Foreign-owned brokerages face hurdles
by Tran Quang, junior associate, Indochine Counsel
Under Viet Nam's commitments when it acceded to the World Trade Organisation in 2007, foreign organisations must receive a right to set up a 100-per-cent foreign-owned securities company.
To meet this commitment, Vietnamese authorities have issued a number of regulations to create the necessary legal framework. They amended the Law on Securities and issued Decree No 58/2012/ND-CP in July of this year. On October 1, the State Securities Commission also issued the final draft of a regulation intended to replace Prime Minister's Decision No 55/2009/QD-TTg of April 2009. The public comment period for the draft concluded on October 12 and the document now awaits approval and promulgation by the Prime Minister.
One notable change that the draft would make relates to the definition of foreign organisations. In contrast to Decision No 55, the draft clearly includes "investment funds" in its definition of "foreign organisations." The draft would also require foreign organisations seeking to establish an entirely foreign-owned brokerage to: operate in the banking, securities or insurance industry; be in operation for at least five consecutive years immediately preceding the year of acquisition or establishment and without posting losses during the most recent two of those years; and be subject to regular supervision by a specialised regulator overseas in the banking, securities or insurance industry which has granted written approval for the organisation to establish a securities enterprise in Viet Nam.
The foreign enterprise must also have legal entity status; not be in the process of consolidation, merger, break-up, dissolution or bankruptcy; and otherwise qualified to own and operate an enterprise pursuant to the Law on Enterprises. After deducting the value of fixed assets, the remaining equity in the enterprise must, at minimum, equal the amount of capital proposed to be contributed to the local securities company, and there must be no reservations in the audited financial statements of the enterprise for the most recent year.
In addition, if the organisation is a commercial bank, insurer or securities enterprise, then it must not be subject to special control or other warnings and must satisfy all conditions for capital contributions and investment in accordance with the laws applicable to those sectors.
It is easy to see that the requirements for foreign organisations to invest in securities companies are quite restrictive. In light of the dismal state of the stock market and in hopes of strengthening Viet Nam's stumbling economy, we hope the official decision issued by the Prime Minister will loosen some of these requirements.
The draft would not change current rules limiting foreign shareholders to a maximum of 49 per cent of the total number of shares in a publicly held securities company.