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 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 i 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 ii 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) 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 TABLE OF CONTENT Acknowledgement Abstract Table of content List of figure CHAPTER I: INTRODUCTION .1 1.1 Research basis 1.2 Research matters 1.3 Research target 1.4 Research scope and approach 1.5 Real meaning of the research 1.6 Structure of the thesis CHAPTER II: INTRODUCTION OF SECURITIES MARGIN TRADING 2.1 Introduction 2.2 The history of margin trading on international securities market 2.2.1 The history of margin trading and securities margin trading .9 2.2.1.1 The history of margin 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 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 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 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 vii 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 selftrading 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 10 Official letter No 759/UBCK-PTTT of State Securities Commission using the 38 759/UBCK-PTTT foreign currency trading agreement to 29/4/2008 Still in effect confirm the securities balance of the foreign investor Official letter No 617/ UBCK – GS of State Securities Commission on the 39 617/UBCK-GS compliance with the legal regulation in 14/4/2008 securities trading of Unknown securities companies Official letter No 500/ UBCK – TTr 40 500/UBCK-TTr of State Securities Commission implementing the legal regulation on 28/3/2008 Unknown securities public offering Decision No 115/2007/QĐ – UBCK of 41 115/2007/QĐ-UBCK State Securities Commission promulgating the model of regulation 13/2/2007 of share auction at the stock trading Center Still in effect Official letter No 43/ UBCK – VP of 42 43/UBCK-VP State Securities Commission implementing seriously the regulations 24/1/2007 Unknown on securities and securities market Decision No 701/QĐ – UBCK of State 43 701/QĐ-UBCK Securities Commission promulgating the development plan of 20/11/2006 Still in effect the securities company for the period of 2006 – 2010 Decision No 338/QĐ – UBCK of State Securities promulgating 44 338/QĐ-UBCK procedures Commission the to guidance cancel the on trading 1/6/2006 Expired registration at Ha Noi Stock trading Center to list at Ho Chi Minh Stock Exchange Decision No 301/QĐ – UBCK of 45 301/QĐ-UBCK State Securities promulgating the Commission 9/5/2006 regulation on Still in effect approval for registering and issuing the securities to the public, granting the licenses for securities listing and for securities trading and services Decision No 184/QĐ – UBCK of 46 184/QĐ-UBCK State Securities Commission guiding the implementation of collecting fees 17/3/2006 Still in effect in securities sector Circular No.02/2001/TT – UBCK of State Securities Commission guiding 47 02/2001/TT-UBCK Decree No 48/1998/NĐ – CP dated 13/10/2001 Unknown th 11 July 1998 on issuance of stocks and bonds to the public Circular No 01/2001/TT – UBCK of State Securities Commission guiding 48 01/2001/TT-UBCK the implementation of Decree No th 22/2000/NĐ – CP dated 10 July 2000 of Government on penalty on the administrative violations in securities 15/2/2001 Unknown sector and securities market Decision No 80/2000/QĐ-UBCK of State Securities Commission amending 49 80/2000/QĐ-UBCK and supplementing 01/1998/TT – Circular UBCK of No 13/1/2001 Expired State Securities Commission Decision No 78/2000/QĐ – UBCK of State Securities Commission amending and supplementing a number of articles in the regulation of organization and 50 78/2000/QĐ-UBCK operation of securities company 13/1/2001 Unknown promulgated together with Decision th No 04/1998/QĐ-UBCK3 dated 13 October 1998 of Chairman of State Securities Commission Decision No 79/2000/QĐ-UBCK of 51 79/2000/QĐ-UBCK State Securities Commission 29/12/2000 promulgating the regulation of the 182 Amendment and supplement member, listing, disclosure of information and securities trading Circular No 02/2000/TT-UBCK1 of State Securities Commission amending and supplementing some articles of 52 02/2000/TT-UBCK1 Circular No th dated 17 01/2000/TT-UBCK1 April 2000 of State 29/12/2000 Unknown Securities Commission guiding the temporary regime of collecting fees applied to securities companies’ clients Decision No 59/2000/QĐ – UBCK of State 53 59/2000/QĐ-UBCK Securities Commission promulgating the regulation of bidding 12/7/2000 Government bonds through Unknown the concentrated stock market Official letter No 50/2000/UBCK3 of 54 50/2000/UBCK3 State Securities Commission guiding 15/6/2000 the registration, depository, clearing/ Unknown settlement of implementation securities of rights and the of the securities owners Decision No 43/2000/QĐ – UBCK3 of State Securities Commission amending and supplementing some articles of the regulation of depository, 55 43/2000/QĐ-UBCK3 clearing/ settlement and registration of 29/6/2000 securities promulgated together with Amended and supplemented Decision No.05/1999/QĐ – UBCK3 th dated 27 March 1999 of Chairman of State Securities Commission Circular guiding the temporary regime 56 01/2000/TT-UBCK1 of collecting fees applied to clients of 2/5/2000 Unknown securities companies Circular No.01/1999/TT – UBCK1 of 57 01/1999/TT-UBCK1 State Securities Commission guiding 14/1/2000 Decision No 139/1999/QĐ – TTg Expired th dated 10 June 1999 of Prime Minister on foreign parties’ stock-holding rates in Vietnam’s securities market Official letter No 149/UBCK3 of State Securities Commission guiding the 58 149/UBCK3 establishment, grant of the operation license for securities companies and of the securities business 2/11/1999 Unknown 22/6/2009 Unknown 23/2/2009 Unknown practice certificate for individuals GENERAL DEPARTMENT OF TAXATION Official letter No 622/ TCT – TNCN 622/TCT-TNCN of General Department of Taxation deducting the personal income tax (PIT) in transferring securities Official letter No 592/TCT – TNCN 592/TCT-TNCN of General Department of Taxation deducting the securities PIT in transferring Official letter No 552/TCT – TNCN 552/TCT-TNCN of General Department of Taxation guiding the implementation of 18/2/2009 Unknown extending the payment period of PIT Official letter No 933/TCT – HT of 933/TCT-HT General Department of Taxation on the 28/2/2008 Still in effect income of company Official letter No 1867/TCT – TNCN 1867/TCT-TNCN of General Department of Taxation on 15/5/2007 Unknown the PIT of bonus shares of employees Official letter No 1821/TCT – TNCN 1821/TCT-TNCN of General Department of Taxation on the tax policy applied to income gained 11/5/2007 Unknown from the right of buying stocks Official letter No 592/TCT – PCCS of 592/TCT-PCCS General Department of Taxation on 1/2/2007 incentive of corporate income tax Unknown Official letter No 4321/TC/TCT of Ministry of Finance on tax 4321/TC/TCT policy applied to foreign organizations and 7/5/2001 individuals investing in Expired Vietnam securities market MINISTRY OF LABOR, WAR INVALIDS AND SOCIAL AFFAIRS Official letter No 1416/LĐTBXH – LĐTL of Ministry of Labor, War 1416/LĐTBXH-LĐTL Invalids and Social Affairs guiding the salary of officers and employees working at Ho Chi Minh Stock Exchange (Based on the Law date at http://www.luatvietnam.vn) 1/7/2008 Unknown st Appendix 4: The capital, profit and loss of the securities companies at 31 December 2009 (unit: mill VND) No 10 11 12 13 14 15 16 17 18 19 20 21 Symbol BVSC HSECO SSI GLS HBBS PSC STSC DAS EPS TSC ORS VSI VSC VISE VSEC APSC MIRAE ASSET VDSE WSS VGS OCS Capital 722 310 1,533 135 150 28 290 500 135 41 240 125 38 200 135 59 300 135 366 35 300 Equity Capital of 2009 difference 1,241 519 395 86 4,849 3,316 104 -31 295 145 -19 321 31 546 46 92 -43 28 -13 202 -38 125 40 206 129 -6 64 299 133 402 29 303 -1 -2 36 -6 P/L of P/L of Selt Total 2008 2009 Brokerage Trading CF Other Revenue -452 174 92 160 13 27 292 -120 13 38 69 1 110 251 804 196 604 150 171 1,122 -35 24 35 11 133 32 11 70 56 169 -13 -3 15 12 20 143 146 24 30 77 28 137 -35 -8 14 21 -13 12 -116 25 16 11 93 120 0 0 4 0 -115 97 52 115 35 202 -5 0 10 11 12 1 18 -4 -4 -4 3 67 -1 24 22 12 51 47 18 18 23 153 46 20 97 208 22 23 24 25 26 27 28 29 30 31 SBBS ROSE VDS TAS CBV SSJ DDS APSI IRS ATSC 300 20 45 139 100 35 125 135 135 41 305 28 143 0 125 144 146 0 11 -6 -20 0 -13 -30 0 15 0 11 0 17 39 30 0 12 46 10 0 23 11 0 1 0 0 0 39 11 0 17 13 53 10 47 0 31 39 60 135 250 300 40 350 35 135 135 276 318 124 32 197 26 18 84 -3 62 -36 -228 -13 -4 -3 -42 35 53 39 -7 0 41 26 31 0 0 27 0 0 0 0 0 93 0 0 128 66 300 325 25 21 30 10 40 39 VN STOCK MART DVSC FSC KVS TVSI AAS VSSC TECHCOM SECURITIES 40 41 HOBASE CLIFONE 35 135 35 0 0 0 0 0 0 0 0 42 43 KIMENG EVS 200 35 221 22 21 -13 -2 -8 32 -5 64 1 51 122 32 33 34 35 36 37 38 44 45 46 47 48 49 50 MHBS CKOSC SEABS MNSC TSC VSC ART VINASHIN 51 SECURITIES 52 SME 53 DNSE 170 135 200 40 800 378 135 142 137 155 29 975 424 145 -28 -45 -11 175 46 10 -36 -12 -103 -3 12 -22 15 28 -8 97 58 32 31 15 20 192 26 23 97 10 31 177 88 48 1 16 29 51 13 292 59 13 179 31 65 677 202 84 333 150 50 157 53 -22 -5 23 12 30 29 27 0 0 13 13 72 43 54 55 56 57 58 59 60 61 62 63 64 65 66 67 43 50 45 140 71 300 35 41 150 50 76 100 22 53 27 21 22 82 73 335 35 38 21 51 0 -16 -29 -23 -58 35 -3 -29 -25 0 -18 -31 -8 -58 0 -3 0 -24 -32 0 -10 -1 35 -3 -5 0 20 3 0 0 38 0 0 0 12 0 1 0 1 30 0 14 12 2 19 90 19 0 PHUGIASC NSI HRS NASC VTSS.JSC VSC VTS JSI HASC HSSC CSC MSC GASC SJSC 68 HVS 69 VISC 70 EEC 71 PVS 72 DNSC 73 CHOLONSC 74 VFS 75 BSI 76 RUBSE 77 VNSC 78 VCBS 79 BSC 80 APEC 81 HSC 82 KLS 83 SHS 84 IBS 85 VPBS 86 BMSC 87 HBS 88 GSI 89 SBS 90 PHS 91 ACBS 92 AVSC 93 VND 35 150 150 397 50 90 135 300 40 100 700 700 260 395 1,000 411 790 500 300 300 300 1,100 135 1,500 360 300 28 168 100 421 40 78 145 326 15 806 747 222 1,548 1,508 471 852 494 323 347 311 1,271 110 1,901 267 541 -7 18 -50 24 -10 -12 10 26 -25 -91 106 47 -38 1,154 508 60 62 -6 23 47 11 171 -25 401 -93 241 0 -58 -20 -47 1 -27 -34 -271 -516 -78 24 -347 20 19 31 -38 237 -173 -86 -7 18 19 26 -59 324 437 278 352 85 60 -9 19 43 254 318 72 228 10 13 10 10 117 61 43 121 30 36 14 18 138 33 128 17 64 0 11 82 16 28 170 233 268 337 117 18 11 66 547 13 313 86 244 0 0 0 13 3 10 21 61 16 11 37 312 59 99 64 10 25 26 28 64 16 76 27 50 24 157 19 29 30 45 15 327 620 112 491 435 172 57 42 86 32 770 63 523 131 360 94 95 96 97 98 99 100 ABS VDSC TVSC FPTS AGS TCSC VNSC Total % 397 330 430 440 1,200 360 161 26,185 333 369 451 306 1,355 294 135 31,605 -64 39 21 -134 155 -66 -26 6,785 -94 -86 17 -235 -34 -29 -3,194 20 67 62 121 155 -32 4,865 54 43 19 118 44 29 2,406 22% (Based on the audited financial statement for year 2009 at Hose - http://www.hsx.vn) 192 40 16 88 11 84 21 56 252 16 5,059 544 47% 5% 28 20 21 214 18 13 2,716 25% 138 147 123 216 518 36 52 10,724 100% Appendix 5: Organization chart of Vietnam Securities Market MINISTER OF FINANCE SSC'S CHAIRMAN Vice-Chairmen Securities Market Development Dept Hanoi Stock Exchange Securities Issuance Management Dept HCMC Stock Exchange Securities Business Management Dept International Cooperation Department Securities Science Research and Training Center Human Resources Management Dept Planning - Finance Department Center for Information Technology and Statistics Legal Affairs Department Inspection Department Vietnam Securities Review Office of the SSC 181 ... recommendations in preparing for applying margin trading method Since the thesis is about margin trading, only the subjects and contents related to the application of margin trading in securities market. .. listed in the market, helping companies have more benefits in stock trading Margin trading on China securities market st On August 2006, China applied margin trading in securities market for the. .. Chapter V Recommendations margin trading 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