional investors specified in Article 9a of Circular No. 120/2020/TT-BTC.

The new Circular clearly states that foreign institutional investors placing stock purchase orders must have sufficient funds in their accounts before the time when the clearing member transfer money to the depository member's deposit account at the payment bank to make payment for securities transactions. Clearing and payment for stock purchase transactions are carried out in accordance with the law and regulations of the Vietnam Securities Depository and Clearing Corporation (VSDC).

In case the foreign institutional investor places an order to buy shares and lack money to make payment as prescribed in Clause 2, Article 9a of Circular No. 120/2020/TT-BTC, VSDC shall transfer the payment obligation for the stock purchase transaction of the foreign institutional investor to the obligation of the securities company where the investor places the order to buy stocks (through the securities company's trading account) at the payment date, based on the notifications.

In case the foreign institutional investor opens a depository account at a securities company, the securities company shall notify VSDC of the foreign investor's insufficient fund to pay for the stock purchase transaction and the transaction information, requesting transfer of the payment obligation to the securities company; in case the foreign institutional investor opens a depository account at a custodian bank, the custodian bank shall notify VSDC of the foreign institutional investor's lack of payment for the stock purchase transaction and refuse to pay for that transaction.

The Circular clearly states that the securities company must ensure sufficient funds to pay for the transaction as prescribed in Clause 2 of this Article. Securities companies will be handled for violations according to the law and VSDC's regulations in case they fail to fulfill their obligations.