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Law on management of unlisted securities transactions in Vietnam - 2

Chapter 1‌‌

SECURITIES OVERVIEW

AND UNLISTED SECURITIES MARKET


1.1. CONCEPT OF UNLISTED SECURITIES AND SECURITIES ISSUANCE MANAGEMENT

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1.1.1. Concept of securities and classification of securities

1.1.1.1. Concept of securities

Law on management of unlisted securities transactions in Vietnam - 2

The stock market was born to meet the capital needs of the economy, and is a place to issue and trade securities.

Securities are evidence confirming the legal rights and interests of the owner to the assets or capital of the issuing organization. Securities are expressed in the form of certificates, book entries or electronic data, including the following types:

- Stocks, bonds, fund certificates.

- Rights to purchase shares, warrants, call options, put options, futures contracts, groups of securities or stock indices [14, Article 6].

Securities are financial assets with the following characteristics:

First , securities have liquidity: Liquidity is the ability to convert that asset into cash. This ability is high or low depending on the time and cost required for conversion and the risk of the decrease in value of the security due to conversion. Securities have higher liquidity than other assets, reflected in the high transferability on the market and in general, different securities have different transferability.

Second , securities are risky: Securities are assets whose value is greatly affected by risk, including systematic risk and unsystematic risk. Systematic risk or market risk is the type of risk that affects all or most assets. Unsystematic risk is the risk that only affects one asset or a group of assets. Investors are often interested in considering and evaluating the related risks on that basis to make decisions in choosing, holding or selling securities. This reflects the relationship between return and risk or the balance of returns - people will not take on additional risk unless they expect to be compensated by additional returns.

Third , securities have a profitable nature: Securities are financial assets that, when owned, investors expect to receive a larger income in the future. This income is guaranteed by annual dividends and the increase in securities prices on the market. Profitability is always closely related to the risk of the asset, expressed in the principle - the higher the level of risk acceptance, the higher the expected profit.

1.1.1.2. Securities classification

* Based on the nature of the securities

Equity securities include stocks and fund certificates, which are evidence confirming capital contribution and ownership of capital contribution and legal rights to the issuing organization.

Debt securities include bonds and promissory notes, which are certificates that record the issuer's (borrower's) obligation to pay the security holder (lender) a certain amount of money including principal and interest within specific periods of time.

Derivatives include futures contracts, options, forward contracts, and warrants, which are financial instruments derived from

Derivative securities are formed by the trading needs of buyers and sellers and their circulation depends on the level of development of the stock market.

* Based on transferability

Bearer securities consist of certificates of ownership or claims that do not bear the name of the owner. These securities are easily transferable, without the need for corporate or notary approval. The buyer is responsible for paying the seller at the agreed price.

Registered securities include certificates of ownership or claims with the name of the owner. These securities are transferable but must comply with specific legal regulations. If the owner wishes to transfer, he must prove that he is authorized and has a transfer certificate.

* Based on income potential

Fixed income securities include government bonds, local bonds, industrial bonds - corporate bonds, bank bonds and savings bonds, treasury bills: are securities that have the right to claim fixed income, regardless of the business performance of the issuer. They can be anonymous or registered securities, can be treasury bills, bonds or preferred stocks. The interest of this type is usually paid quarterly, semi-annually or annually. Each type of securities has different interest payment terms. The terms of securities are very different, for example, short-term treasury bills are usually less than or equal to 1 year, bonds are medium and long-term 2-30 years, preferred stocks have unlimited terms. This term can change due to the issuer's securities redemption activities.

Variable income securities include stocks and investment fund certificates. The income from owning stocks is called dividends, which fluctuates according to the company's business results. Unlike common stocks, in investment fund certificates, the owner does not have the right to participate in supervising the company's operations. When issuing investment fund certificates, the company can mobilize capital indefinitely, without the risk of paying fixed dividends like preferred stocks or bonds, but without diluting the control of shareholders.

Hybrid securities include convertible corporate bonds and bonds with stock options, which are both fixed-income and variable-income securities. The issuance of these securities is to adapt to the special requirements of the capital market.

* Based on the level of securities management

Listed securities (CKNY) are securities that are eligible for trading at the Stock Exchange (SGDCK) and the Securities Trading Center (TTGDCK).

CKCNY are securities of small and medium-sized joint stock companies, newly established companies, companies with effective business operations but not yet qualified or not listed on the concentrated stock market.

1.1.2 Securities issuance management

1.1.2.1. Concept of securities issuance management

Issuance of securities is considered the initial step, the premise of activities in the securities market. Issuance of securities refers to a joint stock company (JSC) or the Government offering securities directly or indirectly through public offering or private offering [33].

There are two methods of issuing securities on the unlisted market:

Private placement is a process in which securities are sold to a limited number of people (usually institutional investors) in a limited volume. Private placement is usually regulated by the Law on Enterprises. Securities issued in this way are not subject to trading on the Stock Exchange.

Public offering is the process in which securities are sold to the public, to a large number of investors, in which a certain proportion of the total issuance must be reserved for small investors and the issuance volume must reach a certain level.

Companies that issue securities to the public are called public companies.

1.1.2.2. Difference between listed securities management and public securities

unlisted securities

While in Japan and Korea, the issuance of unlisted securities has been systematically regulated and managed, in Vietnam there are still many gaps in the promulgation of legal regulations and management.

CKCNY are securities issued by private placement or public offering but not registered for trading at the Stock Exchange and the Securities Trading Center.

Regarding issuance registration , public companies with CNY securities submit registration documents to the Securities Depository Center (SDC) through securities companies (SCs). Meanwhile, companies with NY securities submit registration documents directly to the SDC.

Regarding the conditions for registration of transactions, if the securities of listed companies must comply with the listing conditions in Decree No. 14/2007/CP-ND

issued on January 19, 2007 by the Government on detailed regulations for the implementation of a number of articles of the 2006 Securities Law, a public company with a listed securities company must meet the following conditions: it is a public company that has registered its securities at the Vietnam Securities Depository and has a securities company carry out the procedures for registering transaction information [1].

Regarding trading regulations, the price fluctuation range is not specified for CKCNY, on the contrary, CKNY has price range regulations. CKNY has a reference price which is the weighted average of the transaction price of the most recent trading day, while CKCNY does not have a reference price. The execution method of CKNY is order matching and negotiation and investors are not allowed to place both buy and sell orders for the same type of securities in the same trading session during the prescribed hours from 9am to 11am, while CKCNY is mainly negotiation, investors can both buy and sell the same type of securities in the trading session at any time of the day.

Regarding information disclosure , companies with CKCNY will disclose information through securities companies, while CKNY will disclose information through companies that register for direct trading.

Regarding the management of foreign holding ratio, a company with a listed company has a maximum foreign holding ratio of 30% of charter capital, and a listed company has a maximum ratio of 49%, except for some types of law that stipulate a lower ratio.

In Vietnam, current law does not regulate the issuance of securities in general but only regulates the issuance and offering of securities to the public.

The issuance of securities to the public must be subject to the law on securities and must be licensed by the state securities management agency. Companies issuing securities to the public must implement a reporting regime, publicly disclose information and

subject to separate supervision according to the provisions of the securities law. This activity is regulated by the Securities Law and Decree 14/2007/ND-CP issued by the Government on January 19, 2007. Private issuance activities are not yet managed by legal provisions. Currently, the Government is drafting a decree on private offering of shares.

The purpose of distinguishing between private placement and public placement as above is to have measures to protect the investing public, especially small investors who do not know much about the securities field. For this purpose, to be allowed to issue to the public, the issuing organization must be a high-quality company with effective production and business activities, meeting the conditions prescribed by the State Securities Commission.

Issuing securities is the right of enterprises according to the provisions of the Enterprise Law and the will of shareholders as stated in the resolution of the General Meeting of Shareholders. The State Securities Commission is only the agency that conducts the appraisal of issuance dossiers according to the provisions of the Securities Law and does not have the right to prohibit or restrict enterprises from issuing securities. Basically, the legal provisions on public offering of securities are quite open, in the direction of creating maximum favorable conditions for enterprises on the basis of full disclosure of information.

As the agency that builds and manages the securities market, the State Securities Commission has made every effort to strictly review the registration dossiers for offering. Enterprises wishing to issue must submit complete dossiers to the State Securities Commission. If the enterprise's issuance plan is approved by shareholders in accordance with the law and the enterprise has sufficient legal dossiers, the State Securities Commission, based on the provisions of law, must issue a certificate of public offering without being able to refuse, even though it finds that the issuance plan will dilute the stock price and may affect the long-term interests of the enterprise and shareholders in general. The State Securities Commission has no right to request the enterprise to amend

The issue and use of capital plan may only require the enterprise to clearly state the risks associated with the issue in the prospectus.

In the coming time, the Ministry of Finance will submit to the Government a decree on private offerings and amend a number of documents related to issuance management.


1.2. OVERVIEW OF THE UNLIMITED STOCK MARKET

LISTING


1.2.1. Concept, history and characteristics of unlisted securities market

The stock market is a part of the financial market where long-term financial instruments are bought and sold.

Stock Exchanges and Stock Exchanges are places where securities transactions that have met the listing conditions take place. Securities on Stock Exchanges and Stock Exchanges are traded on the decentralized market, also known as the Stock Exchange.

TTCKCNY, in English is Over-The-Counter Market, abbreviated as OTC market. This market is organized in the form of buying and selling at negotiated prices between investors and securities companies, or between securities companies. OTC is a type of securities market that appeared earliest in history and continues to exist and develop to this day.

According to historical progress, the development of the market can be divided into the following three stages:

- Early period (15th century): OTC market is where buyers and sellers meet directly to trade securities, the market can be a place like a coffee shop.

The English meaning of the word over - the - counter means over - the - counter market and this is a historical feature of the market when securities were traded.

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