Since its first launch in 2017, the derivatives market has always attracted a lot of investors’ attention. Along with the development of this market, the legal regulations have also been adjusted accordingly, proven by the promulgation of the Law on Securities 2019 with additional regulations on derivative securities. Following the enact of Law on Securities 2019 as well as Decree 158/2020/ND-CP, Circular 58/2021/TT-BTC (“Circular 58”), which will come into effect on 27 August 2021, helps to complete the system of provisions on this type of asset.
Clearing Member’s margin obligation
One of the obligations of a securities company and bank which are allowed to perform clearing and settlement of derivative securities transactions (“Clearing Member”) is to provide a clearing margin. This margin ensures the payment of derivatives transactions of the investors and Clearing Member.
Basically, Circular 58 inherits the provisions on clearing margin from the former legal documents, except for a positive change in the model, no more requirement to make the margin in advance. Specifically, the Clearing Member only has to pay the margin required by the Vietnam Securities Depository and Clearing Corporation (“VSDCC”) for positions under its name that are still in circulation after trading hours, instead of paying margin before executing the transaction like the previous model. This is an adjustment that is in line with the continuous changes of transactions on the stock market, reducing the burden on investors and the Clearing Member.
Reporting Obligation to the State Security Commission
Circular 58 clearly stipulates the cases in which reports must be made, including: (i) periodic reports, (ii) ad-hoc reports, and (iii) reports as required for the purposes of management and supervision of the State Securities Commission. Reporting forms are also provided in the appendix of Circular 58. Thanks to that, the reporting entities such as derivatives trading organizations, Clearing Member and others might comply with their reporting obligation more easily.
Post-trading error correction
In reality, several errors that affect the transaction execution process may occur. Circular 58 stipulates how the VSDCC would handle some of the following common errors:
First, error of the transaction missing the client’s account
This error happens when the client’s account information has not been updated on the payment system. To solve this problem, the VSDCC will ask the Clearing Member to update this information on the system and direct the executed transaction into the correct client’s account. However, if the account information is not provided upon request, the VSDCC will transfer the transaction to the Clearing Member’s proprietary trading account.
Second, transaction is suspended due to the violations against the VSDCC’s regulations on margin, position limits and open interest limits
This error occurs when the transaction is conducted to close a position where the number of matched positions is greater than the number of corresponding positions on this account. Accordingly, the VSDCC will direct the transaction into the Clearing Member’s proprietary trading account.
For other cases, there is no specific settlement guidance stipulated, however, the VSDCC will flexibly consider a solution and report to the State Securities Commission for approval on a case-by-case basis.
Before VSDCC is officially established and operated, its scope of work will be performed by the Vietnam Securities Depository Center. Regulations on making margin and post-trading error correction mentioned above will only be implemented when the new information technology system is official used on the stock market.