Thông tư 107/2016/TT-BTC

CIRCULAR

ON GUIDELINES FOR THE OFFERING AND TRANSACTION OF COVERED WARRANT

Pursuant to the Law on Securities dated June 29, 2006;

Pursuant to the Law on amendments to certain articles of the Securities Law dated November 24, 2010;

Pursuant to the Enterprise Law dated November 26. 2014;

Pursuant to the Government’s Decree No. 58/2012/ND-CP dated July 20, 2012 on details and guidelines for the implementation of certain articles of the Securities Law and the Law on amendments to the Securities Law;

Pursuant to the Government’s Decree No. 60/2015/ND-CP dated 26 June 2015 on amendments and supplements to certain articles of the Government’s Decree No. 58/2012/ND-CP dated 20 July 2012 on details and guidelines for the enforcement of certain articles of the Securities Law and the Law on amendments and supplements to the Securities Law;

Pursuant to the Government’s Decree No. 215/2013/ND-CP dated December 23, 2013 on the functions, missions, authority and organizational structure of the Ministry of Finance;

At the request of the Chairman of the State Securities Commission;

Minister of Finance promulgates the Circular on guidelines for the offering and transaction of covered warrant.

Chapter I

GENERAL

Article 1. Scope and regulated entities

1. This Circular regulates the offering, listing, transaction, settlement and exercise of covered warrants and the dissemination of information on covered warrant.

2. This Circular applies to the following entities:

a) Securities companies, depository banks;

b) Stock Exchanges, Vietnam Securities Depository Center (referred to as VSD)

c) Investors who trade covered warrants;

d) Concerned entities.

Article 2. Terminology

In this Circular, the following words and phrases are construed as follows:

1. A covered warrant (referred to as warrant) is a contract between an investor and the issuer of the warrant as defined in Section 1, Article 1 of the Government's Decree No. 60/2015/ND-CP dated June 26, 2015 on amendments to certain articles of the Government’s Decree No. 58/2012/ND-CP dated July 20, 2012 on details and guidelines for the implementation of certain articles of the Securities Law and the Law on amendments to the Securities Law (referred to as the Decree No. 60/2015/ND-CP).

2. An underlying security is the underlying asset of a warrant.

3. An issuer of an underlying security is an organization issuing the security as the underlying asset of a warrant.

4. An issuer of a warrant (referred to as an issuer) is a securities company that issues a warrant.

5. A depository bank deposits and supervises the asset(s) that an issuer of a warrant margins as a payment security for the warrants issued. Such bank shall not be affiliated to the issuer as per the legal regulations on securities.

6. A holder of a warrant is an investor who holds the warrant and a creditor of the debt partially covered by the issuer, and other than the issuer of the warrant.

7. A call warrant gives its holder the right to buy an amount of an underlying security at an exercise price or to receive a sum of money equal to the difference between the price (index) of the underlying securities and the exercise price (exercise index), when the former is higher than the latter, at the strike time.

8. A put warrant gives its holder the right to sell an amount of an underlying security at an exercise price or to receive a sum of money equal to the difference between the exercise price (exercise index) and the price (index) of the underlying securities, when the former is higher than the later, at the strike time.

9. European-style warrants can only be exercised by their holder(s) on the expiration date.

10. American-style warrants can be exercised by their holder(s) on or before the expiration date.

11. Exercise price is the price at which a holder of a warrant has the right to buy (call) or sell (put) the underlying securities (a stock or ETF certificate) to the issuer or on which the issuer bases to calculate the payout to the holder of the warrant.

12. Exercise index is the indicator that an issuer employs to calculate a payout to a holder of a warrant according to the underlying assets being stock indices.

13. Conversion ratio indicates the quantity of warrants required to convert into one unit of the underlying securities.

14. Multiplier is the sum of money equal to one index point and constitutes the calculation of a payout value upon the exercise of a warrant according to the underlying securities being the stock indices.

15. Expiration date is the last date that a holder of a warrant can exercise the warrant.

16. Outstanding warrants are warrants that have not expired and are being held by (a) holder(s).

17. Untraded warrants are warrants that have been issued but are not being held by any investor. Untraded warrants must be deposited in the issuer’s account.

18. Profitable warrant is a call warrant whose exercise price (exercise index) is lower than the price (index) of the underlying securities or a put warrant whose exercise price (exercise index) is higher than the price (index) of the underlying securities.

19. The open warrant position of an issuer consists of all outstanding warrants that have not been exercised.

20. Theoretical hedging position is calculated according to the risk prevention plan that the issuer has specified in a prospectus.

21. Actual hedging position is calculated according to the actual position in the issuer's hedging account.

Article 3. General

1. The name of a warrant shall not duplicate or muddle those of other securities already issued. The name of a warrant shall be written in Vietnamese and may include numeric and alphabetic characters, shall be pronounceable and consist of at least these four elements:

a) The word “warrant” with the abbreviated names of the underlying securities and the issuer;

b) The abbreviation of the call warrant or put warrant;

c) The abbreviation for the exercise style that is either European style or American style;

d) The abbreviation for cash settlement or delivery of underlying securities.

2. An issuer can only offer warrants based on underlying securities specified in the list of underlying securities meeting the warrant offering requirements. An underlying security of a warrant must:

a) be a stock listed on a Stock Exchange in Vietnam and meet the norms regarding market capitalization, liquidity, unrestricted transfer ratio, business performance of the issuer of such underlying securities and other criteria specified by the State Securities Commission; or be an ETF certificate listed on a Stock Exchange in Vietnam; or be a stock index formed by a Stock Exchange in Vietnam solely or so formed and managed jointly with international organization(s) upon the State Securities Commission’s approval.

b) be not subjected to warning, restriction, special restriction, suspension or delisting as per regulations of a Stock Exchange.

3. An issuer cannot sell a warrant that is based on the stock of the issuer and a security of an organization affiliated with such issuer according to the Law on Securities.

4. Warrant offering quota:

a) The proportion of the quantity of stocks converted from warrants already issued (including the warrants based on ETF certificate that is an element of the reference index) to the total number of stocks negotiable shall not exceed the quota specified by the State Securities Commission.

The amount of ETF certificate(s) converted from all warrants already issued shall not exceed 100% of total number of ETF certificates currently outstanding.

Quantity of stocks or ETF certificates converted from warrants = Quantity of warrants/ Conversion ratio;

b) The proportion of the quantity of stocks converted from warrants in an offering by the issuer to the total number of stocks negotiable shall not exceed the quota specified by the State Securities Commission;

c) The proportion of the total value of an issuer’s warrants already issued and registered for issue, excluding those delisted or expired, to the available capital value of such organization shall not exceed the quota specified by the State Securities Commission, as follows:

- Warrants that the issuer has registered for issue

Total value of warrants = Registered offering price x Quantity of warrants registered for sale.

- Warrants that have already been issued

Total value of warrants = Offering price (of unlisted warrants) x Quantity of unlisted warrants + Closing price of (listed) warrants on the latest trade date x Quantity of listed warrants.

If the trading price of warrants is not set, the total value of warrants shall be based on the offering price.

Stock Exchanges shall clarify the total number of stocks negotiable as stated in Point a and b of this Section.

The warrant offering quota specified in Point c of this Section shall be imposed during the progress of the State Securities Commission’s certification of a warrant offering.

5. Stock Exchanges shall, on a quarterly basis, announce the list of securities qualified as an underlying security of a warrant and the remaining sale quota of each underlying securities. Stock Exchanges shall publish the information on a security listed thereof but no longer qualified as an underlying security of a warrant or on a change to the remaining sale quota of each underlying securities within 24 hours upon a decision to remove such security from the said list or upon a change to the remaining sale quota of each underlying securities. An already-issued warrant whose underlying securities have been disqualified shall remain valid until its expiration date and can be exercised by the method specified in the prospectus.

State Securities Commission shall be responsible for supervising Stock Exchanges’ announcement of the list of securities qualified as an underlying security of warrants. State Securities Commission has the right to request the removal of securities deemed unfit for Section 2 of this Article from the said list.

6. An issuer must make provide margins as payment security or obtain a depository bank's payment guarantee according Article 5 of this Circular prior to initiating an offering and hedging risks according to Article 12 of this Circular.

7. Warrants must be listed and traded on Stock Exchanges in Vietnam.

8. Issuers shall fulfill their obligations specified in the prospectus to warrant holders.

9. State Securities Commission shall specify types of warrant which include underlying securities, form and style of exercise and types of issuers' hedging accounts.

Chapter II

PRIMARY ACTIVITIES

Part 1. OFFERING AND LISTING OF WARRANTS

Article 4. Documentation and procedure for registration of warrant offerings

1. Securities companies adhering to Section 21, Article 1 of the Decree No. 60/2015/ND-CP can apply to offer warrants.

2. The following details must be provided in the application for initial public offering of a warrant:

a) The type (call or put), style and exercise method of the warrant;

b) The underlying securities in conformity with Section 2, Article 3 of this Circular;

c) The minimum and maximum duration of the warrant which is 03 months and 02 years respectively, from date of offering to the date of expiration;

d) The exercise price (exercise index), registered offering price, conversion ratio, multiplier (for a warrant based on security index) as per regulations of Stock Exchanges;

dd) The quantity of the warrants registered for offering, being not less than 1,000,000 units and a multiple of 10;

e) The sale quota according to Section 4, Article 3 of this Circular.

3. An issuer shall only make additional offering(s) when the amount of outstanding warrants specified according to Section 2 of this Article exceeds 80% of the quantity of the already-issued warrant and the length of time left to the expiration is more than 30 days. The specification of the warrant offered additionally must resemble that of the initial offering and adopt any adjustments according to Article 10 of this Circular, save the amount and price offered.

4. An application for warrant offering includes:

a) The registration form for warrant offering according to Appendix 01 to this Circular;

b) The written records and resolutions of the General shareholders' meeting or Members' Council or the written decisions by the owner of the company on approval of the corporate charter, which consists of the terms and conditions regarding the right of a warrant holder, in conformity with this Circular and relevant laws; on approval of the proposition of the offering and total value of the warrant authorized or the proportion of the value of the authorized warrant to the available capital value of the company; on approval of the plan(s) for securing the issuer's payment and other obligations to warrant holders in case of the issuer’s insolvency, merger, consolidation, dissolution or bankruptcy;

c) The written decision of the Board of Directors or Members' Council or the owner of the company on approval of the decision on the warrant offering. Such decision must indicate the details of the offering (e.g. type and style of the warrant, the underlying securities, the value of the offering, the offering price, the quantity of the warrants offered, the exercise price (exercise index), the duration of the warrant, the expected date of listing and other relevant information);

d) The operating procedure, internal control procedure, risk management procedure, plans for payment guarantee for warrant holders and for risk management in the formats specified by the State Securities Commission, and the description of the risk management system for the warrant offering activities;

dd) The prospectus according to Appendix 02 to this Circular; advertising materials and any literature on the warrant (if any);

e) The agreement in principle on collateral accepted as payment security with the depository bank or the written undertaking by the depository bank of payment guarantee.

5. The application by an issuer certified to offer a warrant for an additional offering of that warrant or an initial offering of another warrant shall include:

a) Documents as defined in Point a, c and dd, Section 4 of this Article;

b) Other documents defined in Section 4 of this Article if amendments or new information ensues.

6. The application for warrant offering as stated in Section 4 and Section 5 of this Article shall be submitted electronically and on paper. One set of the original paper application shall be delivered by hand or by post to the State Securities Commission.

7. The issuer shall be held accountable for the accuracy, integrity and completeness of the information in its application which contains vital information influential in investors' decisions. During the processing of the application, the issuer shall be bound to amend and supplement the documents upon the emergence of new information, the detection of inaccuracies or vital omissions or the essential clarification of a potentially misleading matter. Documents amended or supplemented shall bear the signatures of the persons who signed the application for offering or the signature of the legal representative of the company.

8. State Securities Commission shall process a valid application for an initial public offering in adherence to Section 4 and Section 5 of this Article and issue a certificate of warrant offering to the issuer within 20 working days of receipt of such application. State Securities Commission, if rejecting the application, must respond and justify in writing.

State Securities Commission shall process a valid application for an addition offering in adherence to Section 5 of this Article and issue a certificate of warrant offering to the issuer within 10 working days of receipt of such application. State Securities Commission, if rejecting the application, must respond and justify in writing.

9. State Securities Commission, in 24 hours upon issuing a certificate of warrant offering, shall publish the information on such certification on its website.

10. A certificate of warrant offering issued by the State Securities Commission to an issuer is a written confirmation of the adherence of the issuer and its application to legal regulations.

11. In 03 working days upon the receipt of a certificate of warrant offering, the issuer shall publish the prospectus and the offering announcement according to Appendix 3 to this Circular on its website and on the website of the relevant Stock Exchange as per legal regulations on the disclosure of stock market information.

A warrant can only be offered after the issuer is granted a certificate of warrant offering and publishes the prospectus and announcement as stated in this Section.

Article 5. Assets pledged as collateral to secure payment obligations

1. In 03 working days upon the receipt of the certificate of warrant offering, the issuer shall provide margins as payment security in a depository bank or obtain a depository bank’s written payment guarantee. The value of the initial collateral shall be equal to at least 50% of the value of the warrants registered for offering. The issuer shall send to the State Securities Commission the contract on collateral as payment security with the depository bank or the written confirmation by the depository bank of payment guarantee in 24 hours upon the signing of such document(s).

2. A collateral as payment security shall be money, certificate of deposit or a depository bank’s payment guarantee.

3. The depository bank shall retain the collateral which is money or certificate(s) of deposit for the duration of the warrant. The value of such collateral must be maintained equal to at least 50% of the value of the warrants offered, excluding those delisted. Such collateral shall not be used as a pledge, mortgage or security for other loans or financial obligations of the issuer or a third party.

Article 6. Distribution of warrants

1. Warrants shall only be distributed after the issuer assures that buyers have had access to the prospectus included in the offering application and provides the State Securities Commission with the written confirmation of the collateral according to Article 5 of this Circular.

2. The distribution of warrants to registered buyers shall be completed in 15 days from the effective date of the certificate of warrant offering. The proceeds from the sale of warrants shall be kept in an escrow account opened at a bank until the State Securities Commission confirms the result of the distribution of warrants.

3. The issuer can transfer undistributed warrants into the proprietary trading account and distribute the listed warrants via the trading system of the Stock Exchange through market-making activities.

Article 7. Reporting of the distribution of warrants and listing of warrants

1. In 03 working days upon the completion of the distribution of warrants according to Section 2, Article 6 of this Circular, the issuer must report the result of the distribution of warrants to the State Securities Commission and publish the distribution result, and simultaneously apply for safekeeping of warrants by the Securities Depository Center and apply for warrant listing on Stock Exchange(s).

2. The report on the result of the distribution of warrants includes:

a) The warrant distribution report according to Appendix 04 to this Circular;

b) The written confirmation by the bank in which the issuer opens the escrow account of the proceeds from the offering.

3. The applications for safekeeping of warrants and for listing warrants shall be subject to the regulations of the Securities Depository center and the Stock Exchange, respectively.

4. In 01 working day upon receiving the report on warrant distribution as stated in Section 2 of this Article, the State Securities Commission shall affirm the result of the warrant distribution in writing and send such written affirmation to the issuer, Stock Exchange and Securities Depository Center. The result of the warrant distribution shall also be published on the website of the State Securities Commission.

The issuer, upon receiving such affirmation, can have the proceeds released from the escrow account stated in Section 2, Article 6 of this Circular.

5. In 02 working days upon receiving such affirmation from the State Securities Commission and the valid and full application for safekeeping of warrants, the Securities Depository Center shall be responsible for issuing the certificate of registration of deposited warrant and for noticing in writing the Stock Exchange on which the issuer applies for listing.

6. In 02 working days upon receiving the written notice from the Securities Depository Center on the certification of registration of deposited warrant and the valid and full application for listing, the Stock Exchange shall approve the listing of the warrants.

7. In 02 working days upon the Stock Exchange's approval of the listing, the warrants shall be officially tradable on the system.

Article 8. Suspension and cancellation of a warrant offering

1. State Securities Commission has the right to suspend a warrant offering for a maximum duration of 30 days upon its detection of serious inaccuracies or omissions adverse to investors in the application of certification of warrant offering or upon its revelation of the issuer’s failure to provide margins as payment security or to obtain a bank’s payment guarantee according to Section 1, Article 5 of this Circular.

2. In 07 days upon the suspension of the warrant offering, the issuer shall reclaim the warrants issued and give a refund to the investors in 15 days upon investors’ request.

3. Upon the rectification of causes for the suspension of the offering, the State Securities Commission shall terminate the suspension in writing to render the warrants offerable.

4. If the errors leading to the suspension of the offering are not rectified by the time limit defined in Section 1 of this Article, the State Securities Commission shall cancel the offering.

5. In 07 days upon the cancellation of the warrant offering, the issuer shall reclaim the warrants sold and give a refund to the investors in 15 days from the date of cancellation. Beyond such time limit, the issuer shall be subjected to make restitution to investors for their damage caused thereof according to the former’s commitments to the latter.

Article 9. Delisting and suspension of trading

1. A warrant is delisted in the following events:

a) The issuer suspends its operations, engages in a merger or consolidation, dissolves or goes bankrupt or has its license for incorporation and operation revoked;

b) The underlying securities are delisted or stock indices are un-determined due to force majeure specified in the principles of index calculation;

c) In 03 months upon the commencement of the offering, the quantity of outstanding warrants is less than 50% of the number of warrants issued. The issuer has to delist an amount of untraded warrants equal to 40% of the number of warrants issued;

d) The proportion of total quantity of underlying securities converted from the warrants issued by all issuers to the total number of underlying securities negotiable exceeds a percentage defined by the State Securities Commission. In this circumstance, the issuer shall delist an amount of untraded warrants whose time left to expiration is less than 02 months from the date that the percentage is exceeded under the following principle:

- 80% of the warrants issued shall be delisted if outstanding warrants make up less than 5% of those issued.

- 70% of the warrants issued shall be delisted if outstanding warrants make up 5% to 10% of those issued;

dd) The warrants are fully exercised or expired. In this situation, such warrants shall be delisted automatically.

e) Stock Exchange considers delisting necessary to protect investors’ interests with the approval by the State Securities Commission.

2. The issuer can voluntarily delist a portion or all of untraded warrants at least 01 month from the date of listing under the following principle:

a) The remaining warrants, excluding those to be delisted, make up at least 10% of those issued in case there are outstanding warrants;

b) If the issuer holds every warrant that it has issued, it can apply for delisting of all warrants issued.

3. The delisting of warrants according to Point a, b and e, Section 1 of this Article shall occur in the following order:

a) In 24 hours upon the decision on warrant delisting, the issuer shall inform warrant holders of the payment calculation method from the date of delisting. Such method must accord with the prospectus and the regulations of the Stock Exchange;

b) Upon announcing the information according to Point a of this Section until the date immediately preceding the date of delisting, the issuer shall repurchase the warrants through market-making activities. The repurchase price shall be subject to the market price and the regulations of the Stock Exchange;

c) From the date of delisting, the issuer shall be responsible for cooperating with the Securities Depository Center in making payment(s) to investors holding warrants at the price determined according to Point a of this Section. Payment(s) shall be made as per the regulations of the Securities Depository Center.

4. The delisting of warrants shall be subject to the regulations of the Stock Exchange.

5. At the end of a trading day, the Securities Depository Center shall inform the Stock Exchange of the quantity of warrants fully exercised for investors so that the Stock Exchange initiates the delisting of such warrants.

6. The trading of a warrant shall be suspended in the following events:

a) The calculation of the underlying index of the warrant is suspended;

b) The underlying securities of the warrant are suspended from trading;

c) Force majeure such as natural disasters, fire or technical errors in the trading system or payment system;

d) Stock Exchange considers suspension necessary to protect investors’ interests with the approval by the State Securities Commission.

Securities Depository Center shall be responsible for reporting and announcing the errors of the payment system to the State Securities Commission and Stock Exchange, respectively. Stock Exchange shall report to the State Securities Commission upon the decision to suspend trading.

Article 10. Adjustment of warrants upon changes to the underlying securities

1. The issuer shall adjust the exercise price, conversion ratio and other contents of the warrants as stated in Section 2, Article 4 of this Circular in the following events:

a) The price of the underlying securities is adjusted as the issuer of such security pays dividend(s) or grants stock reward(s);

b) Other circumstances as per guidelines of the Stock Exchange.

2. If odd lot(s) emerge(s) from the adjustment of the warrants, investors can request the issuer to repurchase such odd lots at a price specified in the regulations of the Stock Exchange.

3. The prospectus must manifest the warrant adjustment circumstances and method(s) according to the regulations of the Stock Exchange.

Part 2. ACTIVITIES OF AN ISSUER

Article 11. Market-making activities of an issuer

1. An issuer shall be responsible for conducting market-making activities to create liquidity for the warrants that it has issued. Market-making transactions shall be carried out via the issuer's proprietary trading account(s) according to the regulations of the Stock Exchange.

2. The warrants in the issuer’s proprietary trading accounts shall be reserved for market-making activities but not be employed as a pledge, mortgage, deposit, loan or collateral.

3. Stock Exchange shall provide guidelines on the rights and obligations of an issuer engaged in market-making activities.

Article 12. Hedging activities of an issuer

1. An issuer shall maintain at least 01 employee managing risks concerning issue(s) of warrants. Such employee shall possess a certificate to practice the activity of financial analysis or fund management or a certificate of 2^nd-level chartered financial analyst (CFA level II).

2. The issuer shall sustain a quantity of underlying securities adequate to hedge risks against outstanding warrants according to the hedging plan as stated in Point d, Section 4, Article 4 of the Circular.

3. Hedging transactions via an independent trading account shall be reserved solely for hedging activities or occur through the issuer’s proprietary trading account(s). The issuer’s hedging activities shall include sale, purchase, borrowing and other transactions according to the laws and the following rule:

a) Securities traded in hedging activities shall consist of underlying securities and others based on underlying securities as per the laws. Securities for hedging purpose shall be frozen during the exercise of warrant(s) by delivering underlying securities.

b) Securities for hedging purpose cannot be used as a pledge, mortgage, deposit, loan or collateral;

c) The issuer shall be responsible for managing and independently recording the portfolio of hedging securities in accounting records. Moreover, it shall adhere to the hedging level specified by the Stock Exchange.

4. Upon the listing of warrants, the issuer shall report to the Stock Exchange on daily basis about hedging activities. Such report shall indicate the actual and theoretical hedging positions of each warrant according to regulations of the Stock Exchange. Stock Exchange can request the issuer to explain the inputs of the calculation of the theoretical hedging position if such inputs are considered ungrounded.

The calculation of the actual and theoretical hedging positions for each issue shall be subject to the guidance by the State Securities Commission.

5. If the issuer does not abide by the hedging plan as stated in Point d, Section 4, Article 4 of this Circular, the Stock Exchange shall impose the following remedial measures:

a) Request the issuer's explanation if the disproportion between the theoretical and actual risk hedging positions exceeds 20% in 03 consecutive working days under a circumstance other than those defined in Point b of this Section. In 03 working days upon the Stock Exchange’s request of explanation, the issuer shall hedge risks to lessen the disproportion to or lower than 20%;

b) Request the issuer to deposit a sum of money, at market price, equal to the disproportion of the theoretical and actual hedging positions if such disproportion exceeds 50% in 03 consecutive working days. In 03 working days upon the Stock Exchange’s request of such deposit, the issuer shall put the sum of money into the proprietary trading account;

c) Issue a market-wide warning if the issuer does not hedge risks at the Stock Exchange’s request as stated in Point a of this Section though having receive a third request for explanation or if the issuer does not make the deposit stated in Point b of this Section.

The warning on a warrant shall be lifted after the issuer has maintained the disproportion between the theoretical and actual hedging positions at or less than 20% in 30 trading days or after the issuer made the deposit stated in Point b of this Section.

6. On monthly basis, Stock Exchanges shall report to the State Securities Commission with regard to the situations specified in Section 5 of this Article. When a warning is issued on the issuer according to Point c, Section 5 of this Article, the State Securities Commission can lower the warrant issue quota of the issuer’s subsequent offering according to Section 4, Article 3 of this Circular as per the State Securities Commission’s regulations.

Part 3. TRANSACTION PAYMENT AND WARRANT EXERCISE

 Article 13. Investors’ trading of and payment for warrants

1. Warrants shall be traded under the trading system of Stock Exchanges according to regulations of the Stock Exchanges. Investors shall place orders on warrants through an ordinary securities trading account. Securities companies can only transact an investor’s purchase or sale of warrant(s) upon the investor’s possession of one hundred percent (100%) of money or warrant(s) for the transaction as per relevant laws. Securities companies shall not allow investors' margin trading of warrants.

2. Warrants shall be traded and paid according to regulations of the Securities Depository Center.

3. The issuer shall be responsible for exercising obligations that derive from the warrants held by investors having fulfilled payment(s) for their purchase of such warrants.

4. An issuer of an underlying security cannot invest and trade in warrants based on its underlying securities.

5. No ratio limit is imposed on a foreign investor's holding of warrants.

6. A public fund can only invest in warrants for the purpose of hedging risks.

Article 14. Exercise of warrants

1. An issuer shall bear the duty to exercise its warrants by one of the following methods according to the conditions of the issue and types of underlying securities:

a) Delivery of the underlying securities;

b) Cash settlement.

The amount of money payable shall accord with the spot price (spot index) of the underlying securities and the exercise price (exercise index). Stock Exchanges shall define and announce the payment price (payment index) for outstanding warrants on daily basis for the calculation of the amount of money payable.

2. The payment method shall be disclosed in the prospectus and announcement(s) of issue(s). Cash settlement applies to the following circumstances:

a) The underlying assets of the warrants are stock indices;

b) The warrants are exercised by the delivery of the underlying securities to foreign investments, leading to the breach of the quota of foreign investors’ holding of underlying securities.

The issuer must settle the amount of warrants exceeding the holding quota by cash since the delivery of the underlying securities is not feasible. Underlying securities shall be allotted to the investors by warrant holding ratio on the date of exercise;

c) The exercise of the warrants by delivery of underlying securities to organizations trading in securities leads to the breach of the quota of securities holding on securities trading organizations.

The issuer must settle the amount of warrants exceeding the holding quota by cash since the delivery of the underlying securities is not feasible;

d) The exercise of the warrants by delivery of underlying securities makes the investors bound by securities regulations on public purchasing.

The issuer must settle the amount of warrants exceeding the public purchase limit by cash;

dd) All or parts of the warrants as per an agreement between the investors and the issuer, are exercised by cash settlement since the delivery of underlying securities renders the investors bound by securities regulations on reporting of holding and disclosure of majority holders, internal actors and persons related to internal actors;

e) The warrants abandoned or in the money are automatically settled for cash on the date of expiration;

g) If the exercise of the warrants by delivery of underlying securities creates less than 1 securities unit, odd lot(s) shall be settled for cash.

3. Investors can only request the exercise of warrants in the money in their depository accounts on the date of exercise. The warrants in proprietary trading account(s) of a securities company that issued such warrants cannot be exercised.

4. An order to exercise a warrant in an investor’s account in a securities company shall be made to the issuer according to regulations of the Securities Depository Center, the issuer and the securities company. If the investor places an order to exercise a warrant by delivery of underlying securities, the investor shall have cash transferred to exercise a call warrant or have securities delivered to exercise a put warrant as per securities trading regulations and Securities Depository Center's regulations.

5. Securities Depository Center shall base on issuers’ announcements to list, on daily basis, the holders having requested the exercise of warrants prior to the date of expiration and the holders of warrants reaching the date of expiration. Securities Depository Center shall also calculate and allot cash or underlying securities according to the payment method specified in the prospectus.

6. The assets for settlement of warrants for holders include:

a) Hedging assets and other assets in proprietary trading account(s);

b) Assets in depository account(s) in depository bank(s);

c) Payment guarantee or other assets (if any);

If the asset(s) does (do) not suffice for exercising the warrants, the holders' interests shall be settled according to relevant legal regulations that apply to creditors of debts partially covered.

7. In 05 working days upon an investor’s placement of an order to exercise a warrant or from the date of expiration, the securities company, depository member and issuer shall be responsible for cooperating with the Securities Depository Center in exercising the warrant by cash settlement or delivery of the underlying asset(s) to the investor according to regulations of the Securities Depository Center.

Article 15. Special remedial measures

1. Special remedial measures are imposed in the following events:

a) The issuer does not exercise a warrant according to Article 14 of this Circular in 03 months from the expiration date of such warrant;

b) The issuer is merged, consolidated, dissolved or bankrupt;

c) Other circumstances deemed necessary by the Stock Exchange.

2. Special remedial measures include:

a) Pursuant to Point a, Section 1 of this Article, the issuer shall be responsible for settling the warrant holders’ interests at their request. The issuer shall incur an overdue interest at a rate equal to the basic interest rate defined by the State Bank for the overdue duration starting on the deadline of settlement of holders' receivables;

b) Pursuant to Point b, Section 1 of this Article, the warrant holders' interests shall be settled as per the laws on corporate merger, consolidation, dissolution and bankruptcy;

c) Pursuant to Point c, Section 1 of this Article, the settlement of the warrant holders’ interests shall be sourced from the assets defined in Section 6, Article 14 of this Circular.

3. The payout to warrant holders according to Section 2 of this Article shall accord with the quantity and value of warrants held. The value of warrants shall be based on the closing price (or the closing index) on the date of the event initiating the payout, if determinable, or the closing price or closing index most recent to the date of such event in conformity to relevant laws.

Chapter III

ACTIVITIES OF SERVICE PROVIDERS

Article 16. Pertinent activities of the Securities Depository Center and Stock Exchanges

1. Securities Depository Center shall have the following rights and responsibilities:

a) Formulate the guidelines for registration, depositing and transaction of warrants and the warrant exercise procedure. Such guidelines shall be promulgated upon the State Securities Commission's approval;

b) Inform the Stock Exchanges of the issuers’ application, depositing and proprietary trading and of the exercise of warrants;

c) Freeze the hedging securities at the issuers’ request upon the exercise of warrants;

d) Provide full and accurate information and reports to the State Securities Commission on request;

dd) Provide other pertinent services;

e) Collect warrant-related service fee(s) as per the laws.

2. Stock Exchanges shall have the following rights and responsibilities:

a) Formulate and promulgate the guidelines for listing, delisting, transaction and market making upon the State Securities Commission’s approval; report to the State Securities Commission promptly upon the detection of market-manipulating and prohibited transactions as per securities regulations;

b) Establish, maintain and manage stock indices as underlying securities of warrants;

c) Formulate and promulgate the regulations on supervision of issuers’ hedging activities and actions thereof against issuers' non-compliance with hedging plans as stated in this Circular;

d) Formulate and promulgate disclosure guidelines to issuers, providers of pertinent services and investors as per regulations;

dd) Cooperate with the Securities Depository Center in monitoring and sharing information on the transactions of issuers and investors;

e) Provide other services to the Securities Depository Center and issuers on a contract basis;

g) Carry out activities that stabilize the market and protect investors’ interests intra vires as per the Securities Law upon the State Securities Commission’s approval;

h) Provide full and accurate information and reports to the State Securities Commission on request;

i) Collect warrant-related service fee(s) as per the laws.

Article 17. Activities of depository banks

1. Depository banks at issuers’ discretion shall adhere to the requirements in Section 1, Article 98 of the Securities Law.

2. Depository banks have the following rights and obligations:

a) Safeguard and manage issuers' collaterals as payment security according to Article 5 of this Circular separately from other assets of the issuers and of the depository banks;

b) Freeze payment security accounts in which the issuers made deposit(s);

c) Collect, pay and deliver money regarding the issuers' activities at legitimate requests of the issuers, State Securities Commission, Stock Exchanges and Securities Depository Center;

d) Verify the issuers' reports on collaterals as payment security;

dd) Report to the State Securities Commission upon the exposure of warrant issuers' violations of the law;

e) Collect warrant-related service fee(s) as per the laws.

Chapter IV

PRODUCT DESCRIPTION, REPORTING AND INFORMATION DISCLOSURE

Article 18. Description of warrants

1. A prospectus shall consist of every information on the offering of warrants, including the rights of warrant holders and the plan for assuring the issuer’s implementation of its obligations to warrant holders in special events. The information shall be updated according to Appendix 02 to this Circular.

2. The prospectus shall be comprehensible and published on the issuer’s website.

3. During the State Securities Commission’s processing of the application for warrant offering, the issuer shall solely, honestly and precisely use the information specified in such application lodged with the State Securities Commission for market survey(s). Issuers must note that the date of issue and offering price are anticipated information.

4. The description of warrants shall be full, accurate and clear. It shall not misrepresent warrants as a financial instrument with stable yield or assured profitability. It shall not mislead investors into thinking that the value of investment(s) always increases or is assured.

5. The description of warrants shall warn investors of risks upon their investment in warrants. It shall provide a clear explanation of hedging plans.

6. Issuers and relevant entities shall be held accountable for the content and legitimacy of the information on their warrants.

Article 19. Issuers’ obligations to report and disclose information

1. Issuers shall periodically report the following information on warrants to the State Securities Commission and Stock Exchanges:

a) Reporting of hedging activities and quantity of warrants offered each day no later than 17 o'clock on the next working day;

b) Monthly reports on these matters shall be made in 10 days from the end of each month:

- Reporting of proprietary trading of underlying securities;

- Reporting of open positions and current value of all warrants.

2. Issuers shall make ad hoc announcements in 24 hours upon:

a) The receipt of the certificate of warrant offering;

b) The receipt of decisions on approval, adjustment or cancellation of listing;

c) The receipt of the written notice of cessation of warrant trading, suspension of warrant offering, lifting of such suspension or cancellation of warrant offering;

d) The issuer’s adjustment of warrants according to Section 1, Article 10 of this Circular.

dd) The issuer’s failure to abide by requirements for offering warrants;

e) Decisions to change the depository bank or payment securing bank (if any) or the announcement of the dissolution, bankruptcy or special control of the depository bank as per banking laws;

g) The requests by the State Securities Commission or Stock Exchange(s) on which the issuer has its warrants listed with regard to the events that severely affect investors’ legitimate interests and to the issuer's information that strongly affects the warrant price and requires verification.

3. Issuers shall publish information by means of communication as per legal regulations on disclosure of information on stock markets.

4. Issuers shall be exempt from reporting and disclosing the information of majority shareholders in connection with the securities held for hedging risks according to theoretical hedging positions.

Article 20. Investors’ obligations to report and disclose information

1. Investors becoming majority shareholders of the issuers of underlying securities upon exercising warrants shall report and disclose information in such a manner similar to their trading of stocks as per legal regulations on stock investors' reporting and disclosure of information.

2. Majority shareholders altering stock holding ratio in the issuers of underlying securities upon exercising warrants shall report and disclose information in such a manner similar to their trading of stocks as per legal regulations on majority shareholders’ reporting and disclosure of information.

3. Internal actors of the issuers of underlying securities and their related individuals, when trading warrants based on underlying securities, shall report and disclose information in such a manner similar to their trading of stocks as per legal regulations on internal actors’ and related individuals' reporting and disclosure of information.

Article 21. Depository banks’ duty of reporting

In 10 days from the end of each month, depository banks shall report to the State Securities Commission and Stock Exchange(s) about the monthly supervision of issuers’ collaterals as payment security according to Appendix 05 to this Circular. Depository banks’ supervision reports shall assess the compliance with the laws and the prospectus as follows:

a) Issuers’ compliance in margin activities;

b) Issuers’ infraction(s) and recommendation of solution(s).

Chapter V

IMPLEMENTATION

Article 22. Effect

1. This Circular comes into force as of January 01, 2017.

2. State Securities Commission shall report to the Ministry of Finance prior to the former’s promulgation of professional procedures and regulations as stated in this Circular.

Article 23. Implementation

1. State Securities Commission, Stock Exchanges, Securities Depository Center, securities companies, concerned organizations and individuals are responsible for implementing this Circular.

2. Minister of Finance shall decide amendments and supplements to this Circular./.