Decision No. 111/2004/QD-NHNN on the issuance of the Government Bond Auction Regulations for foreign currency at the State Bank of Vietnam

DECISION OF THE GOVERNOR OF THE STATE BANK OF VIETNAM

On the issuance of the Auction Rules for Government Bonds denominated in foreign currency at the State Bank

cover with foreign currency at the State Bank of Vietnam

GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated December 12, 1997 and the Law on Credit Institutions No. 02/1997/QH10 dated December 12, 1997;

Pursuant to the Law Amending and Supplementing Certain Articles of the Law on the State Bank of Vietnam No. 10/2003/QH11 dated June 17, 2003;

Pursuant to Decree No. 86/2002/NĐ-CP dated November 5, 2002 of the Government stipulating the functions, tasks, powers, and organizational structure of Ministries and ministerial-level agencies;

Pursuant to Decree No. 141/2003/ND-CP dated November 20, 2003 of the Government on the issuance of Government bonds, Government-guaranteed bonds, and local government bonds;

WHEREAS, pursuant to Decision No. 182/2003/QD-TTg dated September 5, 2003 of the Prime Minister on the issuance of government bonds for investment in important transportation and irrigation works of the country;

Pursuant to the Law Amending and Supplementing Certain Provisions of the Law on the State Bank of Vietnam No. 10/2003/QH11 dated June 17, 2003;

DECISION:

Article 1. After reaching consensus with the Ministry of Finance and upon the proposal of the Head of the Credit Department,

Article 2. This Decision takes effect fifteen days from the date of publication in the Official Gazette.

Article 3. The Auction Rules for Government Bonds denominated in foreign currency at the State Bank are hereby issued together with this Decision.

REGULATIONS

AUCTION OF GOVERNMENT BONDS DENOMINATED IN FOREIGN CURRENCY
AT THE STATE BANK

(issued together with Decision No. 111/2004/QĐ-NHNN dated February 2, 2004)
of the Governor of the State Bank)

PART I
GENERAL PROVISIONS

Article 1. Scope of application

These Rules stipulate the auction of Government Bonds denominated in foreign currency at the State Bank.

Article 2. Definitions

In these Rules, the following terms shall be understood as follows:

1. Auction of Government Bonds denominated in foreign currency at the State Bank means the State Bank acting as an agent for the Ministry of Finance in issuing and settling Government Bonds denominated in foreign currency through wholesale auctions with market members in the primary market.

2. Competitive interest rate auction is the form of auction where members compete on interest rates to determine the winning interest rates and volumes for each member during the auction session.

3. Non-competitive interest rate auction is the form of auction where members compete on volume to determine the winning volume during the auction session. The interest rate applied in a non-competitive interest rate auction is the winning interest rate from the competitive interest rate auction.

4. Government Bonds denominated in foreign currency issued at par value means bonds sold at their face value and redeemed once at maturity; interest payments are made annually on the issue date of the Government Bonds.

Article 3. Principles of Auction

1. Transparency and equality of rights and obligations among members;

2. Confidentiality of bidding information of members and the maximum interest rate (if applicable).

Article 4. Forms of Auction

During one auction session, the State Bank applies one of the following two forms of auction:

1. Competitive interest rate auction;

2. Combination of competitive interest rate auction and non-competitive interest rate auction.

The Ministry of Finance specifies the form of auction for each specific session.

Article 5. Conditions for participating in the auction of Government Bonds denominated in foreign currency

Credit institutions established and operating under the Law on Credit Institutions may participate in the auction of Government Bonds denominated in foreign currency at the State Bank when they meet the following conditions:

1. Permission to conduct foreign exchange business;

2. Having a foreign currency account opened at the State Bank Trading Department.

Article 6. Responsibilities of the Treasury Bill Auction Committee

The Treasury Bill Auction Committee of the State Bank - Ministry of Finance Joint Department is responsible for organizing and supervising the auction of Government Bonds denominated in foreign currency at the State Bank.

PART II
SPECIFIC PROVISIONS

Article 7. Recognition of Members

1. The State Bank issues membership recognition certificates to credit institutions meeting the conditions specified in Article 5 of these Rules, having a request to participate in the auction of Government Bonds denominated in foreign currency, and a list of authorized persons to sign participation documents in the auction of Government Bonds denominated in foreign currency at the State Bank according to Model No. 01/TPCP attached.

2. The State Bank revokes membership recognition certificates in the following cases:

a) Credit institutions no longer meet the conditions stipulated in Article 5 of these Rules;

b) Credit institutions are placed under special supervision.

Article 8. Bidding Methods

1. Direct Auction: Members place bids directly at the State Bank.

2. Auction via computer network: The State Bank provides codes, keys, and digital signatures to authorized representatives of members to conduct transactions over the network.

Article 9. Notice of Auction

1. At least two working days before the auction date, based on the Ministry of Finance's proposal to issue Government Bonds denominated in foreign currency, the State Bank notifies the auction to members.

2. The State Bank (Trading Department) will send auction notices in the following ways:

a) Through the computer network to members directly connected to the State Bank;

b) By fax to members not connected to the State Bank and designated branches of the State Bank. If members not connected to the State Bank do not register for five consecutive sessions, the State Bank will stop sending direct notices by fax to these members for subsequent sessions. Direct fax notifications will resume when these members continue to register for the auction.

c) On certain mass media outlets.

3. The content of the notice of auction of Government Bonds denominated in foreign currency by the State Bank according to Model No. 02/TPCP attached.

Article 10. Registration for Auction

1. On the auction day, members register for the auction according to Model No. 03/TPCP attached.

2. The contents recorded in the registration form of members are as follows:

a) Form of auction:

- Model registration form No. 03/TPCP is applicable to both competitive interest rate auction and combined competitive and non-competitive interest rate auction. Members participating in the auction fill in the appropriate sections depending on the type of auction they are participating in.

- In combined competitive and non-competitive interest rate auction sessions, members can register for competitive interest rate auction, non-competitive interest rate auction, or both types of auctions.

b) Volume of bid

- Participants are not subject to a minimum bidding volume limit but must round up to the currency unit of the bond. In cases where the auction combines competitive and non-competitive interest rate bids, the maximum non-competitive interest rate bid volume for each participant shall be 30% of the expected issuance volume.

- The bid volume at each interest rate level in the competitive interest rate auction and the total amount must be written in both figures and words. In case of discrepancy between the figures and words, the bid registration form will be disqualified.

c) Interest Rate

- For competitive interest rate bid registrations, each form may register up to five interest rates. The interest rate at each bid level is calculated as a percentage per annum (%) and must be written to two decimal places.

- For non-competitive interest rate bid registrations, the forms only register the bid volume without registering interest rate levels.

3. The original bid registration form sent to the State Bank must bear the signature of the legal representative of the member who has registered their signature with the State Bank, enclosed in a sealed envelope. In cases where the bid registration is transmitted through a computer network connected to the State Bank, it must comply with the State Bank's regulations on information security.

4. Auction participants are not required to deposit collateral with the State Bank.

Article 11. Method of submitting bid registration forms

1. During each auction session, participants can submit one bid registration form for each type of bond term.

Within the bid registration submission period, participants may change the content of their bid registration form by submitting a new form and canceling the old one via the computer network. In cases where bids are directly submitted into the ballot box placed at the State Bank (State Bank Trading Department or designated branch of the State Bank), the evaluation of bids will be based on the latest bid registration form of the participants. 2. Bid registration forms can be directly submitted into the ballot box placed at the State Bank or transmitted through a computer network to the State Bank Trading Department according to the State Bank's regulations on information security.

3. The ballot box is locked with two keys held by two authorized officers, each holding one key. In cases where bid registration forms are transmitted through a computer network, the code key is held by the authorized person to ensure the confidentiality of the bid registration forms before opening the bids.

Opening Bids

Article 12. 1. Before 13:00 on the day of the bid opening, participants must submit their bid forms to the State Bank. The bid opening begins at 13:30 on the day of the auction under the supervision of the Treasury Bill Auction Committee.

2. The processing department of the State Bank (State Bank Trading Department or designated branch of the State Bank) will check the validity of the bid registration forms (two inspectors will separately confirm and sign on the bid registration form, and the person in charge of the processing department will also sign to confirm). Bid registration forms and bid volumes that do not comply with the regulations will be disqualified.

After disqualifying invalid bid registration forms and bid volumes, the designated branch of the State Bank will transmit and fax (in accordance with confidentiality procedures) the summary of bids by each bidding method (competitive and non-competitive interest rate auctions) and the bid registration forms of the participants to the State Bank Trading Department for centralized bid evaluation at the State Bank Trading Department.

The State Bank Trading Department will notify participants whose bid registration forms or bid volumes have been disqualified and specify the reasons for non-compliance.

Bid Evaluation

Article 13. 1. In the case of a competitive interest rate auction:

The volume of bonds awarded is selected based on the bid interest rate from low to high within the ceiling interest rate; at the highest winning bid interest rate where the bid volume exceeds the expected issuance volume, the volume of awarded bonds will be allocated to each bidder in proportion to their bid volume at that interest rate.

The highest winning bid interest rate will be the common issue interest rate applied to all successful bidders.

2. In the case of a combined competitive and non-competitive interest rate auction in one session:

a) Determination of the volume of competitive and non-competitive interest rate bids:

- If the non-competitive interest rate bid volume of members in the auction session is less than or equal to 30% of the expected issuance volume of government bonds, the non-competitive interest rate bid volume equals the non-competitive interest rate bid volume of the members. The competitive interest rate bid volume equals the expected issuance volume minus the non-competitive interest rate bid volume.

- If the non-competitive interest rate bid volume of members in the auction session exceeds 30% of the expected issuance volume of government bonds, the non-competitive interest rate bid volume equals 30%, and the competitive interest rate bid volume equals 70% of the expected issuance volume of government bonds.

b) Determination of the interest rate and volume of awards for participating members:

- The determination of the interest rate and volume of awarded bonds for competitive interest rate bidders is carried out according to the provisions of Clause 1 of this Article. The winning bid interest rate in the competitive interest rate auction is applied to calculate interest for the entire non-competitive interest rate bid volume.

- If the non-competitive interest rate bid volume exceeds 30% of the expected issuance volume, the State Bank will allocate the award volume to participants in proportion to their bid volume.

- If the winning bid interest rate cannot be determined in a single auction session for the competitive interest rate auction method, then that auction session will not result in any awards.

c) The auction results must be confirmed by the authorized representatives of the Ministry of Finance and the State Bank in the Treasury Bill Auction Committee.

c) The auction results must be confirmed by the authorized representatives of the Ministry of Finance and the State Bank of Vietnam in the Treasury Bill Auction Committee.

Article 14. Determine the annual interest payable on government bonds denominated in foreign currency.

The formula for determining the annual interest payable on government bonds denominated in foreign currency (to be paid annually on the issuance date):

L = MG x Ls

L: The amount of periodic annual interest payment.

MG: The face value of government bonds denominated in foreign currency.

Ls: The auction-winning interest rate of government bonds (expressed as a percentage per annum).

Article 15. Notification and reporting of auction results

After the Treasury Bill Auction Committee determines the auction results, the State Bank of Vietnam's Trading Department shall submit a written report of the auction results to the Minister of Finance, the Governor of the State Bank of Vietnam, the National Treasury, and relevant departments and bureaus of the State Bank of Vietnam; simultaneously, fax or transmit via computer network (if available) the auction results to participating members according to Model No. 04/TPCP attached, and announce the auction results through certain mass media outlets.

Article 16. Payment for purchasing and accounting of government bonds denominated in foreign currency.

1. Based on the State Bank of Vietnam's notification of auction results, successful bidding members must pay the full purchase price of the bonds to the State Bank of Vietnam (Trading Department) on the issuance date.

2. The issuance date of the bonds is set as the second working day following the auction date. The State Bank of Vietnam will credit the account of government bonds for successful bidding members and credit the account of the National Treasury's foreign currency deposit at the Trading Department with the proceeds from bond sales on the issuance date.

3. In case the State Bank of Vietnam does not receive the payment from successful bidding members on the issuance date of the bonds, it will automatically deduct the amount from the foreign currency deposit accounts of successful bidding members at the State Bank of Vietnam and transfer it to the National Treasury. If the foreign currency deposit account does not have sufficient funds to cover the payment, the unfulfilled portion of the successful bid result will be canceled. The State Bank of Vietnam will deduct a penalty of 5% of the canceled bid volume and transfer it to the National Treasury. If the foreign currency account of a member does not have sufficient funds to cover the 5% penalty of the canceled bid volume, the State Bank of Vietnam will continue to deduct from the account until the penalty amount is fully covered.

Article 17. Repayment of principal and interest upon maturity

1. Annual periodic interest payments, principal and interest due upon maturity of government bonds (the amount of principal and interest repayment of government bonds is rounded to two decimal places of the issuing currency unit).

One working day before the due date for annual interest payments, principal and interest due upon maturity, the Ministry of Finance (Central Treasury) transfers the amount due for bond repayment to the State Bank of Vietnam (Trading Department) in the foreign currency to be paid. On the payment date, if the State Bank of Vietnam does not receive the fund transfer documentation from the Central Treasury, it will automatically deduct the amount from the Central Treasury's foreign currency deposit account to repay the bondholders (if the Central Treasury's foreign currency account does not have the required foreign currency, the State Bank of Vietnam will convert the existing foreign currency to the required foreign currency at the State Bank of Vietnam's selling exchange rate at the time of transaction).

2. The State Bank of Vietnam pays the annual interest, principal and interest due upon maturity to government bondholders in the foreign currency within the bond repayment period. In case the due date for annual interest payments, principal and interest due upon maturity falls on a weekend, holiday, or public holiday, the payment will be made on the next working day.

3. In case the balance in the Central Treasury's foreign currency account does not have sufficient funds to repay the bondholders, the State Bank of Vietnam will deduct from the Central Treasury's domestic currency deposit account to purchase foreign currency from the State Bank of Vietnam at the interbank foreign exchange market rate prevailing at the time of transaction.

CHAPTER III
IMPLEMENTATION

Article 18. Responsibilities of units under the State Bank of Vietnam

1. State Bank of Vietnam's Trading Department

a) Review and issue/revoke membership certificates for entities participating in the government bond auction market denominated in foreign currency;

b) Issue identification numbers, passwords for members to conduct transactions via computer networks, and digital signatures for representatives authorized by members to participate in transactions;

c) Implement the instructions of the Treasury Bill Auction Committee in announcing bond auctions denominated in foreign currency, receiving bidding registration forms, organizing the bidding process, and notifying the auction results to participating members and designated branches of the State Bank of Vietnam as stipulated in this Regulation;

d) Prepare and submit auction result reports to the Governor of the State Bank of Vietnam and the Minister of Finance, and send copies to the Central Treasury, Credit Department, Monetary Policy Department, and Accounting and Financial Affairs Department;

đ) Receive the purchase price of bonds from successful bidding members and make periodic annual interest payments, interest due upon maturity, and principal repayments to bondholders. Carry out custody services for bonds of members;

e) Maintain accounting records for government bond auction operations denominated in foreign currency in accordance with regulations;

g) Based on the provisions of this Regulation, the Director of the State Bank of Vietnam's Trading Department shall issue operational procedures for government bond auctions denominated in foreign currency.

2. Accounting and Financial Affairs Department

Guide the accounting treatment system for government bond auction operations denominated in foreign currency.

3. Banking Information Technology Bureau

Develop software for government bond auctions denominated in foreign currency, install programs, and ensure secure network connectivity.

4. Designated Branches of the State Bank of Vietnam

a) Verify the qualifications of members in their respective regions, notify the State Bank of Vietnam's Trading Department to review and revoke membership certificates of members in their region who do not meet the conditions to participate in the government bond auction market denominated in foreign currency.

b) Receive bidding registration forms from members in their region participating in the auction.

c) Conduct the bidding and compile the bid sheets of the participants on the territory involved in the bidding (after eliminating invalid bids and bid amounts) and transmit them via computer network to the State Bank Trading Department for evaluation. At the same time, mark the consolidated table, registration forms with secret symbols, and fax them to the Trading Department for record-keeping of the bidding proposals.

Article 19. 1. Amend and supplement Point d of Clause 2 of Article 24 as follows:

Amendments and supplements to this Charter shall be decided by the Governor of the State Bank./.