13 August 2009
On 26 December 2008, the Ministry of Finance issued Decision No. 126/2008/QD-BTC ("Decision 126") amending and supplementing Decision No. 27/2007/QD-BTC dated 24 April 2007 on the organisation and operations of securities companies ("Decision 27").
Decision 126 amended Articles 3, 4 and 5, repealed Article 11 and supplemented Article 29 of Decision 27. These changes modify and clarify conditions applicable to capital contributors of, and licensing procedures for, the establishment of securities companies, the prohibition of loans to certian related parties and the closure of agencies for receipt of orders.
Conditions Applicable to Capital Contributors
Decree 126 sets out stricter conditions applicable to individuals and legal entities contributing capital to securities companies.
Individuals who contribute capital to a securities company must have full civil capacity and not be subject to a criminal penalty or be banned from professional business practice by a court. They must also satisfy financial capability requirements. These include using their own funds and not borrowed or entrusted capital, and providing evidence of their capability to contribute capital in cash, listed securities or other assets. The value of such assets must be at least equal to the capital amount proposed to be contributed and the valuation of such assets must be performed within 30 days prior to the date of submitting a complete and valid application file for the establishment of the securities company (the "Application File").
Decision 126 replaces conditions required for legal entities which contribute capital to a securities company set out in Decision 27. These legal entities must be legally operating and have been operating for at least five years. If the securities companies to be established are shareholding or multi-member limited liability companies, they must have at least two founding shareholders/members that are organisations holding at least 65 percent of the charter capital and at least one must be a commercial bank, finance company or finance leasing company. If the securities company to be established is a one-member limited liability company, the owner must be a commercial bank, finance company or finance leasing company.
Legal entities which contribute capital to a securities company must also satisfy financial capability requirements. The capital amount to be contributed must be (i) lawful, certified by an independent auditor and not be entrusted capital, (ii) meet equity requirements that vary depending on the nature of the contributing legal entity (i.e. ordinary contributors, insurance companies or commercial banks), and (iii) at least equal to the net current assets of the contributor. These requirements must be reflected in the contributor's audited financial statements of the most recent year and most recent financial statements. Additionally, the legal entity's business must be profitable for two consecutive years prior to the application year and not have accumulated losses before submission of the Application File.
Decision 126 retains the three-year lock-up period applicable to the assignment of the capital portion or shares by founding members/shareholders, except where such assignment is made to other founding members/shareholders. Now, under Decision 126, commercial banks, finance companies or insurance companies must hold at least 30 percent of the charter capital of the securities company during the lock-up period, as compared to the 20 percent required to be held by founding members/shareholders by Decision 27.
Licensing Procedure for Establishment of a Securities Company
Decision 126 requires the supplementation and completion of the Application File of founding members/shareholders within 30 days from the date of a written request by the State Securities Commission (the "SSC").
Within six months from obtaining the SSC's in-principle approval for the establishment of a securities company, contributors must complete investment in material and technical facilities, recruitment of staff having professional securities certificates and deposit the legal capital in an escrow account. If not, the in-principle approval is deemed rescinded. Additionally, any changes in the capital amount to be contributed, or in the founding members/shareholders structure, as set out in the Application File occurring from the date of in-principle approval to the date of official commencement of operations will also result in rescission of the in-principle approval.
Prohibition of Extensions of Loans
It is worth noting that a securities company may not lend to its majority shareholders, members of its Supervisory Board, Board of Management, Members' Council, Board of Directors and related persons in any form.
Closure of Agencies for Receipt of Orders
Decision 126 repeals Article 11 on agencies for receipt of orders in Decree 27. Within one year from the effective date of Decision 126, agencies for the receipt of orders previously opened by existing securities companies must be closed.
Decision 126 took effect as of 10 April 2009.
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