Notifying ogligation of securities companies when handling securities margin assets of investors

Pursuant to Article 8.3.(g) of Regulation No. 637 of the State Security Commission guiding securities margin trading issued with Decision No. 637/QD-UBCK dated August 30th, 2011 (“Regulation 637”), securities companies (“Securities Companies”) are responsible to inform investors of their rights arising from securities in the client's margin trading account. In addition, according to Article 19.1.(b), the Securities Companies are obliged to notify investors in case the investors fail to supplement or fully supplement mortgage assets within the statutory period as requested by the Securities Companies before selling securities on the investor’s margin trading account.

It is noted that Regulation 637 does not specifically stipulate the prior notification time and the form of such notification. Similarly, nor is this issue specifically prescribed either in Regulation 87 of the State Securities Commission issued with Decision No. 87/QD-UBCKNN that will take effect and replace Regulation 637 as from April 1st, 2017. Therefore, in principle, time and form of notification will conform to agreements between the parties in the contract of securities margin trading (“Margin Contract”).


However, in reality, there are several cases in which the Margin Contract entered into between the Securities Companies and investors failing to stipulate or only provides a general regulation on the obligation to notify applied for a number of activities relating to margin activities shown in contracts. Therefore, when handling investors’ securities to recover debts, there are many cases in which the Securities Companies fail to notify investors in advance, resulting in disputes between the parties. In such case, if the investor initiates a lawsuit against the Securities Company to ask for compensation, the Securities Company is likely to lose the case and compensate for the actual damage suffered by the investor.

Therefore, for the best protection of their own benefits, in the Margin Contracts, aside from the relevant regulations such as initial margin rate (not lower than 50%), maintenance margin rate (not lower than 30%) as stipulated in Regulation 637 and the incoming Regulation 87, the Securities Companies should clearly regulate the time and form of notification when handling the guaranteed assets in case the investors fail to implement or fully implement the obligation of supplementing assets. To be clear, notification should be made under at least two (02) different forms, such as sending a notice from the system to the investor’s phone number or email. This will help the Securities Companies in archives and use such notice as evidence in the case of an arising dispute.