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Vietnam: Margin trading ban

On December 21 2015, the Vietnamese Ministry of Finance issued Circular 203 as a guide on trading securities on regulated securities exchanges

Nguyen Manh Cuong

On December 21 2015, the Vietnamese Ministry of Finance issued Circular 203 as a guide on trading securities on regulated securities exchanges. It will come into force on July 1 2016 and replaces Circular 74 of the Ministry of Finance, dated June 1 2011.

Under Circular 74, foreign investors can conduct margin trading (or, buy securities with money borrowed from a securities company, on the condition that the securities are used as collateral for the loan). However, pursuant to article 9.4 of Circular 203, foreign investors will not be permitted to conduct margin trading from July 1 2016.

Decree 58 of the Government, dated July 20 2012 (as amended by Decree 60 of the Government, dated June 26 2015) provides detailed guidelines for the implementation of a number of articles of the Law on Securities. Article 2.21 defines foreign investors as including: (i) individuals holding foreign citizenship; and, (ii) organisations established in accordance with a foreign law (other than Vietnamese law).

To prepare for the implementation of Circular 203, several securities houses have announced that from July 1 2016, they will stop opening new margin trading securities accounts for foreign investors. Those who have already opened and maintained a margin trading securities account will not be allowed to buy any more securities; they will only be able to sell down the securities to pay down loan(s) with the securities houses.

It is expected that Circular 203 will have a limited impact on Vietnamese securities markets because not many foreign investors have engaged in margin trading.

However, according to the Vietnam Securities Depository (VSD), as of April 2016, 19,016 foreign investors have been granted securities trading codes. (In order to trade in securities listed on Vietnam securities markets, foreign investors must have a securities trading code, together with a securities trading account opened through a securities house and a cash account opened with an authorised commercial bank in Vietnam). Of these, 2,908 are institutional investors and 16,108 are individual investors. In particular, 496 foreign investors received securities trading codes in April 2016 alone. This was an increase of 140% in comparison with the same month last year.

Thus, there may soon be a greater demand for margin trading from foreign investors, when the securities markets recover. It is hoped that the Ministry of Finance will reconsider the risks and rewards of removing the ban on margin trading for foreign investors.

Nguyen Manh Cuong

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