Clearing and settlement are final steps for completing securities trading process. For the purpose of clearing and settlement of securities transactions, all data of trading results are sent to Vietnam Securities Depository (VSD) by stock exchanges at the close of trading sessions. Cash clearing is executed by VSD for each member on the basis of netting between the amount receivable and the amount payable for transactions having the same trading date on stock exchanges and having the same settlement date, segregated by domestic investor account, foreign investor account and house account of members. VSD applies the following methods of clearing and settlement for securities transactions:
- For transactions of corporate bonds: VSD carries out settlement according to the result of multilateral netting with T+1 settlement cycle.
- For transactions of shares and fund certificates: VSD carries out settlement according to the result of multilateral netting with T+2 settlement cycle.
- For transactions of Government bonds: VSD carries out settlement via trade-by-trade method with T+1 settlement cycle. Principles for settlement of securities transactions:
- VSD makes securities settlement in the form of book-entry transfer via the system of depository accounts of selling and buying members and simultaneously adjusts ownership information on depository accounts of buying and selling investors. The settlement bank (Bank for Investment and Development of Vietnam) makes cash payment via the system of cash accounts opened by depository members at the settlement bank based on the cash clearing result sent by VSD.
- Settlement for securities transactions is made in compliance with the following principle: securities delivery at VSD and cash transfer at the settlement bank shall be surely and simultaneously carried out (DVP principle - Delivery Versus Payment). Accordingly, settlement risks born by trading participants will be mitigated as buyers and sellers must have sufficient money to fulfil settlement obligations.
Processes and procedures of securities clearing and settlement are specified in the Guideline on Securities Clearing and Settlement issued with Decision No. 211/QD-VSD dated 18 December 2015 by the Chief Executive Officer of VSD. Relevant Decisions in Legal Documents section on VSD’s website:
Decision no. 211/QD-VSD
Decision no. 136/QD-VSD Processes and procedures
- Post-trade error correction of depository member.
- Handling proprietary trading errors.
Clearing and settlement of derivatives are implemented by Vietnam Securities Depository as a Central Counterparty. Under this mechanism, VSD involves in every transaction to come the seller to every buyer and the buyer to every seller in the original transactions and fulfils obligation of settlement guarantee for the market. In the event that one partner in the original transaction becomes insolvent, VSD shall assume the payment obligation to the other partner. To perform the function of settlement guarantee for the market, VSD requests investors, Clearing members (CM) to deposit margin before trading. At the same time, to respond to risk management mechanism for derivatives clearing and settlement, VSD shall regularly calculate, supervise collateral using rate (Value of margin requirement/Value of eligible collateral assets) for necessary actions. VSD applies clearing and settlement methods as follows:
- For settlement of daily profit and loss of Futures and Index futures settlement: VSD shall calculate, define net cash settlement obligation by investors and CMs’ accounts and notify the Settlement bank (Vietinbank) for settlement with the cycle of T+1
- For Government bond futures settlement: VSD defines net cash settlement obligation by CM and securities delivery obligation basing on result of deliverable bonds on T+2 and makes settlement on T+3
On settlement date, VSD shall transfer the deliverable bonds from the seller to VSD’s account for securities clearing and settlement, and then transfer the relevant bonds to buyer’s deposit account. The Settlement bank (Vietinbank) makes payment according to VSD’s cash clearing result.
Related decisions can be viewed on Legal documents on VSD’s website, specifically:
Decision no. 95/QĐ-VSD
Decision no. 96/QĐ-VSD
Decision no. 97/QĐ-VSD