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Ministry moves to regulate OTC market   2008-12-10 - Viet Nam News

Many unlisted companies in Viet Nam sell shares without complying with the law.

The Ministry of Finance confirmed in Official Letter No 14285/BTC-UBCK on November 26 that, during 2007-08, many companies have offered shares to the public without registering with the State Securities Commission (SSC) as required by Article 13 of the Law on Securities, or without satisfying the conditions for public offerings in accordance with Article 12 of the law.

In many of these instances, initial public offerings (IPOs) were conducted even without approval of a general shareholders meeting.

By issuing its Official Letter, the ministry is attempting to put an end to these messy and unlawful IPOs. It has requested local authorities to report violations to the ministry for application of possible sanctions. And the letter reiterates the hard-and-fast rule that public companies (as well as securities companies or brokerages) that offer shares to fewer than 100 specific investors and without publishing the offer in the mass media, must report to the SSC.

In an additional effort to regulate the over-the-counter (OTC) market, the ministry also issued Decision No 108/2008/QD-BTC on November 20, providing a framework for the OTC market as administered by the Ha Noi Securities Trading Center (HASTC). The regulation requires that transactions in unlisted securities must be conducted via member securities companies licensed by the SSC and reported to the registration system of the HASTC.

The decision requires registered public companies to register for securities depository with the SSC within six months of the effective date of the decision. Unregistered public companies must register for securities depository with the SSC within six months from the date of their registration to be public companies.

The regulation sets forth two methods for trading in shares of unlisted companies – by electronic means or direct negotiation. For electronic transactions, trading agents shall place orders on HASTC’s OTC system. For negotiated transactions, sellers and buyers shall agree on the conditions of the transaction, and the trading agent shall then confirm the transaction in the HASTC system.

Trading agents shall be appointed by securities companies who are licensed by the SSC. Permitted trading agents shall be allowed to place orders in the registration system of HASTC. The regulation is unclear on the type of trading licence and on whether a licensed listed-securities broker or agent is eligible to be a trading agent in unlisted securities without obtaining an additional licence.

Investors are not allowed to open more than one trading account for transactions in unlisted shares, although they may use the same account that they use for trading in listed securities. To discourage speculation, the regulation also prohibits investors from buying and selling the same securities within the same day, and limits share price fluctuations to no more than ± 10 per cent per day, although this may be adjusted by the SSC from time to time according to market conditions.

In contrast to the rules for listed shares, there is no 49-per-cent on foreign ownership of unlisted companies, although the Prime Minister has the authority to tighten this rule.

Unlike transactions in listed shares, payment for securities bought on the OTC market does not need to be made via securities companies or banks. However, buyers placing orders electronically for OTC shares must deposit sufficient funds with an HASTC member securities company to cover the costs of the order.

Finally, the new regulation imposes reporting requirements on OTC transactions, requiring members of the board of management, board of directors, and board of inspection, as well as the chief accountant, who wish to buy or sell shares in their company to report to the company and the HASTC at least one day prior to carrying out the transaction.

Shareholders and group of related persons who become major shareholders in a registered company must report to the HASTC within seven days of acquiring the shares. Transactions by major shareholders causing a change in ownership of more than 1 per cent of a company’s total circulating securities must also be reported to the HASTC.

All transactions by founding shareholders must also be reported to the HASTC at least one day prior to the transactions, and the results of the transactions must then also be reported to the HASTC within three days of completion.

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