The Role of Financial Institutions in the Stock Market

Brokerage services are mainly applied to listed securities products, in which the investment bank plays the role of an intermediary in receiving and matching orders for customers. Investment services are divided into investment services for customers and proprietary trading services.

Investment services for customers are applied to securities products traded on the OTC market. As a market maker with the function of creating liquidity, the investment bank conducts buying and selling transactions with customers passively or actively to seek price differences.

Proprietary trading is riskier for two reasons: the bank puts its own capital into trading and this applies to both listed and unlisted stocks. The investment bank then seeks to profit from price fluctuations by actively holding a “buy” or “sell” position and betting on market fluctuations.

c. Research operations

This is a task performed by research staff to monitor the performance of securities on the market to help investors make timely buying and selling decisions.

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Research products are diverse, including general research reports such as macroeconomics, industry research, investment strategy research and product research. In addition, research activities also include the construction and development of analytical tools and portfolio management for clients.

d. Wholesale banking operations

Wholesale banking is a type of investment business but mainly focuses on alternative products, including real estate investment, leveraged lending, large credit arrangements such as syndicated loans and project finance.

An important segment of wholesale banking in the capital market is private equity investment, which is the bank's investment in unlisted enterprises with the potential to develop and increase value through financial restructuring.

Investment in private equity businesses can be made from the start-up stage to the maturity and development stages of the business.

Wholesale banking is a highly risky proprietary trading activity because the product holding period is often longer than that of traditional securities investment products.

e. Investment management operations

Because it brings stable income and low risk, this is a business that is gradually becoming an important business segment of investment banks. Investment management can be divided into asset management and wealth management.

Asset management includes investment fund management, portfolio management for institutional clients.

Wealth management or private banking includes wealth management and advisory services for high-net-worth clients.

f. Principal Brokerage Business

The prime broker business was born to overcome the problem of using multiple brokers at the same time by hedge funds, leading to the dispersion of resources in carrying out support activities. Large investment banks will take advantage of their strengths with the available infrastructure system to provide a range of services from AZ to hedge funds, even providing some free support services to help these funds focus on their main business of investing. Using prime brokers does not mean that hedge funds do not have relationships with other brokers. This only means that funds outsource non-core activities and centralize transaction processing to prime brokers so that they can sign and execute transactions with other brokers on their behalf.

III. The role of financial institutions in the stock market

1. Commercial bank

Commercial banks and their affiliated securities companies play an important role in the stock market in many aspects: creating goods, acting as intermediaries, providing information, regulating supply and demand, and managing financial institutions in the market.

1.1. Creating goods for the stock market

The role of commercial banks in creating goods for the stock market is shown from two perspectives:

From a direct perspective, joint stock commercial banks participate as stock issuers to create capital when newly established or additional capital during operations. In addition, all types of commercial banks can issue bonds to mobilize capital from the economy and affiliated securities companies also sell other types of securities such as: government bonds, warrants, bond rights, futures contracts, options contracts... These have created a very large volume of goods in the secondary market for the stock market.

From an indirect perspective, a securities company under a commercial bank as an intermediary organization performing securities intermediary services such as securities brokerage, underwriting, securities investment consulting, etc. has contributed significantly to helping other economic organizations issue securities, creating diversity of goods for the stock market.

1.2. Securities intermediary

In a large and volatile stock market, it is difficult for investors to find partners who need to buy and sell securities to trade with each other. Moreover, not all investors are equipped with enough knowledge, accumulated enough experience and have enough information to invest successfully and gain the desired profits. Therefore, as an intermediary organization, commercial banks will help the two parties meet through their operations on the stock market. For example, when performing securities brokerage, affiliated securities companies have two main tasks: providing information and consulting customers; at the same time, providing products and services.

financial services, helping customers make transactions on demand and for their benefit.

Commercial banks have many advantages to act as financial intermediaries in the stock market such as: deposit account management operations create the premise for capital accumulation to buy and sell securities, experience in credit activities creates favorable conditions for buying and selling securities when there is an investment need and especially experience in payment organization helps commercial banks make good payments in securities trading.

1.3. Adjusting stock supply and demand

Commercial banks with two most basic activities of receiving deposits and lending have a great impact on the operation of the stock market, specifically the price, supply and demand of securities in the market. In fact, investors decide which areas to invest in with the potential for profit and acceptable risk level, so the deposit and lending interest rates of commercial banks also have a significant impact on the supply and demand of securities in the market and the prices of those securities.

Another role of commercial banks in the supply and demand of securities in the stock market is to provide a price mechanism for investments. In the secondary market, commercial banks will create a stock price mechanism through the Exchanges. Affiliated securities companies help investors evaluate the value of their investments, then all securities buying and selling orders are collected at the Exchange, and on that basis, the stock price will be determined according to the law of supply and demand. In the primary market, when performing securities underwriting operations, affiliated securities companies also play the role of creating a stock price mechanism by determining and advising the issuing organization on a reasonable issuance price for securities in the issuance. In addition, through proprietary trading activities, these securities companies also intervene in the market, contributing to adjusting stock prices.

1.4. Providing information on the stock market

Securities brokerage activities of affiliated securities companies always go hand in hand with consulting activities, so they also provide information upon request of customers, information on the prospects of securities in the future, information on the Government's monetary policy related to investments that customers are considering... In addition, the

Commercial banks also provide very reliable information on market developments to help market management agencies make the most appropriate adjustments.

1.5. Institutions governing the stock market

The activities of securities companies under commercial banks and their brokers are a factor contributing to the completion of the legal environment for securities trading activities. Along with performing their operations, they will help investors always comply with the law in the process of seeking benefits, and at the same time promptly reflect to lawmakers to promptly correct inadequacies in legal documents.

2. Securities investment fund

2.1. Increasing the supply of securities and creating product diversity contributes to the development of the primary market.

QDDTCK plays an important role in the development of the primary market as an issuing organization that attracts capital by issuing fund certificates. The issuance of fund certificates or fund shares by QDDTCK naturally increases the supply for the stock market because these are commodities traded on the market and also because the professional and scientific investment method of the fund will create investment habits for the public. In addition, investing in the fund's securities has created demand for the stock market, making the securities of other issuing organizations easily consumed.

2.2. Contribute to stabilizing transaction prices in the secondary market

As an investor in the market, QDTCK must spend most of its assets to invest in the stock market according to the selected portfolio. By concentrating a large amount of capital from many small idle sources in society, QDTCK has the ability to buy and sell a large volume of a certain type of stock, so it often has a great impact on the fluctuations of the stock market. It contributes to stabilizing transaction prices in the secondary market, helping the development of this market through professional investment activities with scientific investment methods.

3. Insurance company

The financial market will truly exert its full power when the financial market with complete mechanisms is established, the foundation of which is the stock market. Indeed, the stock market contributes to the development of the insurance market in general and of insurance companies in particular, while insurance companies with effective stock investment activities also have a positive impact on the stock market.

3.1. Unleashing a large source of circulating capital, supplementing capital for the stock market

Insurance companies have the ability to accumulate and concentrate capital from thousands of small insurance contracts of all operations into a huge source of capital. Second only to commercial banks in terms of the size of mobilized capital, insurance companies, together with commercial banks and other credit institutions, perform well the role of providing capital for the stock market. Moreover, by concentrating many sources of capital from insurance customers, from small individuals to important legal entities, insurance companies invest effectively in the stock market, proving that this financial institution has the ability to attract and meet capital needs, promoting the circulation and use of capital in the market.

3.2. Expanding market participants

The participation of insurance companies in the stock market shows that within the framework of the law, many entities in an economy can find a source of capital mobilization on a large scale and effectively. The stock market with its smooth capital circulation activities can help the Government reduce budget deficit, implement monetary policy, enterprises mobilize capital for development investment, improve financial situation, enhance management capacity and the public also enjoys the achievements of the economy.

Above all, the insurance company also plays a role in reducing the risk of power concentration in the financial sector. Because the insurance company has a large capital scale for securities investment, the State needs to monitor the diversification of the investment portfolio of this institution to prevent the control and domination of the insurance company with the

other financial institutions and avoid the phenomenon of monopoly in acquiring large businesses through this investment activity.

3.3. Contribute to the socialization of securities investment activities

Along with the role of expanding the participants in the stock market, insurance companies contribute significantly to the socialization of stock investment activities through protecting the rights of insurance participants.

Under the strict management of the State on insurance activities, the activities of insurance companies preserve investment capital, avoid capital loss and ensure the rights of insurance participants. The insured is not only committed to payment in case of risks but also receives profits from the investment results on the stock market of the insurance company.

4. Securities companies and investment banks

Securities companies can perform many operations at the same time, so they have a direct impact on market participants and play an important role in the stock market.

4.1. Creating a capital mobilization mechanism for businesses and the economy

Through securities companies, investors can access securities of issuing organizations, which are then circulated on the market. Thanks to the presence of securities companies, small, idle capital sources are gathered into a large amount of capital to invest in businesses and the economy.

4.2. Contribute to stabilizing stock prices on the market

Through proprietary trading activities, securities companies act as market makers, thereby contributing to stabilizing stock prices and creating a market for newly issued stocks.

4.3. Contribute to creating new products and services on the market

This role is clearly demonstrated in the brokerage activities of securities companies. Specifically, the company's brokers have direct contact with customers, so they can grasp their needs and transfer them to the company's product research and development department, from which new products and services are born. As a result, there are more products

Products and services, a diverse customer base and increasingly low service fees contribute to attracting more capital sources.

4.4. Help market management agencies manage and monitor market activities effectively.

Securities companies are both underwriters of new securities issuances and intermediaries in buying and selling and conducting transactions on the market, so they grasp most of the information about the issuer, information related to securities transactions, etc. In addition to directly helping investors access in-depth and timely market information sources, securities companies are also obliged to provide that information to management agencies for the purpose of market management. Thanks to that, market management agencies can control and prevent acts of manipulation, market manipulation, and market distortion, grasp the market situation to then propose appropriate policies and development measures.

4.5. Contribute to reducing transaction costs, reducing risks and improving efficiency for investors

Buying and selling securities through a securities company will help investors save on transaction costs because the cost of finding a partner has been significantly reduced. Thanks to the securities company, investors also reduce risks in the process of buying and selling securities when the buyer is guaranteed to receive real securities and the seller is guaranteed to receive real money after delivering the securities.

In addition, securities companies also help investors find effective investment opportunities, use real stock investment knowledge and participate in the market in a timely and convenient manner, thereby contributing to stimulating demand for the stock market.

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