10 LEGAL ISSUES TO CONSIDER WHEN INVESTING IN SECURITIES

10 LEGAL ISSUES TO CONSIDER WHEN INVESTING IN SECURITIES
Posted date: 15/06/2022

According to an update from the Vietnam Securities Depository(VSD), by the end of April 2021, the total number of securities trading accounts on the Vietnam market has reached more than 3.14 million accounts, this shows an increase of 110,655 units compared to the previous month. Most of them are newly opened accounts of domestic individual investors, the total number is 109,998 new accounts - this means that nearly 110,000 F0 investors have entered the market.

Many of these investors certainly have money but may not have practical knowledge or experience. Therefore, to avoid the legal risks, investors should spend time to consider the following matters:

1. Entities who are allowed to trade and invest in securities.

The Securities Law 2019 does not provide specific and detailed regulations on the age conditions to participate in securities trading. However, in practice, securities companies often stipulate the minimum age to open a trading account is 18 years old, when the person has acquired personal documents such as identity card and citizen identification card.

Currently, the Ministry of Finance is presiding over the drafting of the Circular guiding securities trading, detailing the age limit for opening a securities account. In particular, individuals who are 15 years of age or older can open a securities trading account but must be approved by the legal representative. Individuals who are 18 years of age or older may open an account because they have full civil act capacity.

This will be the first official specific instructions on the age to participate in securities trading and investment, and the approach is following the age at which children can carry out procedures for issuance of ID cards and citizen identification cards. However, because people at the age of 15 do not have full legal capacity, trading in the securities market with instability and high risks will cause issues that need to be clarified such as who will be investing, making direct transaction, are the transactions valid if the parties don’t have full legal capacity.

Aside from that, the current Securities Law does not provide regulations on the maximum age to invest and participate in securities trading and investment, so everyone can participate when meeting the minimum age regulations.

In addition, regarding the issue of whether public employees and civil servants can invest in securities, the current Law does not prohibit it.

According to the Securities Law 2019, Securities and investment in securities are understood as follows: Securities is a type of tradable asset. Including shares, bonds, fund certificates; warrants, secured warrants, pull options, depository receipts; derivative and other kinds of securities defined by the government. Securities investment means the purchase, sale and holding of securities by investors on the securities market.

According to Article 17 of the Enterprise Law 2020; Article 20 of the Law on Anti-corruption 2018, there is no restriction on cadres, civil servants and public employees investing in securities or buying shares. Therefore, in securities investment activities, participants are not limited.

2. Do research to find out the suitable type of securities assets to invest in

When investing in securities, depending on the finance, knowledge and needs, each investor will choose for themselves the type of asset to invest.

According to Clause 1, Article 4 of the Securities Law 2019:

“1. “Securities” include the following assets:

a) Shares, bonds, fund certificates;

b) Warrants, secured warrants, pull options, depository receipts;

c) Derivatives;

d) Other kinds of securities defined by the Government”

So what are the types of assets such as stocks, bonds, fund certificates, etc. and what are the differences between them. Regarding this question, the Securities Law 2019 provides the following concepts:

Types of securities

Definition

Shares

Shares are securities that certify their holders’ lawful rights and interests to a portion of share capital of the issuer.

Bonds

Bonds are securities that certify their holders’ lawful rights and interests to part of the debt of the issuer.

Fund certificates

Fund certificates are securities that certify their holders’ ownership of a stake in a securities investment fund.

Warrants

Warrants are the securities that are issued together with bonds or preference shares and bestow upon their holders the right to buy a certain amount of common shares at a specified price over a specific period of time.

Secured warrants

Secured warrants are securities secured by collateral and issued by a securities company. They allow their holders to have the right to buy (call option) or the right to sell (put option) the securities to their issuer at a specified strike price prior to or on a specified date, or receive the difference between the strike price and the underlying security price at that time.

Call option

Call option is a type of securities which is issued a joint-stock company and bestows upon the existing shareholders the right to buy new shares under specific conditions.

Depository receipts

Depository receipts are the securities issued on the basis of securities of an organization that is lawfully established in Vietnam.

Derivatives

Derivatives are financial instruments in the form of contracts, options, futures, forwards that determine rights and obligations of the parties to pay money and transfer a specific quantity of underlying assets at a specified strike price prior to or on a specified date in the future.

 

In the corporate bonds market report for the second quarter of 2021 released by Saigon Securities Company - SSI Research, the issuance of corporate bonds has skyrocketed in the second quarter of 2021 with VND 164 trillion, which was 3.66 times the issuance in the first quarter of 2021 and increased 28.7% over the same period in 2020.

Among the newly issued corporate bonds, there are secured and unsecured bonds with high mobilizing interest rates. On the usual events, enterprises issue bonds, make profits the principal and interest on time; however, when there are events that lead to unfavorable business performance, enterprises fail to pay principal and interest on time, without collateral, the investors are the ones who take the risks.

Therefore, when investing in securities, investors need to consider types of assets and securities they invest in in order to review, determine the levels of risk and have a plan for them. Back to the above example of bonds investment, in order to limit the risks, investors need to see which businesses issue it, what is the purpose of the issuance, whether it has collateral or not, what is the commitment of the issuer for the bonds; issuing term, method of repayment of principal, interest, etc.

3. Types of investment in the stock market

Investors are organizations and individuals that invest in the securities market. Their main purpose is still to seek profit. The Securities Law attaches great importance to the protection of investors' interests and considers it a principle when formulating the Law on Securities.

Securities investors are often divided into two categories: professional investors and non-professional investors.

According to the Vietnamese law, a professional investor is a person with a securities practice certificate; organizations with legal status, such as securities companies, securities investment fund management companies and other financial institutions such as banks, financial companies, insurance enterprises, etc. Non-professionals are other individuals and organizations in the economy.

The law has separate regulations on professional investors because they have large capital sources, so they have large investment potential, which can have immense positive or negative impacts on the securities market; they have the ability to analyze and invest relatively accurately, thus ensure the market develops in the right direction; and professional investors are the bridge between non-professional investors and the securities market. Through entrusting to professional investors, non-professional investors will find it easier and more convenient to invest in the securities market.

Legally, in investment activities, investors are treated equally. Professional investors may be subject to some legal constraints because the government wants to ensure the fairness and stable development of the securities market. In general, professional investors differ from non-professional investors in the following points:

Criteria

Professional investors

Non-professional investors

Capacity

An economic organization such as a bank, a financial company, an insurance company, a securities company, a securities investment company, etc.

Can be individuals, businesses and other organizations.

Qualification

Are experts on securities investment business

May not be experts on securities investment business

Equipment and manpower

Must have necessary equipment such as computer systems, headquarters, and knowledgeable and professional staff

May not have the necessary equipment because they have entrusted the investment to securities companies or  fund management companies

Capital

Usually have huge capital and focus on securities investment.

Idle capital due to savings or is not being used. Even if that capital is used to invest in securities, it would not be much.

Legal Obligations

Being more bound in activities such as information disclosure, financial security obligations...

Legal constraints are often less than professional investors.

The importance to the market

Very important, they are often the bridge between non-professional investors and the securities market.

Very important, because these are the real investors, necessary for issuers because they hold long-term, more stable securities.

4. Find out information, the scale of the enterprise and the place to conduct transactions on the securities market of the enterprise in which you are about to invest.

On the securities trading market system, there are systems for trading listed and unlisted securities. Listing means the admission of eligible securities to trading on a system for trading of listed securities. Trading system for unlisted securities (Upcom trading system) is a trading system for unlisted securities organized by the Hanoi Stock Exchange. So, businesses will be divided eligible for listing and unlisted.

Companies that offer shares to the public are usually public companies. According to Article 32 of the Securities Law 2019, a public company is a joint stock company in one of the following two cases:

“a) The company has a contributed charter capital of at least 30 billion VND and at least 10% of the voting shares are being held by at least 100 non-major shareholders;

b) The company has successfully made its IPO by registration with SSC as prescribed in Clause 1 Article 16 of this Law.”

There are Listed Public Company and Unlisted Public Company. An unlisted public company is a company that has issued shares but is not allow trade on a stock exchange and they trade on the Upcom (Unquoted Public Company) system.

Markets for unlisted public companies' shares are generally less transparent than those of listed public companies. Because the conditions for a public company to be listed are more stringent, requiring more organization and operation of the business. The reason to believe that transactions for unlisted public companies are not transparent and risky is because the shares of these companies are listed and traded in the OTC market.

In the OTC market, business brokers list stock prices at the level at which they will buy and sell shares. However, two investors (one buyer and one seller) can execute trades in the OTC market without the other investors knowing the price at which the transaction completes. This means that the stock is not available to trade and buying and the selling is not quick, or easy. Meanwhile, for companies that have been listed and traded on the stock exchange, the trading is convenient because this is an open market, investors can buy and sell quickly if they want to trade.

In addition, valuing shares of these companies is also more difficult because the information is not available to investors, this leads to difficulties in stock valuation.

Therefore, when investing in securities, investors need to do research to find the stock exchange on which they make transactions and the business that they plan to invest in.

5. It is necessary to capture the information that the Enterprise provides and publishes to have a strategy for the investment.

In securities investment activities, capturing information is the most important basis for investors to make choices to sell or purchase more shares.

According to Clause 1, Article 118 of the Securities Law 2019, Clause 1, Article 2 of Circular 96/2020/TT-BTC, entities that must disclose information include:

“a) Public companies;

b) Organizations making public offering of corporate bonds;

c) Issuers that make initial public offering of shares;

d) Organizations that have corporate bonds listed;

dd) Securities companies, securities investment fund management companies; branches of foreign securities companies in Vietnam and branches of foreign fund management companies in Vietnam (hereinafter referred to as “branches of foreign securities companies and foreign fund management companies in Vietnam”); representative offices of foreign securities companies and foreign fund management companies in Vietnam; public funds and public securities investment companies;

e) Vietnam Stock Exchange and its subsidiaries (hereinafter referred to as “SE”), Vietnam Securities Depository and Clearing Corporation (VSDCC);

g) Investors that have to disclose information as prescribed by law”

The disclosure of information must be complete, accurate and timely in accordance with the provisions of law. Entities disclosing information must take responsibility for the contents of disclosed information. In case there is a change in the content of published information, the entities disclosing information must promptly and fully disclose the changed content and the reasons for the change compared with the previously published information.

The information disclosure of the organization must be made by the legal representative or the person authorized to disclose information. The disclosure of personal information is carried out by the individual himself or by authorizing another organization or individual.

Information periodically disclosed and information about registration of public companies must be retained in the form of hard copy (if any) and soft copy for at least 10 years. These information must be retained and accessed on the website of the disclosing entity for at least 05 years. Information disclosed on ad hoc basis or on request or other activities must be retained and accessed on the website of the disclosing entity for at least 05 years.

A public company shall periodically disclose the following information:

”a) Audited annual financial statements, biannual financial statements examined by accredited audit organizations; quarterly financial statements;

b) Annual reports;

c) Company administration reports;

d) Resolutions of Annual General Meetings of Shareholders;

dd) Other information prescribed by law.”

Therefore, investors who want to see the information provided by the business can go to information pages such as the enterprise's website to capture information for their investment activities.

Information of enterprises must be public and transparent in order to prevent illegal acts such as insider trading, illegal business acquisitions, etc. investors can report information to the State Securities Commission.

6. Find a licensed legal exchange to avoid being scammed with virtual exchanges.

Nowadays, on the mass media, we often find a lot of content such as derivatives exchange A, Forex exchange market B,... and after that, there were documents reporting to the police about the loss of money when investing on these exchanges, the exchange market "collapsed". So, where should investors invest in, which units will organize, operate and manage the securities trading system.

According to Clause 26, Article 4 of the Securities Law 2019: “Securities trading systems include the systems for trading of listed securities and the systems for trading of unlisted securities, organized and run by Vietnam Stock Exchange (VSE) and its subsidiaries”.

Thus, according to the law, the authorities establish organizations to manage and operate the stock market in order to ensure that participating organizations comply with the provisions of the law. Currently, there are the following units: Hanoi Stock Exchange (HNX); Ho Chi Minh City Stock Exchange (HOSE),...

However, in order for investors to have a better understanding of the market, stock information, trading information, issuer news, industries and business data and thereby advise, there will be intermediaries, brokerage channels which are securities companies.

Accordingly, securities companies are entitled to perform one, some or all of the following operations: securities brokerage; proprietary trading; securities underwriting; securities investment consultancy (Article 72 of the Law on Securities 2019). In addition, securities companies shall also cooperate with regulatory authorities to control investor information and avoid wrongdoing in the stock market.

Since the establishment and operation conditions of securities companies are very strict: they must be licensed by authorities, are forced to ensure the conditions and requirements on capital, personnel, and facilities (Article 74, Article 75 of Securities Law 2019), The investors who perform transactions and use services are secured.

Currently, there are a number of securities companies as follows: VNDIRECT Securities Joint Stock Company (VND); Saigon Securities Joint Stock Company (SSI); MB Securities Joint Stock Company (MBS); Vietcombank Securities Company Limited (VCBS); Rong Viet Securities Joint Stock Company (VDSC); FPT Securities Joint Stock Company (FPTS); Viet Capital Securities Joint Stock Company (VCSC). Prosperous Vietnam Banking Securities Company – VPS,…

From the above information, when investing in securities, investors need to choose a reputable and licensed trading place, brokerage unit, and avoid falling for enticements, incorrect information of other units operating illegally.

7. Taxes and fees to be noted in securities investment activities

Investing in securities requires a lot of effort, time and money. Therefore, when there are any costs incurred, investors also need to understand. Investors need to understand taxes and fees when purchasing and selling securities to have a basis for calculating actual profit and loss.

The main taxes and fees that investors must pay include:

• Personal income tax (PIT) when selling securities:

According to Article 16 of Circular 92/2015/TT-BTC, tax rates and tax calculation methods are as follows:

- The assessable income from transferring securities is the price of each transfer.

- Securities transfer price is determined as follows:

+ The transfer price of securities of a public company traded at the Stock Exchange is the transaction price at the Stock Exchange. The executed price is based on the order matching result of prices from transactions at the Stock Exchange.

+ he transfer price of securities in cases other than the above is the price written on the transfer contract or actual transfer price or the price in the accounting book transferor when the latest financial statement is made before the time of transfer according to regulations of law on accounting.

- Tax rate and tax calculation: Securities transferee shall pay 0.1% tax on the price of each transfer. Tax calculation:

PIT payable

=

Price of each transfer

x

 0.1% tax

• Tax on receiving cash as dividends

In case where the Enterprise in which you invest distributes dividends in cash or in shares, if you receive them, you will be subject to 5% Personal Income Tax. In particular, according to Clause 3, Article 2, Circular 111/2013/TT-BTC: “Incomes from capital investment are personal income in the form of: b) The dividends earned from capital contribution to purchase of shares; g) Incomes from dividends paid in bonds, incomes from reinvested profit.”

Clause 4, Article 10 of Circular 111/2013/TT-BTC stipulates that: The basis for calculating income tax from capital investment is Assessable income and tax rate; the tax rate is 5%.

Dividends distributed in cash will be withheld at source, that is, the enterprise deducts and pays for individuals entitled to dividends, according to the provisions of point d, clause 5, Article 7 of Decree 126/2020/ ND-CP. For dividends distributed by shares in addition to the tax amount mentioned above, in case investors buy and sell securities, they will still bear other taxes when selling securities.

• Transaction fees

In addition to the tax payable, investors must also pay fees when trading securities at the securities company in which they have opened an account. This is a fee that you pay when you successfully buy or sell securities. This fee is collected based on a percentage of the trading value of the day. This is the dominant fee in taxes and fees that investors need to pay attention to.

The fee or percentage is collected by the Securities Company on the basis of providing services to customers who can make transactions successfully, and the fee schedule has been specifically limited in Circular 128. /2018/TT-BTC. The current transaction fee is charged by securities companies, ranging from 0.2 to 0.3%/transaction value.

The transaction fee will be temporarily deducted by the Securities Company when the investor places an order and is collected when the trading order is matched. In case the order is not matched, this temporary deduction fee will be refunded by the securities company.

• Securities depository fee

Depository is the activity of recording and storing the ownership of securities into the depository system at the Depository Center of the SSC. So the securities depository fee is the fee that investors have to pay for this service. However, this fee only accounts for a small percentage, specifically in Circular 127/2018/TT-BTC, the depository fee is 0.3 dong/share, fund certificate, covered warrant/month; 0.2 VND/corporate bond.

Note that securities depository fees start to be calculated only from the date the investor starts to actually own the securities. For example: An investor who buys shares on June 10 will not own shares until June 14. So the depository fee starts to be calculated on June 14 until the sale of shares.

In addition to the above taxes and fees, there are a number of other transaction-related fees that investors can pay such as off-exchange transaction fees, public bid fees, SMS service fees, etc. Investors will have to pay a lot of money if they often make short trades. Therefore, when making transactions, investors need to pay attention to the frequency of transactions, and their tax and fee obligations to ensure maximum profits.

8. Note some violations of the law and related sanctions when investing in securities

Many investors believe that when they have joined the stock market, the assets they have invested in are theirs, so they are free to purchase, sell and perform transactions. This is not correct, because, although the properties belong to the investor and the purchase and sale is the right of the investor, the government still has to maintain management to avoid acts of profiteering, affecting the market and other investors.

Depending on the nature and seriousness of the violation, the violator may be administratively sanctioned or examined for penal liability; if the violation causes damage, they must compensate according to the law (Article 132 of the Law on Securities 2019). Some common mistakes that violators can be administratively sanctioned are as follows:

- Making transactions exceeding the registered value:

On May 12, 2021, the Inspector of the State Securities Commission of Vietnam administratively sanctioned Mr. Luu Duc Giang – a member of the Board of Directors and Deputy General Director of Red River Aluminum Joint Stock Company (stock code: NSH). Accordingly, Mr. Giang was fined 30 million VND for having committed an administrative violation of the transaction exceeding the registered value. It is known that Mr. Giang registered to trade NSH shares valued at VND 1,575,890,000 at par value (corresponding to 157,589 NSH shares) from December 30, 2020 to January 22, 2021. On February 18, 2021, Mr. Giang bought 187,700 shares of NSH (exceeding 30,111 shares, equivalent to VND 301,110,000 at par value compared to the registered transaction value).

- Making transactions that are not in accordance with the registered time

On May 11, 2021, the Inspector of the State Securities Commission fined Mr. Kieu Van Linh - who is related to Mr. Kieu The Vinh - a member of the Board of Directors of CMC JSC (stock code CVT). Accordingly, Mr. Linh was fined VND 17.5 million for trading at the wrong time as registered to sell 64,000 CVT shares from November 30, 2020. However, before that, on November 26, 2020, Mr. Kieu Van Linh sold all of these shares.

- Not providing information timely

On May 11, 2021, the Inspector of the State Securities Commission fined Mr. Tuong Thanh Tien for not disclosing information on time when he owned 5% or more of the voting shares of a public company. It is known that on January 13, 2020, Mr. Tien made a transaction to buy 8,000 shares of Da Nang Housing Development and Construction Joint Stock Company (stock code: NDX), resulting in the ownership ratio after the transaction increased beyond the threshold of 5 % of outstanding share volume of NDX and become a major shareholder of NDX. However, it was not until July 28, 2020, that the Hanoi Stock Exchange received the announcement about becoming a major shareholder of this man.

- The act of not reporting on the expected transaction

On May 10, 2021, the State Securities Commission of Vietnam fined Mr. Vo Anh Hung - Deputy General Director of Da Nang Pharmaceutical - Medical Equipment Joint Stock Company (stock code: DDN) with an amount of VND 5 million for not reporting on the expected transaction. Specifically, on September 11, 2020, Mr. Vo Anh Hung sold 13,000 shares of DDN but did not report on the expected transaction.

- The behavior of not reporting when there is a change in the number of shares owned exceeding the thresholds of 1% of the number of shares

On May 10, 2021, the State Securities Commission of Vietnam Mr. Chen Yu - the owner of account number 061FIA939 opened at Vietnam Investment Securities Joint Stock Company, committed an administrative violation of not reporting when there was a change in the number of shares owned exceeding the threshold of 1% of the number of shares.

Accordingly, from August 25, 2020 to August 26, 2020, Mr. Chen Yu sold 86,300 TTZ shares and bought 86,300 TTZ shares, leading to the ownership ratio after the transaction exceeding 1% of the voting shares of TTZ (decreased from 9% to 8% and increased from 8% to 9%). However, the Hanoi Stock Exchange did not receive Mr. Chen Yu's report when there was a change in the number of shares owned exceeding the threshold of 1% of the number of shares.

As for the handling of criminal liability, the 2015 Penal Code provides 04 articles, from Articles 209 to Article 212 to stipulate criminal acts in the securities sector, including: Article 209: Crime of intentionally disclosing false information or concealing information in securities activities; Article 210, Crime of using inside information to buy and sell securities; Article 211: Crime of manipulating the stock market; Article 212: Crime of falsifying documents in securities offering and listing documents.

Among the crimes mentioned above, the act of manipulating the stock market is the one that happens more often and the violators have not yet assessed the sanctions for handling violations. For example: In April 2015, Binh Thuan Mineral Industry Joint Stock Company (KSA) planned to increase its charter capital from VND 373.7 billion to VND 1,044 billion by offering 56 million shares to existing shareholders and 11 million shares for strategic shareholders.

After being approved by the State Securities Commission, KSA proceeded to offer shares, but no existing shareholders registered to buy, except for Ms. Pham Thi Hinh, the former Chairman of KSA's Board of Directors at that time. Mrs. Hinh then, along with some others, created virtual transactions by themselves, raising the price of KSA's shares, by using 69 accounts to continuously buy and sell in order to create artificial supply and demand in the market. A total of nearly 1,500 investors participated in buying and selling shares, the estimated loss for investors is more than 8 billion dong. Ms. Hinh and her accomplices were then prosecuted and investigated for the crime of "stock market manipulation".

9. Claims for damages and how to protect interests when damage occurs.

The trading system of the Ho Chi Minh City Stock Exchange (HOSE) appeared to be blocked for the first time in the second half of December 2020. The blocking of orders made securities companies notify customers to stop canceling orders and correcting orders in a certain time. Order congestion was especially acute at the beginning and the end of the session, causing incorrect information on the data display screen, causing investors to be confused during the trading process.

Damage to the investors has occurred, so in this case, who will be responsible and what should the investors do?

According to Clause 1, Article 132 of the Securities Law 2019: “Any organization or individual that violate regulations of this Law and other laws relevant to securities activities and securities market shall, depending on the nature and severity of the violations, face administrative penalties or face a criminal prosecution, and pay compensation for any damage caused.”

According to Clause 2, Article 133 of the Securities Law 2019 on Dispute settlement and damage compensation: “The entity who violate against the lawful rights and interests of another organization or individual in securities activities and causes damage shall pay compensation and fulfill other civil liabilities under agreement, in accordance with the Civil Code and relevant laws.”

According to the above provisions, when damage occurs, the investor has the right to demand the person causing the incident to compensate for the damage. For the above mentioned network congestion and network failure, the problem of management policy and sanctions when the incident occurs in Vietnam has not been completely resolved. Currently, no unit or organization has come forward to accept responsibility and make compensation.

In the US and other countries, there is a very timely and responsible settlement mechanism, for example, in March, 2018 the New York Stock Exchange (NYSE) was fined 14 million USD by the US securities managing authorities for violations including suspending trading for 3 and a half hours in July 2015. The US Securities and Exchange Commission (SEC) said this fine was the largest ever. Previously, in Japan in December 2005, Mr. Takuo Tsurushima officially stepped down from his position as chairman of the Tokyo Stock Exchange (Japan) after the "J-com incident".

Back to the incident in Vietnam, the parties said that the reason for the system congestion was that the transaction volume was too large, so it was blocked, no one took responsibility. Meanwhile, to participate in trading on HOSE, investors usually go through securities companies. Investors do not directly place orders with the Exchange but mainly through securities companies. The securities company provides software and technical infrastructure for investors to place orders, correct orders, cancel orders to match orders on HOSE's machine system. The collapse of the stock exchange resulted in orders not being executed according to the technical design.

When implementing through securities companies, each company will have a contract to open a separate account with the investor and the rights and obligations of the investor with that securities company will be governed by the contract. Investors use the service and have to pay a fee, the obligation of the Securities Company is to ensure that the technical infrastructure is sufficiently secure for investors to place orders, cancel orders, modify orders, and the collapse of stock market are not allowed. Therefore, if damage occurs to investors, the securities company is obliged to compensate.

However, in order to exercise the rights to claim damages, the Investors should immediately consider whether there are provisions in the Contracts with the Securities Company that exclude the obligations and risks of the Securities Company or not. Because, if the securities company introduces a case of network congestion, network failure due to heavy traffic, the stock exchange cannot operate, so the liability is exempted, the risk is transferred to the investor.

Therefore, when entering into the Contract, investors need to pay attention to and negotiate the contents of compensation for damage, force majeure terms and exemptions in order to be able to request the at-fault party to perform the compensation obligation.

10. Some notes on dispute settlement in securities investment activities

According to Article 133 of the Law on Securities 2019, “Securities-related disputes that occur in Vietnam shall be settled through negotiation and mediation, or by Vietnam’s arbitration or court proceeding as prescribed by law.”

According to the above provisions, when a dispute occurs, investors can settle it through negotiation, conciliation or request arbitration or a court to settle. For each method, there are advantages and disadvantages. Accordingly, with the negotiation method, it saves time and costs, suitable for simple disputes where the value is not large.

As for the mediation method, the Securities Law has specific provisions, when the parties have a dispute they can choose to settle with the support of a third party acting as a mediator - Stock Exchange securities (in Clause 1, Article 46 of the Law on Securities 2019). With a unit with expertise in the field of securities, as an intermediary, dispute resolution is highly effective if the parties comply with the agreements.

For dispute settlement at Court or Arbitration, the parties must follow the procedural order and the award is binding on the parties. However, for the Court method, the time to resolve the case will be longer than that of Arbitration, but the Arbitrator's award can be annulled by the Court if there is a violation, the cost is usually higher compared to the Court. Therefore, this is also the fear of investors when disputes arise.

Thus, the current regulations on dispute settlement have been fully regulated by the laws, investors need to determine the value of the dispute and choose an appropriate settlement method to secure their rights.

However, in practice, the settlement of disputes over securities often encounters certain difficulties and obstacles, the most prominent of which is the problem of determining the scale of damage to determine the liability for damages. Accordingly, the legal basis for determining compensation for damage is specified in the Commercial Law 2005 and the Civil Code 2015. The principle of damage compensation is to compensate for the entire damage, the damages include the value of actual and direct loss suffered by the aggrieved party caused by the breaching party and the direct amount that the aggrieved party would have been entitled to if there had been no breach.

For usual goods sale and purchase activities, damage can be determined based on the value of goods delivered, the time of signing contracts and the time of performing the obligation. But in stock trading, quantifying those factors is extremely difficult, because the trading value of securities changes frequently and continuously. Therefore, when a dispute occurs such as the securities company making incorrect orders, leading to damage, investors need to determine the buying value, the difference value at that time to determine the loss; it is necessary to save the evidence showing the transactions as a basis for future dispute resolution./.

By Mr. Mai Quoc Viet – FDVN law firm

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