Dear Clients and Partners,
For years, foreign institutional investors looking at trading in Vietnam faced a significant operational hurdle: the "pre-funding" requirement. Unlike most developed and emerging markets that operate on a standard settlement cycle, Vietnam required investors to have 100% of their trade value in cash before even placing a buy order.
This rigid rule led to idle capital, increased opportunity costs, and a lack of flexibility that many global funds found difficult to reconcile with their broader investment strategies. However, the regulatory landscape has shifted. With the implementation of Circular 68/2024/TT-BTC and the recent refinements in Circular 18/2025/TT-BTC, the non-prefunding model (NPF) has officially arrived.
At BLaw Vietnam, we believe this transition is one of the most pivotal changes in the history of the Vietnamese securities market. In this article, we will explore why the non-prefunding model is a game-changer for your business and how you can optimize your trading activities within this new legal framework.
What is the Non-Prefunding Model?
The non-prefunding model is a regulatory mechanism that allows eligible foreign institutional investors to place buy orders for stocks without having 100% of the transaction value in their accounts at the time of the trade.
Previously, under the old regime, if you wanted to buy $10 million worth of shares, that $10 million had to be sitting in a Vietnamese bank account before your broker could execute the trade. This was a "T+0" cash requirement for a "T+2" settlement cycle, a mismatch that kept Vietnam on the fringes of major global indices like the FTSE Emerging Markets Index.
Under the new rules, the burden of cash verification has shifted from a hard regulatory requirement to a risk-based assessment handled by securities companies. This means that for the first time, institutional investors can trade in Vietnam with the same efficiency they enjoy in London, New York, or Hong Kong.
Why the Non-Prefunding Model is a Game-Changer
1. Enhanced Capital Efficiency
The most immediate benefit of the non-prefunding model is the elimination of idle cash. In the past, institutional funds had to move capital into Vietnam days in advance to ensure they were ready for market movements. This trapped liquidity could not be used elsewhere, dragging down the overall fund performance. By moving to a T+2 settlement without pre-funding, you can now manage your global cash flows more effectively, deploying capital into the Vietnamese market only when a trade is confirmed.
2. Reduced Opportunity Costs
In a fast-moving market, timing is everything. Under the old system, if a sudden market opportunity arose, an investor without pre-funded cash would miss the window while waiting for international bank transfers to clear. The NPF model allows for immediate execution based on credit lines or pre-arranged agreements with your broker, ensuring you never miss a tactical entry point.
3. Alignment with Global Standards
The removal of the pre-funding barrier is the "Golden Ticket" for Vietnam’s upgrade from a "Frontier Market" to a "Secondary Emerging Market." Major index providers like FTSE and MSCI have long cited pre-funding as the primary obstacle to a status upgrade. As Vietnam aligns with international best practices, we expect to see a surge in passive investment flows from global ETFs that track emerging market indices.
Navigating the Legal Framework: Circular 68 and Circular 18
Understanding the legal basis of this shift is crucial for maintaining legal compliance and corporate governance.
Circular 68/2024/TT-BTC
This was the foundational regulation that removed the 100% pre-funding requirement for foreign institutional investors. It empowered securities companies to assess the payment risk of their clients and decide the necessary funding levels. However, it left some questions regarding what happens if an investor fails to pay on the settlement date (T+2).
Circular 18/2025/TT-BTC
Effective as of May 2025, Circular 18 provides the "missing pieces" to the puzzle. It outlines the specific default mechanics that protect the market's integrity. If a foreign institution fails to fulfill its payment obligation:
- The shares are transferred from the investor's account to the proprietary account of the securities company.
- The investor is generally required to repurchase the shares or settle the difference, ensuring the broker is not left holding the risk indefinitely.
- Most importantly, it ensures that the "Foreign Ownership Room" for that stock is preserved during the resolution process, preventing other investors from jumping into the "slot" while a settlement issue is being fixed.
For businesses involved in M&A and corporate finance, these clarity levels are essential for valuing transactions and managing the risks associated with large-scale share acquisitions.
Strategic Steps for Your Business
To take full advantage of the non-prefunding model, your organization must update its operational and legal strategies. At BLaw Vietnam, we recommend focusing on three key areas:
A. Broker Selection and Risk Assessment
Since the non-prefunding model relies on the securities company's ability to "vouch" for your creditworthiness, choosing the right partner is vital. You should evaluate brokers based on:
- Their capital strength and ability to handle settlement defaults.
- The clarity of their NPF service agreements.
- Their technological integration with custodian banks.
B. Updating Internal Trading Policies
Your internal compliance and risk management teams must align with the new T+2 funding reality. This includes updating your tax planning and optimization strategies to account for the timing of capital gains and potential interest costs if you utilize broker credit lines.
C. Legal Documentation
Ensure that your agreements with local brokers and custodian banks explicitly reference the provisions of Circular 68 and 18. These contracts should clearly define:
- The approved credit or non-prefunding limits.
- Collateral requirements (if any).
- The procedure for handling inadvertent settlement delays.
The Road Ahead: Trading Vietnam in 2026 and Beyond
The introduction of the non-prefunding model is not just a technical change; it is a statement of intent from the Vietnamese government. It signals a commitment to transparency, liquidity, and international integration.
As we move further into 2026, we anticipate that this model will lead to:
- Increased Market Liquidity: Higher turnover from institutional players who were previously sidelined.
- More Sophisticated Trading Strategies: Including tactical rebalancing and high-frequency institutional trading.
- Institutional Growth: A shift in market participation from retail-heavy to a more balanced mix of institutional and individual investors.
However, with these opportunities come new responsibilities. The regulatory environment in Vietnam remains complex, particularly regarding licensing and administrative procedures. Staying ahead of these changes requires a partner who understands the nuances of the law and the practicalities of the market.
How BLaw Vietnam Can Help
Navigating the transition to a non-prefunding model requires more than just a broker; it requires a legal partner who can safeguard your interests. At BLaw Vietnam, our team of expert attorneys is dedicated to helping foreign investors thrive in the Vietnamese market.
Our services include:
- Reviewing and Drafting NPF Agreements: Ensuring your contracts with securities firms are robust and protective.
- Regulatory Compliance: Keeping your business updated on the latest circulars from the Ministry of Finance and the State Securities Commission.
- Tax Optimization: Advising on the tax implications of new trading structures to maximize your net returns.
- Corporate Governance: Assisting institutional boards in updating their risk management frameworks to accommodate non-prefunding activities.
Through the above article, it is clear that the "Cash First" era is ending, giving way to a more efficient, modern, and accessible market. Whether you are a seasoned fund manager or a new entrant to trading in Vietnam, the non-prefunding model offers a path to greater agility and profitability.
If you are looking to streamline your investment process or need clarity on the latest financial regulations, we invite you to reach out to us. At BLaw Vietnam, we are thrilled to help you navigate this exciting new chapter of Vietnam's economic journey.
Contact us today to ensure your trading operations are optimized for 2026 and beyond.
For more information on our services, please visit our Tax Services, M&A Advisory, or Corporate Governance pages.