The Commercial Law was passed by the National Assembly, 11th Legislature, in 2005. Subsequently, the Government issued Decree No. 158/2006/ND-CP detailing the Commercial Law's provisions on trading activities through commodity exchanges. In 2018, the Government issued Decree No. 51/2018/ND-CP to amend and supplement certain articles of Decree 158/2006/ND-CP.

After several years of practical application in trading activities through commodity exchanges, the Ministry of Industry and Trade is currently leading the drafting and submission of a new decree to the Government to replace the aforementioned two decrees.

To contribute to the research and refinement of the draft decree to be submitted to the Government, we would like to offer the following comments and suggestions.

The Scope of Regulation "Oversteps" Many Aspects; the Draft Decree's Title Needs Modification

First, regarding the scope of regulation and the title of the draft decree, to accurately define the scope of the draft decree, we need to examine how the Commercial Law and the Law on Promulgation of Legal Documents regulate this issue.

Specifically, the Commercial Law 2005 regulates the trading of goods through commodity exchanges in Section 3, Chapter II, from Articles 63 to 73. Within this framework, the Commercial Law assigns the Government the responsibility to detail the implementation of the following five issues:

1. Regulations on trading activities through commodity exchanges (Clause 2, Article 63);

2. Conditions for establishing commodity exchanges, the powers and responsibilities of the commodity exchanges, and the approval of the commodity exchange's Charter (Clause 2, Article 67);

3. Conditions for the operation of brokers trading goods through the commodity exchange (Clause 1, Article 69);

4. Necessary measures for management in emergency situations (Point d, Clause 2, Article 72);

5. Rights to trade goods through foreign commodity exchanges (Article 73).

In addition, the Commercial Law authorizes the Minister of Industry and Trade to stipulate the list of goods traded on the commodity exchange (Article 68).

It is particularly noteworthy that the Commercial Law clearly defines in Clause 1, Article 63 that "Trading goods through a commodity exchange is a commercial activity whereby the parties agree to purchase and sell a certain quantity of a specific type of goods through the commodity exchange, according to the standards of the commodity exchange, at a price agreed upon at the time of contract conclusion, and the delivery time is determined at a future point."

According to the provisions of the Law on Promulgation of Legal Documents, the decree on trading activities through commodity exchanges being drafted by the Ministry of Industry and Trade (hereinafter referred to as the draft) falls under the category of documents that detail the implementation of the law.

Accordingly, Article 11 of the Law on Promulgation of Legal Documents stipulates: "A detailing document shall only regulate the content authorized and shall not repeat the content of the document being detailed."

Thus, according to the provisions of the Law on Promulgation of Legal Documents, the draft decree on trading activities through commodity exchanges is only permitted to detail and specify the five areas that the Commercial Law has authorized the Government to regulate. It may only detail relevant content according to the exact concept of trading goods through a commodity exchange as defined in Clause 1, Article 63 of the Commercial Law.

According to Article 1 of the draft, the scope of the decree includes: trading activities through commodity exchanges; conditions for establishing commodity exchanges, the powers, responsibilities of commodity exchanges, and the approval of the operational charter of commodity exchanges; necessary measures for management in emergency situations; and the rights to trade goods through foreign commodity exchanges.

However, upon reviewing the entire content of the draft, the scope of the decree is very broad, covering many new issues that go beyond the detailed provisions permitted by the Commercial Law and exceed the concept of trading goods through a commodity exchange as defined by the Commercial Law.

These include very significant issues such as: the Futures Commodity Exchange (Article 19); the Commodity Exchange Control Committee (Section 5, Chapter II); the Futures Commodity Trading Company (Chapter III); social-professional organizations (Article 5); credit rating (Chapter IX), and many other specific regulations.

Thus, the scope of the draft exceeds the permitted regulations on many issues, which is not in line with the provisions of Article 11 of the Law on Promulgation of Legal Documents.

This also implies that the content outside the five authorized areas lacks a legal basis for detailed regulation. This could potentially lead to the Ministry of Justice raising objections during the review of the draft decree before it is submitted to the Government. The Law on Promulgation of Legal Documents (Clause 7, Article 7) also stipulates: "The agency or person with authority is responsible for issuing documents... detailing content within the assigned scope."

Therefore, the draft should eliminate all provisions outside the five areas that the Commercial Law has authorized the Government to detail and revert to the correct concept and scope of trading goods through a commodity exchange as defined by the Commercial Law of 2005.

Therefore, at this time, it is suggested that the new draft replacing the two existing decrees should be limited to amending and supplementing necessary and urgent issues to address immediate limitations and obstacles, in compliance with the provisions of the current Commercial Law.

However, since the Commercial Law has been enacted and implemented for nearly 20 years, many of its provisions are incomplete and do not fully cover all types of goods and trading methods through commodity exchanges.

Therefore, it is necessary to promptly research, develop, and enact a separate Law on Trading Goods through Commodity Exchanges with a broader and more comprehensive scope to address and replace the provisions on trading goods through commodity exchanges in the current Commercial Law.

In light of the scope of regulation mentioned above, it is also suggested that the title of the draft decree should be adjusted to align with the content and comply with the requirements of the Law on Promulgation of Legal Documents, while also maintaining continuity with the titles of Decree No. 158/2006/ND-CP and Decree No. 51/2018/ND-CP, which amended and supplemented certain articles of this decree.

Accordingly, the title of the draft decree should be adjusted to: "Decree Detailing the Implementation of the Commercial Law on Trading Goods through Commodity Exchanges."

The draft introduces many new concepts that are not appropriate and conflict with the law.

Regarding the interpretation of terms, Article 3 of the draft decree introduces several new concepts, some of which have not been regulated or are inappropriate and even conflict with the Commercial Law.

Specifically, the draft introduces the concept of trading goods through a commodity exchange as follows: "Trading goods through a commodity exchange or futures commodity trading is the purchase and sale of futures contracts."

Accordingly, the draft also introduces a new concept of futures contracts. Meanwhile, Clause 1 of Article 63 of the Commercial Law defines "Trading goods through a commodity exchange as a commercial activity whereby the parties agree to purchase and sell a certain quantity of a specific type of goods through the commodity exchange according to the standards of the commodity exchange, with the price agreed upon at the time of contract conclusion, and the delivery time determined at a future point."

Thus, the concept in the draft does not conform to the concept defined in Clause 1, Article 63 of the Commercial Law. Therefore, it is suggested that this concept be removed from the draft decree.

If the concept in the Commercial Law is inaccurate or does not align with practical realities, the Commercial Law should be amended, or a separate law on trading goods through commodity exchanges should be enacted, as previously proposed. The draft decree is not permitted to regulate in a way that contradicts the provisions of the Commercial Law.

Regarding the concept of "Commodity Exchange Activities," Clause 1, Article 3 of the draft defines: "Commodity exchange activities are activities related to and involving the trading of goods through a commodity exchange."

From this concept, the draft introduces a series of new concepts, which essentially list the activities of a commodity exchange. This is a new and particularly important concept because it governs most of the content of the draft concerning trading goods through a commodity exchange.

The aforementioned concept does not reflect the essence of commodity exchange activities and is not truly necessary; it may even create conflicts with the Commercial Law and extend beyond the scope permitted for detailed regulation. Article 63 of the Commercial Law already clearly defines the concept of trading goods through a commodity exchange.

If the draft needs to clarify the activities of a commodity exchange, technically, it should be included at the end of Section 1, Chapter II on the establishment of a commodity exchange, rather than in the definition of terms.

Additionally, Article 6 on the principles of operation and functions of the commodity exchange should also be moved to Section 1, Chapter II of the draft decree to ensure logical consistency. Leaving Article 6 independent, not within any section as currently drafted, does not conform to the format and technical presentation of the document.

However, the more critical issue is that the new concept of "Commodity Exchange Activities" has introduced many other new concepts that are not yet present in the Commercial Law, including: the organization of futures commodity markets, futures commodity trading, futures commodity delivery, futures commodity brokerage, futures commodity consulting, futures commodity training, the development and provision of futures commodity index services, and specialized futures commodity exchanges.

All of these concepts are new and have not been regulated in the Commercial Law or in the existing decrees that detail the implementation of the law.

The issue here is that the draft not only introduces new concepts but also incorporates new operational content for the commodity exchange that has not been stipulated in the Commercial Law, particularly the concept of a "specialized futures commodity exchange" – a new organizational form of the commodity exchange, or similarly, the concept of a "futures commodity trading company."

Thus, we believe that careful consideration should be given to introducing these new concepts, as they lead to the introduction of new content and forms of organization and activities for the commodity exchange that have not been regulated in the Commercial Law.

If there is a desire to introduce a specialized futures commodity exchange or a futures commodity trading company, the Commercial Law must be amended or supplemented to provide a legal basis for detailed regulation in the decree.

Introducing new principles that do not align with the provisions of the Commercial Law

Regarding the principles of operation of the commodity exchange, Article 6 of the draft on the principles of operation and functions of the commodity exchange stipulates that the commodity exchange is a public interest entity, operating under the principle of prioritizing public interest.

This is a new regulation compared to Decree No. 158/2006/ND-CP and Decree No. 51/2018/ND-CP, and it does not align with the provisions of the Commercial Law.

The concept of a public interest entity originates from and relates to the Law on Independent Auditing and the Law on Securities.

Specifically, the concept of a "public interest entity" is defined in Clause 7, Article 5 of the Law on Independent Auditing. Article 53 of this law further specifies four types of public interest entities:

1. Credit institutions established and operating under the provisions of the Law on Credit Institutions;

2. Financial institutions, insurance businesses, and insurance brokerage businesses;

3. Public companies, issuing organizations, and securities trading organizations as defined by the law on securities;

4. Other businesses and organizations related to public interest due to the nature and scale of their operations, as prescribed by law.

When cross-referencing with the provisions of the Law on Independent Auditing, the Law on Securities, the Law on Enterprises, and other related laws, it is clear that the Commodity Exchange does not fall under the first or second category.

For the third category - Public Company: According to Article 32 of the Law on Securities, a public company is one that is organized under the model of a joint-stock company and must meet the requirements regarding a minimum paid-up charter capital and must have successfully offered its shares to the public for the first time through registration with the State Securities Commission.

Thus, a Commodity Exchange only becomes a public company when it is organized as a joint-stock company and meets the capital requirements, and has successfully conducted its initial public offering.

However, Article 7 of the draft stipulates that the organizational form of the Commodity Exchange includes two forms: joint-stock company and limited liability company with two or more members (while a limited liability company with two or more members is not allowed to issue shares). Clearly, the provisions of the draft are inconsistent and lack coherence.

For the fourth category - Other businesses or organizations related to public interest due to the nature and scale of their operations as prescribed by law.

According to this provision of the Law on Independent Auditing, a Commodity Exchange only becomes a public interest entity when this issue is regulated by law. However, the Commercial Law does not have any provisions on this matter.

Therefore, this draft has no legal basis to stipulate that a Commodity Exchange is a public interest entity and must operate under the principle of prioritizing public interest.

In the event that a Commodity Exchange is to become a public interest entity, it must meet all the conditions prescribed by the Law on Independent Auditing and the Law on Securities, not just automatically become a public interest entity simply because it is a Commodity Exchange.

Proposal to Remove the Term "Commodity Trading Floor"

Regarding the name of the Commodity Exchange, Clause 1, Article 8 of the draft decree states: "The Commodity Exchange must include the phrase 'Commodity Exchange' or 'Commodity Trading Floor' in its name." This regulation is not consistent with the provisions of the Commercial Law.

Throughout Chapter II, Section 3 of the Commercial Law, which governs the trading of goods through the Commodity Exchange, the term "Commodity Trading Floor" is not mentioned, only the term "Commodity Exchange."

Moreover, introducing a new term like "Commodity Trading Floor" could easily cause confusion with the concept of an "Electronic Commerce Exchange," which is a place for trading goods as defined in Decree No. 52/2013/ND-CP on e-commerce.

According to Decree 52/2013/ND-CP: "An Electronic Commerce Exchange is an e-commerce website that allows merchants, organizations, and individuals who do not own the website to conduct part or all of the buying and selling process of goods and services on it."

Therefore, it is recommended to remove the term "Commodity Trading Floor" from the name of the Commodity Exchange in Clause 1, Article 8 of the draft and related contents.

Avoid Regulating Establishment Procedures and Licensing Procedures for Commodity Exchanges

Regarding the establishment of a Commodity Exchange, the Commercial Law only authorizes the Government to "detail the conditions for establishing a Commodity Exchange, the rights and responsibilities of the Commodity Exchange, and the approval of the operational charter of the Commodity Exchange" (Clause 2, Article 67).

The Commercial Law does not define the concept of a License for the Establishment of a Commodity Exchange, nor does it stipulate the procedures for establishing a Commodity Exchange or authorize the Government to regulate these matters.

However, the existing decrees and the draft decree stipulate that the Ministry of Industry and Trade is the authority responsible for issuing the License for the Establishment of a Commodity Exchange, including the procedures for establishing a Commodity Exchange.

Both issues exceed the scope of detailed regulation. The current decrees already stipulate the legal status of a Commodity Exchange as an enterprise established and operating under the Law on Enterprises, and they require a copy of the Business Registration Certificate in the application for the establishment of a Commodity Exchange.

These provisions indicate that the establishment of an enterprise under the Law on Enterprises occurs first, and then the enterprise submits an application to the Ministry of Industry and Trade for a license.

Based on the conditions for the operation of a Commodity Exchange, the Ministry of Industry and Trade will issue or deny the license to the enterprise.

Thus, the license issued by the Ministry of Industry and Trade to the enterprise operating as a Commodity Exchange is actually an Operational License for the Commodity Exchange, not an Establishment License for the Commodity Exchange.

The Ministry of Industry and Trade does not issue an establishment license for an enterprise that has already been established under the Law on Enterprises.

This regulation could lead to the misconception that there are two separate legal entities established through two different procedures: one legal entity as a joint-stock company or a limited liability company with two or more members established under the Law on Enterprises, and another legal entity as a Commodity Exchange established under the Commercial Law when it meets the conditions for a Commodity Exchange.

Therefore, to reflect the correct process of enterprise establishment and operational licensing, in line with the authority of the Minister of Industry and Trade, it is suggested that Sections 1 and 2 of Chapter II of the draft decree should not be termed as the procedure for establishment or licensing of a Commodity Exchange, but rather as the procedure for granting an Operational License for a Commodity Exchange; and the name of the Establishment License for a Commodity Exchange should be changed to Operational License for a Commodity Exchange.

The entire content of these two sections should be rewritten to reflect the authority and procedure of the Ministry of Industry and Trade in granting an operational license to a Commodity Exchange after the enterprise has been established and issued a Business Registration Certificate under the Law on Enterprises.

Recommendation to Avoid Imposing Excessively Stringent and Restrictive Regulations that Limit Business Freedom

Regarding the conditions for establishing a Commodity Exchange, Article 8 of the current Decree outlines relatively simple conditions for the establishment of a Commodity Exchange, including three requirements: regarding charter capital, information technology systems, and the operating charter of the Commodity Exchange.

However, Article 9 of the draft decree introduces many new conditions compared to the existing decrees. Among these conditions, some require careful consideration of their feasibility or a clearer explanation of the legal and practical basis for these conditions.

For example, regarding the charter capital requirement: The current decree stipulates that the charter capital of a Commodity Exchange must be 150 billion VND. The draft decree raises the charter capital requirement to 1,000 billion VND, which must be fully contributed or owned capital.

This requirement is quite stringent, potentially making it difficult for organizations or individuals who wish to start a Commodity Exchange.

For Commodity Exchanges that have already been established and are operational, Clause 2, Article 140 of the draft decree requires them to review and meet the new conditions within 12 months from the effective date of this Decree (including the charter capital requirement); if they do not meet all the conditions, they must cease operations.

This is also a provision that would be difficult for currently operating Commodity Exchanges to implement. Therefore, it is recommended that the deadline be extended to 24 months.

Regarding the conditions for owners who are founding shareholders of the Commodity Exchange, Clauses 3, 4, and 6 of Article 9 of the draft decree set forth very stringent conditions for founding shareholders.

Specifically: For a Commodity Exchange established as a joint-stock company, the legal entity founding shareholders must meet many conditions, including the requirement not to hold shares in another Commodity Exchange within the past three years. If the founding shareholder is a business, it must have a minimum equity capital of 500 billion VND and must have been profitable in the last two years. If the founding shareholder is an individual, in addition to the conditions regarding education, financial capacity, and professional experience, they must be a Vietnamese national and must not hold shares in another Commodity Exchange within the past three years.

Regarding the conditions for founding shareholders, we believe: First, the conditions imposed are too stringent and do not encourage the establishment and operation of Commodity Exchanges. The introduction of these new conditions compared to the current regulations serves to tighten the conditions for establishing Commodity Exchanges as well as the activities of trading goods through the Commodity Exchanges, rather than encouraging these activities.

In the context of digital transformation and e-commerce today, particularly given the current practical situation with the relatively lenient conditions of the current regulations, where Vietnam currently only has one operating Commodity Exchange, and we have also witnessed many Commodity Exchanges being established and subsequently closed, is the regulation in the draft decree reasonable?

Therefore, the drafting agency needs to clarify whether the aim of drafting this decree is to tighten and restrict or to encourage and expand the activities of trading goods through Commodity Exchanges in the coming period. Although managing and ensuring the safe operation of Commodity Exchanges is always necessary, this should not justify overly stringent regulations.

Second, the conditions imposed on the founding shareholders above have restricted the freedom of business, which is inconsistent with the provisions of the Enterprise Law and the Investment Law.

On the other hand, the nature of the Commodity Exchange enterprise is merely that of an entity established to organize a special commodity market and provide services for businesses to carry out transactions and collect fees, unlike high-risk business models like credit institutions or insurance companies, which raise and manage funds from the public.

Therefore, there is no legal basis to prohibit a founding shareholder from owning multiple Commodity Exchanges. Furthermore, the draft provision that only Vietnamese nationals can be founding shareholders lacks legal and practical justification for preventing foreign investors from becoming founding shareholders, especially when we need to attract their capital, technology, and management expertise.

Additionally, it is well known that a Commodity Exchange can be established in one of two forms: a joint-stock company or a limited liability company with more than two members. These are both models where shareholders or company members are only liable for the amount they have contributed. If risks arise in one company, it does not affect their rights and obligations in other companies. Therefore, it is crucial to review and reconsider these conditions.

Regarding the operational deposit requirement for Commodity Exchanges, the draft decree mandates that a Commodity Exchange must deposit 10% of its charter capital (Clause 2, Article 9) into a commercial bank account to ensure the fulfillment of its obligations (Clause 13, Article 3). This deposit will be frozen by the bank for the entire duration of the Commodity Exchange's operation and can only be withdrawn when the Exchange ceases operations.

This is a completely new requirement. The Commercial Law and even the current decrees detailing the Commercial Law on commodity trading through Commodity Exchanges do not include such a deposit requirement.

Moreover, Article 28 of the draft decree stipulates that a Commodity Exchange must allocate a risk provision of at least 20% of its fee income; this provision is calculated separately and deposited into a separate account. The draft decree does not clarify how this risk provision will be used.

With these regulations, the Commodity Exchange enterprise’s deposit of 10% of its charter capital (100 billion VND) would be frozen and unusable for operations, while an additional 20% of annual income (whether before or after tax is unclear) could also be frozen when deposited into a separate account.

In practical terms, when compared to the operations of a stock exchange, no such operational deposit or risk provision is stipulated under the Securities Law. In contrast, credit institutions are only required to allocate risk provisions and are not subjected to an operational deposit requirement.

Therefore, it is necessary to clarify the legal and practical basis for these two provisions in the draft decree.

Furthermore, Article 9 of the draft decree sets forth rather vague and abstract conditions for establishing a Commodity Exchange, making them difficult to ascertain.

Specifically, Clause 8 stipulates: "The establishment proposal, operational plan, and business plan must have a basis to ensure feasibility, not adversely affecting the commodity market, economic security, supply-demand balance, the components of the consumer price index; and must not create or potentially create a monopoly, market dominance, or unfair competition in the commodity market and related markets."

This is indeed an extremely difficult condition to define, especially when it is still just a proposal for establishing a Commodity Exchange (meaning applying for an operational license for a Commodity Exchange), which may lead to arbitrary decisions by the competent authority or officials.

If it is necessary to prevent such situations, the Decree should include provisions that anticipate these circumstances during the operation of the Commodity Exchange and propose solutions if they arise, rather than addressing them during the assessment of the establishment proposal.

Clause 9 of Article 9 in the draft decree stipulates that a condition for establishing a Commodity Exchange is "Having an information system that meets the technological and technical solution requirements in the operation of the Commodity Exchange."

However, the draft does not contain any specific regulations regarding this information system. With such a generalized provision in the draft, businesses will find it difficult to comply, and the competent authority will lack a basis for evaluation and verification.

Therefore, the draft decree should clearly outline the technological and technical solutions that businesses seeking to establish a Commodity Exchange must meet to ensure transparency and clarity in the investment and business conditions, in accordance with the regulations of the Investment Law./.

Associate Professor Dr. Đinh Dũng Sỹ

Legal Expert

Source: Bao dien tu chinh phu