Following the “scandal” of the notorious conglomerates of Vietnam, which happened in the stock market, their shares have been delisted at the stock exchange and deregistered at Viet Nam Securities Depository And Clearing Corporation (VSDC). Their deregistration of shares entails significant repercussions for the margin lending portfolio of securities firms.
A margin transaction is a securities purchase transaction utilizing funds borrowed from a securities company, in which the securities acquired through such transaction, together with other securities held in the investor’s margin account, serve as collateral for the aforesaid loan. Securities eligible for margin trading are limited to shares and fund certificates listed on the Stock Exchange, except for the cases prescribed in Article 3 of the Regulations Guiding Margin Trading of Securities. Accordingly, collateral in a margin transaction must consist of shares and fund certificates listed on the Stock Exchange.
A share, as defined under the Law on Securities, is a type of security evidencing the lawful rights and interests of its holder in a portion of the charter capital of the issuing organisation. When shares are listed on a stock exchange, they are required to be registered, deposited, and centrally registered at the Vietnam Securities Depository and Clearing Corporation (“VSDC“) and maintained in the form of electronic book entries.
However, where a company ceases to satisfy the listing requirements or voluntarily withdraws from the stock exchange, its shares shall be delisted. This process entails the cancellation of centralised registration and the withdrawal of depository. At that point, the listed shares previously serving as collateral are no longer “listed”, “centrally registered” with VSDC and revert to their original nature as equity interests in an ordinary joint-stock company.
Effectiveness against Third Parties
Shares that have been centrally registered at VSDC and are used to secure the performance of obligations under security transactions shall have their security interests registered at VSDC. Where shares with a registered security interest are subject to cancellation of centralised registration in accordance with applicable law, VSDC shall notify the depositary member at which the collateral securities are deposited, so that the relevant parties may carry out the procedures for deregistration of the security interest. In the event that the parties fail to carry out such deregistration procedures, VSDC shall automatically effect the deregistration of the security interest.
The validity period of the registration serves as the basis for determining the duration of the effectiveness of the security interest against third parties, except as provided at Point b, Clause 2, Article 6 of Decree 99, which states: the effectiveness against third parties of a security interest that was initially registered with the competent registration authority shall not terminate where the security interest over centrally registered securities has been registered at VSDC, and such securities subsequently become non-centrally-registered securities under the laws on securities, provided that the securities continue to be used to secure obligations for the same secured party or parties and the security interest is registered at the competent authority prescribed under the National Registration Agency for Secured Transactions (“NRAST“). Therefore, upon deregistration of the security interest by VSDC, the effectiveness against third parties does not automatically continue in force where the security interest has not yet been registered at NRAST.
Accordingly, in order to maintain the effectiveness of the security interest against third parties without giving rise to conflicts or disputes, the secured party should carry out registration procedures at NRAST with respect to non-centrally-registered securities at the earliest practicable time.
The point in time at which the security interest becomes effective against third parties is the point at which the security interest is registered with the competent authority. Once the security interest becomes effective against third parties, the secured party is entitled to the right of tracing the collateral and the right to priority of payment. However, the recourse shall not apply to collateral that no longer exists or has been substituted by other assets as prescribed in Article 21 of Decree 21.
