securities market topic trading regulations on hnx and hsx

Introduction of Vietnam Stock Exchangea ModelAccording to Decision No 37/2020, VNX operates under the mother-child model based onthe reorganization of HNX and HoSE with the model of a si

TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

-*** -SECURITIES MARKET

TOPIC: Trading regulations on HNX and HSX

Class: Corporate Finance CLC 62B

Group 7: Phan Thị Phương Thảo

Lê Minh Tú Đinh Thị Minh Phương Trịnh Duy Hưng Nguyễn Thị Phương Mai Tăng Ngọc Anh Hoàng Minh Đạo

HANOI, 2022

TABLE OF CONTENTS

I Vietnam Stock Exchange

1 Introduction of Vietnam Stock Exchange

2 Advantages and Challenges of merging HNX and HSX

II Listing on the stock exchange

1 Definition

2 Listing guarantee

3 Listing requirement

III Security trading

1 Concepts that need understanding

2 Concepts applied in practice

a) Price

b) Trading unit

c) Tick size

d) Payment regulation

3 Stock trading system

4 Trading method

5 Order matching method

IV Trading activities on HNX and HSX

1 Advantages

2 Disadvantages

I Vietnam Stock Exchange

1 Introduction of Vietnam Stock Exchange

a) Model

According to Decision No 37/2020, VNX operates under the mother-child model based on the reorganization of HNX and HoSE with the model of a single member limited liability company with 100% charter capital held by the State, which will be roughly 3 trillion VND

- Having legal status and own seal; be qualified for opening accounts in Vietnam dong and foreign currencies at the State Treasury and domestic commercial banks

- Independent accounting, implementing financial regimes, statistical reporting, accounting, auditing and financial obligations as prescribed by law

b) Member of Vietnam Stock Exchange

Trading member means a securities company that is approved by the Vietnam Stock Exchange to become a trading member, which includes stockbrokers and securities dealers, meeting the following standards: stated as strong financial status, good equipment and high professional qualifications, capable of performing professional activities on securities Special trading members are commercial banks, foreign bank branches and other organizations approved by the Vietnam Stock Exchange to become special trading members

1 To elaborate strategies, investment and development plans, 5-year production and business plans and annual production and business plans for submission to competent authorities for approval according to regulations

2 To promulgate regulations on securities listing, securities trading, information disclosure, trading members and other professional regulations related to the organization and operation

of the securities trading market after approved by the State Securities Commission

3 Supervision of HOSE àd HNX in implementing regulations on professional activities; general supervision of the securities market according to the provisions of law;

4 Orientation for development of information technology system, orientation for development of new technologies and new products

5 Supporting market development through the provision of infrastructure services, training, knowledge dissemination

6 Act as a mediator at the request of transaction members when a dispute arises

7 To cooperate internationally on securities and the stock market, to be the focal point for participating in international organizations on the stock market

8 To manage the subsidiaries of the Vietnam Stock Exchange in accordance with the law and the operation charter of the Vietnam Stock Exchange;

9 Other tasks as prescribed by law and regulations of competent authorities

2 Advantages & Challenge of the merger of HNX and HSX

a) Advantages

The merger into an exchange can facilitate the clearing of securities and money transactions will be centralized in one focal point, making it easier for the State Securities Commission to manage and operate , the monitoring of activities

The consolidation will also save a lot of costs during the operation of the Vietnamese stock market For state management agencies, it will save system operating costs, salary costs

of the entire personnel system of an exchange For securities companies, membership fees will only be paid to a stock exchange The cost of leasing transmission lines of technology equipment will also decrease with the consolidation Theoretically, a lot of expenses would be saved by 50% when merging two stock exchanges

b) Challenges

The first challenge is the issue of charter capital of listed companies when merging two exchanges Currently, the charter capital of companies listed on HOSE is `120 billion VND and on HNX is 30 billion VND So when merging, what standard will the two stock exchanges follow when the business nature of these two exchanges is completely different? The second challenge when merging two exchanges is that currently, the legal documents governing HOSE and HNX are different, so in order to merge, it is necessary to have legal documents for this merger While Vietnam's stock market currently needs stability to develop,

to avoid sudden changes that are detrimental to the market, the introduction and implementation of too many legal documents for the current market is not enough This really needs careful consideration

The third challenge when merging two exchanges is the problem of technological equipment Because when consolidating, the volume of traded goods will increase, requiring more modern technological equipment to meet the operating requirements of the system, which leads to the member securities companies also upgrade and will incur additional costs and the possibility of unexpected problems due to technological equipment failure is likely to

be higher

II Listing on the stock exchange

1 Definition

Listing of securities is the process of identifying qualified securities to be traded on the Stock Exchange provided that the company fully meets the standards set by the Stock Exchange

Listing guarantee means a guarantee organization to the issuer to carry out the procedures before the securities offering, purchase or purchase part or all of the securities of the issuer for resale , or buy the remaining undistributed securities of the issuer, or assist the issuer in the distribution of securities to the public

2 Listing requirement:

a) Conditions for listing securities on HOSE exchange

● Minimum charter capital 120 billion

● Operating time is at least 2 years in the form of a Joint Stock Company

● At least 20% of voting shares held by at least 300 non-major shareholders

● In the last 2 consecutive years of operation, it must have Profit on capital: the most recent is equal to or above 5%

● No debt overdue for more than 1 year

● No accumulated loss up to the time of listing registration

● The company does not violate the law as well as the terms of accounting and financial reporting

● The company and its legal representative have not been handled for violations within 02 years from the time of listing registration due to the performance of prohibited acts in securities and securities market activities

b) Conditions for listing securities on HNX exchange

● Minimum charter capital 30 billion

● Operating At least 1 year in the form of a Joint Stock Company

● At least 15% of voting shares held by at least 300 non-major shareholders

● The previous year must have Return on capital: the most recent is equal to or above 5%

● No debt overdue for more than 1 year

● No accumulated loss up to the time of listing registration

● The company does not violate the law as well as the terms of accounting and financial reporting

● The company and its legal representative have not been handled for violations within 02 years from the time of listing registration due to the performance of prohibited acts in securities and securities market activities

c) Order and procedures for listing securities

● Step 1: Submit the application for registration to the Stock Exchange

● Step 2: The Stock Exchange appraises the dossier

● Step 3: Submit an application for official listing to the Stock Exchange

● Step 4: The Stock Exchange conducts the inspection

● Step 5: Approved by the Stock Exchange

● Step 6: Open listing

According to Article 111 of Decree 155/2020/ND-CP:

Within 30 days from the date of receipt of a complete and valid listing registration dossier, the Stock Exchange shall issue a decision approving the listing; In case of refusal, it must reply in writing and clearly state the reason

Within 90 days from the date of being approved for listing, the organization registering for listing must put securities into trading

d) Securities listing fee in Vietnam

Previously, in Circular 127/2018/TT-BTC, the fee for registration of securities listing for the first time was 10 million VND/listed company; Additional listing times have a fee of 5 million VND/time However, until Circular 14/2020/TT-BTC amending a number of articles

of Circular 127, this fee was waived for enterprises registering for listing for the first time Circular 127 also stipulates that the annual listing management fee for stocks with a listed value of less than VND 100 billion is VND 15 million; from 100 billion to less than

500 billion dong is 20 million dong; from 500 billion dong or more is 20 million dong plus 0.001% of the listed value but not exceeding 50 million dong For bonds and fund certificates (listed value at par value) with a listed value of less than VND 80 billion, the fee is VND 15 million Listed value of VND 200 billion or more has a revenue of VND 20 million, 0.001%/listed value but not exceeding VND 50 million…

● For stocks

100 billion VND - 500 billion VND 20 million VND

> 500 billion VND 20 million VND + 0.001% of the listed value but not

exceeding 50 million VND

● For bonds and fund certificate

Listed value Annual listing management fee

> 200 billion VND 20 million VND + 0.001% of the listed value but not

exceeding 50 million VND

3 Listing situation of enterprises

There are many reasons leading to the delisting of securities, but they are classified into two main groups: voluntary delisting and compulsory delisting

● THACO voluntarily cancels listing

The State Securities Commission has just announced the cancellation of public company registration of Truong Hai Automobile Joint Stock Company (THACO) from January 1,

2021 Since retail shareholders own less than 3% of THACO's total voting shares, which means that the 10% requirement of the 2019 Securities Law has not been met, THACO is allowed to delist

Specifically, the Securities Law 2006 stipulates that a public company is an enterprise that meets 1 of 3 conditions: (1) has offered shares to the public (2) has listed shares (3) has few shares at least 100 shareholders, excluding professional securities investors and have contributed charter capital of VND 10 billion or more

The Securities Law 2019 effective from January 1, 2021 has "raised the standard" of public companies, whereby a public company is a joint-stock company in one of two cases: (1) having charter capital has contributed at least VND 30 billion and has at least 10% of the voting shares held by at least 100 investors who are not major shareholders, (2) has successfully offered shares Initial public offering through registration with the State Securities Commission

With this regulation and the fact that at the time of closing the list of shareholders on March 3, 2021 by the Vietnam Securities Depository, THACO currently has 2,172 shareholders, of which retail shareholders own less than 2,172 shareholders 3% of THACO's total voting shares, which means that it has not met the 10% requirement of the Securities Law 2019 Therefore, THACO has consulted the State Securities Commission about not meeting the conditions of being a company the public according to regulations

● RIC is forced to delist

The Ho Chi Minh City Stock Exchange (HoSE) has just announced that RIC shares of Hoang Gia International Joint Stock Company have been subject to mandatory delisting due

to continuous losses for 3 consecutive years

Royal International Joint Stock Company is the owner of the Royal Ha Long casino hotel

- the only casino business with shares traded on the stock exchange According to the audited financial statements for 2019, 2020, the profit after tax in those years was negative 72.79 billion dong and 81.54 billion dong, respectively In 2021 alone, RIC suffered a loss of more than VND 102 billion and this is also the third year in a row that the company has made a loss By the end of 2021, Hoang Gia International has accumulated a loss of 412 billion dong

● HU1 has been put under control and is likely to be delisted

With the continuous appearance of an excepted audit opinion on the financial statements, the Ho Chi Minh City Stock Exchange (HOSE) has written a note to HUD1 Investment and Construction Joint Stock Company (HOSE: HU1) on the possibility of shares being delisted Specifically, according to the document from HOSE, HU1 stock has been put under control since April 13, 2022 for the reason that the audit organization has an exception for 2 consecutive years on the financial statements of 2020 and 2021 According to regulations, shares of a public company will be delisted if there is an audit organization that does not accept the audit, or refuses to comment on the latest year's financial statements, or have an excepted audit opinion on the annual financial statements for 3 consecutive years Therefore, HOSE issued a note to delist with HU1, if the audited financial statements of 2022 continue

to show an exception

According to HU1's reviewed semi-annual financial statement 2022, HU1's subsidiary, HUD1.02 Investment and Construction Joint Stock Company, has ceased operations, while the data used to establish the Joint Stock Company has ceased operations Semi-annual consolidation is for the year 2021, unaudited This is the basis for the audit unit, CPA Vietnam, to make an exception

After the first 6 months of 2022, HU1 reported a profit after tax of more than 2.3 billion dong, while the same period lost nearly 264 million dong The company explained the reason was the growth in business results and construction revenue in the period At the same time,

in the same period of 2021, the parent company made provision for bad debts (VND 4.7 billion), resulting in a loss in the 2021 semi-annual financial statement

● Foreign companies listed on Vietnam stock exchange

After 19 years from the date of opening for foreign capital flows, there are 11 FDI companies participating in Vietnam's stock market, currently 8 companies are listed, and 3 other FDI enterprises have been delisted due to business losses

� 3 losing businesses are CYC, RIC, TCR

III Securities trading

1 Concepts that need understanding

- Reference price: base price to determine floor price and ceiling price

- Floor price: the lowest price that a stock may be sold

- Ceiling price: the highest price that a stock may be sold

- Price range: the highest and lowest prices recorded within a given time on a market

- Price range = Reference price +/- (Reference price x Price range %)

- Tick size: minimum price movement of a trading securities

- Trading unit: is the number of shares of a security that is used as the acceptable quantity for trading on an exchange

2 Concepts applies in practice

a) HNX:

● Price range

- Price range for stocks, ETFs on normal trading day is +/- 10% against reference price

- For paying dividends/ treasury stocks bonus to exist shareholders on the ex-dividend date: ± 30% of the reference price

- For Bonds: no regulation

● Ceiling/floor price

- Ceiling Price = Reference price + (Reference price x Ceiling price range)

- Floor price = Reference price – (Reference price x Floor price range)

In case ceiling/floor price is equal to the reference price, the limitation of the price range is redefined as follows

- Adjusted ceiling price = Reference price + a tick size of price

- Adjusted floor price = Reference price – a tick size of price

When the reference price is 100 VND, the limitation of the price range is redefined as follows:

- Adjusted ceiling price = Reference price + a tick size of price

- Adjusted floor price = Reference price

● Types of orders on HNX

- LO – Limit Order: LO is a buying or selling order at a specific price or at a better price, is given a specific price, and validates until the end of trading day or until the order is canceled

- MP – Market Price Order: Orders to match at the best counter-bids/asks available in the market at the time of input and shall match forward to the next best prices available Market Price Order is only available and effective during the Continuous Matching period Should there be no counter LO at the time of input of Market Price Orders, the Market Price Orders will automatically be canceled

- Some types of Market Price Orders:

+ MTL - Market-to-Limit: In the case that there are no more counter-bids/asks, remaining unmatched volume of MTL Orders will automatically be changed into Limit Orders

+ MOK - Match-or-Kill: Order must be executed in its entirety at the time of input; otherwise, the entire order will be canceled

+ MAK - Match-and-Kill: Order can be executed partially or entirely, and the remaining unmatched order will be canceled

- ATC – At-the-close: The order at opening price or closing price, which is not given a specific price, is called ATC ATC Orders have higher priority to match than Limit Orders (even Limit Orders at Ceiling Price or Floor Price) At the end of the effective session, unmatched ATC Orders or unmatched volume of partially matched ATC Orders will automatically be canceled

- PLO - Post Close Order: The buy/sell order at closing price, which is used in post-session transactions PLO is matched right after a counter order appears and is automatically canceled after the post-session transaction has ended PLO is not allowed to be input into the system when there is no matched order in the continuous order matching session and closing periodic order matching session

● Trading units

- For board-lots: 100 shares/ ETFs/ Bonds

- Volume of put-through transactions: From 5,000 shares or ETFs No quotation unit for put-through transactions

- Trading unit, minimum trading volume for bond put-through transactions: 01 bond

- Trading unit for odd-lot transactions: 01 share, ETFs Odd-lot securities trading from

01 to 99 stocks (volume), ETFs are executed by either continuous order matching or put-through matching method

- Put-through and odd-lot transactions are not allowed to execute on the first trading day of newly listed stocks or the re-traded day after 25 days of suspension until the closing price is determined

● Tick size

● Reference price

- The reference price is determined by the closing price of the previous trading day (which is the last matching price on the nearest previous trading day)

- The prices of newly listed stocks and ETFs on the first trading day are defined as follows:

+ Predetermined reference price of a share on the first trade date is proposed by issuing organization or at the advice of a consulting organization (if any) and approved by HNX + In case the reference price is not determined in the first three trading days, the issuing organization and consulting organization (if any) shall redefine the reference price thereof