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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. 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
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)
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
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:
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,[email protected], and
3,[email protected] (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,[email protected]; 3,[email protected]. 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
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:
[email protected]; 1,[email protected] and 6,[email protected]. 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
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
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).
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:
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
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.
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
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
“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/