Illegal stock transaction- definition and punishment

What is an illegal stock transaction?

What is illegal stock transaction? Stock trading is a phrase used by Vietnamese securities investors when referring to the phenomenon of business owners, chief accountants or related people (insiders of the business, natural parents, wife, husband, children...) buy and sell stocks without registering for trading in advance as prescribed.

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Specifically, Clause 1, Article 32 and Clause 7, Article 33 of Circular 96/2020/TT-BTC stipulates:

At least 03 working days before the transaction date, founding shareholders holding shares that are restricted from transferring according to the law on enterprises must send a report to the State Securities Commission, the Stock Exchange(for listed shares registered for trading), Vietnam Securities Depository and Clearing Corporation, public companies and securities investment fund management companies on performing transactions according to the form specified in Appendix XI issued together with this Circular.

In case of transfering to a person who is not a founding shareholder, the transferor must submit an additional resolution of the General Meeting of Shareholders approving the above assignment.

Within 03 working days since receiving the report related to the change in share ownership ratio of the founding shareholders as prescribed in this Article, the public company, the securities investment fund management company must  disclose on the company's website.

In addition, according to Article 16 of the Securities Law 2019, when shareholders of a public company want to offer shares to the public, they must register with the State Securities Commission, except for the following cases:

- Offering shares to the public to convert a State-owned enterprise, a one-member limited liability company in which 100% of charter capital is held by the State-owned enterprise, and a public non-business unit to be transformed into a joint-stock company.

- Selling stocks under a legally effective court judgment or decision, under an arbitrator's decision or upon bankruptcy or insolvency...

Thus, it can be understood that if a company shareholder or an insider of the company sells shares but fails to notify and disclose information and register for transactions with the State Securities Commission, it will be considered as an illegal stock transaction.

Penalty for illegal stock transaction

Specifically, according to the provisions of Decree 128/2021/ND-CP, the act of failing to report the expected transaction will be sanctioned according to the actual trading value of securities at par value (for shares, convertible bonds, fund certificates) or at the latest issue price (for covered warrants) or transfer value (for the right to buy shares, the right to buy convertible bonds, the right to buy fund certificates) ) as follows:

- A fine of between VND 5,000,000 and 10,000,000 if the transaction is valued from VND 50,000,000 to under VND 200,000,000;

- A fine ranging from VND 10,000,000 to VND 20,000,000 if the transaction is valued from VND 200,000,000 to under VND 400,000,000;

- A fine ranging from VND 20,000,000 to VND 40,000,000 shall be imposed if the transaction is valued from VND 400,000,000 to under VND 600,000,000;

- A fine ranging from VND 40,000,000 to VND 60,000,000 shall be imposed if the transaction value is between VND 600,000,000 and under VND 1,000,000,000;

- A fine ranging from VND 60,000,000 to VND 100,000,000 if the transaction is valued from VND 1,000,000,000 to under VND 3,000,000,000;

- A fine ranging from VND 100,000,000 to VND 150,000,000 if the transaction is valued from VND 3,000,000,000 to under VND 5,000,000,000;

- A fine ranging from VND 150,000,000 to VND 250,000,000 if the transaction is valued from VND 5,000,000,000 to under VND 10,000,000,000;

- A fine of 3% to 5% of the actual trading value of securities if the transaction is valued at VND 10,000,000,000 or more

Thus, based on the value of the above illegal stock ttransaction, violators can be fined up to 1.5 billion VND if they are individuals and up to 03 billion VND if they are organizations.