Pursuant to Notification No. 1/2019 (“Trading Notification”) issued on 12 July 2019, the Securities and Exchange Commission permitted foreign companies, institutions or individuals (“Foreigners”) to trade in shares of the companies listed on the Yangon Stock Exchange (“YSX”). The Trading Notification while permitting foreigners to trade in listed companies stated that the YSX will separately announce the date on which Foreigners may start to trade in shares of the listed companies, for which they will be required to obtain prior approval from the Securities Exchange Commission of Myanmar (“SECM”).
The YSX has now issued Notification No. 1/2020 stating the instructions allowing Foreigner participation on the YSX (“Trading Instructions”) which details compliance checks or Know Your Customer (“KYC”) obligations incumbent on the securities companies when opening accounts for eligible Foreigners to trade on the YSX, with effect from 20 March 2020.
The Trading Instructions categorizes a Foreigner as a “resident” or “non-resident”. ‘Resident Foreigner’ as defined in the Foreign Exchange Management Law refers to an individual who has resided in Myanmar for at least 183 days during the last 12 months or persons having business establishments in Myanmar. The aforementioned definition also includes legally established companies, organisation and offices with its branch(es) in Myanmar.
Under the Trading Instructions, the securities companies are required to send their customer information to the YSX to verify the existing securities account of the customer, if any. The process for opening a securities account for Foreigners would briefly include the following steps:
1) Opting for a securities company
Foreigners may choose a preferred securities company mentioned on the website of the Yangon Stock Exchange.[1] After verification of the Foreigner’s personal details (including personal information, bank account details of the customer, where the customer is an individual and corporate details if an institution), the securities company should issue a recommendation letter to the customer.
Where the Foreigner is a resident, the recommendation letter to the customer should advise on the opening of a Myanmar Kyat (“MMK”) denominated current account, “Resident Kyat Account for Securities” (R-KAS). While non-resident Foreigners should be recommended to open an MMK current account, Non-Resident Kyat Account for Securities (N-KAS), and foreign currency current account, Non-Resident Foreign Currency Account for Securities (N-FAS) at the designated local banks in Myanmar. The banks accounts as for resident and non-resident Foreigner are collectively referred to as “Special Bank Accounts”. The customers will be required to furnish a written confirmation to the securities companies that the aforementioned accounts will only be used for trading securities. The account opening application of the customer should also be supported by required documents for verification.
The securities companies will enter into a written agreement with their customers to act as a security broker in accordance with the provisions of the Securities Exchange Rules.
2) Opening of a Special Bank Account
Foreigners will be required to submit the recommendation letter issued by the securities company to the licensed bank and open the Special Bank Account for the trading of securities in Myanmar.
3) Opening of a Securities Trading Account
Pursuant to opening a Special Bank Account, the securities company will open a securities trading account for the respective Foreigner. It is worth noting that the resident or non-resident Foreigner can maintain only one securities account.
The compliance checks by securities companies will be periodic in nature where they will be required to monitor the resident or non-resident status of the foreign customers and should not accept additional buy orders where there is a change in the residential status unless accepted in compliance with KYC requirements, the Anti-Money Laundering Policy and customer acceptance policy.
The Trading Notification explicitly states that trading will be permitted for only one type of share, within the allowable ratio of foreign ownership that it submitted by each listed company to the SECM. The YSX will prescribe and calculate only direct shareholding in the case of a foreign company when determining foreign ownership levels in listed companies. Accordingly, the Trading Instructions state that securities companies should inform their foreign customers in advance that no voting rights will be granted for foreign ownership shares above the pre-determined limit of 35% in accordance with the framework and schedule published by the YSX on 6 September 2019.
Also, the capital brought in/transferred from Myanmar for trading purposes should be in compliance with the Exchange Management Law and Regulations and the directives issued by the Central Bank of Myanmar. Under these, investors will be required to comply with existing tax laws and regulations issued by the Internal Revenue Department of Myanmar.
Since 2015, when the YSX obtained permission to conduct stock exchange activities in Myanmar, it has needed to traverse various obstacles and several regulatory delays. It will be interesting to see how the YSX facilitates the growth of its corporate sector as compared to its counterparts in the region. The development of stock markets can have a constructive long term impact on the economic development of any country, bolstering its corporate credentials and abiding by risk management principles more firmly in alignment with international standards.
[1] https://ysx-mm.com/trading/tradingparticipant/
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Contacts
Partner & Managing Director, DFDL Myanmar/Singapore
Partner, Deputy Managing Director & Head of Banking and Finance Practice, DFDL Myanmar
Author
Legal Adviser, DFDL Myanmar
