Lawyer in Vietnam Oliver Massmann Capital Markets and Privatization THE BREAKTHROUGH:

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Lawyer in Vietnam Oliver Massmann Capital Markets and Privatization
THE BREAKTHROUGH:
The Foreign Investor Group highly appreciates the efforts of the Ministry of Finance, the State
Securities Commission (SSC), the Stock Exchanges and the Vietnam Securities Depository
(VSD) in recent years to improve the legal framework in order to create more favorable
conditions for indirect investment activities of investors. For your consideration, we would also
like to share some of the difficulties that we are facing, they are as follows:
PART 1 - KEY MATTERS
1. Privatization of SOEs
We welcome and appreciate the decision of the Prime Minister on the state divestments in the
Official Letter No.1787/TTg-DMDN dated October 8, 2015 (hereinafter referred to as the
Official Letter 1787/2015). According to this document, the Government will have a divestment
plan of the state capital in 10 companies, including Vietnam Dairy Products JSC (Vinamilk),
FPT Telecom Corporation, and Bao Minh Insurance Corporation. We think this is a wise
decision, showing the determination of the Prime Minister and the Government for equitization.
The decision along with allowing the increase in foreign ownership is a breakthrough to bring
Vietnam's stock market to the "emerging markets" ranking.
In our opinion, compulsory listing of privatised SoEs under Decision 51/2014/QD-TTg dated
15/09/2014 and under the Decree 60/2015/ND-CP dated 26/06/2015 (hereafter referred to as the
Decree 60/2015) issued by the Prime Minister are proper provisions and very encouraging signs.
However, we wish to emphasize that the State divestment in a transparent manner through
bidding, and the compliance and enforcement of, as well as the supervision of compliance and
enforcement of, the Decree 60/2015 will play a crucial role in the success of the privatization of
the SOEs.
To make the privatization process succeed, and also meet the expectation from both the
Government and investors, we would like to emphasize on the following:
• the State divestment in a number of businesses in the Official Letter 1787/2015 must be
carried out in a transparent manner through public bidding;
• the Government should strictly request privatized SoEs fully complies with the
provisions on compulsory listing under Decree 60/2015;
• the Government should publicly publish a list of SoEs to be privatized. The list should
contain names of SoEs, estimated time for privatization, and estimated price to be offered
to the public;
• to create liquidity for the after market, the privatizations should be done through a global
syndicate and 25-30% should be sold off;
• the Government should pro-actively establish rules on good corporate governance based
on the international practice, and apply those rules to the privatized SoEs; and
• the Government should expedite the creation of domestic pension funds as these funds
will provide a significant demand for the financial market and privatization.
2. Decree 60/2015/ND-CP on Foreign ownership limits
We welcome the passage of Decree 60/2015 by the Government to increase foreign ownership
limits (FOL) in public companies.

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The decree has shown the Government's important direction and openness in promoting foreign
investments in public companies and securities funds in Vietnam. Also under the decree, foreign
investors may establish a new 100% foreign owned securities company or a fund manager in
Vietnam, or acquire up to 100% interest in an existing local securities company or fund
manager.
However, there are at least 2 major hindrances to the implementation of this Decree 60:
• First, the Government has not still publisized the lists of sectors and business lines, which
require conditions for foreign investments and set out clearly FOLs applicable to each of
those sectors and business lines. As a result, the lack of the lists in fact effectively stops
the operation of the Decree 60;
• Second, the Law on Investments 2014 is not clear on the scope of its application. As a
result, domestic enterprises, local investors, foreign investors in the stock market in
Vietnam, and the regulators, being the State Securities Commission, the Ministry of
Finance, cannot have a correct answer to the following question:
Do the Law on investments 2014, particularly, Articles 23, 24, 25 and 25 of this law,
apply to domestic enterprises, local investors, foreign investors when they buy shares in
listed companies, or when they invest in securities investment funds and securities in
Vietnam ?
• We understand that the Ministry of Planning and Investment, the State Securities
Commission and the Ministry of Finance are cooperating to resolve this issue in the law
guidelines. We also appreciate and thank the Ministry of Planning and Investment, the
State Securities Commission for having dialogues and consultations with us when
building these legal texts.
We suggest that:
• The Government urgently pass the lists of sectors and business lines, which require
conditions for foreign investments and set out clearly FOLs applicable to each of those
sectors and business lines; and
• The decree to interpret the Law on Investments 2014 to be passed by the Government
should clearly state as follows:
Investments in public companies, investments in securities investment funds and
securities in Vietnam will be governed by the Law on Securities and relevant regulations.
3. Pension Funds
To our understanding, the MoF is now completing the draft Decree on Pension Fund (Draft
Decree). However, we also understand that the Ministry of Labours, Invalids and Social Affairs
(MOLISA) has been also drafting a similar decree on pension fund.
We would recommend the government to direct the stakeholders to not overlap each other's
works in building the decree on voluntary pension funds and ensuring the decree to be issued as
soon as possible.
TALKING POINTS MEETING BETWEEN STATE SECURITIES COMMISSION AND
FOREIGN INVESTOR GROUP
The Foreign Investor Group highly appreciates the efforts of the Ministry of Finance, the State
Securities Commission (SSC), the Stock Exchanges and the Vietnam Securities Depository
(VSD) in recent years to improve the legal framework in order to create more favorable

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conditions for indirect investment activities of investors. For your consideration, we would also
like to share some of the difficulties that we are facing, they are as follows:
PART 1 - KEY MATTERS
1. Privatization of SOEs
In our opinion, compulsory listing of privatised SoEs under Decision 51/2014/QD-TTg dated
15/09/2014 issued by the Prime Minister is a significant breakthrough and a wise decision,
showing the Prime Minister's and Government's determination towards the process of
privatization.
However, we wish to emphasize that the compliance and enforcement of, as well as the
supervision of compliance and enforcement of, the Decision 51/2014 will play a crucial role in
the success of the privatization of the SOEs.
To make the privatization process succeed, and also meet the expectation from both the
Government and investors, we would like to emphasize on the following:
- the Government should strictly request privatized SoEs fully complies with the
provisions on compulsory listing under Decision 51/2014/QD-TTg dated 15/09/2014
issued by the Prime Minister;
- the Government should publicly publish a list of SoEs to be privatized. The list should
contain names of SoEs, estimated time for privatization, and estimated price to be offered
to the public;
- to create liquidity for the after market, the privatizations should be done through a global
syndicate and 25-30% should be sold off;
- The Government should pro-actively establish rules on good corporate governance based
on the international practice, and apply those rules to the privatized SoEs; and
- The Government should expedite the creation of domestic pension funds as these funds
will provide a significant demand for the financial market and privatization.
2. Decree 60/2015/ND-CP on Foreign ownership limits
We welcome the passage of Decree 60/2015 by the Government to increase foreign ownership
limits (FOL) in public companies.
The decree has shown the Government's important direction and openness in promoting foreign
investments in public companies and securities funds in Vietnam. Also under the decree, foreign
investors may establish a new 100% foreign owned securities company or a fund manager in
Vietnam, or acquire up to 100% interest in an existing local securities company or fund
manager.
However, there are at least 2 major hindrances to the implementation of this Decree 60:
- First, the Government has not passed the lists of sectors and business lines, which require
conditions for foreign investments and set out clearly FOLs applicable to each of those
sectors and business lines. As a result, the lack of the lists in fact effectively stops the
operation of the Decree 60;
- Second, the Law on Investments 2014 is not clear on the scope of its application. As a
result, domestic enterprises, local investors, foreign investors in the stock market in
Vietnam, and the regulators, being the State Securities Commission, the Ministry of
Finance, cannot have a correct answer to the following question:

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Do the Law on investments 2014, particularly, Articles 23, 24, 25 and 25 of this law, apply to
domestic enterprises, local investors, foreign investors when they buy shares in listed companies,
or when they invest in securities investment funds and securities in Vietnam?
[if the answer were yes, the whole stock market in Vietnam would stop working].
We suggest that:
- The Government urgently pass the lists of sectors and business lines, which require
conditions for foreign investments and set out clearly FOLs applicable to each of those
sectors and business lines; and
- The decree to interpret the Law on Investments 2014 to be passed by the Government
should clearly state as follows:
investments in public companies, investments in securities investment funds and
securities in Vietnam will be governed by the Law on Securities and relevant regulations.
3. Coordination between the State Bank of Vietnam and the Ministry of Finance to govern
the foreign indirect investment capital in securities market
Foreign investors when investing in the Vietnam securities market have not only to comply with
regulations on securities and securities market set forth by the Ministry of Finance (MOF) but
also to comply with regulations on foreign exchange management set forth by the State Bank of
Vietnam (SBV). However, there have been various instances of lacking /poor coordination
between the two ministries leading to difficulties for foreign investment in securities markets.
Key issue is that when the regulations on securities and securities market becomes more and
more flexible and adaptive to the international investment practices, SBV's regulations do not
move in the same pace with changes in the market in general and the securities market in
particular. More specific, we would like to discuss on account structure for foreign indirect
investors having multiple securities accounts at a custodian bank, allowing additional indirect
investment accounts at different custodian banks for foreign investors being government
investment institutions, inter-government institutions and simplification of account opening
document & market access documents for foreign investors. These issues are currently having
great impacts on foreign investment activities and are very much in need of cooperation between
the SBV and the Ministry of Finance. Details of these issues will be demonstrated in Part 2.II.2
of this paper.
4. Pension Funds
We appreciate the effort of the Ministry of Finance (MoF) in preparing the draft Decree on the
pension funds. We very much hope that the draft Decree will be submitted to the Government in
August this year under the current schedule, and be soon passed by the Government so that the
market participants will be able to establish the pension funds at the earliest.
We particularly appreciate the Government's effort to set up a legal frame work for the pension
funds for following reasons:
- these funds will provide a significant demand for the financial market and privatization;
- the capital invested in the pension funds will be used to re-invest in the Government
bonds (our research shows that, according to the international practice, 40 to 60% of the
assets of pension funds are invested in the Government bonds. This practice is also
reflected in the draft Decree on pension funds). The capital invested in the pension funds
will also help reducing the investment in Government bonds by commercial banks,
which is currently at the alarming level (the commercial banks currently hold 83% of the
total issued Government bonds as at the end of 2014);

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- the establishment of the pension funds will also help to reduce the pressure on the current
Social Security Fund (SSF). The SSF has been going through many changes (including
amendments on the Law on SSF) to ensure that it will sustainably grow and not make
losses. The pension funds will also provide Vietnam with an advanced social security
platform, being multi-tiered system, which is well recognized to enhance benefits for
employees; and
- the pension funds will enhance benefits for their members as there is no contribution
limit in those pension funds (as opposed to the limited contributions to the current SSF).
To our understanding, the MoF is now completing the draft Decree on Pension Fund (Draft
Decree). However, we also understand that the Ministry of Labours, Invalids and Social Affairs
(MOLISA) has been also drafting a similar decree on pension fund.
We suggest the Government check and give clear instructions on which ministry is in charge of
preparing such a decree so that the decree on pension fund could be finalized and passed at the
earliest.
We understand that Article 19 of the Draft Decree (prepared by MoF) allows pension funds to
invest in corporate shares and bonds. In our view, those provisions will create significant risks
for pension funds.
For this very beginning stage of pension funds, we suggest that the funds should only be allowed
to invest in:
- Government bonds;
- Securities Investment Open-End Funds;
- Term deposit;
- Other open funds meeting the MoF's requirements.
Our suggestion is based on the following:
- Pension funds would be on the safe side when investing in government bonds and funds.
Investments in open-end funds are safer compared to direct investments in shares as risk
allocations often exist in open-end funds. As the large institutional investors'
participation in the stock market in Vietnam is still limited, investments in open-end
funds would reduce the downside caused by the market's volatility.
- Investments in open-end funds are also consistent with the current tendency in developed
countries, which promotes investments in regulated financial products. Particularly,
open-end funds in Vietnam have been subject to investment restrictions similar to UCITS
(Undertakings for the Collective Investment of Transferable Securities).
- Finally, a schedule gradually loosening investment restrictions for pension funds in the
future would ensure a stable and healthy development of pension funds during its
inception, and build up trust from investors.
PART 2 - OTHER ISSUES
I - Pending issues from the Meeting on May 2015
1. Allowing right trading in stock exchanges Practice/Reason for the change
Transactions of the rights of listed shares are being executed between the investors in OTC
market during one month and a half or two months from the record date of the event to the
subscription date. The transfer of the rights is made through the VSD's system.
In many markets, the rights are traded as securities via the trading system of stock exchanges.
Recommendations

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We propose the SSC to consider allowing right trading via the system of stock exchanges.
2. Removal of pre-funding requirements and enhancement of risk mitigating measure in
securities trading
Practice/Reason for the change
While there is no doubt that the requirement of pre-funding serves the purpose of keeping failed
trades to a minimum, it is inefficient from the perspective of foreign investors. In most markets,
foreign investors have to fund their accounts in the market on the settlement date, whereas in
Vietnam accounts have to be funded 3 days prior to settlement date in the case of equity trades.
This prevents effective utilization of investors' assets and lowers the returns generated.
In addition, this requirement has created a manual process in the market wherein brokers have to
confirm sufficiency of balances in investors' accounts with custodians. This is done via phone
callsand is a risk-prone process as several brokers could be calling custodians in a very short
window of time. As volume of trading grows, this risk will only increase.
Recommendations
We recommend the SSC to replace the pre-funding requirements with other risk mitigating
measures (i.e. CCP with a settlement guarantee fund and a CCP driven buy-in mechanism) for
the cash equities market to begin with and not wait for a derivatives market to be established.
In case our recommendation cannot be implemented in the near future, we propose that the VSD
should leverage its new gateway to allow brokers to confirm balances in an automated manner.
Custodians could be asked to upload cash and securities balances into a VSD run database to
which the brokers could connect and block balances real-time.
3. Ensuring meeting materials and final voting items are sent to shareholders along with the
meeting invitations for annual/extraordinary shareholder meetings
Practice / Reason for the change
Clause 4.2 Article 7 Circular 52/2012/TT-BTC on Information disclosure in securities market
stipulates that: "Such public company shall publish on its website all documents regarding the
annual/extraordinary General Shareholder's Meeting: meeting notices, proxy designation forms,
agendas, ballots, discussion documents as the basis for decision¬making and draft resolutions on
each issue set forth in agendas and send notices of such meeting and guidance on logging on the
website on such meeting and documents regarding such meeting to shareholders fifteen (15)
working days at the latest prior to the commencement of such meeting".
However, per our observation, issuers usually send the meeting invitations within the above
timeline; meanwhile, meeting materials are sent to the shareholders much later (usually no
sooner than 5 days prior to meeting date, or even later). In many cases, the voting items stated in
the meeting materials (sent to the shareholders earlier) are changed/added during the meeting
without any prior notice to the investors.
These have been causing many difficulties to investors, especially for foreign investors and their
proxy, due to the 2 following reasons:
- Due to language barriers, foreign investors must wait until the meeting materials to be
translated into English so that they can read, understand and decide their votes. In most
of the cases, foreign investors must rely on their depository members to obtain English
version of such documents. Late dispatch of the meeting materials will not allow foreign
investors/depository members to have sufficient for all these steps.
- Foreign investors are usually not able to physically attend the meetings to cast the votes,
but authorize their proxy to vote on the items specified in the meeting materials they
received before the meetings. Late dispatch of the meeting materials or sudden changes

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of voting items with no prior notice would not allow foreign investors to prepare the
authorization for their proxy as well as provide the voting instructions to their proxy.
Recommendations
We recommend the SSC to stipulate new sanctions for this violation in relevant regulations to
enforce public companies to strictly comply with the stipulations on information disclosure as
mentioned above, and amend Article 3 Circular 121/2012/TT-BTC to specify the shareholders'
rights/public company's obligations to receive/provide full information of the meeting, including
meeting materials, final voting items, draft resolution, etc. at least 15 days prior to meeting date.
This timeline is also in compliant with relevant stipulations in Circular 52/2012/TT-BTC on
Information disclosure in securities market.
4. Procedure for handling collaterals being securities in transactions of commercial loans
with the involvement of the VSD
Practice/Reason for the change
In VSD's new rules on securities registration issued in March 2015, it is stipulated that in case
the borrower and lender authorize the VSD to be the intermediary to manage the collaterals, the
dossiers and procedure for handling of the pledged securities would be subject to the contract
signed by the VSD with the 2 parties. This new rule has drawn the attention of many foreign
investors (being financial institutions) looking for involvement in commercial loans with
collateral securities in Vietnam but still concerning about the risks arising during the handling of
the pledged assets. However, currently, detailed guidance for this case is not available so that the
new rule can be implemented in practice.
Recommendations
We recommend the SSC/VSD to provide detailed guidance on the procedure for the above-
mentioned cases to support commercial loans of foreign investors in Vietnam.
5. Electronic system for proxy voting (E-voting)
Practice/Reason for the change
We appreciate VSD's proposal on an electronic system for proxy voting to support investors in
exercising their voting rights in Vietnam. For a country with stretching geography and more than
31 million internet users like Vietnam, local investors also benefit from e-voting system. Korea,
Taiwan and India are few examples of using e-voting systems.
The new Law on Enterprises has also introduced new provisions being the very first legal base
for the operation of such e-voting system.
However, this is a brand new system and its inauguration may reveal technical issues of the
system its own or issues from depository members' sides (due to the limitations of their systems,
techniques, operational processes, internal policies, information security, limitation on human
resources, etc.) Therefore, the members do need sufficient time for comprehensive preparation
before the inauguration of e-voting system.
In addition, the investors also need sufficient time to study and prepare to contribute comments
to the design of the system, as well as prepare to participate in the voting via e- voting system in
Vietnam.
Recommendations
We would propose the SSC and the VSD to share with the members and investors further details
on the proposed operating model of e-voting system and VSD's draft rules on voting activities
via this system, so that the members/investors can contribute consistent, comprehensive, useful
comments to VSD's draft rules.

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6. Odd-lot transactions via HOSE system Practice/Reason for the change
Currently, the process of odd-lot trading in Vietnam market is actually inconsistent. For
securities listed on HNX, investors can carry out odd-lot transactions through the stock
exchange's system and make settlement through VSD system which is similar to round-lot
transactions. However, for shares listed on HOSE, odd-lot transactions are still executed off-
exchange, the investor will have to sign a contract with a securities company or the issuer.
Settlement processes for cash and securities for odd-lot transactions of securities listed on HOSE
are completely separated and depend on the agreement between the buyer and the seller.
Regarding securities settlement, investors will have to prepare and submit dossiers for transfer of
odd-lot securities through VSD as per stipulated process.
For foreign investors who do not have a commercial representative in Vietnam, the biggest
difficulty in the preparation process for transfer of odd-lot shares is the title verification for
authorized signatures. In many cases, proving the legality and validity of the odd-lot transactions
of listed securities on HOSE and completing the transfer procedures via the VSD system are
very expensive compared to the value of the odd-lot transactions and very time consuming due
to the notarisation/consularissation procedures.
Many investors when carrying out odd-lot transactions have requested to write-off their
ownership of odd-lots securities. However, the legal framework in Vietnam market has not
provided any stipulation on write-off securities ownership.
Recommendations
We recommend the SSC and HOSE to consider including odd-lots trading in the existing trading
system (which is similar to odd-lot transactions via HNX system) at the soonest to reduce the
trading costs and minimize difficulty on execution of odd-lot transactions of securities listed on
the HOSE.
At the same time, we also recommend the SSC to consider approving a mechanism allowing
investors to write-off ownership of odd-lot securities. These securities can be transferred back to
the issuer without any payment obligation or transferred to a joint account at the VSD to be
centrally handled by the VSD, the issuers or securities companies.
II. Recommendations and other issues needed further guidance from the SSC
1. Difference in application documents required to open trading accounts at securities
companies for foreign investors having securities account at custodian bank
Practice/Reason for the change
As stipulated in Article 48, Circular 210/2012/TT-BTC dated on 31 November 2012 of Ministry
of Finance guiding on opening trading accounts, dossiers to open trading account at securities
companies including a trading account opening form and an account opening contract. In
accordance with Clause 1 Article 7 of Circular 74/201 1/TT-BTC dated on 1 June 2011 of
Ministry of Finance ("Circular 74"), investors shall take responsibility to provide sufficient and
accurate information when opening trading accounts. The draft Circular replace Circular 74 also
supplement and clarify further clients' information provided by investors being identity
information(Clause 1 Article 7). In fact, according to feedbacks from foreign institutional
investors having securities accounts at custodian banks and trading accounts at securities
companies, each securities company requires different supporting documents for trading account
opening applications. Supporting documents may vary but basically include (i) copy of securities
trading code (STC), (ii) identification documents similar to those of securities trading code
application (iii) possibly FATCA documents. In some cases where foreign investors are
investment funds, some securities companies require each fund to submit separated document;
however, some other securities require opening account dossiers submitted at fund management
company level (i.e. all funds under the umbrella of the same fund management company shall

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collectively submit 01 application dossier). Therefore, in case securities companies require for
many supporting documents, the time span for opening account could be extended to several
weeks/months.
Recommendations
We propose the SSC to guide a standard required application documents to open securities
trading accounts for foreign investors at securities companies.
2. Issues related to coordination between the SBV and the Ministry of Finance to navigate
difficulties for foreign investors coming into Vietnam’s security market
2.1 Account Structure for foreign indirect investors having multiple securities accounts at a
custodian bank
Practice/Reason for Change
There are foreign investors being foreign governments/global investors with a diversified range
of investment portfolios managed by multiple specialized fund managers. In accordance with
certain laws and regulations on portfolio asset protection, these clients and their fund managers
must segregate the assets, e.g. segregation of equities and Government-bond portfolios. Thus,
these foreign investors have the need to open multiple cash and safekeeping accounts in order to
segregate the fund and the assets of each portfolio.
Circular 05/2014/TT-NHNN dated 12 March 2014 allow only ONE indirect investment account
in VND for one foreign investor.
Circular 05/2015/TT-BTC dated 15 Jan 2015 allow the flexible custody account structure, under
which each foreign investor shall open 01 custody account at a custodial bank/custodial member,
and under each custody account, the foreign investor can open multiple custody accounts for
different investment purposes. This flexible custody account structure allows the investor to
segregate multiple portfolios. In addition, Circular 123/2015/TT-BTC, guiding on foreign
investors' activities in Vietnamese securities market, increases more flexibility by allowing
government investment institutions and inter¬government investment institutions having
separated investment portfolios to be granted one securities trading code for each portfolio at a
custodian bank. For each granted STC, these institutions shall open one respective securities
account at a custodian bank.
Hence the restriction of ONE indirect investment account for one foreign investor may (1) not
meet the eligible needs/requirement of portfolio separations for big investors with sophisticated
portfolios, (2) not be in consistent with flexible custody account structure and (3) cause
challenging for existing process of trade balance confirmation/trade settlement in case eligible
investors open multiple custody accounts and can only open one VND account.
Please kindly note that the current structure of one client master ID with multiple VND accounts
under such master ID in the system of custodians still ensure the funding flow management and
reporting requirements separately for each foreign investor, meeting SBV's expectation in this
regard.
Recommendations
We recommend the SSC/MOF to give comments to the State Bank of Vietnam to allow flexible
VND account structure with multiple VND accounts for foreign investors, provided that the
banks can monitor/report the funding flow in/out for each investor separately, meeting SBV's
expectation from Foreign exchange management perspective, and meanwhile, in line with the
flexible custody account structure and multiple trading codes for big foreign investors.
2.2 Allowing additional indirect investment accounts at different custodian banks for foreign
investors being government investment institutions, inter-government institutions

10. 10
Practice/Reason for the change
We are highly appreciated the effort by the SSC and the MOF to issue legal framework which
has been increasingly closer to the international investment practices, including the regulation
allowing foreign investors having segregated investment desks, investment portfolios to have
multiple STCs and multiple securities accounts respectively.
Old Circular 213/2012/TT-BTC previously allowed foreign institutional investors being foreign
brokers, multiple-investment-managers funds having more than one STC to separate their
different investment portfolios. Recently, Circular 123/2015/TT-BTC, guiding on foreign
investors' activities in Vietnamese securities market, increases more flexibility by allowing
government investment institutions and inter-government investment institutions if having
separated investment portfolios shall be granted one securities trading code for each portfolio at
a custodian bank. For each granted STC, these institutions shall open one respective securities
account at a custodian bank.
However, according to the existing foreign exchange regulations, each foreign investor is
allowed to open only one foreign indirect investment capital account at a licensed bank and all
cash transactions related to foreign investment operation in Vietnam must be conducted via this
account. Due to the segregation of investment portfolios of foreign government institutions and
inter-government investment institutions, the usage of the same indirect investment capital
account in a bank for different portfolios custodized at different custodian banks will cause big
difficulties in monitoring cash flow and investors' assets. Additionally, transactions to be done
via cash account and deposit securities account shall require a complicated confirmation
processes between the bank having indirect investment capital account and the bank having
securities account.
At present, despite of the fact that securities regulations become more and more open, flexible to
the international investment practices, the foreign exchange regulations by the State Bank of
Vietnam do not support foreign investors to remove this existing barrier when investing in
securities market.
Recommendations
We recommend the SSC/MOF to give comments to the State Bank of Vietnam to remove such
barrier for of foreign investment activities in Vietnam market, i.e. to allow foreign investors
being government investment institutions and inter-government institutions to open additional
indirect investment capital accounts corresponding to each additionally granted STC/securities
account at second custodian bank onwards.
2.3 Simplification of account opening document & market access documents for foreign
investors
Practice/Reason for the change
The foreign investor community as well as market stakeholders highly welcome SSC's efforts on
relaxation of market entry document for foreign investors under Circular 123/2015/TT-BTC
(removal of (1)consularization request, (2) translation request for notarized English document;
(3) notarized translation for other English documents). Of note, under Law on Securities and its
detailed guidance, the requirement of information slip for foreign investor's representative
including information of his ID/Passport was removed long time ago.
Nevertheless, when opening cash account at banks, foreign investors are governed by Circular
23/2014/TT-NHNN, on opening and using transactional accounts at payment service providers
which requires notarized translations of account opening documents and
notarized/consularised/notarized translated copy of ID/PP of account owners. This SBV
requirement prevents the application of document relaxation under Circular 123. In addition,
Circular 23 also requires a written authorization to use an account, together with the registration

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form of specimen signature and a copy of identity card or valid passport of the authorized
person. According to international practice, large institutional investors and global custodian
banks only send requests and instructions to custodian bank in Vietnam via registered SWIFT
address, in order to ensure optimal accuracy of instructions and requests. These organizations do
not use any written requests/ instructions to communicate with custodian banks in Vietnam.
Therefore, the requirement to provide written authorization, registration of specimen signature,
copy of ID card/passport of authorized person cannot be applicable to clients using SWIFT
message.
Recommendations
We do hope that SSC/MOF can help us to discuss with the State Bank to ensure consistent
improvement of document requirements for foreign investors, including: (1) Remove
requirement of providing ID/passport of legal representative or authorized representative of the
account holder, (2) Remove the requirement to translate notarized English documents, (3)
Remove the requirement to translation any other English documents, remove the requirement of
legalization for copied documents, (4) Remove the requirement to provide written authorization,
registration of specimen signature, copy of ID card/passport of authorized person in case client
uses SWIFT message.
3. Further guidance from the SSC is needed regarding regulations on security market
3.1 Funds’ investment cap
3.1.1 Application of the investment cap for investments in money market instruments
In accordance with Circular 183 (Article 15.2.b), assets that an open-ended fund can invest in
consist of: "... money market instruments, foreign exchange, commercial paper and negotiable
instruments in line with prevailing banking laws and regulations".
The existing banking regulatory framework does not provide any official definition of money
market instruments. However, according to Circular 224 (Article 9.2.d) and Circular 229 (Article
14.2.a), which provide regulations on the eligible portfolios of private equity funds and ETF
funds, these funds may invest in "... money market instruments, including commercial paper and
negotiable instruments in line with prevailing banking laws and regulations".
Here, we hope to receive SSC's elaboration on the definition of "money market instrument" in
Circular 183 to allow supervisory banks ("SBs") to monitor the performance of open- ended
funds.
3.1.2 Identification of corporate groups having cross-ownership relationships for application of
the 30% investment cap
According to Article 15.4.b, Circular 183, Funds "must not invest more than thirty percent
(30%) of their total asset value in instruments referred to in (a), (d), (d), (e) and (f), paragraph 2
of this Article, issued by a company or corporate group having cross¬ownership relationships,
out of which, the portion of investment in derivatives must equal the committed value of the
contract as determined in Appendix 13 of this Circular".
Circular 183 however neglects to provide a definition of corporate groups with cross¬ownership
relationships. Nevertheless, Circular 229/2012/TT-BTC and Circular 224/2012/TT-BTC did
provide a definition - "corporate groups with ownership relationships are corporations having
relationships between a holding company, subsidiaries, joint venture companies and affiliates”.
We understand SBs may refer to this definition to conduct supervision of the adoption of the
30% investment cap by open-ended funds.
Additionally, when a managed fund invests in a state-owned enterprise that has gone public,
where the government holds the controlling equity (more than 50%) and may exert influence on

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the issuer, how should the 30% cap be monitored? Can SBs rely on the agent representing the
state ownership (e.g. SCIC or the provincial level People's Committee) to do this?
Moreover, in its monitoring role, a supervisory bank can only capture information on corporate
groups with ownership relationships through the website of the issuer or brokerage firm (if
any).We look forward to receiving SSC's instructions on the reliable sources that SBs can use to
gather necessary information in monitoring compliance with the statutory cap.
3.2 Regular reconciliation between SBs/counterparty bank and fund management company
(FMC)
In accordance with Article 24.4, Circular 212, "In case of investment or contribution of equity,
or trading of assets, equity and non-listed shares on a fiduciary basis, fund management
companies must retain the originals of contracts, incorporating and operating licenses or
business registration certificates (if any), shareholder book or deeds of asset ownership at
depository banks or supervisory banks, to allow these institutions to conduct regular
reconciliation with the recipient of the investment fund”. As no specific frequency for
reconciliation is given, can SBs/counterparty banks understand that it can be agreed upon
between the SB/counterparty bank and FMC?
3.3 Monitoring scope of SBs related to the rules and methods to determine the net asset value
of a Fund
In accordance with relevant regulations (Article 37.1a Circular 183, Article 29.2a Circular 224,
Article 23 Circular 229), "the monitoring scope is limited to the operations of the fund
management company related to the funds that a bank performs monitoring on. In its monitoring
role, the supervisory bank must:
a) Work with the fund management company to review on a regular basis internal procedures
related to the rules and methods to determine the fund’s net asset value;
examine and monitor the determination of the fund's net asset value; and make sure that the net
asset value of a fund unit is determined properly, accurately and in compliance with applicable
laws and the fund's Articles of Association.
Speaking of working with an FMC to regularly review internal procedures related to the rules
and methods of determining the fund's NAV, as we understand, a SB's responsibility should be
limited to making sure that valuation to determine the FMC's NAV is consistent with the fund's
valuation handbook, rather than extended to determining the appropriateness or accuracy of the
valuation method.
3.4 Revenue and spending management, settlement and monitoring investment activities
According to the current laws (Securities Law and Circulars related to managed funds, Circular
224, Circular 183 and Circular 229), SBs are responsible:
- To perform revenue and spending management, settlement and transfer of cash and stock
related to the fund's operations based on legitimate requests of the FMC; monitor, ensure
the legitimacy, and only execute payment from the fund's assets, and for expenses that
comply with applicable laws and the fund's charter; monitor the fund's investment
activities and asset transactions, in line with applicable investment and lending
restrictions defined by law and the fund's charter, among others;
- Where infringements of the law or the fund's charter are found, the SB must immediately
report SSC and FMC within 24 hours following the discovery, and at the same time
demand corrective or remedial actions within a specified time line.
In the principle of the law, SBs have the liability to report once they detect any misconduct. To
that end, we understand that this monitoring role (including cap, purpose of investment and

13. 13
compliance with existing law monitoring) should be guided by post-transaction rules (after a
transaction is completed and after the net asset value determining period), with notification made
to the FMC and SSC after misconducts are detected.
We must also note that post-NAV check is a common practice for investment cap verification
and monitoring, because in almost every case, cap-related wrongdoings may only be monitored
after the transactions and NAV determining period have completed (for example with listing
transactions, SBs only have the information after the transaction has successfully completed at
the Stock Exchange, and most investment caps are developed based on the fund's NAV and can
only be determined after NAV determination has completed).
We need SSC's elaboration on this issue and our understanding related to SBs to be able to
effectively monitor the fund's activities.
***
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you
have any questions or want to know more details on the above. Oliver Massmann is the General
Director of Duane Morris Vietnam LLC.

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