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New rules for foreign stock investors

Update: February, 10/2009 - 00:00

Talking Law


New rules for foreign stock investors

The Ministry of Finance issued Decision 121/QD-BTC on December 24, 2008, setting forth new rules to govern foreign investors on the nation’s stock markets.

The new rules apply to: (i) individuals with foreign nationality wherever residing, including overseas Vietnamese; (ii) organisations established and operating under foreign law, and branches of such organisations whether or not operating in Viet Nam; (iii) entirely foreign-owned enterprises operating in Viet Nam, and branches of such organisations; (iv) investment funds established and operating under foreign law, or under the law of Viet Nam but with 100-percent foreign-owned capital; and (v) others as specified by the Prime Minister.

The regulation says such investors may participate in the securities market by buying and selling shares, bonds and other types of securities listed on the HCM City Stock Exchange or at the Ha Noi Securities Trading Centre, securities registered for trading at securities companies, and on the over-the-counter market. They may also participate in auctions to buy securities, including shares of enterprises undergoing equitisation.

In addition, foreign investors can contribute capital to the establishment of securities investment funds (at ratios permitted under current law), or may invest in a fund managed by another.

Under earlier regulations (Circular No 90/2005/TT-BTC of October 2005), foreign investors investing in listed securities were required to obtain a securities trading code number (SCTN) from the Viet Nam Securities Depository Centre. Under Decision No 121, this requirement is expanded. Each foreign investor – except those whose investment is solely made through other fund management companies – is required to obtain an STCN.

Decision No 121 also requires foreign investors to notify and obtain approval from the Securities Depository Centre for changes to the securities company or trading representative through which it conducts trades; the bank account used for trades; the head-office address, location of business registration, or contact address; their name or passport number; their legal status or organisational structure due to division, separation, merger, acquisition or other changes related to a company’s organisation; or any contents of the dossier submitted to apply for the STCN.

The new regulation requires foreign investors to be suspended from securities trading for up to six months if they omit, misstate or make untimely declarations of information in application dossiers or in disclosures required by the State Securities Commission other authorities under the laws; if they willfully violate foreign exchange laws; or engage in insider transactions, market speculation, fraud, money laundering, tax evasion or other acts of market abuse.

The STCN will be revoked if the foreign investor fails to remedy any such violations or error which have resulted in a trading suspension, within 6 months of the suspension.

Under the new rules, each foreign investor shall be permitted to open one indirect investment capital account denominated in Vietnamese dong with a depository bank licensed to conduct foreign exchange business. All transactions by the foreign investor must be made through this account.

After obtaining an STCN, the foreign investor shall be permitted to open a unique securities depository account via which all payments must be made. In the event that a foreign investor is a securities company established under foreign law or a 100-per-cent foreign-owned insurer, the investor may be permitted to open two securities depository accounts in accordance with Ministry of Finance regulations on securities registration, depository, clearance and settlement.


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