The Vietnam Securities Depository (VSD) recognises the performance of the central counterparty function and management of the securities borrowing and lending (SBL) system as being among its main functions. 

In September 2014, the VSD officially implemented an SBL system with the objective of improving the risk management mechanism of securities settlement through securities-based lending, supporting transaction settlement in cases where depository members were temporarily short of securities for settlement due to error correction. 

According to the VSD, its securities-based lending system assists market participants in accessing information and executing transactions, lowering costs for involved parties as well as restricting what it terms “unofficial” lending activities and meeting regulatory requirements for market management. 

VSD published rules on SBL setting out the regulatory framework for the depository to operate the facility. Thomas Murray Data Services identifies some of the key features of the rules as follows: 

• The purpose of securities lending can only be to either support securities settlement of depository members where their post‐trade correction result in temporary shortage of securities for settlement; or to support ETF-authorised participants to have sufficient securities to make a capital contribution and execute exchange‐traded transactions 

• Collateral for loans to fulfil a depository member’s shortage of securities for settlement must be in the form of cash 

• Collateral for loans to ETF-authorised participants can be in the form of cash and/or eligible securities 

• The interest rate of the loan is subject to negotiation between the buyer and the seller but should not exceed 120% of the base interest rate stipulated by the State Bank of Vietnam. 

• Loans can be redeemed partially or fully by the borrower in securities at any time before the due date, or in cash (full or partial) subject to written approval with the lender. 

The VSD issued a list of securities acceptable as collateral ahead of the implementation of securities lending regulation. There were 233 qualifying securities listed on the Hanoi Stock Exchange and the Ho Chi Minh City Stock Exchange, including 60 on the HNX30 and VN30 indices. The list included government bonds and government-guaranteed bonds listed on the Hanoi Stock Exchange. 

Dedication rates of asset value were set at 5% on government bonds and government guaranteed bonds, 30% on securities in the VN30 and HNX30 indices and 40% on others. 

The VSD said the reduction rates aimed to prevent risks and ensure the rights of lenders, since a number of stocks might be priced beyond their true value. 

Repo 

Repo transactions in government bonds are recognised and conducted on HNX, but no regulation on repo transactions on other instruments has yet been issued.