FINANCIAL SAFETY RATIO

Within the operational structure of the securities market, the financial safety ratio functions as a “technical safeguard” to control systemic risks and ensure the stability of participating entities.

However, the current legal framework, particularly under Vietnam’s Law on Securities, has not yet established a clear standard for a financial safety ratio that applies directly to each individual transaction conducted by investors.

In essence, for investors, the financial safety ratio may be understood as the level of assurance regarding their ability to fulfill payment obligations arising from transactions, including margin requirements, payment for securities purchases, or repayment of margin loans.

Nevertheless, due to the absence of specific and mandatory legal provisions, the control of this ratio is primarily implemented indirectly through internal mechanisms of securities companies, such as margin trading regulations, lending ratios, and account handling thresholds.

In contrast, for securities companies, the law adopts a clearer approach by requiring the maintenance of a minimum financial safety ratio to ensure solvency and effective risk management.

This ratio reflects the relationship between available capital and total risks arising from business activities, thereby becoming a mandatory condition for maintaining and expanding operations.

The absence of direct regulations applicable to each investor transaction creates a notable legal gap, as market risks may spread rapidly if financial obligations are not standardized and effectively controlled.

Therefore, in the long term, it is necessary to improve the legal framework by establishing minimum safety thresholds for transactions, while strengthening the supervisory responsibilities of securities companies to safeguard the sustainability of the market.