In the context of an increasingly advanced financial market, the mortgage of stocks by shareholders of joint-stock companies has become a crucial tool for capital raising and financial management. However, mortgage stocks in these companies sometimes necessitate compliance with registration regulations stipulated by securities law. This article will examine the concept of stock mortgage and the regulations for registering mortgages of stocks at the Vietnam Securities Depository and Clearing Corporation. 

1. Definitions of stocks mortgage

Currently, the law does not provide a specific definition for the mortgage of stocks but only contains definitions related to the mortgage of assets. According to Article 317 of the Civil Code 2015, a mortgage (of assets) is when one party (hereinafter referred to as the mortgagor) uses assets that belong to them to secure the performance of obligations without transferring the assets to the other party (hereinafter referred to as the mortgagee). Accordingly, the objective of the mortgage is an asset, which includes objects, money, valuable papers, and property rights. (Article 105 of the Civil Code 2015). 

Stocks are a type of security that confirms the legal rights and interests of the owner in a portion of the capital of the issuing organization. In other words, stock is a manifestation of ownership of equity by shareholders in a joint-stock company. 

According to Article 4.1 of the Securities Law 2019, securities are recognized as assets. Additionally, according to Article 13 of Decree 21/2021/ND-CP, securities (including stocks) can be used to secure the performance of obligations. Therefore, using stocks to secure obligations is a form of asset mortgage that complies with the applicable law. 

From the above analysis, a general definition of stock mortgage can be provided as follows: “Stock mortgage is when the mortgagor uses their stocks to secure the performance of obligations without transferring the stocks to the mortgagee.” 

2. Regulation on the procedure for registering stock mortgages at the Vietnam Securities Depository and clearing corporation 

According to Article 169 of Decree 155/2020/ND-CP, if securities are centrally registered at the Vietnam Securities Depository and Clearing Corporation (hereinafter referred to as “VSDC”) and are used as collateral for obligations in secured transactions, the mortgage must be registered at VSDC. Registration of security interests in other types of securities is conducted at the transaction registration centers, which are part of the National Registration Agency for Secured Transactions under the Ministry of Justice, as regulated by the law on secured transactions. 

However, based on the provisions of Decree 155/2020/ND-CP and Decree 99/2022/ND-CP regarding secured transaction registration, there is currently no specific regulation mandating the registration of securities mortgages with the relevant competent authority. 

Thus, stock mortgages will be registered only if agreed upon by the parties involved in the transaction. In such cases, the mortgage will become effective against third parties from the time the security interest is registered (Article 297.1 of the Civil Code 2015). 

3. Procedure for registering stock mortgage at VSDC

3.1 Principles for registering collateral for stocks at VSDC:

(i) Stocks to be mortgaged must be freely transferable, not used as a margin in securities transactions, not subject to freezing or temporary detention, and must be deposited before the registration process. During the collateral registration period, the stock mortgage must be blocked at VSDC. 

(ii) The information about the stocks owned by the mortgagor in the registration documents must be the same as the information held by VSDC. 

(iii) The effective date of the security interest registration is the date when VSDC records the registration in the security interest register. 

3.2 Procedures for Registering Security Interests at VSDC: 

(i) The registration dossier: 

– Security interest registration request form as per the prescribed template. 

– Securities listing form for the requested security interest registration as per the prescribed template. 

– Authorization letter in cases where the registration request is made by an authorized representative. 

(ii) Registration Process: 

– The registrant submits the security interest registration dossier through a securities depository member. 

– The depository member submits the registration dossiers and the securities block dossier to VSDC through one of the following methods: direct submission; postal mail; or via the online security interest registration system. 

(iii) Processing Time for Registration Documents: 

– Dossier submitted before 3:00 PM: VSDC is responsible for processing the dossier and issuing a confirmation of the registration on the same day if the dossiers are complete. 

– Dossier submitted after 3:00 PM: VSDC is responsible for processing the dossier and issuing a confirmation of the registration on the same day if the dossiers are complete 

– If additional time is required for processing, VSDC will complete the registration within a maximum of 3 working days. 

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

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Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Finance and contact our team of lawyers in Vietnam via email info@apolatlegal.com.