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17 December 2020

On 26 November 2019, the National Assembly of Vietnam adopted the Law on Securities 2019, which will come into force on 1 January 2021, repealing the Law on Securities 2006 and its 2010 amendment (“Law on Securities 2006”).

The Law on Securities 2006 is the first law regulating activities relating to Vietnam’s securities market and was issued after Vietnam began to pursue a strong agenda of integration with the global economy. Continuing in this direction, and to further restructure State-owned enterprises and the financial market to develop the Vietnam market and boost integration with the global economy, the Law on Securities 2019 was adopted, to further bring the legal framework in this area of law in line with both market practice and international standards.

This article discusses some of the key highlights of the Law on Securities 2019.

Broadening definitions of related persons and professional securities investors

The definition of “related persons” will be broadened to cover additional arrangements and relations as well as to cross-refer to the definition in the Law on Enterprises. The Law on Securities 2006 did not refer to the Law on Enterprises, which caused some confusion on the interpretation of “related persons” as public companies are governed by both laws.

The definition of “professional securities investors”, that is, entities/persons who consider, inter alia, conditions of share private placement and public offer of shares, will be extended to cover additional entities/persons. “Professional securities investors” under the Law on Securities 2019 will cover the following entities/persons:

  • Commercial banks, foreign bank branches, finance companies, insurance business organisations, securities companies, securities investment fund management companies, securities investment companies, securities investment funds, international financial institutions, off-budget State financial funds, and State financial institutions permitted to purchase securities in accordance with relevant law;
  • Companies whose paid-up charter capital is more than 100 billion Vietnam Dong or listing organisations or registered trading organisations;
  • Persons having securities business practising certificates;
  • Any individual holding a portfolio of securities listed or registered for trading with a value of at least 2 billion Vietnam Dong as certified by securities companies at the time when the individual is identified to have legal status as a professional securities investor;
  • Any individual having taxable income of at least 1 billion Vietnam Dong in the most recent year as at the time when the individual is identified to have legal status a professional securities investor in accordance with the tax declaration file submitted to the tax office or source documents for tax credit provided by the organisation or individual paying such income.

Supplementing additional conditions for conducting IPOs and additional public offers

Conditions for conducting an initial public offering (“IPO”) under the Law on Securities 2019 are more stringent than those provided under the Law on Securities 2006. The new conditions are as follows:

  • The minimum amount of paid-up charter capital at the time of registration of the IPO must be 30 billion Vietnam Dong as recorded in the accounting books;
  • Business operations for two consecutive years immediately preceding the year of registration of the IPO must have been profitable, and there must not be accumulated losses calculated up to the year of registration of the IPO;
  • There must be an issue plan and a plan for utilisation of the proceeds earned from the IPO, approved by the general meeting of shareholders;
  • A minimum of 15% of the number of voting shares of the company must be sold to at least 100 investors not being major shareholders. If the charter capital of the company is 1,000 billion Vietnam Dong or more, the minimum ratio shall be 10% of the number of voting shares of the company;
  • Prior to the time of the IPO, major shareholders of the company must undertake to jointly hold at least 20% of the charter capital of the company for at least one year from the date of completion of the IPO;
  • The company is not an entity which is subject to criminal prosecution or was convicted of any one of the crimes of violation of economic management order for which the police record has not yet been expunged;
  • There must be a securities company which provides consultancy on the application file to register the public offer of shares, except in the case where the issuing organisation is a securities company;
  • There must be a commitment, and it is a requirement, to conduct listing or registration of trading of shares on the securities trading system upon completion of the IPO; and
  • The company must open an escrow account to receive payments from the IPO.

The Law on Securities 2019 further requires that, for subsequent public offers of shares, a public company must, inter alia, be profitable in the year immediately preceding the year of registration of the offer and must not have accumulated losses calculated up to the year of registration of the offer.

Requiring additional procedures to obtain an enterprise registration certificate for companies regulated by the Law on Securities

Under the Law on Securities 2006, securities companies, securities investment fund management companies, branches of foreign securities companies and fund management companies are issued establishment and operation licences by the State Securities Commission (“SSC”) only. The Law on Securities 2019 requires these companies to also register their businesses at a business registration agency in accordance with the Law on Enterprises. Although these companies now have to carry out additional registration procedures, this may be only a formality imposed for consistency with the registration requirement under the Law on Enterprises, by which the Vietnam authorities can also centralise the business registration of companies/entities operating in Vietnam in its National Business Registration Portal.

In light of the new licensing process and change of certain regulations under the Law on Securities 2019, the Law on Securities 2019 requires that:

  • Within two years from 1 January 2021, securities companies, securities investment fund management companies, and branches of foreign securities companies and fund management companies in Vietnam which were issued with licences prior to the effective date of the Law on Securities 2019 and satisfy the establishment and operation conditions prescribed under the Law on Securities 2019 must carry out enterprise registration and business registration in accordance with the Law on Enterprises but are not required to carry out the procedures for issuance of a replacement licence for establishment and securities business activities under the law on Securities 2019, unless requested.
  • After 1 January 2023, securities companies, securities investment fund management companies, and branches of foreign securities companies and fund management companies in Vietnam which were issued with a licence prior to the effective date of the Law on Securities 2019 and fail to satisfy the establishment and operation conditions prescribed under the Law on Securities 2019, will have their operation suspended and/or licence revoked by the SSC.

Establishment of a single centralised Vietnam Stock Exchange (“VSE”) and Vietnam Securities Depository and Clearance Corporation

The Law on Securities 2019 seeks to establish a single centralised Vietnam Stock Exchange (“VSE”) with the aim to merge the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange.

The Law on Securities 2019 also sets out regulations on the establishment, operation and organisation of the Vietnam Securities Depository and Clearance Corporation (“VSDCC”). These regulations seek to reform the Vietnam Securities Depository which is presently under the sole ownership and management of the State.

According to the Law on Securities 2019, each VSE and VSDCC shall be an enterprise where the State holds more than 50% of the charter capital or the total number of voting shares.

The Prime Minister shall issue decisions on the establishment, dissolution, operational model, ownership form, functions, rights and obligations of VSE and VSDCC.