Revised Law on Securities
The Law Revising a Number of Articles of the 2006 Law on Securities (the Law) was passed last November and will take effect in July.

The Law Revising a Number of Articles of the 2006 Law on Securities (the Law) was passed last November and will take effect in July. The amendments focus on private and public offering of securities; public bid; securities trading market; operation of securities companies and fund management companies; and information disclosure.

Offering of securities

The Law defines private offering of securities as an institution’s offering of securities to less than 100 investors, excluding professional securities investors, without using the mass media or Internet.

Under an added article on private offering of securities, to privately offer securities, a public company must obtain approval from the Shareholders’ General Meeting or Board of Directors of the plan on offering and use of revenues from such offering.

Privately offered stocks and convertible bonds must not be transferred within one year after completing the offering, except private offering under selected programs for the company’s employees, transfer of individuals’ offered securities to professional securities investors, and transfer of securities among professional securities investors. This time limit is set to prevent abuse of issuance of stocks in limited quantity for subsequent public offering.

The interval between private offerings of stocks or convertible bonds must be at least six months to prevent abuse of private offering of stocks to certain entities leading to excessive dilution of shareholders’ ownership, and to enhance the Board of Directors’ liability for capital use and raising.

In reality, some enterprises issued stocks to the public without listing or registering them on a stock exchange, therefore, such securities had no liquidity, hurting shareholders’ interests. In addition, over-the-counter transactions are not transparent enough and involve risks because they are not subject to state management.

Based on that reality, world experience and recommendations of the International Organization of Securities Commissions (IOSCO), the Law additionally requires a public company registering public offering of securities to commit to putting securities into transactions on an organized market within one year after completing the offering as approved by the Shareholders’ General Meeting.

Public bid

Public bid aims to limit the manipulation of securities prices, ensure a transparent market, and help small investors and issuing organizations protect their rights and interests in transactions that affect the prices and operation of issuing organizations. However, the 2006 Law’s provisions on the transfer of securities among major shareholders or companies of the same groups are unfeasible, and its provisions requiring companies that redeem their own stocks to conduct public bid appear impractical.

To deal with these problems, the Law specifies cases subject to public bid:

(i) Bids for voting stocks or closed fund certificates which lead to the ownership of 25 per cent or more of outstanding stocks or fund certificates of a public company or closed fund; and,

(ii) Organizations, individuals and related persons that currently hold 25 per cent or more of voting stocks or fund certificates of a public company or closed fund and wish to additionally buy 10 per cent or more of outstanding voting stocks or fund certificates of such company or fund, or additionally buy between 5 and under 10 per cent of voting stocks of such company or fund within under one year after completing the previous public bid.

It also provides cases exempt from public bid:

(i) Purchase of newly issued stocks or fund certificates, or transfer of voting stocks or fund certificates, which leads to the ownership of 25 per cent or more of voting stocks or fund certificates of a public company or closed fund under the approved issuance plan;

(ii) Transfer of stocks among companies of the same parent company;

(iii) Donation and inheritance of stocks, and capital transfer.

Securities companies and fund management companies

In addition to managing securities investment funds and securities portfolios under the 2006 Law, fund management companies may now provide securities investment consultancy since, in fact, to effectively manage securities portfolios, these companies are required to provide investors with securities analysis results and recommendations. This, by nature, is a securities investment consultancy activity within the operations of securities companies allowed by laws of other countries.

The 2006 Law required securities practitioners to work through securities companies while it had no provisions allowing these companies to manage individual investors’ accounts under entrustment. So, entrustment contracts must be made between securities practitioners and clients. To close this loophole, under the Law, securities companies may manage securities trading accounts of individual investors on the basis of entrustment contracts signed between the companies and clients.

Current provisions on financial safety fail to meet practical requirements while supervision criteria fail to take into account all market, credit and professional risks in the business operations of securities companies. For that reason, the Law requires securities companies and fund management companies to assure financial safety ratios set by the Ministry of Finance.

Information disclosure

Under the Law, more entities are subject to information disclosure, namely security depository centers and related persons, because their securities trading operations largely affect the securities market. At the same time, representatives at law, not directors or directors general as under the 2006 Law, and related persons are obliged to disclose information.

Article 103 of the 2006 Law is annulled because it imposed stricter requirements on information disclosure by listed institutions than those applicable to public companies, amounting to discrimination in the information disclosure obligation of listed and unlisted public companies, thus discouraging these companies to list their securities.

The Law requires disclosure of information on charter capital and shareholders of public companies without any discrimination between public companies and listing institutions to ensure that all large-sized companies must disclose information at requirements more stringent than those for small-sized ones. This also helps encourage enterprises to list and register their securities on an organized market.

Other amendments

The Law adds investment capital contribution contracts as a type of securities to meet capital raising demands through securities and securities market activities. Accordingly, investment capital contribution contract means a contract on contribution of capital in cash or assets between investors and contract-issuing institutions for profit purposes and is convertible into securities of other types.

It also assigns the Ministry of Finance to specify securities of other types in order to flexibly manage arising securities activities and ensure stable and sustainable operation of the securities market.

Compared to the 2006 Law, the Law prohibits another act of conducting securities trading operations without the State Securities Commission’s approval, stemming from a reality that many enterprises other than securities companies conducted securities investment brokerage and consultancy without licenses while their employees had no practicing licenses and violated relevant regulations, posing numerous risks to the securities market.

The 2006 Law made corporate governance provisions applicable only to public companies having stocks listed at stock exchanges or securities trading centers. Nevertheless, many unlisted big public companies are in fact subject to corporate governance requirements not as stringent as listed ones are, thus discouraging them to list their stocks. To redress this, the Law specifies governance principles applicable to both listed and unlisted public companies, for ensuring the interests of shareholders and related persons.

Under the Law, the Government is assigned to specify the trading in securities other than those eligible to be listed at stock exchanges in order to reduce over-the-counter transactions and create a legal ground for state management and organization of a market for securities of unlisted public companies (including securities eligible but not registered for listing at stock exchanges and securities ineligible for listing), and other derivative securities.

Domestic stock exchanges are also allowed to cooperate with foreign bourses in a bid to facilitate Vietnam’s fulfillment of securities market integration commitments.

In addition, to encourage the formation of real estate investment funds for raising capital for the real estate sector in a transparent manner, the Law allows real estate investment funds to use capital and assets of securities investment funds for investing over 10 per cent of the total asset value of a closed fund in real estate.-

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