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  • 1. HANOI UNIVERSITY F ACULTY OF MANAGEMENT AND TOURISM FINANCIAL MANAGEMENT PROJECT Vietnam Stock Market Operation Tutor: Ms. Dao Mai Huong Group5: Phan Thi Lan 1104040048 Nguyen Thuy Ly 1104040057 Phan Thi Bich Ngoc 1104040068 Do Le Quyen 0907080040 Nguyen Thi Van Trang 1104000118 Nguyen Thi Kieu Oanh 1104040073 Contents I. Introduction ............................................................................................................................. 2 II. Trading venues....................................................................................................................... 3 1. Ho Chi Minh stock exchange (HOSE)................................................................................. 3
  • 2. 2. Ha Noi stock exchange (HNX) .......................................................................................... 3 3. Compare HOSE and HNX................................................................................................ 4 III. Trading Orders .................................................................................................................. 5 1. Market Order........................................................................................................................ 5 2. Limit Order ........................................................................................................................ 7 3. ATO & ATC....................................................................................................................... 9 IV. Trading process................................................................................................................ 10 Step 1: Registering account and placing orders........................................................................ 10 Step 2: Transferring the orders to security trading centre before taking transaction................ 10 Step 3: Matching orders and informing results......................................................................... 11 Step 4: Clearing and settlement ................................................................................................ 11 V. Trading Methods ................................................................................................................. 11 1. Order matching method (OM) ....................................................................................... 12 2. Put- through trading method (PT)................................................................................. 13 VII. Conclusion ......................................................................................................................... 14 REFERENCE................................................................................................................................ 14 I. Introduction With more than 16 years history, since its foundation in 1998, Vietnamese stock exchanges have experienced many fluctuations, went up and went down as the economic condition, especially during the period of globalization as Viet Nam entered WTO in 2007. At the present time, it is obvious that the stock market plays an important role in the development of the whole economy. It provides not only investors and firms with opportunities to exchange funds but also the decision makers with a tool to govern the economy. That is the reason why Vietnamese stock market operation was decided to
  • 3. become the topic of this report. The findings will be presented in four major parts: trading venues, orders, trading process and methods to exchange stocks with the information based on secondary resources. It is expected that this paper may provide those who are of the interest with an overview of Vietnamese stock market’s operation. II. Trading venues A trading venue is defined as a place where securities buyers and sellers go to trade. Among stock exchanges operating in Viet Nam, Ha Noi and Ho Chi Minh Stock exchanges, each of which will be explained respectively in the later part, are two biggest ones. 1. Ho Chi Minh stock exchange (HOSE) Ho Chi Minh City Stock Exchange (HOSE), located in Ho Chi Minh City, is the largest stock exchange in Vietnam. Established in 2000 as the Ho Chi Minh City Securities Trading Center (HOSTC), it is an administrative agency of the State Securities Commission along with Hanoi Securities Trading Center (HNX). On May 11th, 2007, Decision No.559/2007/QD-TTg) was signed by the Prime Minister to convert HOSTC to Ho Chi Minh Stock Exchange (HOSE). HOSE, a State owned legal entity, has a private seal and a private account and runs as a limited company with following functions and duties:  Guarantee that securities trading activities are undertaken publicly, fairly, lawfully and effectively;  Comply with statistical standards, financial obligations, accounting and auditing principles by the laws;  Disclose information on securities trading activities, the listed firms on the exchange, brokerages, fund management companies, securities investment funds or companies, and supervisory information;  Supply information and co-ordinate the State’s organizations, which have authority to investigate and prevent violations of the Securities Law;  Co-ordinate to popularize knowledge of securities and securities market;  Compensate the trading members for losses (if any) caused by the exchange, except force majeure. 2. Ha Noi stock exchange (HNX)
  • 4. Hanoi Stock Exchange (HNX) was established according to Decision No.01/2009/QĐ- TT which was signed by Prime Minister. On 24/06/2009, the HNX was inaugurated as a State-owned single - member Limited Liability Company with the Ministry of Finance as a representative. Being an organizer and regulator of the securities market, HNX has organized share auctions, Government Bond biddings to mobilize capital for the State budget. In parallel, HNX has operated three trading markets on a modern technological structure, including listed stock market, Government Bond market, and UPCoM (Unlisted Public Company Market). The optimal goal of the HNX is to operate a transparent, equitable and efficientmarket, develop new products, attract domestic and foreign investments, prove itself as an important capital mobilizing channel of the economy as well as ensure the interest of investors. 3. Compare HOSE and HNX HOSE HNX Function Trading center for listed company History Established July 11th , 1998- Decision No 127/1998/QD-TTG 1st trading July 28th , 2000 March 8th , 2005 Trading method - Continuous matching method -Negotiation method -Continuous matching method -Negotiation method Charter capital >=80 billions >=10billions No of members 302 listed companies 376 listed companies Price variation range ± 5% ± 7%. Trading index VN index HNX index
  • 5. III. Trading Orders In order to make wise investing decisions, the investor must have profound knowledge, accurate judgments about current stock market and placing an appropriate order is one of the key tasks that may lead to the success. At first, we need to know order is an instruction of investors to brokers to buy or sell stock on the exchange. The specific features of orders put the different effects on each investment.In Viet Nam stock market, there are four popular types of orders namely market order (MP), limit order (LO), At- The-Open order (ATO) and At-The-Close order (ATC). The investors always have to understand fully about each type of orders to choose the best appropriate one for their trades.This part of our report is discussing about the characteristics of those four types to help investors have a detailed view. 1. Market Order A market order (MP), an order to buy or sell at market, is a conditional request made to the broker (or the system) to execute the transactions with the immediate best available price.That means this kind of order allows the shares to be bought only at the lowest offer price and be sold at the highest bid price availably in the market. MP order is the simplest and most commonly used order in current stock exchange and it is only used in continuous order matching (Wall Street Securities 2013).However, MP order is not guaranteed about the trading price as they expected; the filled price of MP might be considerably different from the placing-order price. Besides, the investors also have to face a threat of order cancellation if there is no counterpart limit order (LO) when MP order is being entered into trading system. In addition, MP order is believed to be likely to cause the fluctuation and instability of the market price because this order is potentially able to be implemented at unpredictable price level, which causes the higher risks of price for investors, especially when the market experiences dramatic fluctuation about price. Therefore, some stock markets which newly come into operation should not use market order (KiếnThức hay Online 2012). A specific example (Stock market, CafeF online 2012) will be attached below with each rule to clarify the cases:
  • 6. The stock ABC with reference price: 10.5, ceiling price: 11.0 and floor price: 10.0 has the following order book in continuous trading period.  Firstly: Buying 5,000 ABC @MP is put in system: (First step in MP order- CafeF online 2012) In the end of the first step, the result will be: take 1,600@10.4MP, and 3,800@10.5MP (MP order takes the best corresponding prices in the market).  Secondly, MP order of buying 17,000 shares ABC is entered into the trading system and the order book will be: Order matching result:The MP order is fully matched at two price levels: 7,300@10.3; 3,300@10.2. Because selling MP order does not match completely, so these selling MP orders will be transferred into buying LO at lower price level than the last executed value by one quoted price unit; buying MP order will be
  • 7. transferred into buying LO at lower price level than the last executed value by one quoted price unit. Specifically, remaining 6,400 selling MP orders will be changed into selling MP order at 10.1.  Thirdly, MP order of buying 10,000 ABC is entered into the trading system and the order book will be: Order matching result:The MP order is partially matched at three price levels: 400@10.5; 1,000@10.6 and 6,000@11.0. The remaining of this order, 2,600 stocks, is transferred into buying LO of 2,400 shares at the ceiling price level of 11.0 because the final matching order is ceiling price.  Finally, the ultimate result will appear in order windows is buying volume with 2,600 stocks. 2. Limit Order In contrast to the market order,there is another type of order called a “limit order” (LO) that does guarantee the price but does not guarantee an execution. In another way, a limit order is an order to buy or to sell a security at no more than a specific price (called "or better" for either direction). This gives the investors control over the price at which the
  • 8. trade is executed; however, the order may never be executed or filled. (Wikipedia.org). It means that a buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher (The US securities and exchange commission). LO is applied both in periodic and continuous matching order method. Besides, LO becomes valid as soon as it comes into the trading system and it is on the order book until the end of trading day or its cancellation (scotiabank.com). Specifically, a buying LO is an order to purchase stocks at the designated price or lower one which maximizes number of traders who are willing to pay for the purchase of stocks. Take stock ABC again as an example, there has a buying order of 3,000 shares from Mr. C at the limit price of 100 (continuous order).  Firstly, buying LO will be put in the system: Buyingvolume Limit price Selling price Selling volume (Mr. C) 3,000 100 98 1,000 (Mr. A) 100 1,000 (Mr. B) Order matching result:The buying LO is partially matched at two price levels: 1,000@98; 1,000@100 (respectively, because A has entered into the system first) Price Volume Mr. C –Mr. A 98 1000 Mr. C – Mr. B 100 1000  Secondly, the remaining volume is buying LO of 1,000 shares at the limit price of 100: The main reason for investors to choose Buying LO is that they are likely to buy shares they want at the price level which is even below the current market price. Therefore, buying LO is a good choice for buying short-term market pullbacks. Buying volume Limit price Selling price Selling volume (Mr. C) 1,000 100
  • 9. In contrast, a selling LO is an order to sell a number of shares at a given price or higher one which is clearly greater than the current market price level. It is exactly the minimum price that the vendors accept to sell their shares (ViệtBáo 2007). For instance, there is a selling LO of 3,000 shares ABC at the limit price of 100 from Mr. C:  First, orders are recorded into the trading system: Buying volume Buying price Limit price Selling volume Mr. A 1,000 101 100 3,000 (Mr. C) Mr. B 3,000 102 Order matching result: The selling LO is fully matched at two price levels: 1,000@101; 1,000@102 (respectively, because A has come into the system first).  As the remaining buying requirement from Mr. B exists, the trading process will be continued: Buying volume Buying price Limit price Selling volume Mr. B- 2,000 102 Selling limit order is appropriate for maximizing profit target because it enables the vendors to sell their stocks at the minimum price that they determined before in case the market price reaches that level. 3. ATO & ATC These two orders are also a common order used in Vietnamese stock market. Basically, ATO and ATC are similar to the limit order, but both of them have priority to limit order in the matching process. ATO, or At-The-Opening Order, as its name suggests, is the buy or sell order at the opening price of a trading day. The ATO is validated within the periodic matching time (8:30-9:00), while the opening price is being determined. After the opening price has been determined, if ATO is not processed or not completely matched, the order will be automatically canceled (VnExpress.net online 2008). ATC, for At-The-Closing Order, is is the order to sell or buy stocks at the closing price and it is also prior to Limit Order in matching process. ATC is inputted into the trading system during the Periodic order matching defining the closing price (10:00 – 10:30) and after the time of closing session, unmatched volume of this order will automatically be cancelled by the system (VnExpress.net Online 2008).
  • 10. For example, AAA stock, reference price is 99. The order is entered into the system in Mr. A, Mr. B and Mr. C’s orders Buying volume Buying price Selling price Selling volume Mr. C- 5,000 100 ATO Mr. B- 4,000 99 Mr. A- 2,000 Matching result: 5,000@99 of which 4,000@99 for Mr. B and 1,000@99 for Mr. A as priority of earlier entering time. IV. Trading process To be able to trade any stock, the investor must witness several following steps. Step 1: Registering account and placing orders The very first thing the investor must do in order to trade on an exchange is that they must register custodian accounts. However, every investor is allowed to own only one unique trading code at any given time; in fact, even institutions are not allowed to have more than one account each. As the opened and flexible polices in stock exchange market, such trading accounts are very easy to create for both domestic and foreign investors in a local brokerage firm from abroad. Generally, there are two methods to open an account:  Offline: Direct registration in stock agents o For individuals: Notarized copies of business registration certificate, opening stock trading account request paper, registration stock trading contract, and copied ID card are required. o For organizations: Notarized copies of business registration certificate, decisions to appoint director and chief accountant and their ID numbersare required.  Online: creating account through the stock company’s websites (which have online registration function). After opening trading account, investors now can place orders through telephone, internet or directly setting through stock company with 4 widely-used types of orders: LO ( Limit order), ATO (At the beginning), ATC (At the closing) and MP ( Market Order). Step 2: Transferring the orders to security trading centre before taking transaction Information on the order is checked by marketing department in security companies. If orders are valid, the marketing department will transfer order forms to trading department and clearing house at the same time. Trading and clearing department then check the validity of investors’ accounts and send them to companies’ representatives at STC. After being verified again, orders are finally sent to STC‘s transactional system to take the auction.  Requirement:
  • 11. o Investors deposit securities at securities company and ensure a sufficient number of securities placed for sale on the securities trading account. o Whensetting orders to buy securities, the investors sign deposit funds under the agreement with the Securities company where investors open accounts. Step 3: Matching orders and informing results  Matching orders: The computer system of the Stock Exchange Center will automatically executes an order queuing process an arrange the orders according to PTQ principles (the price, time and quantity priority respectively) as soon as it received buy or sell orders from security brokerage companies. The PTQ principle guides the orders to be matched as below: o Price priority: of two orders entered into the system, the order with thebetter price gets the higher priority for trade matching o Time priority: of two orders having the same price, the order entered earlier gets the higher priority for trade matching o Quantity priority: for orders at the same price and time, priority is given to orders with the larger quantity of shares  Informing the transaction result: After matching, orders result will be informed to security company and then the security company will inform the investors (confirmation note). Step 4: Clearing and settlement This is the final step in the trading process. In this process, all data of trading results are sent to Vietnam Securities Depository (VSD) by exchanges when closing out stock- exchange session. After that, the buyers will receive stock and the seller will receive money on account 3 days later after trading.Settlement for securities transactions is made in complying with the principle: securities delivery at VSD and cash transfer at the settlement bank shall be surely and simultaneously carried out following the “Delivery Versus Payment” principal (DVP). Accordingly, buyers and sellers must have sufficient money to fulfill settlement obligations. Therefore, it helps reduce settlement risks for trading participants. V. Trading Methods
  • 12. According to “Guides to Vietnam securities 2011” (04/10/2011), for all of the exchanges, matching priority must follow the PTQ principle ( Price-Time-Quantity Principle). Price priority means that priority is given to the highest price bid or the lowest ask. Time priority infers that for orders at the same price, orders that came in first will be selected. Quantity priority says that for orders at same price and time, orders with highest quantity of shares will be matched. Vietnamese stock market has two main trading methods, namely put-through or negotiating method and order matching method. Each method will be explained in details as follows. 1. Order matching method (OM) Order matching methods include two smaller kinds: periodic order matching and continuous order matching. Periodic order matching (POM) (HOSE only): Buy or sell orders are queued for matching at a specific time at the single lowest price that generates the highest trading volume. For example, if a person A buys 10 shares at 100,000VND, B sells 3 shares at 91,000VND, C sells 3 shares at 93,000VND, D sells 3 shares at 96,000VND and E sells 4 shares at 98,000VND, the matching price will be 98,000VND where A will buy 10 shares, B, C, and D will sell at their shares and E will sell 1 share only. Transactions for all parties will be at 98,000VND/share. This method is also used to determine the ATO and the ATC. Orders in periodic session will be matched at the end of the session only, during which ATO/ ATC orders are given preference over the LO. Continuous order matching (COM) ( all exchanges): The first buy and sell orders in the queue will be matched continuously in the trading systems of each venue. Meanwhile, the trading systems will confirm each executed transactions through the broker or trader’s terminal. There can be major differences in your strategy owing to the priority given to the first order placed. For instance, if A sets an buy order of stock ABC at 100,000VND, B sets an sell order of the same stock at 90,000VND, the matching price will depend on the person who first placed the order. If A placed it first, the matching price will be 90,000VND. If B placed it first, the matching price will be 100,000VND.
  • 13. The system that use continuous order matching take advantage of providing executive price of stock, so it use more frequently in trading large volume, while the periodic order matching methodis normally used with small trading volume.(Nguyen 2012). 2. Put- through trading method (PT) Price and quantity are negotiated directly between the buyer and the seller or their representatives, but the deal is only fixed when it’s matched in the exchange trading system during any session that allows PT. In case the parties are determined and the transaction is completed, the orders will be executed on request according to the trading procedure of stock exchange. If the investor has no parties, the order will be listed on the entire market. When orders are available, the security companies help investors find and negotiate with partners. When reaching agreement, those companies will execute orders and inform to stock exchange and customers. The process is prescribed as charter of each stock exchange. In fact, the Vietnamese stock exchanges use the different method at a specific time. The following timetable indicates differences between the HOSE and the HNX (the trading time is from 9.00 a.m. to 2.15 p.m. on business days except holidays as stipulated by Labor Law) Time HOSE HNX UPCOM 9:00-9:15 POM (ATC,LO) COM & PT ( LO) 9:15-11:30 COM & PT ( LO) 11:30- 13:00 Intermission Intermission 13:00-13:45 COM (LO, ATO) COM & PT (LO, ATO) 13:45- 14:45 PT
  • 14. VII. Conclusion In conclusion, our report has presented about how the Vietnam stock market operate through some crucial points namely trading venues, orders, trading process and several methods to sell and buy stocks. After carrying out this report, there are several dilemmas had raised, which caused us more time to solve. For example, in our country, there is not only HOSE or HNX but also UPCom; as well as trading band and the differences between trading band on HNX and that on HOSE.However, because of the framework of our report, we only can provide limited information; therefore, we cannot clearly differentiate every problem and research deeper. In compensate of that, we have shown off some limitations of Vietnamese stock exchange market together with plenty of recommendations for future growth. Firstly, we strongly expect that the report will be helpful to everyone in general and the financial students in particular. More specifically, this paper can partly help them to realize the nature of Vietnamese stock market by improving their understanding specific and essential information has already been presented above. Secondly, we also hope that the data will help students overcome the very first obstacle in financial study. REFERENCE “Securities market”, viewed 26th April, 2014, http://cafef.vn/thi-truong-chung-khoan/tim-hieu-ve-lenh-thi-truong-bat-dau-trien-khai-tren-hose- tu-27-20120629051752730ca31.chn “Order”, viewed 25th April, 2014, http://en.wikipedia.org/wiki/Order_(exchange) “Limit order”, viewed 25th April, 2014, https://www.sec.gov/answers/limit.htm “Trading basics understanding the different ways to buy and sell stock”, viewed 25th April, 2014, https://www.sec.gov/investor/alerts/trading101basics.pdf “What are ATO and ATC?” viewed 24th April, 2014, http://kinhdoanh.vnexpress.net/tin-tuc/chung-khoan/lenh-ato-va-atc-la-gi-2691763.html
  • 15. “Knowledge about continuous order”, viewed 25th April, 2014, https://www.fsc.com.vn/fscportal/pages/support.do?pagecode=Help_trading_hose “Trading process”, viewed 25th April, 2014, https://www.tvsi.com.vn/vn/home/customer-support/faq/1/40/default.htm “Trading process in HNX”, viewed 24th April, 2014, https://www.fsc.com.vn/fscportal/pages/support.do?pagecode=Help_trading_hnx “Clearing and settlement”, viewed 23rd April, 2014, http://vsd.vn/en/p46c49/clearing-and-settlement.htm “The trading procedure on a stock exchange – Explained!”, viewed 25th April, 2014, http://www.yourarticlelibrary.com/stock-exchange/the-trading-procedure-on-a-stock-exchange- explained/8760/

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