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 1,600@10.4MP, and

3,800@10.5MP (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:

7,300@10.3; 3,300@10.2. 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:

400@10.5; 1,000@10.6 and 6,000@11.0. 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/