Activities of Financial Intermediaries in the Stock Market

within the corporation and units in the same economic and technical sector that have business relations with the corporation, contributing to supporting investment in technical and technological innovation projects, creating markets and increasing product competitiveness in domestic and foreign markets.

There are currently 6 financial companies operating in the Vietnamese financial market. According to the Law on Credit Institutions, financial companies are considered non-bank credit institutions, which are types of credit institutions that are allowed to perform some banking activities as regular business activities, but are not allowed to receive demand deposits or provide payment services. This is a development opportunity for Vietnamese financial companies. The formation and development of the stock market has created a new business field for financial intermediaries, including financial companies.

The above analysis shows that financial intermediaries are important partners in the stock market. However, Vietnamese financial intermediaries are lacking in quantity, types and poor in quality. Although the Government's policy is to develop multi-functional financial intermediaries, the versatility of financial intermediaries has not been clearly demonstrated. The most developed type of intermediary at present is commercial banks. However, commercial banks are mainly monopolizing the credit sector, and low credit quality is an issue that needs to be resolved immediately. Vietnamese financial intermediaries are small in scale, have poor organizational and management structures and low quality staff.

III. Activities of financial intermediaries in the stock market

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1. Legal basis for the operation of financial intermediaries

1.1. Decree 144/2003/ND-CP

Decree 144/2003/ND-CP is the highest current legal document on securities and the securities market (from January 1, 2007, it will be replaced by the Securities Law 2006). Except for the issuance of Government Bonds, the issuance of securities

Public offerings of securities for listing on a centralized stock exchange must be licensed by the State Securities Commission. The issuer, the agency organization and the underwriter organization may not distribute securities without first announcing the issuance and providing a Prospectus.

Thus, financial intermediaries, depending on the nature of each type of organization, can issue securities for themselves, act as agents, underwriters, distribute securities to customers, or act as trust banks, representing bond owners.

However, in underwriting activities, there are three basic forms of guarantee: firm commitment guarantee, maximum commitment guarantee and all or none commitment guarantee. However, the form of guarantee stated in the Decree is understood as the underwriting organization helping the issuing organization carry out procedures before offering securities, accepting to buy all or part of the securities of the issuing organization for resale, or buying the remaining undistributed securities. The essence of this form of guarantee is a form of firm commitment guarantee. The regulation of such a form of guarantee limits the choice of the issuing organization as well as limits the type of guarantee service of the financial intermediary.

The Decree also needs to have provisions on the responsibility of investors to notify the Securities Commission, the Trading Center and the issuing organization when the number of securities they hold exceeds a given limit.

In the decree, credit institutions and insurance companies wishing to participate in securities trading must establish an independent securities company and this company must be licensed by the Securities Commission. The implementation of the multi-functional credit institution model partly prevents these organizations from fully utilizing their advantages in terms of facilities, equipment, branch systems, and staff, and also causes overlap in organization and operations.

Currently, in the trend of international integration, the development of financial institutions in a multi-functional direction, encouraging competition, fighting monopoly and discrimination is an inevitable trend. Vietnam is implementing international commitments and preparing to join the WTO, the development of financial institutions in a multi-functional direction is extremely necessary.

It can be said that Decree 144 is the basis for operating the centralized market. However, the Decree was drafted and issued in the context that the Vietnamese stock market has only been operating for two years, so there are still many errors. Therefore, the construction and completion of higher documents on securities is extremely necessary. That is also the reason for the birth of the Securities Law 2006, which will take effect from January 1, 2007.

1.2. Law on Credit Institutions

The Law on Credit Institutions was passed by the National Assembly on December 12, 1997 and took effect from October 1, 1998. The Law expressed the viewpoints of the Party and the State in developing types of credit institutions ( source ): First , unifying the management of all banking activities, building a system of modern credit institutions, capable of meeting the capital and banking service needs of the economy and population, contributing to the implementation of the national monetary policy, ensuring the safety of the credit institution system, and protecting the legitimate interests of depositors.

Second , invest capital and other resources to develop State credit institutions, creating conditions for these institutions to play a leading and dominant role in the monetary market. Third, develop policy banks that operate not for profit, serving the poor and other policy subjects, in order to implement the State's socio-economic policies.

Fourth, protect ownership rights, rights and other legitimate interests in the operations of cooperative credit institutions to create conditions for workers.

mutual support in production and life. Fifth , build banks to serve agricultural, rural and farmer development with preferential policies on capital, interest rates and loan conditions. These viewpoints are an important basis for the health and development of credit institutions.

According to the Law on Credit Institutions, if permitted by the State Bank, credit institutions can participate in all activities of the stock market, from issuance, trading, consulting, brokerage, portfolio management and investment fund management. However, the Law only provides basic regulations, and there is still a need for detailed guidance documents from the State Bank, relevant ministries and sectors.

1.3. Law on insurance business

The Law on Insurance Business was passed by the National Assembly on December 9, 2000 and took effect on April 1, 2001. The scope of this law is insurance business organizations and activities, defining the rights and obligations of organizations and individuals participating in insurance. This law does not apply to social insurance, health insurance, deposit insurance and other types of insurance implemented by the State that are not commercial in nature.

According to the provisions of law, an insurance enterprise is an enterprise established, organized and operating in the insurance and reinsurance business. Types of insurance enterprises include state-owned insurance enterprises, joint-stock insurance companies, mutual insurance organizations, joint-venture insurance enterprises and 100% foreign-invested insurance enterprises.

In the activities mentioned in the Law, insurance enterprises are allowed to carry out fund management and capital investment. The capital investment of insurance enterprises is emphasized on safety, efficiency and meeting the requirements of regular payment for commitments under insurance contracts.

These organizations are only allowed to use their idle capital to invest in Vietnam in the following areas: Buying government bonds, buying stocks and corporate bonds, trading in real estate, contributing capital to other enterprises, lending according to the provisions of the Law on Credit Institutions and depositing money at credit institutions.

In order to maintain solvency, the Government specifies the investment portfolio and investment ratio for insurance enterprises. Regarding securities issuance, joint stock insurance enterprises are subject to the regulation of the Enterprise Law and can issue shares and corporate bonds. State-owned insurance enterprises can issue shares and bonds according to the Law on State-owned Enterprises.

In short, insurance organizations are financial intermediaries with great potential to participate in investment activities in the stock market. They are contractual savings organizations, so they can easily quantify payment activities and can invest in low-liquidity securities such as corporate bonds and stocks. These organizations also have easy access to customers and develop portfolio management, investment fund management or securities investment consulting services.

1.4. Enterprise Law

The Law on Enterprises was passed by the National Assembly on November 29, 2005 and took effect from July 1, 2006, replacing the 1999 Law on Enterprises. This Law regulates the establishment, organization, management and operation of limited liability companies, joint stock companies, partnerships and private enterprises of all economic sectors (hereinafter referred to as enterprises); and regulates groups of companies.

The Enterprise Law regulates the issuance and trading of securities by joint stock companies and, in the spirit of the Law, financial intermediaries may participate in capital contribution, share transfer, agency, and underwriting of securities.

These activities of financial intermediaries, if there are differences in regulations between the Enterprise Law and specialized Laws, will be regulated according to specialized Laws.

However, regarding the issuance of securities, Article 88 of the Law stipulates that joint stock companies have the right to issue securities to the public in accordance with the provisions of the law on securities and the company's charter. However, the Law has not yet specifically regulated the method of issuing individual securities, so it has not created favorable conditions for issuing enterprises as well as the implementation of agency and guarantee operations of financial intermediaries.

In short, in recent times, Vietnam has made great efforts in drafting, approving and promulgating legal documents to regulate activities in line with changes in the economic environment. This has created favorable conditions for the development of the financial market in general and financial intermediaries in particular.

Regulations on securities and securities issuance, regulations on securities trading and business, regulations on securities management, supervision and inspection are mentioned in the Decree on Securities and Securities Market, the Enterprise Law, the Law on Credit Institutions, the Law on Insurance Business, regulations on issuance of Government Bonds as well as in Decrees, Circulars, Decisions and instructions of State management agencies. However, related legal regulations still have some issues that need to be studied and resolved.

With the above legal documents, Vietnam has initially established a legal basis for the activities of financial intermediaries in the stock market.

2. Securities issuance activities

As analyzed in the previous section, the weakest point of Vietnamese financial intermediaries is their small capital scale. The stock market is an important source of capital for businesses, including financial intermediaries. In a short period of time, financial intermediaries have mobilized hundreds of thousands of billions of VND through the stock market, mainly in the form of issuing stocks and bonds. This shows the huge potential for capital mobilization of financial intermediaries in the market. Capital mobilization in the stock market is an important factor in increasing the equity capital of financial intermediaries.

The most numerous type of joint-stock financial intermediaries are joint-stock commercial banks. The capital contribution of these banks is mainly contributed by State-owned commercial banks, State-owned corporations and a number of major shareholders. Most joint-stock financial intermediaries have small capital and low liquidity of their stocks.

The Vietnamese Government has been reforming the joint stock banking system and an important part of the reform is to increase the equity capital of these banks. However, due to fear of sharing or being controlled, these banks do not want to issue shares to the public to raise capital.

According to the law, state financial intermediaries and joint-stock financial intermediaries can issue bonds to raise capital. In recent times, some financial intermediaries have issued bonds quite successfully, typically the Bank for Investment and Development of Vietnam and the Bank for Foreign Trade of Vietnam. The bonds have a term of mainly 2 to 7 years, mobilize Vietnamese Dong or US Dollars, have fixed interest rates or floating interest rates, with the forms of registered bonds, bearer bonds and book-entry bonds.

December 14 and 15, 2005: Vietcombank successfully issued 1,365 billion VND in bonds to increase capital, raising Vietcombank's total equity capital at the end of 2005 to 9,000 billion VND.

It can be said that the demand for medium and long-term capital is very large and to promote medium and long-term lending activities of commercial banks, the State Bank has allowed banks to use a part of short-term capital for medium and long-term lending. Issuing bonds will increase the long-term capital of commercial banks.

For bonds, interest rates are the main attractive factor for the investing public. Medium and long-term bonds have high interest rate risks while market interest rates are unstable. Moreover, Vietnam has not yet fully liberalized interest rates, and interest rates do not accurately reflect market interest rates. Exchange rate fluctuations leading to devaluation of the Vietnamese Dong are also a factor causing insecurity for investors.

The underdeveloped financial market makes it difficult for issuers to accurately determine the cost of capital and the possibility of successful issuance is not high. These factors have a significant impact, limiting the ability of financial intermediaries to issue bonds.

Financial intermediaries have mobilized hundreds of thousands of billions of VND through bond issuance, a significant success in increasing medium-term capital mobilization.

Promoting financial intermediaries to mobilize capital on the stock market is an important solution to increase equity and operating capital of these organizations. At the same time, through the issuance of securities by financial intermediaries, quality goods will be provided to the Vietnamese stock market.

3. Securities trading activities

Securities trading activities can be carried out by commercial banks, investment funds, and securities companies. However, within the scope of this thesis, I will only mention the trading activities of securities companies.

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