Tài liệu 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) iii    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 iv    TABLE OF CONTENT Acknowledgement Abstract Table of content List of figure CHAPTER I: INTRODUCTION ............................................................................... 1 1.1 Research basis ............................................................................................... 1 1.2 Research matters .............................................................................................. 3 1.3 Research target ................................................................................................. 4 1.4 Research scope and approach .......................................................................... 5 1.5 Real meaning of the research ........................................................................... 7 1.6 Structure of the thesis ...................................................................................... 8 CHAPTER II: INTRODUCTION OF SECURITIES MARGIN TRADING .......... 9 2.1 Introduction ................................................................................................... 9 2.2 The history of margin trading on international securities market ................ 9 2.2.1 The history of margin trading and securities margin trading........................ 9 2.2.1.1 The history of margin .................................................................................. 9 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 v    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 do 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 vi    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 viii    - Appendix 4: The capital, profit and loss of the securities companies at 31st December 2009 (unit: mill. VND) .................................................................... 176 - Appendix 5: Organization chart of Vietnam securities market ........................ 181 LIST OF FIGURES - Figure 1.1: The structure of the study - Figure 2.1: The initial margin rates - Figure 2.2: Trading in margin account and the margin account has the excess equity value - Figure 2.3: Trading in margin account and maintenance of the margin account - Figure 3.1: Statement of trading volume from April to December of the years 2008 and 2009 - Figure 3.2: Statement of trading situation in the last 3 months of 2009 under the pressure of securities mortgage release - Figure 4.1: A real case violation on using the inside information - Figure 4.2: Statistics of listed securities companies in the market - Figure 4.3: Listing activities in the securities market - Figure 4.4: Statistics of custody accounts - Figure 4.5: Statistics of securities companies’ capital scale - Figure 5.1: Proposal the initial margin rate and minimum margin ratio - Figure 5.2: Proposal the dossiers related to opening the margin trading account ix    LIST OF TABLE - Table 2.1: The benefits and risks of investors and securities companies in applying securities margin trading - Table 4.1: Legal documents applied in Vietnam securities market - Table 4.2: Situation of violating Securities Law - Table 4.3: The system of accounts in settlement and clearing transactions of cash and securities in the market - Table 4.4: Listing conditions CHART - Flow chart 5.1: Margin financing procedures - Flow chart 5.2: Credit control procedures x    CHAPTER I: INTRODUCTION 1.1. Research basis Securities market is an effective channel of capital mobilization for the national economy; so, its establishment and development in developing countries are very necessary. Together with the fast expansion of securities market in other countries, the establishment of Vietnam securities market is an indispensable trend in the process of economic growth and integration in the region as well as in the world. During its development course, the countenance of Vietnam securities market has continually changed and the Vietnam securities market has become an important channel of capital mobilization in medium and long terms in the process of national industrialization and modernization. Vietnam securities market has officially come into operation since 20 July 2000, from which it is 10 years old now. Although it has still been too young in comparison with the securities markets of other countries with hundreds of years, the Vietnam securities market has gotten many considerable achievements such as the capitalization rate of 40% of GDP, exceeding the norm of the Government (10 15% of GDP), the gradually perfected legal documents, the increasing numbers of listed companies and the investors participating in the market and the attraction of the interest of local and overseas investors. The occasion of 10 years of establishment and development of Vietnam securities market is also the occasion to revaluate the achievements attained as well as the shortcomings need to be perfected so that the Vietnam securities market can become more stable and play the role of effective channel of capital mobilization in the economy. Vietnam securities market has started since 20th July 2000, in such a short period of time, though it has experienced many ups and downs. From a small number of transactions during 2001 - 2003 with some of securities codes to the boom of trading volume during 2006 - 2007, and until the period of 2008 - 2009, we 1    have seen the sharp decline of the market. In addition to the reason of unstable situation of the world’s economy, the immanent reasons are the wave of speculation, the gap in the law, the issues in the management policy of currency market and capital market in Vietnam. After significant fluctuations in the market, the trading situation seems to be quieter at the moment. In the busiest trading days, the trading value reached even over VND 11.000 billion/day, but at present, the trading value is only around from VND 1.000 billion to VND 1.500 billion/day. Another important reason of the gloominess of Vietnam securities market is the lack of diversification of trading method in the stock market, leading to the excessive decline of the liquidity in a long time and the loss of the attraction of this investment channel and the obstruction of the capital mobilization channel of the economy. In order to increase the attraction of the securities market from the investors, to gradually diversify the stock trading method, to enhance the operating effectiveness of the securities market and to broaden the capital mobilization channel of the economy, the diversification of trading method is very necessary, especially the “Margin trading” which is considered a trading method helping to sharply increase the liquidity of the market. This trading method has been being applied popularly in the countries having developed securities market and is an indispensable demand of emergent securities markets in their growing process. However, the application of margin trading method in Vietnam securities market should be considered and prepared with certain basic conditions such as the requirements on legal framework, the readiness of the participants on the securities market, the demand on risk management of securities companies - organizations having operations directly related to the margin trading activity because in addition to the advantages of this trading method, there are some implicit risks may not only occur to the participants on the market, but also cause the effects on the whole system of securities market. 2    Therefore, the application of margin trading method would be an indispensable demand in the growing course of securities market. The research on the securities market reality and the participants on the market to offer recommendations for preparing the application of the margin trading method is very necessary to maximize the benefits from the application as well as to minimize its risks. And that is the reason why I select the topic “SECURITIES MARGIN TRADING AND RECOMMENDATIONS FOR THE PREPARATION OF APPLYING MARGIN TRADING IN VIETNAM SECURITIES MARKET” 1.2. Research matters Margin trading method has been being applied popularly in the countries having developed securities market. This is one of the methods that aim to diversify the trading method, to raise the liquidity for the market and to help the investors have more trading methods to maximize their profits. The application of this method in Vietnam securities market to meet the demand of the market is indispensable to the growing process of Vietnam securities market according to the Government guidelines. This thesis focuses on the margin trading method, the reality of Vietnam securities market and the subjects trading in Vietnam securities market, including the following issues: - The first issue mentioned is the State agency in charge of securities and securities market. The State manages Vietnam securities market by means of the system of legal documents. This thesis concentrates on analyzing the limitations in the system of legal documents related to securities and securities market, then giving suggestions to develop securities market as well as the application of margin trading method. 3    - The second issue mentioned is the intermediate organizations giving supports to the securities market (hereinafter referred to as “the supporting intermediate organizations”) including Vietnam Securities Depository (“VSD” for short), Designated Settlement Bank and accredited audit organizations. This thesis also analyzes the existing limitations of the supporting intermediate organizations providing supports to the securities market with the intermediary role of supporting trading information, performing transactions and making payment in securities market, then gives suggestions for improving the operation structure of intermediary organizations to develop the securities market and recommendations for applying margin trading method. - The third issue mentioned is stocks, which are considered goods in securities market. The analyzation of figures and assessment about the reality of listed companies in Ho Chi Minh City Stock Exchange (hereinafter referred to as “HOSE”) help to present the limitations and recommendations for applying margin trading method as well as for speeding up the growth of securities market. - The last issue is the research on the existing limitations of participants doing business in the securities market including investors, organizations, local and overseas individuals, fund management companies, especially securities companies - subjects directly providing margin trading service. This part of the thesis goes into the details of researching the reality of securities companies and then gives the 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 are focused on upon the research. 1.3. Research target The research target of this thesis is to give practical and useful recommendations for market participants in applying the margin trading method, including the suggestions to perfect the existing shortcomings and to supplement the solutions so 4    that the application of this method of the participants could be effective as well as the possible risks during the course of application could be minimized. The research target of this thesis aims to solve the following issues: - What is margin trading? What are basic rules in margin trading according to the international practice? These questions will be answered in Chapter II of this thesis. - Should the margin trading method be applied to Vietnam securities market? This issue will be presented in Chapter III. - What are the participants in the securities market? What are the limitations of these participants in applying margin trading method in Vietnam securities market? These contents will be replied in Chapter IV. - What are recommendations for each type of market participants in applying margin trading method? This content will be detailed in Chapter V. - What are specific recommendations for securities companies – mainly related subject in providing margin trading service? The answer will also be detailed in Chapter V. The research target of this thesis is not only to point out the existing limitations of each market participant with different roles, responsibilities and purposes related to margin trading method, but also to offer specific recommendations for application of this method to each participant, especially the securities companies, which are the organizations providing margin trading service to their clients in Vietnam securities market. 1.4. Research scope and approach Firstly, this thesis only focuses on the margin trading scope. Margin trading includes buying first and then selling (also known as “buying on margin”) and selling first and then buying (also known as “short selling”). Therefore, the term 5    “margin trading” or “securities trading” used in this thesis means the transaction of buying on margin. Secondly, this thesis only focuses in researching the actual situation of Vietnam securities market and its participants including the State agencies in charge of managing the securities market, the supporting intermediate organizations with the intermediary role of supporting trading information, performing transactions and making payment in the market, the listed companies and particularly the participants in the market having activities directly related to margin trading method. The research approach used during the course of doing the thesis includes: - Collection of information: The information and data have been collected via many sources of materials related to margin trading in the countries having developed securities market such as the United States, China and Malaysia and via the margin trading processes actually applied in Inter Pacific Securities Sdn Bhd. The figures have been placed on the mass media, the securities magazines, the annual reports of the stock exchange and of listed joint stock companies in Vietnam securities market, the legal documents and financial statements systematized of listed and securities companies. - Statistics of figures: On the basis of the information collected, the information data will be systematized to serve the specific research targets. - Analysis: The analyses of tendency and ratio are performed to serve the specific research targets of the thesis. - Assessment of analytical results: Basing on the results of the collections, statistics, comparison, the assessment of analytical results is given to the research targets of the thesis. The research approach of the thesis is mainly applied in the process of analyzing, assessing the reality of securities market and the market participants. The results 6    drew from these assessments are regarded as the basis to offer the recommendations related to the application of margin trading method. 1.5. Real meaning of the research Margin trading method has been being popularly applied to the countries having developed securities market, which is considered as indispensable to meet the demand of the market. Vietnam securities market has come into operation for 10 round years. In addition to the considerable achievements in the initial stage, Vietnam securities market has still not fully developed as compared with that of other countries, namely the lacks of trading methods that help to maximize the profit or risk defensive products such as Option, Future, Repo and margin trading method. Margin trading is regarded as a trading method that gives much support to the liquidity of the market, increases the possibility of maximizing the profit of the investors, but also contains many risks. In order to satisfy the demand of the market and of the participants in Vietnam securities market, the application of margin trading is an essential requirement. Apart from introducing the margin trading method and its rules, this thesis also offers recommendations for application of this method to the market participants, including the following issues: - The State agencies should have certain measures to manage the trading method in the securities market to ensure the stability and the solidity of the market. - The supporting intermediate organizations have to repair the shortcomings, perform their intermediary roles of information, transaction and settlement in the market well to clear the flow of trading stocks. - The listed companies should follow the legal regulations on securities and securities market, select proper development direction to raise their values as well as to minimize possible risks during the operation course so that the stock traders can get enough information and reach the investment target via margin trading method. 7    - Participants doing business in the securities market, especially the securities companies – organizations providing margin trading service should carry out the measures to effectively operate and to manage the risks during the course of operation as well as of providing margin trading service. From the actual demand of Vietnam securities market about the application of margin trading and in order to help the market participants, especially the participants having directly related operations, fully prepare for the application of this method, achieve the highest effect and manage the arising risks, this thesis is presented and expected to solve the tasks mentioned above to maintain the stability and solidity of Vietnam securities market that will become an effective channel of capital mobilization in medium and long terms of the economy. 1.6. Structure of the thesis Figure 1.1 Structure of the study Chapter I Introduction Chapter II Introduction of margin trading Chapter III Vietnam securities market demand of margin trading Chapter IV Limitations of participants in Vietnam securities market Chapter V Recommendations margin trading 8    for and application the of