Ministry of Finance has issued Circular No.23/2017/ TT-BTC amending and supplementing a number of articles of Circular No.11/2016/TT-BTC dated January 19th, 2016 guiding a number of articles of Decree No. 42/2015/NĐ-CP dated May 5th, 2015 of the Government on derivatives and derivatives market. New amendments and supplements in Circular No.23/2017/TT-BTC are as follows:
1. Regulations on opening deposit accounts of investors at the clearing members
Point a, Clause 4, Article 26 of Decree No.42/2015/ NĐ-CP stipulates that "if the collaterals are cash, the clearing member shall open a cash deposit account at the account management bank, set up a system of accounts and monitor the account balance of each investor”. This regulation does not specifically mention where the detailed management of money of each investor is at the bank or securities company.
Clause 1, Article 8 of the Circular No.11/2016/TT-BTC stipulates that the clearing members shall open a separate deposit account at the bank for each investor. In practice, however, not the banking system where the clearing member opens the account also meets the requirements for opening and managing a separate deposit account at the bank and has a mechanism of blockading instantly the deposit of the investor if the investor becomes insolvent. Therefore, in Circular No.23/2017/TT-BTC this regulation has been amended in the direction that the Circular does not require hardly the securities company to open a separate deposit account at the bank for each investor, but only requires the securities company to open margin deposit account to investors in the name of the securities company at the bank. The securities company still has the responsibility to separately manage margin deposits to each investor.
This is one of the most important amendments of Circular 23/2017/TT-BTC in order to remove difficulties and encourage securities companies to participate in the derivative securities market.
2. Provisions on omnibus trading account
The Circular 23/2017/TT-BTC is also added provisions on the omnibus trading account and cases of application of the omnibus trading account. On that basis, Vietnam Securities Depository (VSD) has more detailed guidelines related to this type of trading account in their Rule on deposit, clearing and settlement for derivative transactions. Specifically:
- The omnibus trading account is the trading account of the investor whose buying and selling positions of the same futures (with the same underlying asset and the same maturity date) are opened and maintained until the clearing member shall propose to make a reciprocal settlement on the basis of the agreement or the request of the investor.
- The omnibus trading account is applied to cases where a securities company established abroad opens a omnibus trading account to conduct derivatives brokerage activities for foreign investors; fund management companies conduct portfolio management for domestic and foreign investors; and other cases as specified by the VSD.
3. Regulation on the management of the position limit of investors
The Circular No. 23/2017/TT-BTC was amended Point c, Clause 2, Article 6 of the Circular No. 11/2016 / TT-BTC, supplementing measures to handle cases where investors fail to close positions within the prescribed time in the case of excess of the position limit. In this case, the clearing member is allowed to make a reciprocal transaction to close a part or whole of the investor's position. If the clearing member fails to make the reciprocal transaction to close the investor's position, the VSD shall make the reciprocal transaction to close a part or whole of the position of the investor in the name of the clearing member.
4. Additional provisions on position profit/loss
The Circular No. 23/2017/TT-BTC also was supplemented cases of position loss and profit and separated the calculation of position loss and profit at the last trading day and before the last trading day at the Point a, b Clause 1, Article 9 of the Circular No. 11/2016 / TT-BTC. It aims to ensure that all situations arising in reality can be readjusted. Specifically, the calculation of profit and loss of positions is made in 4 situations: (i) payment of profit / loss for previously opened positions; (ii) payment of profit / loss for newly opened and closed positions within the day; (iii) payment for previously opened and closed positions within the day; (iv) payment for the newly opened positions within the day.
5. Additional mechanism for dealing with the case that the buyer or the seller of Government Bond Futures in the form of transfer of underlying assets is insolvent
The Circular No. 23/2017/TT-BTC is changed at point b and supplemented point c to paragraph 3 of Article 19 of the Circular No.11/2016/TT-BTC which is applicable to Government bond futures paying by physical transfer: Clearing members are allowed to use securities borrowed from VSD's securities borrowing and lending system to support payment under the VSD’s rules and (ii) In cases where the clearing members do not have enough money for payment or not enough Government bonds for transfer, the VSD shall be entitled to make payment for the Government bonds futures in the form of payment in cash. In this case, the clearing member not having enough money to pay or not having enough Government bonds for transfer shall be responsible to compensate the related clearing members through the VSD, with the amount of money not less than 5% of the value of futures.
In addition, the Circular No. 23/2017/TT-BTC has been also amended some contents in accordance with current regulations, ensuring the consistency with related documents such as: (i) amendment of provisions on payment of interest rate in order to comply with the new provisions of the Civil Code in 2015 for the amount of money to be used from the clearing fund in case the clearing member becomes insolvent; (ii) Supplementing the responsibility of the clearing member to refund VSD all the assets used to support the payment from the clearing fund, reserve fund and other sources.