some solutions to improve and enhance the sustainable development of the securities market in viet nam

The concept of the securities market Securities market is an financial organization where the sale andpurchase transactions of securities take place.. Secondary market  The secondary

First and foremost, I would like to thank all the teachers of English Faculty,

Ha Noi University of Business and Technology, especially Prof Tran AnhTho for his dedicated instructions as well as his unconcerned assistance alongwith invaluable advice and encouragement during the past four years

I’m particularly grateful to Dinh Thi Phuong Anh, MA – my supervisor andlecturer for her clear and thorough guidance along with creative and usefulsuggestions in completing this Graduation Assignment

I should also like to thank all staff at Tri Viet Securities Joint StockCorporation (TVSC) for their enthusiastic instructions and help during thetime I was on probation

Also, I wish to express my gratitude toward my beloved parents for theirpassionate love and wholehearted cultivation throughout my school life

Last but not least, it’s great pleasure for me to receive teachers’ preciouscomments and contribution so as to make my Graduation Assignmentperfecter

Sincerely thank!

Tran Thi Thu Huong

5 - 2011

TABLE OF ConteNTS

ACKNOWLEDGEMENTS

ABBREVIATIONS

INTRODUCTION 1

CHAPTER 1: OVER VIEW OF THE SECURITIES MARKET 2

1.1 The basic knowledge on the securities market 2

1.1.1 The concept of the securities market 2

1.1.2 Commodities and their characteristics in the securities market 2

1.1.2.1 Commodities in the securities market 2

1.1.2.2 Commodities’ features in the securities market 3

1.1.3 Classification of the securities market 4

1.1.3.1 Classified by the market’s operating tools and commodities 4

1.1.3.2 Classified by the movement of capital 4

1.1.3.3 Categorized by organizational form 5

1.1.4 The entities participating in the securities market 6

1.1.5 Characteristics and nature of the securities market 6

1.1.6 The securities market’s functions 7

1.2 Organization and operation of the securities market 8

1.2.1 The securities market’s Organization 8

1.2.2 Operation on the market 9

1.2.2.1 Operating principles of the stock market 9

1.2.3 Transaction on the stock market 9

1.2.3.1 The Trading Orders 9

1.2.3.2 Matching methods 10

1.2.3.3 Trading Processes 10

1.2.4 Stock Index 11

1.2.5 Operations of the securities market 12

1.2.5.1 Direct operations of the stock market 12

1.2.5.2 Other operations 13

1.2.5.3 The technical and professional elements 14

CHAPTER 2: THE SITUATION OF THE SECURITIES MARKET IN VIET NAM 15

2.1 The structure of Vietnam's stock market 15

2.2 The performance of the securities market in Viet nam 15

from 2000 to 2010 15

2.2.1 Legal framework, institutional policies 15

2.2.2 The market capitalization and goods (supply) market 15

2.2.3 The listing and trading securities 17

2.2.4 The basis system of investors (investment supply) 19

2.2.5 The system of business organizations and securities services 19

2.2.6 On market organization 20

2.2.7 Management operation and market supervision 21

2.3 Some the securities market’s restrictions 21

CHAPTER 3: SOME SOLUTIONS TO IMPROVE AND ENHANCE THE SUSTAINABLE DEVELOPMENT OF THE SECURITIES MARKET IN VIET NAM 23

3.1 the Growth policies of the securities market in viet nam in the period of 2010 - 2020 23

3.2 Measures to make the securities market become a really long-term channel for capital mobilization for enterprises, investors and the economic development 24

3.2.1 The State management on the Securities market 24

3.2.2 Solutions on macroeconomic stability 24

3.2.3 Improving the quality of human resources training 25

3.2.4 Intensifying commodities for the Securities market 26

3.2.5 Developing investors 26

3.2.6 Consolidating the system of organizations 27

3.2.7 Enhancing the securities market’s infrastructure and information technological system 27 3.2.8 Boosting the OTC market 27

CONCLUSION 28

10 HOSTC : Ho Chi Minh City Securities Trading Center

11 HASTC : Ha Noi Securities Trading Center

14 IOSCO : International Organization of Securities Commissions

To implement the industrialization and modernization of the country,maintain the pace of sustainable economic growth and a strong shift ofeconomic structure towards improving efficiency and competitiveness requiregreat capital for investment and development Therefore, the establishment ofsecurities markets in Viet Nam is a the main objective of the economybecause the economic trend in the market mechanism under the Statemanagement is not reversible

Securities market is an important channel to attract long term capital forenterprises in order to improve competitiveness in the fast growingcommodity economy like our country Also, the stock market along with thebanking system will create a strong financial system providing the short,medium and long term funds for the economy Moreover, politically anddiplomatically, the construction of the securities market has very positiveimpact on the process of integration into the regional and internationalcommunity

Since its foundation, the securities market has made a great contribution

to the economy However, there have been still exited limitations hinderingthe market development So how to deal with problems of the securitiesmarket and create positive solutions to promote the sustainable growth of thesecurities market in Viet Nam is a very practical and urgent matter To mybest knowledge, I would like to give my opinion on the topic: “Improving andpromoting the sustainable development of the securities market in Viet Nam”.The assignment is divided into:

Introduction

Chapter 1: Overview of the securities market.

Chapter2: The situation of the securities market in Viet Nam.

Chapter 3: Some solutions for improving and enhancing the sustainable development of the securities market in Viet Nam.

Conclusion

chapter 1 OVERVIEW OF THE SECURITIES MARKET

1.1 The basic knowledge on the securities market

The securities market is considered a center of the modern corporateeconomy nowadays In the developed economies, the securities market wasestablished more than 100 years ago and has become an important part of thesocio-economic life An effective securities market will create manyopportunities for people to invest their savings as well as channels to mobilizedomestic and foreign capitals to provide funds to successful businesses Manycountries in the transition from central planning economies to the market oneshave used securities market as a channel to efficiently mobilize capitals forenterprises In the renovation process of the market oriented economy, thesecurities market in Viet Nam also was established and developed about adecade ago

1.1.1 The concept of the securities market

Securities market is an financial organization where the sale andpurchase transactions of securities take place

The securities market in many cases is the same name as the stockexchange Basically, the stock exchange is an organization (or company)whose function is to link the buyers and the sellers and help them implementtransactions The stock exchange is considered important in the modernmarket economies

1.1.2 Commodities and their characteristics in the securities market

1.1.2.1 Commodities in the securities market

Securities are the kind of long-term financial instruments, including stocks and bonds and derivatives

 Stocks may be issued at established companies, or at any time tomobilize more capital to expand and modernize the businesses

b, Bonds

 A bond is a debt security which guarantees to repay the principal of theloan plus interest to the bondholders

 Bonds are considered to be a long-term debt and have to be paid back

on their maturity date Usually bonds have fixed interest rate, which ispaid to the bondholders depending on the terms of the bond

 Bonds can be issued by both governments and corporations

c, Derivative Securities

 Derivatives are issued on the basis of available instruments such asstocks and bonds with many different targets such as risk dispersionand protection of profits or profit making

 The derivatives will be a lever, increasing many times the value of theinvestment objects such as stocks and bonds, to ensure that if howmuch the price of stocks and bonds change, the price of derivativeswill be maintained at the original

 The derivatives are plentiful and varied, but generally there are fourmain tools: the contracts of forward, future, option and swap

1.1.2.2 Commodities’ features in the securities market

 Systematic risk: This risk is unavoidable, affecting all or most types ofsecurities due to the influence of economic conditions such as inflation

or deflation, changes in exchange rates, interest rate Systemic risksinclude:

 Interest rate risk: is profit’s fluctuations because of interest ratechanges in the market

 Market risk: means the market prices of securities may fluctuatestrongly due to the assessment and decision making of investors,although the company's income has not changed

 Purchasing power risk: due to the impact of inflation ordeflation.

 Exchange rate risk: due to the change of exchange rate

 Unsystematic risk: the risk only impacts on a stock or a certain group

of securities Systemic risks include:

 Business risks: means adverse changes on the supply anddemand of goods or services of enterprises

 Financial Risk: The risk of ability to pay dividends, relating tothe imbalance between revenue, expenses and debts of thebusinesses

 Risk management: the impact of the managers’ decisions of thebusinesses

c, Profitability

Securities are the property which owners will earn income in the future in annual income and profits because of the stock price’s increase

1.1.3 Classification of the securities market

1.1.3.1 Classified by the market’s operating tools and commodities

a Bond market

The bond market (also known as the debt, credit or fixed income market)

is a financial market where participants buy and sell debt securities, usually inthe form of bonds

1.1.3.2 Classified by the movement of capital

government’s consumption purposes.

b Secondary market

 The secondary market, also called aftermarket, is the financial marketwhere previously issued securities and financial instruments are boughtand sold aiming making profit, moving capital and social property

 The secondary market increases liquidity, liquidity of the issuedsecurities helps to convert the capital

 Through auction, the prices of issued securities on the secondary market arevalued which is an important measure to evaluate the company

1.1.3.3 Categorized by organizational form

 At stock exchanges, listed securities are traded between buyers andsellers through a broker or securities agents

 The payment is carried by the method of multilateral clearing with thetime payment is T +1 (with the trading of bonds and 100,000 stocks ormore ), and T+3(Less than 100,000 shares)

 Payment of transacting members will be transferred on the basis of theViet Nam Securities Depository Center carrying out clearing betweenthe received money and amount of payments for transactions with thesame period and payment method in the Securities Exchange

b, Over the counter market (OTC)

 OTC is the secondary market, which has no Stock Exchange, nocertain place and is operated over the phone, via the Internet or at thecounters of commercial banks or securities companies

 Securities traded on the OTC market are mainly listed unqualifiedsecurities on a Stock Exchange, but they meet the criteria on liquidityand the financial requirements of the market securities

 In the OTC market, the market maker (trading companies - brokers)

holds a certain amount of stock which are ready to make the sale

 The brokerage firms must register with the management agencies andcompliance guidelines for financial, technical and professional ethics

 Buying and selling securities prices are defined largely throughnegotiation and agreement between the buyer and seller

 OTC market management: controlled strictly by the SSC undersecurities laws and the relevant law and by the association of securitiesdealers

1.1.4 The entities participating in the securities market

The entities participating in the securities market include both smallindividual investors and the large organizations, such as government,corporations, investment funds,… The organizations and individuals involved

in the securities market could be divided into the following groups: issuers,investors, and the organizations related to the securities market

 The issuers: They are organizations who mobilize capital through thesecurities market such as governments and local authorities with theissuing government and local bonds; companies with the issuingcorporate shares and bonds; and financial organizations when issuingfinancial tools such as bonds, other documents…

 The investors: They are people who buy and sell in the securitiesmarket The investors could be divided into two kinds: individuals andorganizations

 The organizations operate in the securities market include securitiescompanies, stock investment funds and financial organizations

 In addition, there are organizations related to the securities market such

as state management agencies, stock exchanges, stock businessmenassociations,…

1.1.5 Characteristics and nature of the securities market

 Due to the nature of the securities market which is a place to deal inlong-term value documents and the investment decisions are mainlymade by speculation The securities market’s characteristic is of highreturn and always associated with high risks

 Similar to any markets, the securities market is controlled by thesupply- demand rule A change in demand will lead to a change insupply; an increase in supply will lower prices, and increased demandwill raise prices Security is also a market economy’s commodity, but

slightly different than other commodities is that securities which aren’tbought to consume are confident that to bring profits in the future.Therefore enterprises with good business and investment makessecurities’demand and the company's stock rise

 All countries expect to have stable securities market One securitiesmarket is considered a stable one and high quality must guarantee thefollowing factors: 1- high liquidity; 2- low risk due to price changes; 3-effectiveness, information is disseminated rapidly and reflected intoprices; and low cost for exchange transaction

1.1.6 The securities market’s functions

Along with the monetary market, the securities market is the premium

product of the modern economy and an important part in the financial market

of each nation contributing to the nations’ prosperous development

The basic functions of the securities market as the followings:

 Firstly, the securities market is an important capital source to help

companies to mobilize medium and long-term investment capital so as

to expand their production and business activities This capital sourcehas more advantages compared to that borrowed from banks which areusually short -term

 Secondly, the securities market provides a favorable investmentenvironment to the public and attracts foreign investors

 Thirdly, the securities market creates high liquidity for securities Thesecurities market is a place where sellers and buyers meet and they areguaranteed by the Law which easily encourages people to own stocks

as a profitable –making saving way and help companies andgovernments mobilizing capitals easily for their investment projects

 Fourthly, the securities market helps to assess enterprises’ activities.When one company issues and sells stocks to the people, the mostimportant factors deciding the added value of stocks are profit andtheir potential This information must be open so that people(including stockholders) can monitor, assess and make investmentdecisions for themselves When stock prices go up, many people buystocks with the hope that they will be paid more dividend to the stocksthey hold

 In fact, the stocks which have high value (blue chip) usually belong tothe companies which have good business and production, rapid growthand bring about more profit to the stockholders

 Fifthly, the securities market creates a favorable environment tosupport the Government to implement macroeconomic policies

1.2 ORGANIZATION AND OPERATION OF THE SECURITIES MARKET

1.2.1 The securities market’s Organization

a National Securities Commission (NSC)

NSC is the State agency operating and setting the market rules, legalframework for securities markets It is also the highest executive body,checking and supervising market’s activities In NSC the majority ofgovernment’s members hold main positions

b Stock Exchange (SE)

 SE is the core center of the stock market (can be called the SecuritiesTrading Center)

 SE is organized in the forms of stock companies, limited liabilitycompanies or joint stock companies which are run for profit

 SE’s legal representative is the SE’s Management Board who areelected by members in SE and responsible for operating SE to check

up on transactions set out by State Securities Committee

on the market

d Securities issuing units

They provide goods for the stock market, including businesses,organizations and financial intermediaries, the government investmentorganizations

e Financial intermediaries (FI)

 Include securities firms, banks, non-bank financial organizations Their role is to circulate capital and securities from investors to thestock issuing company in the market secondary

 For issuing units, joining the stock market through raising capitalfrom this market requires the FI’s advice and support

 For investors, via the FI they can buy the securities of high qualityand low risk

f The Association of the securities business

The Association of the securities business is established in most countriesand the task is to set professional rules, force FI to follow and try to avoidoperating scatteredly

1.2.2 Operation on the market

1.2.2.1 Operating principles of the stock market

a The intermediate principle

 The purchase and sale of securities which aren’t directly exchangedbetween buyers and sellers, via intermediary brokers who act as abridge between buyers and sellers, make sales to customers forcommission

 Brokers are very knowledgeable about securities and other fields,capable of economic and financial analysis and forecasting of economictrends each type of stocks as well as having financial resources to gaincustomers’ trust

b The auction principle

There are two forms:

 Direct auction: The brokers directly meet at the trading floor in order

to bargain and auction to decide the purchase price

 Indirect Auction: The securities business is ready to order the highestand lowest prices so as to buy and sell each type of securities (StockExchange listed spot prices.) The buy orders must be matched with theorders

c The principle of openness

 All activities, information on securities trading, financial situation andbusiness results of the issuer, the stock number and price of eachsecurities are publicly announced on the market

 At the end of trading sessions, number and agreed purchase priceimmediately be notified

 All of the above principles are expressed in legal documents in order toprotect the benefit of buyers on stock market

1.2.3 Transaction on the stock market.

1.2.3.1 The Trading Orders

On the trading floor, there are many different types of orders used depending

on the purpose of each investor

a Market Order: Sell and buy at market prices

b Limit order: Maximum purchase prices

Minimum selling prices

Limit orders can not be implemented immediately, customers can change theprice or cancel

c Stop order:

This is a special command that investors use to protect their earnings to avoidlosses when the price increases or decreases Selling cease order’s prices areset higher than current market price and also buying cease order’s prices areset lower than the current market price

The above orders will be the order of priority on the auction

 Price priority: the highest purchase price and the lowest buying areprior

 Priority of time: At the same price orders which are placed first will begiven priority

 Priority of number: When many orders satisfy two above conditions,orders with more securities will have priority

1.2.3.2 Matching methods

a Continuous auction

When placing a buy or sell order, each security is entered into the system,once the transaction is carried out continuously, the price will be reflectedimmediately on the information panel, the investment’s order will be madeimmediately

b Call auction

 This method is implemented by gathering all buy and sell orderswithin a certain period of time At the time of closing transaction,prices are matched at the greatest trading volume

 Call auction is used to define opening price (ATO) and closing price(ATC)

 In case, there are approximated rates at which reaching the largestvolume of transactions, SE will use to the reference price to chooseprice which is closer to the previous session‘s prices is trading price

securities in a securities company

 Step 2: Stock company transfers those orders to the company’srepresentative at Securities Trading Center in order to enter the tradingsystem of the Center

 Step 3: Securities Trading Center transplants orders and notifies theresults of trading to securities firms

 Step 4: The company announces the results of securities transactions toinvestors

 Step 5: Investors get stock (if buy) or cash (if sell) on your account at asecurities company after 3 working days from the date of purchase T+3

 Any stock market has a stock index of its own For example, the NewYork stock market’s index is Dow Jones, the Tokyo stock marketapplies Nikkei index…And in Vietnam VN - Index is applied

The formula for calculating the VN - Index:

∑ Pit x Qit

VN-Index = x 100

∑ Pi0 x Qi0

Of which:

Pit: the current market price of share i

Qit: the current listing volume of share i

Pi0: Market price of share i on the original date

Qi0: Volume of listed share i on the original date

 VN-Index index compares the current market value with a basis marketvalue on 28-7-2000 when the stock market officially went into operation Basis market value in the index formula is adjusted in cases such as