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Models and operations of securities companies in the current Vietnamese stock market - 1

FOREIGN TRADE UNIVERSITY

FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

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GRADUATION THESIS

TOPIC:

MODELS AND OPERATIONS OF SECURITIES COMPANIES IN THE CURRENT VIETNAMESE STOCK MARKET.


Student name: Mai Thi Linh Class: Japanese 1

Course 42

Instructor: Master Phan Tran Trung Dung


Hanoi, October 2007


INTRODUCTION

According to the experience of developed countries, in order to take advantage of idle capital in the population as well as mobilize foreign investment capital, a stock market is needed. Therefore, establishing a healthy and effective stock market and truly becoming an effective capital mobilization channel for the economy is an important factor in the socio-economic development in our country today.

However, for a stock market to be established and operate effectively, it requires certain factors such as: there must be a large number of listed companies, individual and institutional investors as well as intermediary organizations trading on the stock market. In particular, a securities company is an intermediary organization on the stock market, whose main role is to act as a broker for buying and selling securities, acting as a bridge between issuers and investors. Therefore, the role of securities companies is decisive in the strong development of the market.

The Vietnamese stock market is still in the development stage, along with the formation and gradual growth of securities companies. However, in the current operation of securities companies, there are still many shortcomings and limitations. Therefore, I would like to choose the topic: " Model and operation of securities companies in the current Vietnamese stock market " for this graduation thesis.

In this thesis, I would like to present the most general theoretical basis of securities companies, types of securities company models, as well as the current status of securities companies in Vietnam since their inception until now. Along with studying the models and operations of securities companies in some countries in the world, I would like to draw lessons for the actual construction and development of securities companies in Vietnam. From there, the author would like to propose basic solutions to establish and perfect the securities company model.


as well as improving the operational efficiency of companies in the current context to contribute to promoting the development of the stock market as well as our country's economy in general.

The thesis is presented based on the study of the legal basis for the formation and operation of securities companies in Vietnam today and the study of the current status and operation of securities companies in Vietnam from their inception until now.

The structure of the thesis includes three chapters:


- Chapter I: The most general theoretical foundations of the stock market and securities companies.


- Chapter II: Current status of models and operations of securities companies in the Vietnamese stock market.

- Chapter III: Some recommendations and solutions to improve the model and enhance the operational efficiency of securities companies in the current Vietnamese stock market.

To complete this thesis, I would like to sincerely thank the dedicated guidance of teacher Phan Tran Trung Dung, the enthusiastic help of friends and the provision of extremely valuable documents from the library of Foreign Trade University, the National Library, the Business Management Board - State Securities Commission...

However, due to lack of knowledge and practical experience, the thesis certainly cannot avoid shortcomings. We look forward to receiving comments and guidance from teachers and interested friends.

Thanks a lot.


Hanoi, October 2, 2007 Mai Thi Linh


CHAPTER ONE: THEORETICAL BASIS

I. OVERVIEW OF THE STOCK MARKET


1. Concept of stock market


As we know, the financial market is the sum of the supply and demand relationships of capital, taking place in the form of borrowing, buying and selling capital, currency and other valuable papers. In other words, the financial market is where the buying and selling of financial assets takes place. The financial market includes the money market, where short-term debt instruments are bought and sold, and the capital market, where medium- and long-term capital instruments and debt instruments are bought and sold. The capital market is implemented through banks and the stock market.

Thus, the stock market is a component of the financial market where the buying and selling of medium and long-term financial instruments take place. Goods on the stock market include securities, which are understood as valuable papers or book entries, which allow the owner to have the right to demand the income and assets of the issuing organization or ownership. These rights vary between types of securities, depending on their ownership nature.

2. Basic structure and classification of the stock market


- Based on the circulation of capital sources: The stock market is divided into primary market and secondary market.

Primary market: Is the market for buying and selling newly issued securities. In this market, capital from investors will be transferred to the issuer through investors buying newly issued securities.


Secondary market : Is the place where securities issued on the primary market are traded, ensuring liquidity for issued securities.

- Based on the market's operating method: The stock market is divided into centralized market (TTGDCK or SGDCK) and decentralized market (OTC market).

In the centralized trading market , transactions are concentrated in one location, orders are transferred to the exchange and participate in the order matching process to form the transaction price.

In the OTC market , transactions (both primary and secondary) are conducted through a network of securities companies distributed across the country and connected by electronic networks. Prices in this market are formed by negotiation.

- Based on goods on the market: The stock market is divided into the stock market, the bond market and the derivatives market.

Stock market: Is the market for issuing and trading stocks.

Bond market: Is the market for issuing and trading, buying and selling issued bonds. These bonds include corporate bonds, municipal bonds and government bonds.

Derivatives market: In addition to traditional transactions of stocks and bonds, transactions of buying and selling other financial documents such as: stock purchase rights, warrants, option contracts have appeared. These financial documents are born from securities transactions (stocks


bonds). Therefore, they are called securities-based documents, or derivative instruments.

The derivatives market is the market for issuing and buying and selling issued derivatives. This is a market that specializes in trading high-end financial instruments, so this market only appears in countries with strongly developed stock markets.

3. Basic operating principles of the stock market


- Publicity principle

Securities are abstract goods, investors cannot directly check securities like normal goods but must rely on related information. Therefore, the stock market must be built on the basis of a good information disclosure system. According to the law, securities issuers are obliged to provide complete, honest and timely information related to the issuer and the issuance. Information disclosure is conducted upon initial issuance as well as on a regular and ad hoc basis, through the mass media, the Stock Exchange, securities companies and other related organizations.

- The principle of mediation

According to this principle, in the stock market, transactions are carried out through intermediary organizations, which are securities companies. In the primary market, investors often do not buy directly from the issuer but buy from the underwriters. In the secondary market, through brokerage and trading activities, securities companies buy and sell securities for customers or connect customers with each other by carrying out securities transactions on their accounts.


- Auction principles

All securities trading on the stock market operates on the principle of auction. The auction principle is based on the relationship between supply and demand in the market.

4. Functions of the stock market


The stock market, in the context of a modern economy, is considered a place where medium- and long-term securities trading activities take place. These transactions are conducted in the primary market when buyers first purchase securities from issuers, and in the secondary market when there is a resale of securities that have been issued in the primary market. Thus, in terms of form, the stock market is only a place where activities of exchanging, buying, selling, and transferring securities take place, thereby changing the securities holders. The stock market has the following basic functions:

- Mobilizing investment capital for the economy

When investors buy securities issued by companies, their idle money is put into production and business activities and thereby contributes to the expansion of social production. By supporting the investment activities of companies, the stock market has had important impacts on the development of the national economy. Through the stock market, the Government and local authorities also mobilize capital sources for the purpose of investing in economic infrastructure development, serving the common needs of society.

- Provide investment environment for the public

The stock market provides the public with a healthy investment environment with a wide range of options. The types of securities on the market are very different.


different in nature, duration and risk, allowing investors to choose the type of goods that best suits their capabilities, goals and preferences.

- Create liquidity for securities

Thanks to the stock market, investors can convert their securities into cash or other types of securities when they want. Liquidity (the ability to convert into cash) is one of the attractive characteristics of securities for investors. This is a factor that shows the flexibility and safety of investment capital. The more dynamic and effective the stock market is, the more likely it is to increase the liquidity of securities traded on the market.

- Evaluate business performance

Through stock prices, business activities are reflected in a comprehensive and accurate manner, helping to evaluate and compare business activities quickly and conveniently, thereby also creating a healthy competitive environment to improve capital efficiency, stimulate the application of new technology, and improve products.

- Create an environment to help the Government implement macroeconomic policies

Stock market indicators reflect the dynamics of the economy in a sensitive and accurate manner. Rising stock prices indicate that investment is expanding and the economy is growing, and conversely, falling stock prices indicate negative signs of the economy. Therefore, the stock market is considered a "barometer" of the economy and an important tool to help the Government implement macroeconomic policies. Through the stock market, the Government can buy and sell government bonds to create a source to offset budget deficits and manage inflation. In addition, the Government can also use a number of policies,

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