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PRINCIPLE OF DETERMINING MARGIN
I. Principle of margin determining
Margin means one party depositing cash or securities as collateral to ensure its payment obligation of derivatives transactions.
II. Types of margin
1. Initial Margin (IM)
a. IM is the minimum collateral value deposited with VSD to meet requirement of CM’s positions which are expected to open before trading, except close-out positions of the same trading account. Based on the instructions by VSD, CM shall calculate IM value for positions which will be opened to pay VSD according to the IM rate announced by VSD.
b. CM can deposit IM in form of cash and securities that ensures the rate of cash collateral out of total value of collateral assets on each account at any time not lower than the rate of minimum cash collateral as stipulated by VSD and announced on VSD’s website in accordance with sub-clause c, Clause 1, Article 21 of Circular 11, except bond collateral for delivery upon execution of Government bond futures as stipulated in Sub-clause b, Clause 2.2 Article 5 Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’ Chief Executive Officer.
c. Securities collateral have to meet requirements as stated in Article 6, the Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’s Chief Executive Officer.
d. VSD shall determine IM rate for Index futures and government bond futures based on:
- Fluctuation of futures’ trading prices or underlying index (for index futures) or government bond price/government bond index (for government bond futures) in the observation period of minimum 90 trading days using VaR tool;
- Expiration date of futures;
- Other elements if found necessary by VSD.
e. Periodically on the 1st, 10th and 20th of each month, VSD shall redefine IM rate. If the above dates fall on holidays, the IM redefining time will be the next business day.
f. IM rate shall be announced on VSD’s website at least 2 business days before being applied.
g. If necessary, VSD can redefine IM rate based on actual market fluctuation and the IM rate is applied on the business day after the announcement date.
h. Method of determining the IM rate and IM value is stipulated in Appendix 2 of Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’ CEO.
2. Delivery Margin (DM)
DM is the margin value which selling CM and buying CM must deposit with VSD from the final trading day (E+1) and maintain until the final settlement day (E+3) to assure the contract settlement obligation, replacing the IM. Forms of collateral deposit include:
a. Cash collateral
- CM shall deposit cash collateral into CM cash margin deposit account of VSD at the settlement bank. Margin value is determined based on DM rate, number of expiry month contracts, final settlement price and contract multiplier as stipulated in Appendix 2 of the Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’ CEO.
- DM rate shall be announced on VSD’s website at least 2 business days before being applied.
b. Bond collateral (bonds in the list of deliverable bonds)
- CM deposits collateral using deliverable bonds into securities margin account under VSD’s name on the principle of depositing 10,000 government bonds of one bond code in the list of deliverable bonds, equal to 1 futures contract. These bonds will be managed separately from other collateral securities by VSD.
c. Buying CM has to deposit DM in form of cash. Selling CM can deposit DM in form of cash or bond in the list of deliverable bonds.
3. Variation Margin (VM)
a. VM is determined on the basis of position profit/loss during trading session of open positions on investor’s account and difference between:
- For existing positions in the account: Trading price updated in trading session and final settlement price of the previous trading day (for positions available on account at the end of previous trading day), or settlement price of opening positions (for positions opened during the day);
- For closed positions during the day: Settlement price of closing positions and final settlement price of previous trading day (for positions available on account at the end of previous trading day), or settlement price of opening positions (for positions opened during the day).
b. VM is only added to the margin requirement in case the position of portfolio in investor’s account is in loss status.
4. Margin requirement (MR)
a. MR is the total margin value which is deposited by CM to maintain positions under CM’s name and calculated during trading session for the position portfolio in each investor’s trading account and CM’s proprietary, including IM, DM, VM
b. Investor can open new positions in trading account if collateral usage of account is below the level 3 warning threshold. If collateral usage is at the level 3 warning threshold, investor’s account shall be suspended from trading and CM must reduce positions by close-out transactions or deposit additional margin collateral with VSD. Warning thresholds and measures for handling cases of breaching warning thresholds are stipulated in Article 13 of Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’ CEO.
III. Collateral deposit for margin
1. Cash collateral deposit: CM deposits cash collateral of CM and clients into CM cash margin account in the name of VSD at settlement bank (detailed processes are stipulated in Article 10 of Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’ CEO.
2. Securities collateral deposit: Depending on the purpose of IM or DM, CM shall send VSD message requesting to transfer securities from investor’s margin securities account at CM (detailed processes are stipulated in Article 10 of Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’ CEO).
IV. Procedure of margin collateral deposit for Investor
When executing derivatives transactions, investor has to deposit collateral with CM as follows:
1. Investors are required to deposit sufficient IM to CM for all positions which are expected to open before trading, except close-out transactions;
2. Investors are required to maintain collateral for their positions and deposit additional margin collateral if the value of collateral is lower than value of margin requirement or the balance of deposited cash is not maintained at the cash margin requirement rate as requested by CM. Depending on market conditions, CM has the right to request investors to provide intra-day margin;
3. Investors are allowed to withdraw collateral assets if the value of collateral assets exceed margin requirement as stipulated by CM;
4. For IM or additional margin, CM has the right to request investor to deposit totally in cash or allow investor to deposit securities as part of the collateral while ensuring cash collateral rate as stipulated by CM but not lower than the cash collateral rate stipulated by VSD.
V. Procedures of margin collateral deposit for CM
CM deposits collateral with VSD as follows:
1. Before trading, CM deposits IM with VSD for positions under its name which are expected to open except close-out transactions of the same account;
2. CM has to deposit additional collateral if the value of collateral assets do not satisfy margin requirements calculated for all positions under CM’s name by VSD and can withdraw collateral assets if the value of collateral asset exceeds the value of margin requirement in accordance with VSD’s guideline;
3. Cash collateral rate complies with VSD’s guideline which is not lower than 80%, except securities collateral for delivery upon contract execution or investor with short positions of Government bond futures which will be settled by delivery of the underlying assets has to deposit transferrable collateral assets. The value of margin requirement for portfolios in each investor’s trading account, total value of margin requirement for all positions under CM’s name calculated in trading sessions by VSD are based on IM, profit/loss of positions, assessment of maximum price fluctuation possibility, correlation of positions, delivery margin and other factors deemed necessary by VSD;
4. VSD shall determine and supervise in real time the ratio of margin requirement rate to the total value of collateral assets by accounts of investor and CM. If this ratio reaches the threshold as regulated by VSD, VSD has the right to warn CM and take one of following actions:
- Requesting the Stock Exchange to suspend trading of related accounts, except close-out transactions;
- Requesting CM (for proprietary account) or investor via CM (for investor’s account) to execute close-out transactions to decrease positions, deposit additional collateral.
VI. Withdrawal of margin collateral
CM may withdraw collateral in the following cases:
1. The collateral usage after withdrawal is below the level 3 warning threshold as stipulated in Clause 1, Article 13 of the Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’s CEO;
2. In case of withdrawing collateral securities, the withdrawn securities amount should be less than or equal to the amount of securities deposited at VSD.
3. The account from which collateral is withdrawn is not subject to trading suspension due to breach of regulation on collateral usage threshold, position limit or default.
 (Detailed procedures are stipulated in Article 11 of the Guideline on margin, clearing and settlement of derivatives issued with Decision no.96/QĐ-VSD dated 23rd March 2017 by VSD’s CEO).
VII. Eligible securities for margin collateral
1. Types of securities which are eligible for collateral deposit include:
a. Government bonds, Government-guaranteed bonds, except Treasury bills.
b. Securities listed on Stock Exchanges (equities, fund certificates, except ETFs).
2. Collateral securities should meet the following requirements:
a. Being in the list of eligible securities for collateral defined by VSD for each period of time based on the liquidity according to Appendix 3 of the Guideline on margin, clearing and settlement of derivatives issued with Decision no. 96/QĐ-VSD dated 23rd March 2017 by VSD’s CEO.
b. Neither being subject to warning, controlling, or temporarily trading suspension by Stock Exchanges nor being securities of issuers that are in the process of liquidation, dissolution, bankruptcy, consolidation or merger
c. Not being pledged, blocked, or temporarily held at VSD;
d. Being freely transferrable and deposited in securities trading account at VSD.
e. Being owned by investor, CM and held in the depository account.