Margin trading recommendations for the application in Vietnam securities market

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY NGUYEN THANH HAI MARGIN TRADING RECOMMENDATIONS FOR THE APPLICATION IN VIETNAM SECURITIES MARKET MASTER’S THESIS Faculty of Banking Ho Chi Minh City 2010 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY NGUYEN THANH HAI MARGIN TRADING RECOMMENDATIONS FOR THE APPLICATION IN VIETNAM SECURITIES MARKET MASTER’S THESIS Major: Banking and Finance Major code: 60.31.12 Supervisor Associate Professor Ph.D. Tran Huy Hoang Faculty of Banking Ho Chi Minh City i  Acknowledgement It is a pleasure to thank many people who spent their time and made this thesis possible. Firstly, I would like to express my deep and sincere gratitude to my supervisor, Associate Professor Ph.D. Tran Huy Hoang, Dean of Banking Faculty of University of Economics, Ho Chi Minh City for his invaluable advice, guidelines and encouragement during the course and development of my thesis. I would like to also give my thanks to the teaching staff of the University of Economics, Ho Chi Minh City, who have taught me to get in-depth knowledge which becomes an important basis for the present thesis during my learning time. My special thanks goes to Ms. Yei Pheck Joo, Josephine - General Director of SaiGonBank Berjaya Securities Joint Stock Company for her kind support in learning about the principles and processes of margin trading applied in Malaysia securities market, particularly the margin trading processes being currently applied in Inter-Pacific Securities Sdn Bhn – a securities company of Berjaya Corporation Berhad in Malaysia, and in revising the English of my manuscript for this research. I would like to extend my thanks to Vietnam Association of Securities Business (VASB) for assisting me in obtaining the appropriate data and information on securities and Vietnam securities market, in giving me favorable conditions to exchange very helpful knowledge for this study with the VASB’s members. And not forgetting, I am also very grateful to the supports of my best friends as graduate students in Banking K16 class and many colleagues in SaiGonBank Berjaya Securities Joint Stock Company, who have shared precious experiences and understanding as well as have given me cheerful help to complete my thesis with the best possible result ii  Lastly, I wish to express my gratitude towards my wife who always stands by me for her kind concern, loving support and cheer during my long thesis-writing period. iii  Abstract I hereby declare that this thesis submission is my own work with the guidance of my supervisor or any contributions by others have been duly acknowledged, that all information in this paper has been obtained from legal sources and disclosed in the mass media and that, (to the best of my knowledge and belief,) it contains no material previously published or written by another person (except where explicitly referenced) iv  Glossary of terms and abbreviations SEC : Securities and Exchange Commission SSC : State Securities Commission Hose : Hochiminh Stock Exchange HNX : Hanoi Stock Exchange VSD : Vietnam Securities Depository VASB : Vietnam Association of Securities Business BIDV : Bank for Investment and Development of Vietnam VN – Index : Vietnam Index of Hochiminh Stock Exchange Hnx – Index : Hano Index of Hanoi Stock Exchange Upcom : Unlisted Public Company Market Repo : Repurchase Agreement NAICS 2007 : The North American Industry Classification System v  TABLE OF CONTENT Acknowledgement Abstract Table of content List of figure CHAPTER I: INTRODUCTION 1 1.1 Research basis 1 1.2 Research matters 3 1.3 Research target 4 1.4 Research scope and approach 5 1.5 Real meaning of the research 7 1.6 Structure of the thesis 8 CHAPTER II: INTRODUCTION OF SECURITIES MARGIN TRADING 9 2.1 Introduction 9 2.2 The history of margin trading on international securities market 9 2.2.1 The history of margin trading and securities margin trading 9 2.2.1.1 The history of margin 9 2.2.1.2 Margin trading in securities market 11 2.2.2 The brief history of margin trading applying to other countries 13 2.2.2.1 U.S Securities market 13 2.2.2.2 China securities market 15 2.2.2.3 Malaysia Securities market 17 2.3 Margin trading and definitions 23 2.3.1 Some definitions of margin trading 23 2.3.2 Trading in margin account 26 2.3.2.1 The stock price increases and the margin account has the excess equity value 27 2.3.2.2 The stock price drops and maintenance of the margin account 29 2.3.2.3 Trading on the limited margin account 30 vi  2.4 Conclusion 31 CHAPTER III: VIETNAM SECURITIES MARKET AND THE DEMAND OF MARGIN TRADING 32 3.1 Introduction 32 3.2 Vietnam securities market 33 3.2.1 Development stages of Vietnam securities market 33 3.2.2 General view of trading rules currently applied 35 3.2.2.1 Matching hours and methods 35 3.2.2.2 Trading rules of the investors 36 3.3 The demand of diversification of securities trading methods 37 3.3.1 Cash advance service 37 3.3.2 Securities Repo and mortgage 38 3.3.3 The service of “financing support” 40 3.4 Conclusion 44 CHAPTER IV: LIMITATION OF PARTICIPANTS IN VIETNAM SECURITIES MARKET 4.1 Introduction 46 4.2 Limitations of participants in the market 47 4.2.1 State agencies of securities and securities market 47 4.2.1.1 The legal documents do not meet the real practice in securities market 47 4.2.1.2 Government manages the market by temporary solutions 49 4.2.1.3 Treatment for the violations in the securities market has not been satisfactory 50 4.2.1.4 Regulation for each investor to open only one custody account and not to be allowed to buy and sell same stock in the same session 52 4.2.2 The supporting intermediate organizations 52 4.2.2.1 Short trading time and late clearing and settlement 53 4.2.2.2 Vietnam Securities Depository manages custody accounts by 02 levels . 55 4.2.2.3 The lateness and inappropriateness of independent auditor’s opinion 56 vii  4.2.2.4 Lack of an independent department in charge of supervising and solving information in the market 58 4.2.3 Shares of listed companies 60 4.2.3.1 Unawareness of compliance on disclosure of information in the securities market 63 4.2.3.2 Management power of companies is based on capital 64 4.2.3.3 Financial investment and risky activities 65 4.2.4 Participants doing business in the securities market 66 4.2.4.1 Securities companies 68 4.2.4.1.1 Small capital and investment into risky activities 69 4.2.4.1.2 Business results mainly depends on the self – trading activity 71 4.2.4.1.3 Information technology system has not met the trading demands of investors 72 4.2.4.1.4 Internal control and risk management system have not been paid proper attention 72 4.2.4.1.5 Internal procedures and policy of margin trading has not been set up 74 4.2.4.2 Fund management companies and securities investment companies 75 4.2.4.3 Securities investors 76 4.3 Conclusion 78 CHAPTER V: RECOMMENDATION FOR THE APPLICATION OF MARGIN TRADING 5.1 Introduction 79 5.2 Recommendations for the application of margin trading 79 5.2.1 For State agencies 79 5.2.1.1 Completing the system of legal documents regarding securities and securities market 79 5.2.1.2 Enhancing the equitization process of State-owned enterprises 80 5.2.1.3 Promulgating specific regulations on margin trading activity 81 5.2.2 Supporting intermediate organizations 84 viii  5.2.2.1 Vietnam Securities Depository (“VSD”) 84 5.2.2.2 Stock exchanges 85 5.2.2.3 Accredited audit firm 86 5.2.2.4 An organization in charge of assessing the business confidence should be set up to have the basis for sector classification 87 5.2.3 Goods – Listed companies and unlisted public companies 88 5.2.3.1 The market needs more qualified and diversified stocks 88 5.2.3.2 Business results should be enhanced and risky activities should be avoided investing in 89 5.2.3.3 The purpose of listing must be determined and pursued 89 5.2.4 Participants doing business in the securities market 90 5.2.4.1 Fund management companies 90 5.2.4.2 Investors 91 5.2.4.3 Securities companies 92 5.2.4.3.1 Enhancing the capital mobilization to serve the operation after crisis 92 5.2.4.3.2 Properly allocating the power sources without relying on risky self- trading activity 93 5.2.4.3.3 Enhancing the information technology system serving for trading 94 5.2.4.3.4 Completing and maintaining the internal control and risk management system effectively 94 5.2.4.3.5 Margin trading activity 95 5.3 Conclusion 105 REFERENCES - Appendix 1: List of 50 highest capitalization stocks on the market as of 16th March 2010 109 - Appendix 2: Financial investment situation of listed companies at hose 113 - Appendix 3: Legal documents applied in the securities market as of 30th April 2010 120 [...]... Vietnam securities market Chapter V Recommendations margin trading 8 for and application the of CHAPTER II INTRODUCTION OF SECURITIES MARGIN TRADING 2.1 Introduction Margin trading is a new concept for the securities market as well as the investors of Vietnam securities market The main content of this Chapter summarizes the margin trading and the practice of margin trading applied to the countries having... developed securities market, including: - Introduction of history of the margin trading This content shows the origin of the securities margin - Practice of margin trading which has been applied at the countries having developed securities market - Introduction of securities margin trading Studying the history of margin trading and the practice of margin trading which has been applied at the countries having... also introduces the principles of margin trading by some concepts related to the margin trading and the illustrations of some trading principles and method applied in accordance with international practice 2.2 The history of margin trading on international securities market 2.2.1 The history of margin trading and securities margin trading 2.2.1.1 The history of margin 9 Originally, the principle of margin. .. maximize their profits The application of this method in Vietnam securities market to meet the demand of the market is indispensable to the growing process of Vietnam securities market according to the Government guidelines This thesis focuses on the margin trading method, the reality of Vietnam securities market and the subjects trading in Vietnam securities market, including the following issues: - The. .. term 5 margin trading or securities trading used in this thesis means the transaction of buying on margin Secondly, this thesis only focuses in researching the actual situation of Vietnam securities market and its participants including the State agencies in charge of managing the securities market, the supporting intermediate organizations with the intermediary role of supporting trading information,... SECURITIES MARGIN TRADING AND RECOMMENDATIONS FOR THE PREPARATION OF APPLYING MARGIN TRADING IN VIETNAM SECURITIES MARKET 1.2 Research matters Margin trading method has been being applied popularly in the countries having developed securities market This is one of the methods that aim to diversify the trading method, to raise the liquidity for the market and to help the investors have more trading methods... especially the securities companies, which are the organizations providing margin trading service to their clients in Vietnam securities market 1.4 Research scope and approach Firstly, this thesis only focuses on the margin trading scope Margin trading includes buying first and then selling (also known as “buying on margin ) and selling first and then buying (also known as “short selling”) Therefore, the. .. Vietnam securities market, the application of margin trading is an essential requirement Apart from introducing the margin trading method and its rules, this thesis also offers recommendations for application of this method to the market participants, including the following issues: - The State agencies should have certain measures to manage the trading method in the securities market to ensure the stability... overseas individuals, fund management companies, especially securities companies - subjects directly providing margin trading service This part of the thesis goes into the details of researching the reality of securities companies and then gives the recommendations in preparing for applying margin trading method Since the thesis is about margin trading, only the subjects and contents related to the application. .. developed securities market helps us have overall knowledge about particular characteristics of margin trading in these counties And in the development trend of securities market, the application of the margin trading is indispensable trend that meet the demand of the market, the requirement of multi -trading methods in order to increase the liquidity and more the attraction of securities market for investors . securities market 9 2.2.1 The history of margin trading and securities margin trading 9 2.2.1.1 The history of margin 9 2.2.1.2 Margin trading in securities market 11 2.2.2 The brief history of margin. the reason why I select the topic SECURITIES MARGIN TRADING AND RECOMMENDATIONS FOR THE PREPARATION OF APPLYING MARGIN TRADING IN VIETNAM SECURITIES MARKET 1.2. Research matters Margin. The structure of the study - Figure 2.1: The initial margin rates - Figure 2.2: Trading in margin account and the margin account has the excess equity value - Figure 2.3: Trading in margin