Regulation on determination of professional securities investors reviewed

The representative of SSI Securities Corporation has given comments on the draft Decree guiding the revised Securities Law 2019

Who is responsible for determining professional securities investors?

Regarding the determination of professional securities investors, Article 47 of the draft stipulates: “The issuing agency and the fund management company are responsible for determining and selecting professional securities investors and archiving documents on the determination of professional investors who attend the offering.”

According to Nguyen Kim Long, Director of Legal Compliance and Internal Audit under the SSI Securities Corporation, it is necessary to review the regulation on assigning the issuing agency to be in charge of determination of professional securities investors. The issuing agency only can determine professional securities investors at the primary offering; the secondary offering between professional investors requires a third party to determine professional securities investors. In addition, the issuing agency cannot continue to determine other investors as professional investors or not to support the secondary offering.

Long proposed to assign an intermediary financial institution (securities companies, fund management companies) or a management agency to determine professional investors.

He also suggested that there needs to be a regulation in this draft stipulating the determination of professional securities investors in the primary market and secondary market to cover all cases.

Moreover, others said it is necessary to add a regulation on handling the case that a securities investor which has been determined as a professional investor and attended a private offering, is no longer eligible for being a professional investor such as the certificate of securities practice is revoked, the securities portfolio is no longer VND2 billion or the organization reduces its charter capital to less than VND100 billion or no longer conducts the listing or registers trading.

Therefore, SSI proposed that in this case, the investor can continue holding purchased securities and sell out but is not allowed to buy securities issued to professional securities investors.

SSI’s representative also commented on the regulation related to foreign investors' activities. Accordingly, in Article 130.5 of the draft, “Foreign investors, trading representatives, securities business organizations providing services to foreign investors must comply with the law on the foreign ownership rate when participating in investment in Vietnam's securities market.”

Mr. Long suggested that this content should be revised in the direction that "Foreign investors must comply with the law on foreign ownership rate when participating in investment in Vietnam’s securities market," because the responsibility on complying with the ownership rate must first belong to the investors themselves, which also directly affect the interests and obligations of investors when investing in Vietnam’s securities market.

Moreover, the Securities Law also regulates the responsibility of foreign investors and theresponsibility of the Vietnam Securities Depository and Clearing Corporation. This draft also stipulates that issuing agenciesare obliged to comply with regulations on foreign investors' ownership rate when offering securities.

Some regulations should be revised appropriately

Mr. Nguyen Kim Long also mentioned some other contents of the draft Decree guiding the Securities Law 2019. Specifically, Article 172 of the draft stipulates that the regulation “Securities companies and fund management companies have no more than two legal representatives at a time”should be revised to “Securities companies, fund management companies have not more than two legal representatives at a time, except an authorized representative of these people.”

Article 193.1.d of the draft stipulates that one of the conditions for a Securities Company to offer financial products for sale is “the offering is approved by the general meeting of shareholders or the board of members or the owner of the company.” The SSI’s representative suggested to amend that the offering is approved by the Board of Directors of the securities company only because the majority of joint stock companies regulate that the General Meeting of Shareholders has the right to approve transactions of selling high valuable assets. Moreover, financial products are diversified and plentiful, the submission to the General Meeting of Shareholders for approval of financial products makes it difficult for the operation of securities companies.

Notably, according to the draft, the regulation on representative of bondholders in Article 21 is a new regulation. The bondholder’s representative organization is appointed to sign a contract and paid fees by an issuing agency but it acts for the benefit of bondholders. According to SSI, the draft’s regulation on the responsibilities of the bondholder’s representative organization will not facilitate the issuing agency and the representative of the bondholder to be able tonegotiatework content in accordance with interests of bond holders.

In addition, responsibilities such as “Requesting the payment guarantor to fulfill its guarantee obligations if the issuing agency fails to pay any due payments for bonds” and “Taking measures to handle collateral assets in accordance with the terms of the signed contract”should be clearly defined to ensure the performance of the organization as the representative of bondholders. The relationship between the bondholder’s representative and the bondholders should also be clarified in the law,whether it is an authorization relationship, whether the bondholder’s representative is an authorized person of the bondholder or not; and whether or not there are other obligations of the authorized person in accordance with the Civil Code.