What is securities custody? Why do you need to deposit your securities?

Today, to see which shares you hold, or to show someone else your stock portfolio, you usually open the Assets section of your brokerage account.

There you can see your shares represented as electronic numbers. In essence, a share is an asset showing that you own part of a company’s capital. So what does that “asset” look like? Have you ever seen or held a physical share in your hand?

The image above is the most accurate depiction of the Vietnamese word for a share, which literally means a “share slip” – a paper “slip” certifying ownership of shares. After buying shares, the issuing company gives you a shareholder book proving that you own them. To be able to trade them on the centralised market through electronic entries in a brokerage account, as we do today, all of these paper shares must be deposited and held centrally by a single organisation: the Vietnam Securities Depository (VSD). 

Shareholder book – certificate of share ownership

What is securities custody?

Securities custody (depository) is the service of receiving, safekeeping, transferring and recording clients’ ownership of securities in the securities depository account system of the securities depository. Under current Vietnamese regulations, the securities of all public companies must be deposited centrally at the Vietnam Securities Depository (VSD) before they can be traded.

Instead of holding paper share certificates directly, investors now deposit all their shares with the VSD, and their brokerage accounts then record exactly the number of shares deposited, reflecting their ownership. All rights attached to the shares remain unchanged.

Why do you need to deposit securities?

Before the VSD existed, all share trading was done the traditional way, with money and share certificates changing hands between buyer and seller. Shareholders were responsible for keeping their certificates safe to protect all their rights as shareholders. This inevitably caused many difficulties, such as:

• Trades were hard to carry out when buyer and seller were far apart (a buyer in Hanoi, a seller in Ho Chi Minh City).
• Poor liquidity, making high-frequency, short-term trading (“swing trading”) impossible.
• Share certificates could be lost or stolen.

The VSD was created to solve these problems. All shares are deposited centrally at the VSD and carefully safeguarded, so theft is unlikely. The VSD and brokerage firms work together to record your ownership in your brokerage account. It is just like depositing money in a bank: the VSD works like a “share bank”, and your brokerage account is like a bank account.

Trading also becomes much easier. Buyers and sellers trade shares by placing orders online on the exchanges, and the depository transfers ownership of the shares from the seller’s account to the buyer’s account.

How do you deposit securities?

To deposit your securities, simply take your shareholder book and ID card to a brokerage firm and ask them to open an account and deposit the shares in the book for you.

The custody fee is currently VND 0.4 per share per month and is deducted directly from your brokerage account. This is a very low cost for holding shares.

Happy trading!

The “Stock Trading For A Living” course

Green Chart designed this course to give students a solid foundation in fundamental analysis & stock valuation (Fundamental Analysis), and to show them how to integrate it effectively into their existing trading system, especially for traders who already use technical analysis (Technical Analysis). The program consists of 5 theory sessions and 6 months of hands-on guided trading in the live market with the lecturer.

See full details of the course here.