Circular No. 29/2010/TT-BTC guiding the financial management mechanism for Securities Exchanges and Securities Depository Centers

CIRCULAR

Guidelines for the financial management mechanism for Securities Exchanges

 and Securities Depository Centers

____________

Pursuant to the Enterprise Law No. 60/2005/QH11 dated November 29, 2005;

Pursuant to the Securities Law No. 70/2006/QH11 dated June 29, 2006;

Pursuant to the Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 09/2009/NĐ-CP dated February 5, 2009 promulgating the Financial Management Regulations for State-owned Enterprises and State Capital Investment in Other Enterprises;

Pursuant to Prime Minister's Decisions: Decision No. 599/2007/QĐ-TTg dated May 11, 2007 on transforming the Ho Chi Minh City Securities Trading Center into the Ho Chi Minh City Securities Exchange; Decision No. 01/2009/QĐ-TTg dated January 2, 2009 on establishing the Hanoi Securities Exchange; Decision No. 171/2008/QĐ-TTg dated December 18, 2008 on establishing the Vietnam Securities Depository Center;

Pursuant to Decision No. 1833/QĐ-TTg dated November 6, 2009 of the Prime Minister on the mechanism for setting aside and using reward and welfare funds for Securities Exchanges and Securities Depository Centers;

The Ministry of Finance guides the financial management regime for Securities Exchanges and Securities Depository Centers as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

Article 1. Scope of Regulation

Article 1. Scope of Application

This Circular applies to the Ho Chi Minh City Securities Exchange, the Hanoi Securities Exchange, and the Vietnam Securities Depository Center (hereinafter referred to as Securities Exchanges and Securities Depository Centers).

Article 2. Certain Provisions on Organization and Operation

Clause 1. Securities Exchanges and Securities Depositories are state-owned legal entities organized under the form of a single-member limited liability company in accordance with the Securities Law, the Enterprise Law, their Articles of Association, and other relevant laws.

Clause 2. Securities Exchanges and Securities Depositories operate independently in terms of finance; they have seals and can open accounts at the State Treasury and domestic and foreign commercial banks.

Clause 3. Securities Exchanges and Securities Depositories are subject to the State's financial management by the Ministry of Finance; the Ministry of Finance exercises the rights and obligations of the representative owner of capital and assets of the Securities Exchanges and Securities Depositories.

II. MANAGEMENT AND USE OF CAPITAL AND ASSETS

Article 3. Operating Capital

The operating capital of Securities Exchanges and Securities Depositories includes:

Clause 1. Authorized capital as decided by the Prime Minister, including:

Point 1.1 Capital transferred from the Securities Trading Center and Securities Depository Center to the State Budget.

Point 1.2 Additional State Budget capital during the course of operations.

Point 1.3 An increase in authorized capital decided by the Ministry of Finance. When there is a decision to change the authorized capital level, the Securities Exchanges and Securities Depositories must promptly adjust it in the balance sheet and Articles of Association, complete the procedures for adjusting the authorized capital, and publish it in accordance with the law.

Clause 2. Supplementary capital from post-tax profits and other lawful sources.

Clause 3. Raised capital.

Article 4. Principles for Managing Capital and Assets

1. The Stock Exchange and the Central Depository have the right to manage and utilize state capital invested and other lawful sources of capital according to the principle of preserving and developing capital; they are responsible to the Ministry of Finance for the effectiveness of capital utilization and ensuring the interests of related parties such as company members and employees in accordance with contracts and commitments made.

2. Measures for Preserving Capital:

2.1 Insure assets for the following types of assets:

a) Infrastructure technology asset group, including: Main trading system; registration, depository, and settlement system; information system; auxiliary service system; backup system; transmission network, database, and other information technology systems.

b) Other asset group: buildings, structures, machinery and equipment, transportation means.

2.2 Establish provisions for difficult-to-collect receivables; establish compensation funds for member securities companies for the Stock Exchange; establish risk prevention funds to compensate customers and depositary members for the Central Depository; establish other provisions in accordance with the law.

Article 5. Raising Capital and Investing Capital Outside

1. In cases of necessity, the Stock Exchange and the Central Depository are permitted to raise capital to develop technical infrastructure for the securities market.

1.1 Raising capital must not change ownership form and must ensure debt repayment capability.

1.2 The Board of Directors reports to the owner agency (Ministry of Finance) for consideration and decision on the capital-raising plan.

2. The Stock Exchange and the Central Depository may invest and contribute capital to economic organizations with the aim of developing the securities market only in the following areas: providing technical infrastructure development services for the securities market, and market information provision services. The Board of Directors reports to the owner agency (Ministry of Finance) for decisions on investment and business contribution plans.

Article 6. Fixed Assets

1. Fixed assets include tangible fixed assets and intangible fixed assets. Standards (regarding time and value) and original cost of fixed assets are determined according to current State regulations.

2. Investment in basic construction and procurement of fixed assets by the Stock Exchange and the Central Depository are decided by the Board of Directors based on compliance with State regimes.

3. Procedures and processes for investment are carried out in accordance with laws on project investment management and construction and comply with the provisions of this Circular.

3.1 The Board of Directors develops and reports to the owner agency (Ministry of Finance) for approval of the basic construction and fixed asset procurement plan consistent with the scale of operations during each period.

3.2 Based on the approved plan, the Board of Directors decides or delegates authority to the General Director to decide on investment projects and fixed asset procurement within their authority.

Article 7. Depreciation of Fixed Assets

The Stock Exchange and the Central Depository manage, use, and depreciate fixed assets according to the current regime applicable to state-owned enterprises.

Article 8. Leasing and Pledging of Assets:

1. In cases of necessity, the Securities Exchange and the Central Depository may lease or pledge assets in accordance with the provisions of the Civil Code and other laws on the principle of ensuring effectiveness, safety, and capital development.

2. The Board of Directors shall report to the owner (the Ministry of Finance) for approval of leasing and pledging contracts of assets valued at or exceeding 20% of the total asset value recorded in the most recent financial report of the Securities Exchange and the Central Depository.

3. Leasing and pledging contracts of assets valued below 20% of the total asset value recorded in the most recent financial report of the Securities Exchange and the Central Depository shall be decided by the Board of Directors.

Article 9. Liquidation and Sale of Assets:

1. The General Director shall develop plans to submit to the Board of Directors for decision on the liquidation and sale of poor-quality, obsolete, or irreparable assets; assets that are technologically outdated and not needed or not effectively used to recover capital according to the following principles:

1.1 The Board of Directors shall report to the owner (the Ministry of Finance) for approval of the liquidation and sale of fixed assets valued at or exceeding 20% of the total asset value recorded in the most recent financial report.

1.2 The liquidation and sale of fixed assets valued below 20% of the total asset value recorded in the most recent financial report shall be decided by the Board of Directors.

2. Methods of Liquidation and Sale of Fixed Assets: The sale of fixed assets shall be carried out through auction organizations or self-organized by the Securities Exchange and the Central Depository in a public manner in accordance with the procedures stipulated by the law on auctioning assets.

2.1 In cases where the remaining value of fixed assets recorded in accounting books is sold under 100 million VND or less, the Board of Directors shall decide or delegate the General Director to decide on selling through negotiated auctions but not lower than market prices.

2.2 In cases where fixed assets have no transactions on the market, the Securities Exchange and the Central Depository may hire appraisal organizations to determine the price as the basis for selling the assets.

Article 10. Management of Accounts Receivable and Payable:

1. The Securities Exchange and the Central Depository shall be responsible for issuing regulations on managing accounts receivable and payable and handling such accounts in accordance with the regulations; clearly defining the responsibilities of collectives and individuals in tracking, recovering, and settling accounts receivable and payable within the agreed deadlines.

2. The management of accounts receivable and payable shall be carried out in accordance with current regulations applicable to state-owned enterprises.

2.1 The Securities Exchange and the Central Depository must maintain complete records of accounts receivable and payable for each debtor category (current debt, difficult-to-collect debt, unrecoverable debt), urging the recovery of debts.

2.2 Before closing the accounting books to prepare the annual financial report, a verification and reconciliation of accounts receivable and payable with creditors and debtors must be conducted.

Article 11. Inventory of Assets

1. The Securities Exchange and the Central Depository must conduct an inventory of assets in the following situations:

1.1 When closing the accounting books to prepare the annual financial report;

1.2 After natural disasters, enemy attacks, or any other reasons causing asset fluctuations;

1.3 According to the decision of the competent state authority or the owner of the capital.

2. Purpose of Asset Inventory:

2.1 To determine the quantity of assets (fixed assets and long-term investments, current assets and short-term investments).

2.2 To reconcile accounts receivable and payable.

2.3 To clearly identify the causes, responsibilities of those involved, and determine the level of material compensation according to regulations for excess, missing assets, uncollectible debts, and overdue debts.

Article 12. Revaluation of Assets

1. The Securities Exchange and the Central Depository shall revalue assets in the following situations:

1.1 According to the decision of the competent state authority;

1.2 Implementing ownership transfer;

1.3 Using assets for external investment.

2. Revaluation of assets must comply with the relevant State regulations. Any increases or decreases in value due to revaluation of assets shall be handled according to the State's regulations for each specific case.

Article 13. Handling Property Losses

1. When suffering property losses, the Securities Exchange and the Central Depository must determine the value of the lost assets, the cause, responsibility, and handle them as follows:

1.1 If the loss is due to subjective reasons, the person causing the loss must compensate. The Board of Directors decides or authorizes the General Director to decide on the compensation amount according to the law and bears responsibility for their decision.

1.2 If the asset has been insured, it shall be handled according to the insurance contract.

2. The value of the loss after being offset by personal, collective, and insurance organization compensation, and the reserve fund established in expenses, if insufficient, will be covered by the financial reserve fund. In cases where the financial reserve fund is insufficient to cover the shortfall, the deficit will be recorded as other expenses in the period.

3. For special cases caused by natural disasters or irresistible causes resulting in severe damage that the Securities Exchange and the Central Depository cannot self-repair, the General Director reports to the Board of Directors the loss handling plan for the Board of Directors to submit to the Ministry of Finance for decision.

III. MANAGEMENT OF REVENUE AND EXPENSES

Article 14. Revenue:

The revenue of the Securities Exchange and the Central Depository includes business activity revenue, service activity revenue, financial activity revenue, and other revenues.

1. Business Activity and Service Revenue

1.1 The business activity and service revenue of the Securities Exchange is the total amount receivable during the period arising from business activities and service provision, including:

a) Business activity income: Transaction fees, member fees, transaction management member fees; listing fees, securities listing management fees; terminal equipment usage fees; other fees;

b) Service provision income: Income from information provision services; auction organization services; leasing of assets, equipment, software; other service provision income. The level of service provision income is determined by the Securities Exchange's General Director;

c) Other business activity and service income.

1.2 The business activity and service revenue of the Central Depository is the total amount receivable during the period arising from business activities and service provision of the Central Depository, including:

a) Business activity income: Securities depositary fees; securities transfer account fees; bond interest and principal agency payment fees; other fees;

b) Service provision income: Information provision services; other service provision income. The level of service provision income is determined by the Central Depository's General Director;

c) Other business activity and service income.

2. Financial Activity Revenue: Interest income from deposits, foreign exchange rate differential income, investment activity income, distributed profits, and other financial activity income.

3. Other Revenue: Fixed asset sale and liquidation income; insurance compensation income for losses and assets; income from difficult-to-collect receivables already processed; other income.

Article 15. Expenses:

The expenses of the Securities Exchange and the Central Depository include all expenses incurred related to activities during the period, including:

1. Business operation costs:

1.1 Securities Exchange business activity expenses, including:

a) Securities trading operation costs: System trading operation, maintenance, and repair costs; equipment maintenance costs; leased line rental costs; equipment and asset rental costs;

b) Listing and securities listing management service costs;

c) Expert training and hiring costs;

d) Market supervision and management costs of the Securities Exchange;

đ) Information provision activity costs (printing, publishing, raw material costs...); asset rental costs;

e) Advertising, publicity, and public knowledge dissemination costs;

f) Direct labor costs for business activities;

g) Depreciation costs of fixed assets used for business activities;

h) Other business activity costs.

1.2 Central Depository business activity expenses include all expenses incurred related to business activities during the period, including:

a) Registration, depositary, and settlement service costs; system registration-depositary-settlement operation, maintenance, and repair costs; leased line costs; equipment and asset rental costs;

b) Dividend and bond interest payment costs for issuers; settlement fund management costs;

c) Agency transfer and ownership exercise service costs;

d) Expert training costs; depositary member management and supervision costs;

đ) Information provision activity costs; other service provision costs;

e) Direct labor costs for business activities;

f) Depreciation costs of fixed assets used for business activities;

g) Other business activity costs.

2. Financial Activity Costs: Include costs related to external investment activities of the Securities Exchange and the Central Depository: loan interest payments; capital raising costs, investment activity costs, foreign exchange rate differentials; other financial costs.

3. Corporate Management Costs

3.1 Depreciation costs of fixed assets used for management work;

3.2 Tool and equipment costs; raw material, fuel, material, and energy costs;

3.3 Wages, salaries, meal allowances, safety bonuses (as guided by the Ministry of Labor and Social Affairs), and other wage-like costs payable to employees according to the law;

3.4 Scientific research, innovation, health, labor training, and management capacity enhancement costs;

3.5 External service purchase costs: electricity, water, telephone, fixed asset repair rental costs; auditing, legal services; asset insurance; technical document, patent, and technical service usage costs; overtime pay; transportation, office supply costs; fire prevention and extinguishing, travel expense costs, holiday travel allowance according to regulations, meeting and conference costs; other external service purchase costs.

3.6 For health work; expenses for female workers as prescribed by current regulations; labor protection costs as stipulated by the Labor Code; transaction attire costs. Costs for agency security work; costs for environmental protection work;

3.7 Contributions to social insurance funds, health insurance funds, trade union fees, unemployment insurance; costs supporting activities of the Party and mass organizations of the Securities Trading Corporation, the Central Depository Center; association and industry membership fees that the Securities Trading Corporation and the Central Depository Center participate in;

3.8 Advertising, transaction, hospitality, marketing, ceremonial event costs; brokerage commission costs;

3.9 Taxes, fees, charges, land rental payments related to the business operations of the Securities Trading Corporation and the Central Depository Center (excluding corporate income tax, input VAT that has been deducted or refunded, and personal income tax);

3.10 Severance pay and unemployment benefits for employees according to established regulations; provisions for various reserves as prescribed;

3.11 For the Securities Trading Corporation, setting up a compensation fund for losses suffered by securities companies that are trading members due to actions of the Securities Trading Corporation, except in cases of force majeure;

a) The General Director of the Securities Trading Corporation shall submit to the Board of Directors for decision and promulgation of the Management and Utilization Regulations for this Fund;

b) The annual contribution rate shall be at least 2% and at most 5% of the Securities Trading Corporation's transaction fee revenue until the balance of the fund equals 5% of the actual paid-in capital of the Securities Trading Corporation at the same time. The General Director of the Securities Trading Corporation decides on the specific annual contribution rate. If not fully utilized in the fiscal year, the fund will be carried over to the next year for continued use;

3.12 For the Central Depository Center, setting up a risk prevention reserve fund to compensate customers for losses caused by technical failures or staff errors during operations;

a) The General Director of the Central Depository Center shall submit to the Board of Directors for decision and promulgation of the Management and Utilization Regulations for this Fund;

b) The annual contribution rate shall be at least 2% and at most 5% of the Central Depository Center's custody fee revenue until the balance of the fund equals 5% of the actual paid-in capital of the Central Depository Center at the same time. The General Director of the Central Depository Center decides on the specific annual contribution rate. If not fully utilized in the fiscal year, this fund will be carried over to the next year for continued use;

3.13 Other management costs;

4. Other costs;

4.1 Costs for selling off and liquidating fixed assets; value of uninsured asset losses;

4.2 Depreciation costs for unused or idle fixed assets awaiting disposal;

4.3 Penalties for breach of economic contracts;

4.4 Costs for handling remaining asset losses after compensation from other sources as provided for in Clause 2, Article 13 of this Circular;

4.5 Other costs;

Article 16. Principles for accounting for revenues and expenses:

1. The Securities Trading Corporation and the Central Depository Center must accurately account for revenues and expenses as prescribed, bear legal responsibility for the legality, validity, and accuracy of all receipts and expenditures, and comply with current regulations on invoice and accounting voucher systems;

2. Expenses listed in Points 1, 2, 3, and 4 of Article 15 of this Circular shall be implemented according to regulations applicable to state-owned enterprises. In cases where laws have not specified, the Securities Trading Corporation and the Central Depository Center shall establish standards and norms for implementation and report to the owner (the Ministry of Finance);

3. The Securities Trading Corporation and the Central Depository Center shall not include in operational costs expenses already covered by other sources or unrelated to their operations:

3.1 Costs for purchasing, constructing, and installing tangible and intangible fixed assets;

3.2 Interest expenses on investment capital included in investment and construction costs, foreign exchange rate differences of investments and constructions arising before the project is put into use;

3.3 Other costs unrelated to the operations of the Securities Trading Corporation and the Central Depository Center, expenses without valid vouchers;

3.4 Penalties for legal violations committed by individuals not in the name of the Securities Trading Corporation or the Central Depository Center;

3.5 Input VAT that has been deducted or refunded; corporate income tax, personal income tax;

4. Economic activities must be reflected in accounting books and reports in Vietnamese Dong. In cases where economic activities occur in foreign currencies, they must be converted into Vietnamese Dong according to regulations;

IV. PROFITS AND ESTABLISHMENT OF FUNDS

Article 17. Realized Profit

1. The realized profit for the year is the total operating business profit, financial activity profit, and other activity profits.

2. Profit is the difference determined between total revenue receivable minus total reasonable and lawful expenses.

3. The exchange rate difference resulting from revaluation of monetary items denominated in foreign currency at the end of the fiscal year shall not be included in the realized profit.

Article 18. Distribution of Profits:

The realized profit of the Securities Exchange and the Central Depository, after covering previous year losses according to the Law on Corporate Income Tax and paying corporate income tax, shall cover previous year losses that have exceeded the allowable deduction period from pre-tax profit, and then be allocated to the financial reserve fund; the reward and welfare fund; the management board reward fund; and the development investment fund in the following sequence:

1. Allocate 10% to the financial reserve fund; if the balance of the financial reserve fund equals 25% of the registered capital at the same time, no further allocation will be made.

2. Allocate to the reward and welfare fund

2.1 For the Securities Exchange

a) Up to three months' actual salary (salary earned) may be allocated to establish the reward and welfare funds if both criteria are met:

- Annual realized profit increases or equals the previous year;

- The number of listed securities traded this year exceeds the previous year.

b) Up to two months' actual salary (salary earned) may be allocated to establish the reward and welfare funds if only one of the above criteria is met.

c) In cases where neither criterion is met but operations are profitable, up to one month's actual salary (salary earned) may be allocated to the reward and welfare funds.

2.2 For the Central Depository

a) Up to three months' actual salary (salary earned) may be allocated to establish the reward and welfare funds if both criteria are met:

- Annual realized profit increases or equals the previous year;

- The number of securities registered and deposited this year exceeds the previous year.

b) Up to two months' actual salary (salary earned) may be allocated to establish the reward and welfare funds if only one of the above criteria is met.

c) In cases where neither criterion is met but operations are profitable, up to one month's actual salary (salary earned) may be allocated to the reward and welfare funds.

3. Allocate to the management board reward fund (including members of the Board of Directors, General Director, and Deputy General Directors).

3.1 The maximum allocation amount is 5%, and does not exceed 500 million VND if the Securities Exchange and the Central Depository meet the conditions to allocate the reward and welfare fund by three months' actual salary as stipulated in Clause 2 of this Article.

3.2 The maximum allocation amount does not exceed 300 million VND if the Securities Exchange and the Central Depository do not meet the conditions specified in Subsection 3.1 of Clause 3 of this Article.

4. The remaining profit after allocating to the financial reserve fund, reward and welfare fund, and management board reward fund shall be used to establish the development investment fund.

Article 19. Purpose of Using Funds

1. The use of funds at the Securities Exchange and the Central Depository shall be implemented according to the common mechanism for state-owned enterprises as prescribed in Decree No. 09/2009/NĐ-CP dated February 5, 2009, specifically:

1.1 The development investment fund is used to supplement the registered capital.

1.2 The financial reserve fund is used to cover the remaining losses and damages to assets after compensation from organizations and individuals causing the loss, insurance organizations, and reserves established within expenses; to cover losses (if any) according to the decision of the Board of Directors.

1.3 The reward fund is used for:

a) Year-end or regular bonuses for employees of the Securities Exchange and the Central Depository based on labor productivity and work performance; the bonus level is decided by the General Director based on the proposal of the trade union;

b) Special bonuses for individuals or groups with technical innovations or process improvements that bring about efficiency in business activities. The bonus level is decided by the General Director;

c) Bonuses for individuals and groups outside the Securities Exchange and the Central Depository who contribute effectively to business activities and management. The bonus level is decided by the General Director after approval by the Board of Directors.

1.4 The welfare fund is used for:

a) Investing in building or repairing welfare facilities, contributing capital to build shared welfare facilities within the industry or with other units according to agreed contracts;

b) Funding public welfare activities for the collective staff, social welfare;

c) Providing regular and emergency hardship allowances for employees including retired and disabled employees;

d) Funding other welfare activities;

1.5 The management board reward fund is used to reward the Board of Directors and the Management Board.

a) The Board of Directors is responsible for issuing regulations on the use of the management board reward fund.

b) The annual bonus level is decided by the Chairman of the Board of Directors based on the performance of the Securities Exchange and the Central Depository, according to the proposal of the General Director.

2. The use of these funds must be carried out transparently according to financial disclosure regulations, grassroots democracy regulations, and state regulations.

V. ACCOUNTING SYSTEM, AUDITING, AND FINANCIAL PLANNING

Article 20. Accounting and Statistics

1. The Stock Exchange Authority and the Central Depository shall implement accounting and statistical systems as prescribed by the Ministry of Finance, recording all original vouchers, updating accounting books, and fully, promptly, truthfully, accurately, and objectively reflecting financial activities.

2. The fiscal year begins on January 1 and ends on December 31 of the Gregorian calendar.

Article 21. Financial Reports

1. The Stock Exchange Authority and the Central Depository must prepare financial reports and statistical reports to be submitted to the Ministry of Finance (Department of Banking and Financial Organization Finance) and other state management agencies as stipulated.

2. The Board of Directors and General Director are responsible for the accuracy and honesty of the financial reports. Annual financial reports must be approved by the Board of Directors.

Article 22. Financial Plan

1. The annual financial plan includes:

1.1 Capital sources and capital utilization plan

1.2 Income and expense plan, business results

1.3 Labor and salary plan

1.4 Investment and fixed asset acquisition plan

2. The annual financial plan must be approved by the Board of Directors and submitted to the Ministry of Finance before November 15 of the preceding year, including:

Article 23. Audit, Inspection, and Public Disclosure of Financial Reports

1. Annually, the Stock Exchange Authority and the Central Depository must conduct an audit of financial reports.

1.1 The audit of financial reports shall be conducted in accordance with current laws on accounting and auditing. The audit shall be performed by an independent auditing company from a list of organizations approved for the securities sector.

1.2 The results of the audit of the financial reports of the Stock Exchange Authority and the Central Depository shall be sent to the Ministry of Finance.

2. In cases where necessary, the Stock Exchange Authority and the Central Depository shall be subject to financial inspections by the Ministry of Finance, including:

2.1 Periodic or ad hoc audits of financial reports.

2.2 Special topic audits based on specific financial management requirements.

3. Within 120 days from the end of the fiscal year, the Stock Exchange Authority and the Central Depository must publicly disclose financial reports in accordance with the law.

VI. IMPLEMENTATION

Article 24. Effective Date

1. This Circular shall take effect 45 days from the date of signature.

2. This Circular replaces Decision No. 3686/2007/QĐ-BTC dated November 22, 2007, issued by the Minister of Finance on the Financial Management Regulations of the Ho Chi Minh City Stock Exchange.

Article 25. Implementation organization

1. The Board of Directors and General Director of the Stock Exchange Authority and the Central Depository are responsible for implementing the financial management system as prescribed in this Circular and other relevant laws applicable to state-owned enterprises.

2. The Stock Exchange Authority, the Central Depository, and related organizations and individuals are responsible for implementing this Circular./.