Lecture Notes - Cityu

9/11/22
LOGO
SECURITIES MARKET
BANKING ACADEMY
FINANCE FACULTY
2022
TIME COMMITMENT
Ü Four hours class contact per week for one

semester
Ü The total time commitment expected for this
unit is 135 hours
n  30 hours of class contact
n  105 hours of self-studying
Ü Preparing for discussion, together with time
spent on general study, revision, and exam.
ASSESSMENT
Assessment Task Due Date Value

Group Assignment To be advised 20%
Semi-exam To be advised 20%
Attendance Full 10%
Final Exam Official Examination Period 50%
Total 100%
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RESOURCES AND REQUIREMENTS
Ü HANDOUT TEXT BOOK

Ü Recommended text(s)/Reading
n  Bodie, Kane, Macus (2020), Investment, 12th edition, Mc
Graw-Hill
n  Viney, C, Mcrath’s Financial Institutions, Instruments and
Markets, 4th edition, Sydney, Mc Graw-Hill.
n  Frank J. Fabozzi (2005), Capital market, Institutions and
Instruments, 3rd edition, Prentice Hall.
Group assignment
HANDOUT
CONTENTS
CONTENTS
Chapter 1 Overview
Chapter 2 Instruments
Chapter 3 Primary market
Guest speaker
Chapter 4 Secondary market
Chapter 5 Regulation and information disclosure
Assignment - Presentation
Review
6
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LOGO
CHAPTER 1:
OVERVIEW
7
Terminology
English Tiếng Việt
Securities market Thị trường chứng khoán
Financial market Thị trường tài chính
Monetary market Thị trường tiền tệ
Securities Chứng khoán
Real asset Tài sản thực
Financial asset Tài sản tài chính
Direct finance Tài chính trực tiếp
Indirect finance Tài chính gián tiếp
Primary market Thị trường sơ cấp
Secondary market Thị trường thứ cấp
Stock exchange Sở giao dịch chứng khoán
Over The Counter (OTC) market Thị trường phi tập trung
8
Terminology
Stock Cổ phiếu
Bond Trái phiếu
Derivative Chứng khoán phái sinh
Underwriter Tổ chức bảo lãnh phát hành
Broker Người môi giới
Market maker Nhà tạo lập thị trường
Clearing house Trung tâm thanh toán bù trừ
Securities depository Trung tâm lưu ký chứng khoán
Financial institutions Tổ chức tài chính
Speculator Nhà đầu cơ
Joint stock company Công ty cổ phần
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Terminology
Limited liability company Công ty trách nhiệm hữu hạn
State-owned enterprise Doanh nghiệp nhà nước
Mutual fund Quỹ tương hỗ
Pension fund Quỹ hưu trí
Hedge fund Quỹ phòng hộ
Venture capital fund Quỹ đầu tư mạo hiểm
Securities company Công ty chứng khoán
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INTRODUCTION TO SECURITIES MARKET
Overview
1
Structures 2
3 Players
Performance 4
11
History
Ü Europe, early of 13th century, city councils

Ü Netherlands, 17th century, merchants
Ü  Goods: bonds, stocks, derivatives
Ü Location: flexible -> ‘outdoor market’ -> OTC ->
Stock Exchanges
Ü Milestones: 1929 – 1933, 1987, 2008
The history of stock markets is attached to crises

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Crisis
Ü The global crisis 2008

Ü The dotcom bubble 2000
Ü  The Asian financial crisis 1997
Ü  The crisis of 1987

Ü  The Great Depression 1929 - 1933
Ü  The South Sea bubble
Ü  The Tulip Mania

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The Tulipmania
Ü The price of tulip flower bulbs increased 10 times
in 3 months
Ü At the peak:
$ 100000
2 billion VND
14
The dot-com bubble
Ü A speculative bubble, remembered as ‘Internet

bubble’, ‘IT bubble’ or ‘prefix bubble’
Ü Started in 1995, boom-and-burst period 1999 – 2001
15
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Black Tuesday
29/10/1929
Down Jones declined by 25%
7/1932
Down Jones
declined by 89%
6
16
LOGO
Black Monday
Down Jones declined by 22.5%
7
17
LOGO
Discuss
Vietnamese stock market?
18
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SECURITIES MARKET?
Ü  A component of the

wider
financial
market where
securities can be
bought and sold
between subjects of
the economy, on the
basis of demand and
supply.
19
Definition
Financial
Market
Capital Monetary
Market Market
Securities Long term

Market loan market
The financial market is the place where financial instruments are traded.
The securities market is a part of the Financial market
20
REAL ASSETS AND FINANCIAL ASSETS
21
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Characteristics
Free market, close to perfect

competition market
The
Direct financing stock
market
Long term funding
22
Capital turnover in the financial market
Indirect finance
Financial
Capital intermediary
Capital
Who has capital Who need capital

1. Family Capital Capital Capital 1. Family
2. Corporation 2. Corporation
3. Government 3. Government
Direct finance
23
Role of securities market
Mobilizing capital for governments,

Companies, Funds
Stabilizing macroeconomics
Creating liquidity for securities
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Operation Principles
Information
Disclosure
Intermediary
Auctioning
Market structure
• Primary market
Method of
• Secondary market
trading
• Stock exchange
Registration • OTC
• Market for stocks

Instruments • Market for bonds
• Market for derivatives
26
Market participants
Ü Main players:
Ø Investors/Traders (institutional vs individual)
Ø Issuers
Ø Underwriters
Ø Brokers
Ø Dealers
Ø Market Makers
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Market participants
Ü Regulators and market organizers:

Ø Market regulators (Securities Commissions)
Ø Stock Exchanges/Clearing house
Ø Association of Stock Dealers
Ø Securities Depository
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MARKET PLAYERS
- Who are they? Household

- What do they want? sector
- How can they do?
Financial
institutions
Government Business
sector sector
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(1) HOUSEHOLD SECTOR
Ü Everyone seeking to satisfy unlimited wants and

needs.
Ü Individual investor (including farm household)
Ü Makes an investment into one or more categories
of assets --- equity, debt securities, real estate,
currency, commodity, derivatives such as put and
call options, etc. --- with the objective of making a
profit.
Ü Manage risk (Risk – taking)
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Investors & Speculators
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(2) BUSINESS SECTOR
Ü Make use of securities market to manage

differences in their supply and demand for capital
and to manage risk.
Ü Discussion: Difference between household and
business sector in securities market?
Ü Raising fund: issuing bonds or stocks/shares
n  Marketing their securities
n  Minimizing cost of the capital
Ü Manage risk (business risk & investment risk)
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Business sector
Limited liability Joint stock

State company
company company
•  Debt •  Debt •  Debt
instrument instrument instrument
•  Internal fund •  Internal fund •  Equity
instrument
•  Internal fund
33
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(3) GOVERNMENT SECTOR
Ü Finance their expenditures by borrowing

Ü Governments have a special advantage in
borrowing at the lowest rates
Ü Taxing power
Ü Special role of the government is in regulation the
financial environment
n  Protect participants
n  Financial stability
n  Politics
Ü Conduct fiscal policy
34
Governments
Ü Central government:
n  Treasury notes (T-notes)
n  Treasury bonds (T-bonds)
Ü Agencies of central government:

n  Federal National Mortgage Association (Fannie Mae)
n  Borrows money by issuing securities and lends this money

to savings & loan institutions to be lent in turn to
individuals borrowing for home mortgages
n  Can be viewed as branches of the government, their debt is
fully free of default risk
Ü Municipal bonds: issued by state & local governments
35
(4) FINANCIAL INSTITUTIONS
Ü Provide financial services for investors and issuers in

the stock market
Ü Investment companies: pool together and manage the
money of many investors, also arise out of the
“smallness problem”
n  Mutual fund
n  Pension fund
n  Hedge fund
n  Venture capital fund
n  Foundation fund, ….
Ü Insurance companies
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Securities companies
- Securities company is defined as a legal institutions

takes part in one of such actions: Brokerage, Self-
trading, Registry and Custody services, Issue
Underwriting, Asset management, Investment Advisory
or other securities skills.
- According to current Security Law, security business
institutions consist of Security firms, Managed fund
companies, Asset management companies and
Investment banking firms.
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STOCK PRICE BOARD
38
LOGO
CHAPTER 2:INSTRUMENTS
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Terminology
Government bond Trái phiếu Chính phủ
Municipal bond Trái phiếu Chính quyền địa phương
Corporate bond Trái phiếu doanh nghiệp
Coupon securities Chứng khoán trả lãi định kỳ
Discount securities Chứng khoán bán với giá chiết khấu
Treasury Inflation Protected Securities Trái phiếu Chính phủ ngừa lạm phát
(TIPS)
Debenture bond Trái phiếu không có đảm bảo
Guaranteed bond Trái phiếu có đảm bảo
Sinking fund Quỹ chìm
Refunding Hoàn trả
Convertible bond Trái phiếu chuyển đổi
Floating rate bond Trái phiếu có lãi suất thả nổi
40 BA-2018
Terminology
Inflation – indexed bond Trái phiếu gắn với chỉ số lạm phát
Zero coupon bond Trái phiếu không trả lãi định kỳ
Foreign bond Trái phiếu nước ngoài
Eurobond Trái phiếu Châu Âu
Bond credit rating Hệ số xếp hạng tín nhiệm trái phiếu
Redemption date Ngày hoàn trả

Redemtion yield Lợi tức hoàn trả
Yield spread Chênh lệch lãi suất
Intrinsic value Giá trị nội tại
Book value Giá trị sổ sách
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Terminology
Cumulative preferred stock Cổ phiếu ưu đãi tích luỹ
Non-cumulative preferred stock Cổ phiếu ưu đãi không tích luỹ
Redeemable preferred stock Cổ phiếu ưu đãi có thể thu hồi
Non-redeemable preferred stock Cổ phiếu ưu đãi không có điều khoản thu
hồi
Participating preferred stock Cổ phiếu ưu đãi tham dự
Non-participating preferred stock Cổ phiếu ưu đãi không tham dự

Underlying asset/preference asset Tài sản cơ sở
Forward contract Hợp đồng kỳ hạn
Future contract Hợp đồng tương lai
Option contract Hợp đồng quyền chọn
Exercise price/ Strike price Giá thực hiện
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CONTENTS
Overview of instruments
Bonds
Stocks
Derivatives
INSTRUMENTS
Securities that confirm the rights and legitimate

interests of the owner of the property or capital of the
issuer. Securities are in the form of a certificate, a
book entry or electronic data.
Securities
Ü  Confirm the legal rights of securities holders,

including :
-  Ownership ( for equity securities)
-  Sovereign debt (debt securities)
-  Financial rights related to securities ( for
derivatives)
Ü  Classification
-  Equity Securities
-  Debt securities
-  Derivatives
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Equity Securities
- An instrument that signifies an ownership

position (called equity) in a corporation, and
represents a claim on its proportional share in the
corporation's assets and profits.
- Classification
+ Company shares
+ Fund Certificates
Debt Securities
3/1/2010
Ü An instrument that signifies the borrowing

relationship between the issuer and the holder of the
security, issued with a promise of repayment on a
certain date at a specified rate of interest.
Ü Classification
•  Bonds
•  Notes
•  Commercial papers
Derivatives
3/1/2010
Ü A security whose price is dependent upon or derived

from one or more underlying assets (shares, bonds)
Ü Objectives of issuing Derivatives

•  Risk hedging
•  Profit guarding
•  Profit seeking
Ü Types of derivatives: Forwards, Futures, Options, Swaps
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Basic characteristics of securities
Return
Securities
Risk Liquidity
Risk
Risk
The
uncertainty 2.
1.Systematic Unsystematic
of achieving risk
the expected risk
return
Liquidity
The degree to which an asset or security can be

bought or sold in the market without affecting the
asset’s price.
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Company shares
Ü Issuers:
n  Joint Stock Company
Ü Characteristics of stock
n  Return, risk & liquidity
n  Entitle the holder to ownership of the company
n  No maturity
n  No limit on the amount of dividends that can be paid
n  Dividend amount per share is determined by the
company’s board of directors and must be approved by the
shareholders
n  Residual claim & limited liability
Classified Company shares
According to
the interests of
shareholders
Common Preferred
stocks
stocks
also known as
equity securities has features
or equities, or similar to both
ordinary shares, equity and debt
represent
ownership shares
in a corporation
53
Common stocks
Rights Obligations
Preferred stocks
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-  Elect the company’s board of the

Rights directors
-  Vote on resolutions at company
general meetings
-  Money -  Approve any change on the
constitution and the renounceable
-  Shares rules of the company
-  Assets Voting
Receive
dividend rights
Claim on Receive
assets information
-  Financial
statements
- Unusual news
Forms of value
Face value
Market Value
Book value
Intrinsic value
Forms of value
1. Face Value (Par value)
n  Nominal value of shares
n  Associated with firm’s authorized capital
n  Dividend base
n  Par value obligation in Vietnam?
2. Market Value (Market Price)

n  Determined by market demand – supply
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Forms of value
3. Book value
n  The value at which an asset is carried on a balance sheet
Forms of value
4. Intrinsic value
n  The actual value of a company or an asset based on an
underlying perception of its true value including all aspects
of the business, in terms of both tangible and intangible
factors
TERMS
www.themegallery.co
m
Outstanding shares: A company's stock currently

held by all its shareholders, including share
blocks held by institutional investors and
restricted shares owned by the company’s officers
and insiders.
Treasury shares: The number of issued shares a

company buys back to hold as reserves.
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Preferred stocks
Return Rights
Fixed dividend
•  Entitled to receive a - Rank ahead of
specified fixed return ordinary shares with
out of the firm’s net
earnings respect to dividend
payments and claims
•  Depend on:
on assets in the event
- Firm’s earnings of liquidation
- Form of preference: - Normally have no
cumulative,
participating voting rights
What are differences between common
stocks and preferred stocks?
Preference shares
Advantages Disadvantages
Ü  No default risk with Ü  Preference
non-payment of dividends are not
dividends tax deductible – no
tax relief for firms
Ü  Dividends limited in categories 2 and
Ü  No ownership 3
dilution Ü  While failing to pay
Ü  Possible tax relief dividends cannot
with franked force a company
into liquidation, it
dividends conveys a negative
Ü  Leverage effect on signal to the market
EPS
Forms of preference shares
Ü Cumulative or non-cumulative
n  Usually cumulative
Ü Redeemable or non-redeemable
n  Usually non-redeemable
Ü Participating or non-participating
n  Usually non-participating
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Bond securities
Bond is an obligation that issuer (the borrowers)

must repay to the owners of the bond (the lender)
the principal amount at maturity and a certain
amount of money (interest) in a certain period of
time.
Characteristics
1. Par Value
n  Nominal value of bonds, printed on the bonds’ faces
n  Uses of par value?
2. Maturity
n  The period of time from when the bond is issued to when the
loan is due
n  Determined when the bond is issued
n  Varies in maturities: Short-term bonds (1 – 5 years), Mid-term
bonds (5 – 12 years), Long-term bonds (over 12 years)

n  Bond yields & price fluctuation are related to maturities (Yield
to Maturity – YTM)
Characteristics (cont.)
3/1/2010
3. Coupon rate (nominal rate)
n  The amount of interest committed by the bond issuers to pay for the bond
holders, calculated as a percentage of the par value.
n  Determined at the time of issuance along with the bond’s maturity, can be
fixed or gradually increasing (step-up notes)

4. Issuing price
n  The price at which the bond is sold out at issuance
n  Can be larger, smaller than, or equal to the par value
5. Interest payment period

n  The frequency of interest payments
n  Can be annual, semi-annual, quarterly or none (Zero coupon bonds)
6. Market price: determined by supply and demand

7. Accrued interest: that portion of the coupon payment accrued between the last
coupon payment and the settlement day
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Rights and obligations
Can sell, transfer,

transform, mortgage
Earn bond interest Receive advance payment

payment over shareholders in case
of company liquidations
Receive capital repayment

at or before maturity
Return - Risk
Interest
Bonds rate risk
Inflation
Interest risk
Return
Risk
Capital gain Market

risk
Liquidity
Credit rating risks
risks
Credit rating
An assessment of the credit worthiness of a borrower in

general terms or with respect to a particular debt or
financial obligation
Can be assigned to any entity that seeks to borrow money –

an individual, corporation, state or provincial authority, or
sovereign government
Generally done by a credit rating agency (Moody’s, S&P,
Fitch)
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Bond credit ratings
Ü Rating system:
n  High rate = low credit risk
n  Denoted by symbol
n  Moody’s: Aaa
n  S&P: AAA
n  Fitch: AAA
n  Investment grade bond & high – yield bond
n  Rating transition matrix
Ü Factors considered in assigning rating (Cs)

n  Character of management
n  Capacity of issuer
n  Collateral
70
n  Covenants
Rating system of bonds

Rating S&P Fitch Moody’s
Investment grade
Highest grade AAA AAA Aaa
High-grate AA AA Aa
Upper medium grade A A A
Medium grade BBB BBB Baa
Speculative grade (high-yield)

Lower medium grade BB BB Ba
Speculative B B B
Poor standing CCC CCC Caa
Highly speculative CC CC Ca
Lowest quality, no interest C C C
Defaullt D D
Bond Classification
IN TERM OF ISSUER
1 2 3
Government bonds Municipal bonds Corporate bonds
Some government Are issued by state and Are means by which
agencies issue their local government private firm borrow
own securities to - Industrial development money directly from
finance their activities. bond public
- Treasury notes - Tax anticipation notes
- Treasury bonds …
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(1) Government bonds
Ü Coupon securities: pay interest every 6 months,

plus principle at maturity
n  Treasury notes: 2-10 years
n  Treasury bonds: more than 10 years
Ü Discount securities: pay only a contractually fixed
amount at maturity
Ü Treasury Inflation protection securities (TIPS)
n  Coupon rate (real rate) on an issue is set at a fixed rate
n  The principal is adjusted semiannually for inflation
73
(2) Municipal bond
Ü Issued by state and local government (cities and

counties)
Ü Most municipal securities are tax exempt (applies
to interest income, not capital gains). Tax risk?
Ü Some issues are taxable at the federal level
Ü Municipal issue long – term bond as the principal
means for financing:
n  Long-term capital projects such as the construction of
schools, bridges, roads, and airport
n  Long – term budget deficits arise from current operations
Ü Revenue bonds: sold to finance a specific revenue-
generating project and are backed by cash flows from that
project 74
Corporate bonds
Ü Bond indenture
Ü Maturity of bonds
Ü Security for bonds
n  Debenture bonds
n  Guaranteed bonds
Ü Provisions for paying off bonds

n  Sinking fund
n  Refunding
75
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Bonds with special features
Ü  Convertible and exchangeable bonds

Ü  Issues of debt with warrants
Ü  Callable bonds
Ü  Puttable bonds
Ü  Zero-coupon bonds
Ü  Floating –rate securities
Ü  Indexed bonds
76
Bond market quote
77
Derivatives
Ü A security whose price is dependent upon or

derived from one or more underlying assets
(shares, bonds)
Ü The underlying assets can be tangible or

intangible
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Type of derivatives
Forward Future Option Swap

contract contract contract contract
79
Forward contract
Price
determined
Agreement
Certain
period
Features
Ü There is no transfer of money at the time of contract

agreement
Ü The parties are required to perform the contract
Parties agreed to buy: long position (long position)
Parties agreed to sell: sell position (short position)
Ü Traded on the OTC
Ü Property reference: foreign exchange, interest rates,
stocks, stock indices, commodities
Ü The parties to the contract may be subject to credit
risk
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Future contract
Ü Price is determined today, but transaction occurs

at some specified date in the future
Ü The quantity, quality and delivery details are
standardized by the future exchange
Ü The contract is with the futures exchange clearing
house
Futures contract
Advantage Dis - advantage
Ü Liquid Ü Standardized contract =>

Ü Little or no credit risk difficult for investors to
Ü Contract can be traded choose suitable contracts
Retailer with $1M of

7 years borrowings
hedging against
long-term interest
rate fails
In 9 months time,
I promise to pay
you $ 1,053,003
for the ten-year T-
bonds
In 9 months time, I promise to
Manufacturer
Clearing pay you $ 1,053,003 for the
ten-year T-bonds
who needs to house
borrow $1M in 9
months time
In 9 months time, I agree to
deliver ten year T-bonds with
$1,000,000 face value
In 9 months time, I agree to

deliver ten year T-bonds with
$1,000,000 face value
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Role of the clearing house
The clearing house

protects itself and its
clients by:
- Requiring deposits
- Marking – to – market
- Making margin calls
Deposits
Ü A deposit or initial margin must be lodged with

the clearing house before trading
Ü The size of the deposit will depend upon price

volatility, liquidity
Ü The deposit should be sufficient to cover a large

single day price move
Marking – to - market
Ü Each trading day, the clearing house calculate

gain/loss on each contract and adjust account
balances
Ü At any given time, the clearing house ( and its

clients) only have exposure to a single days
market movements.
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Margin calls
Ü Is an account balance falls below the minimum

required balance, a margin call will be made
Ü The margin call will require the account holder to

restore the minimum required balance
Ü Failure to meet the margin call will result in open

positions being closed - out
Closing - out
Ü Hedgers, speculators and arbitrageurs rarely

require physical delivery of the underlying
commodity
Ü Open contracts are closed out prior to settlement

(98% of the time) by executing an offsetting trade
Forward and futures contracts
Forward Futures
Traded Over- the- counter On organized exchanges
(OTC)
Standardization Non- standard Standardized by the

futures exchange ( size,
delivery, quality of asset)
Settlement At maturity Daily settlement

(marked-to-market)
Closing Physical delivery or final Cash settlement or close

cash settlement out prior to expiry
Credit risk Has credit (counterparty Little credit risk

risk)
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Options
Option is the contract that gives the buyer the right,

but not the obligation, to buy or sell an amount of
underlying security at pre- specified price (called
the strike or exercise price) within a pre-specified
period of time.
Types of options
1.Call 2. Put
Options option option
Call option
Seller
Buyers
-  Right to buy underlying

- Receive premium
security
- Has obligation to sell
-  No obligation
underlying security if buyers
-  Pay premium
buy
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Put options
Buyers Sellers
-  Right to sell underlying -  Receive premium

securities -  Obligation to buy
-  No obligation underlying securities
-  Must pay premium according to buyer’s
determination
Option contract
Contents
The option buyer Expiration date

Contents
The option seller Premium

Contents
Strike price Contents

Exercising an
(exercise price) option
Understanding Option contract
Ü Exercising an Option: when a holder of an option

enforces the agreement and buys or sells a share
of stock at the agreed-upon price
Ü Strike price (Exercise price): the price at which
an option holder buys or sells a share of stock
when the option is exercised
Ü Expiration date: the last date on which an option
holder has the right to exercise the option
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Understanding option contracts
Ü The option buyer (holder): holds the right to

exercise the option and has a long position in the
contract
Ü The option seller (writer): sells the option and has
a short position in the contract. Because the long
side has the option to exercise, the short side has
an obligation to fulfill the contract if it is
exercised
Ü The buyer pays the writer a premium
Understanding option contracts
Ü At the money

Ü In the money
Ü Out of the money
Types of Options
Ü European options (both calls and puts) may only

be exercised at the expiration date of the option
Ü American options (both calls and puts) may be
exercised at any time prior to the expiration date
of the option.
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LOGO
CHAPTER 3:PRIMARY MARKET
Terminology
All or None (AON) Bảo lãnh phát hành tất cả hoặc không
Auction Đấu thầu/Đấu giá
Best-efforts Bảo lãnh phát hành với cố gắng tối đa
Bid Đặt thầu

Bid Price/Interest rate;
Lãi suất/Giá đặt thầu
Bidding Price/Interest rate
Bonus Issuing Phát hành cổ phiếu thưởng
Book-building Issue Phát hành với phương pháp dựng sổ
Cash Dividend Cổ tức bằng tiền mặt
Charter Capital Vốn điều lệ
101
Terminology
Competitive Auction Đấu thầu cạnh tranh
Convertible Bond Trái phiếu chuyển đổi
Dilution Effect Hiệu ứng pha loãng
Ex-right Date; Ex-date Ngày giao dịch không hưởng quyền

Bảo lãnh phát hành với cam kết chắc
Firm Commitment
chắn
Fixed-Pricing Issue Phát hành với giá cố định
Chào bán chứng khoán lần đầu ra công
IPO (Initial Public Offering)
chúng
Mini-maxi Bảo lãnh phát hành tối thiểu – tối đa
Multiple-price Auction Đầu thầu theo cơ chế đa giá

102
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Terminology
Non-competitive Auction Đấu thầu không cạnh tranh
Private Placement Chào bán riêng lẻ
Prospectus Bản cáo bạch
Public Offering Chào bán ra công chúng
Record Date Ngày chốt danh sách cổ đông
Secondary Market Thị trường thứ cấp
Secondary Offering; Seasoned Issue Phát hành bổ sung
Self-issuing Tự phát hành
Share Purchase Right Quyền mua cổ phần
103
Terminology
Single-price Auction Đấu thầu theo cơ chế một giá
Standby Bảo lãnh phát hành dự phòng

Starting Price; Reserve Price; Floor
Giá khởi điểm
Price
Stock Dividend Cổ tức bằng cổ phiếu
Underwriter Tổ chức bão lãnh phát hành
Underwriting Bảo lãnh phát hành
Winning Price/Interest rate Lãi suất/Giá trúng thầu
104
CONTENTS
Definition, Characteristics & Roles of Primary Market
Types of Issuing
Methods of Issuing
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Primary market
Definition Characteristics Function
The market -  Market Size Raising fund

where securities -  Operating Frequency
are sold for the -  Issuing price determination
first time. -  Investors
Primary market

Types of Issuing
Based on:
Timing of q  IPO (Initial Public Offering) (1)
Issuing q  Secondary Offerings / Seasoned Issues (2)
Types of q  Public Offering (3)

Investors q  Private Placement (4)
Pricing q  Fixed – Pricing Issue (5)

Approach q  Book – Building Issue (6)
Types of Issuing
(1) IPO – Initial Public Offering

Initial public offerings (IPOs) involve a firm selling its common stock to
the public for the first time.
At the time of an IPO, there is no existing public market for the stock.
Example:
IPO deal of Polo Ralph Lauren, a leading manufacturer and distributor
of men’s clothing.
The purpose of the offering was to get additional capital to expand its
operations and to create a public market for future seasonal offerings.
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Types of Issuing
(2) Secondary Offering/Seasoned Issue

Seasoned (equity) issues are new shares offered/issued by firms that already
have stock outstanding
Example:
General Electric, which is a large, well-regarded firm that has had public
stock trading on the NYSE for longer than 50 years.
If General Electric needed additional capital, it could sell additional shares of
its common stock to the public at a price very close to the current market
price of the firm’s stock.
Note: Seasoned issue is the term often applied to equity issues rather than
bond issues
Types of Issuing
(2) Secondary Offerings/Seasoned Issues
n  Secondary offerings for raising-chartered-capital purpose
n  Secondary offerings from equity capital sources: (a) Issuing for Stock
dividend; (b) Capitalization Issuing (Bonus Issuing)
n  Secondary offerings under Employee Stock Ownership Plan (ESOP)
n  Secondary offering for convertible bonds
Types of Issuing
n  Secondary offerings for raising-chartered-capital purpose
Method : Selling new shares for outstanding shareholders
Issue Right (Share Purchase Right): Avoiding dilution effect
1 2 3
•  Execute •  Sell the •  Not
the right right execute
the right
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The Value of Share Purchase Right & Post-Issuing Market Price of Shares
Qm : The value of right

P1 : Market price after Ex-date
P0 : Market price before Ex-date
P : Issuing price/Offering Price
N : Number of Shares Issued (before the secondary offering)
n : Number of Additional Shares under the secondary offering)
N/n : Offering Ratio
Record-Date (Ngày chốt DSCĐ): the date by which investors must be on the company's
books in order to receive rights related to stocks
Ex-Date (Ngày GDKHQ): usually set to be two business days before the record date (T
+3), on this date the stock buyers will not be recorded in company’s book, but stock
sellers.
The Value of Share Purchase Right & Post-Issuing Market Price of Shares
Example:
ACB joint stock company decides to raise capital through a secondary

offering with share purchase right applied to firm’s existing
investors. The information of the offering as following:
-  Number of new shares: 337,162,017
-  Offering ratio: 5:1 (5 outstanding shares equal to 5 rights, and 5
rights could be used to buy 1 new share)
-  Offering price: VND 10,000 per share
-  Market price before ex-date: VND 22,400 per share
DETERMINE THE VALUE OF RIGHT and P1?
Types of Issuing
n  Secondary offerings from equity capital sources: (a) Issuing for Stock dividend; (b)
Capitalization Issuing (Bonus Issuing)
Equity Capital Sources: Capital Surplus, Retained Earnings and other reserves
(a) Stock dividend: rather than receiving dividend payment in cash, investors will
received divident payment (from issuers/firms) in shares
(b) Bonus Issuing: Issue bonus shares to existing shareholders for free (Bonus
issuing) to restructure the company’s reserves
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The Value of Right & Post-Issuing Market Price of Shares
Rights of: Qm : The value of right
- receiving stock bonus P1 : Market price after ex-date
- receiving stock devident P0 : Market price before ex-date

P : Issuing price (= 0)
N : Number of stock before new issue
n : number of additional stock going to be issued
N * P0 + n * P
P1 =
N +n
N * P0
=
N +n
The Value of Right & Post-Issuing Market Price of Shares
Example:
Binh Thuan Hamico Mineral (KSA) announces their stock dividend for current
shareholders.
- Ex-dividend date: 16/8/2011, Record Date: 18/8/2011
- Dividend ratio: 100:20
- KSA shares on 15/8/2011 close at 13,600 VND
DETERMINE THE VALUE OF RIGHT and P1?
Types of Issuing
n  Secondary offerings under Employee Stock Ownership Plan (ESOP)

Issued to a limited number of employees under employee selection program
In order to earn employees’ loyalty to the company.
Allow the employees to earn benefit from the company’s free cash-flow.
Sell (at a special price) or reward shares to the employees
Non-dilutive -> dont effect to P1 (market price of stocks after ex-date)
n  Secondary offering for convertible bonds
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Types of Issuing
(3) Public Offering
Public offer of securities means an offer for sale of securities

via one of the following methods:
(a) Via the mass media, including the internet;

(b) An offer for sale of securities to one hundred (100) or
more investors excluding institutional securities investors;
(c) An offer for sale to a number of undefined investors.
Vietnam’s Regulation: Securities law 2019
Securities Offering Registration
Preparing
documents and
Amending the
issuing profile documents
Circular 162/2015/ according to SSC’s
TT-BTC by Ministry of
guide
Finance
1
2
The Procedure
5
Permission
3
4
Quiet period(30 days SSC receive the
of documents full registration
processing by SSC)
Process of Issuing Securities to Public (SSC-US)
Step 1 ! Step 2 ! Step 3 ! Step 4 !
Signing
Underwriting
Agreement ! Closing
issue!
General
Meeting ! Application for
!
issuing
Information
disclosure !
Preparation Submitting
Team ! Selecting Application to SSC! Market
!
Underwriters ! stabilizing
Distributing
Signing MOU
! Security !
with underwriter
Pricing ! Reporting
to SSC and
dissove
Application for
syndication !
underwriting !
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Types of Issuing
(3) Public Offering

Public Offering Registration Documents include:
§ Application form for public offering
§ Prospectus and Audited Financial Statements
§ Company’s Charter
§ Decision by Shareholder meeting or BoD
§ Underwriting commitment (if applicable)
§ Documents on land use and other documents…
6 sets of documents, 1 original and 5 copies
Final decision by SSC:

Ø Receiving permission from SSC to start the next phase
Ø If denied, receive denial from SSC in document stating the reasons for denial
Types of Issuing – Shares
(3) Initial Public Offering: Vietnam’s Regulation

Ü  Article 15 – Securities law 2019
Capital Chartered capital ≥ 30 billion VNĐ
In 2 years preceding the year of offering registration: (1) profitable,

Performances
(2) no accrued loss up to the year of offering registration;
Its issuance plan and plan on the use of capital generated from the
Others sale offering are adopted by the Shareholders' General Assembly.
….
Types of Issuing – Shares
(3) Secondary Public Offering: Vietnam’s Regulation

Capital Chartered capital ≥ 30 billion VNĐ
In the year preceding the year of offering registration: (1) profitable,

Performances
(2) no accrued loss up to the year of offering registration;
Its issuance plan and plan on the use of capital generated from the
Others sale offering are adopted by the Shareholders' General Assembly.
….
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Types of Issuing- Bonds
(3) Public Offering: Vietnam’s Regulation

Capital Charter capital ≥ 30 billion VNĐ
In the year preceding the year of offering registration:

Performances (1) profitable, (2) no accrued loss up to the year of offering registration;
(3) no payable debt which has been overdue for more than one year;
- Its issuance plan and plan on use and repayment of capital generated from the sale offering
are adopted by the Board of Directors, the Council of Members or its owner;
- It undertakes to perform the obligation of an issuing organization towards investors in terms
Others of issuance and payment conditions, assurance of legitimate rights and benefits of investors
and other conditions
….
Types of Issuing
(4) Private Placement

Private placements involve the sale of a bond/share issue by the issuer directly to an
investor or a small group of investors (usually institutions).
Vietnam’s regulation:
Private placement of securities means an arrangement for offering securities to less
than one hundred (100) investors not including institutional investors, without using
the mass media or the internet
Example 1
Date 24th March, 2015, Song Hong joint stock company apply to State
securities Commission of Vietnam with the follow information:
-  Foundation: 2006
-  Chartered capital: 7000 million dong
-  Outstanding investors: 60 persons
Application form: Offer company shares for outstanding investors
WHICH METHOD SHOULD BE USED?: Private or public offerings
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Example 2
Date 24th March, 2015, AVC joint stock company apply to State
securities Commission of Vietnam with the follow information:
-  Foundation: 2006
-  Chartered capital: 500 billion dong
-  Outstanding investors: 600 persons
-  Financial performance as below: ( million dong)

Year 2010 2009 2008 2007
Net income 27 72.030 -172.504 67.768
WHICH METHOD SHOULD BE USED? Public or Private offerings
Issuing Approaches
Auction Self-issuing
Underwriting
Issuing Approaches
q  Self – Issuing v.s. Self-Registration (U.S) (1)

q  Underwriting (2)
Ø  Firm commitment
Ø  Best-Efforts
Ø  Mini-Maxi
Ø  All or None/AON
Ø  Standby
q  Tender Bids/Auction (3)
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Issuing Approaches
(1) Self – Issuing
The company (issuer) sells its securities directly to the market without the
involvement of any intermediaries.
The issuers need to prepare and conduct the entire issuing procedure on their own,
including following main tasks:
§ Preparation of documents
§  Selling the securities to investors
§ Collecting the proceeds and stabilize the market price.
Issuing Approaches
(1) Self – Issuing # Shelf-Registration (U.S)
Shelf- Registration (U.S) (Securities are ”on the shelf”):

SEC approved Rule 415 which allows firms to :
1- register securities
2- gradually sell them to the public for 2 years following the initial registration.
Issuing Approaches
(2) Underwriting
Underwriting means an underwriter commits with issuing company to complete issuing

preparation procedures, to buy a certain amount of issuing security or to buy all
unsubscribed issuing shares. When the issue is large, there maybe a number of
underwriters to commits with issuing companies to take underwriting job. Thus forms
the syndication of underwriters. This also ensures the success of issuing and distributes
the risks.
•  Financial
•  Government consultant
Under •  Securities Individuals
Issuer •  Corporate Investor
writer distribution Institutions
•  Fund
•  Price
stability
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Lead Underwriter
Underwriting Group/
Syndicate
Selling Groups
Sometimes the investment bank will enlist the help of other investment banks to sell the
securities, forming a underwriting syndicate.
Issuing Approaches
(2) Underwriting
New issues (seasoned or IPOs) are typically underwritten by investment bankers
The lead underwriter gives advice to the corporation on the general

characteristics of the issue, its pricing, the timing of the offering, and participates
in a “road show” visiting potential institutional investors.
(See Figure in next slide)
The underwriter also accepts the risk of selling the new issue after acquiring it
from the corporation.
Issuing Approaches
(2) Underwriting: Functions

Origination (Preparing Issuing procedure): involves the design of the bond issue and
initial planning (including financial consulting) and filing issue documents to relevant
parties.
Distribution: selling it to investors, typically with the help of a selling syndicate that
includes other investment banking firms and/or commercial banks
Price Stabilization: (implemented after finishing issuing) ensure the market price of newly
issued shares in secondary market will not fall below the issuing price in a specified
period of time (Greenshoe option)
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Issuing Approaches
(2) Underwriting: Types of Underwriting Agreement

Ø  Firm commitment
The underwriter guarantees to purchase all of the securities being offered for sale
by the issuer regardless of whether or not they can sell them to investors.
Underwriter take the spread between what the underwriters buy the stock from
the issuing company for and the POP
Issuer Number of Face value Issued price Type of

issued stocks underwriting
ACB 1 million $10 $12 Firm

commitment
Issuing Approaches

Ø  Best-Efforts
The underwriters will do their best to sell all of the securities that are being offered
by the issuer, but in no way is the underwriter obligated to purchase the
securities for their own account
•  The unsold share will be returned to issuing company
•  Underwriter collect fees on the sold number of shares.

ACB 1 million $10 $12 Best efforts

underwriting
Issuing Approaches

Ø  All or None/AON
If all of the securities are sold, the issuer receives the proceeds from the sale of all of
the securities.
If all of the securities are not sold, the issue is canceled and the investors’ funds will
be returned to them. This method is often used when issuing company needs to
raise a minimum amount of capital to maintain operation.

ACB 1.000.000 $10 $12 All or none
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Issuing Approaches

Ø  Mini-Maxi
A mini-maxi is a type of best efforts underwriting that does not become effective
until a minimum amount of the securities have been sold. Once the minimum
has been met, the underwriter may then sell the securities up to the maximum
amount specified under the terms of the offering.
Ø  Standby
A standby underwriting agreement will be used in conjunction with a preemptive
rights offering. All standby underwritings are done on a firm commitment basis.
The standby underwriter agrees to purchase any shares that current shareholders do
not purchase
Issuing Approaches
(2) Underwriting:
Vietnam’s Regulation on Issue Underwriting
Underwriting means an underwriter undertakes to an issuing organization to complete
procedures prior to the offer for sale of securities, receives some or all of the securities
of the issuing organization for re-sale, or purchases the amount of the remaining
undistributed securities of the issuing organization or assists the issuing organization to
distribute securities to the public.
Securities Law (2019)
<<<<<>>>> No price stabilization function under Vietnam’s regulation
Issuing Approaches
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Issuing Approaches
(3) Tender Offers
•  (3.1) Common Strike Price Method (Aus.) / Dutch Auction/ Single-Price Auction
•  (3.2) Pure Tender Method (Aus.) / Multiple – Price Auction
•  (3.2) Competitive Auction
•  (3.3) Non- Competitve Auction
Issuing Approaches
(3) Tender Offers
3.1. Common Strike Price Method (Aus.) / Dutch Auction/ Single-Price Auction
- Investors submit competitive bids for specific amounts of shares at various
prices
- A common strike price is determined for all investors
3.2. Pure Tender Method (Aus.) / Multiple – Price Auction
- Investors submit bids as per the common strike price method
- For auction winners, shares/bonds are allocated to winning bidders at the price
they bid, starting from the highest bid downwards
Vietnam’s regulation
Procedure of Auction
1
•  Announcement of Auction method
2
•  Auction registration
3
•  Deposit for the auction
4 •  Determining the placement results
5
•  Announcement of the results
144
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Vietnam’s regulation
Bond auction: singple-price or multiple – price mechanism could be
applied, depending on issuers’ decision
Stock auction: only multiple-price approach
145
Vietnam’s regulation: Dutch/Single-Price Auction
v  Made through electronic bidding or sealed envelope

v  Investors need to specify following information in their bid notes:
§  Number of shares
§  Bidding prices (stocks) or Bidding interest rates (bonds) with quantity ordered
v  Investors need to make deposits according to their bids:

•  Stocks: Deposit amount = 10% * floor price * number of bidding shares
•  Bonds: Deposit amount = 5% * Bidding Bond values
v  The issuer offers floor price/reserve price (shares) or ceiling interest rate (bonds)
in order to limit costs low profile
v  Winning bids are selected on the basis of the bidding prices from high to low until
the last shares offered (stocks) (one the basis of bidding interest rates from low to
high – applied to bonds)
v  Winning investors will buy shares/bonds at the one same winning price/winning
interest rate
v  There is only one winning price (stocks)/one winning interest rate (bonds)
146
Dutch Auction: Example 1
Company A issues 300,000 stocks through auctioning. The following table

presents orders from investors ( Floor price is 18.000 VND / stock)
Name of Bidding Price Number of stock

Cum.stock
investor (1000VNĐ/ stock) ( thousand)
A 20 80
B 19.8 100
C 19.5 50
D 19.1 120
E 19 110
F 18.5 60
a. Determine issuing price and quantity
b. Calculate the payment of investors B and D
147
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Dutch Auction: Example 2
Government raised 300 billion dong through Dutch auction. The following table
presents the bid orders from investors:
Bidding Interest rate Bidding value Cum.bond
Investor
(%) ( billion VNĐ) ( billion VNĐ)
A 6.55 90
B 6.57 120
C 6.59 30
D 7.00 50
E 7.01 120
F 7.02 80
a. Determine issuing interest rate and quantity

148
Vietnam’s regulation: Multiple-Price Auction
Favor small investors to avoid large investors-oriented-pricing mechanism

Same procedure and requirements as Single-Price auction (Dutch Auction)
The only difference is the pricing mechanism:
Criteria Single-Price Auction Multiple – Price Auction

Winning Price One winning price/ Multiple prices/
One winning interest rate Multiple winning interest rates
For Winning One winning price/ one winning Corresponding bidding prices/
bidders/ interest rate is applied to all Bidding interest rates are applied
Winning bids winning bidders separately to each winning bidders
Ex: A bids at price X, A wins the
auction, A buy shares at the price of
X
149
Multiple-Price Auction: Example 1
Company A issued 300,000 stocks through auctioning. The following table is

orders from investors ( Floor price is 18,000 VND / stock)
Name of Bidding Price Number of stock

Cum.stock
investor (1000VNĐ/ stock) ( thousand)
A 20 80
B 19.8 100
C 19.5 50
D 19.1 120
E 19 110
F 18.5 60
150
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Multiple – Price Auction: Example 2
Government raised 300 billion dong through multiple-price auction. The

following table presents the bid orders from investors:
Bidding Interest rate Bidding value Cum.bond

Investor
(%) ( billion VNĐ) ( billion VNĐ)
A 6.55 90
B 6.57 120
C 6.59 30
D 7.00 50
E 7.01 120
F 7.02 80
a. Determine issuing interest rate and quantity

151
Issuing Approaches
(3) Tender Offers
3.3+3.4. Competitive Auction v.s. Non-Competitive Auction/Bidding

• Competitive auction: Investors specify bidding prices/ bidding interest rates
• Non-Competitive auction: Investors don’t specify bidding prices/ bidding interest
rates. And the winning price rates/winning interest rates applied to non-competitive
bidders will be based on auction results of competitive bidders.
• An auction deal could be conducted under single-price or multiple-price approach and
could include: (1) all competitive auctioning bids; or (2) competitive bids and non-
competitve auctioning bids.
Issuing Approaches
(3) Tender Offers
3.3+3.4. Competitive Auction v.s. Non-Competitive Auction

• Vietnam’s regulation: Maximum issue size of share/bond offering allocated for non-
competitive investors is 30% of the total issue size of share/bond offering
Example:
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Competitive v.s. Non-competitive Bidding
Government bonds are issued under single-price mechanism with the total issue size of
VND 400 billion, of which VND 50 billion allocated for non-competitive auction.
Information of bids as following:
Bidding interest Bidding value Cumulative
Bidders
rate (%) (billions) value
A 7.05 90
B 7.07 110
C 7.09 120
D 7.11 190
E Non-competitive 60
F Non-competitive 40
Determine auction result for each investor (winning interest rate, winning value)
154
Some notes
Bidding interest rate of 0%

(Bond Issues)
Bids with a same bidding

price
Some notes
Bidding interest rate of

0%
In 2005, VCB issues bonds through auctioning: single-price method, the total issue size of
VND 1200 billion, ceiling interest rate of 8.25%, selling bond price = face value:
Cumulative bidding
Bidders Bidding interest rate (%) Bidding value
value
A 0.00 160
B 5.51 580
C 5.53 200
D 5.59 100
E 6.00 180
F 6.41 40
Determine auction result for each investor (winning interest rate, winning value)
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Some notes
Bids with a same bidding

price
Corporation X issues shares under multiple-price auction at HNX: 1,000,000 shares in total,
floor price of VND10,200
Bidding Bidders Bidding volume

Bidding price
Bidders Volume
(vnd 1000) D 80
(1000 shares)
A 22.0 500 E 120
B 21.0 300
C 18.5 100
D+E 18.4 200 Determine auction result for each
investor (winning price, winning
F 13.5 50
volume, and winning share value)
G 10.0 250
LOGO
Chapter 4: Secondary Market
Terminology
At the Opening (ATO) Lệnh thực hiện tại giá mở cửa
At the Closing (ATC) Lệnh thực hiện tại giá đóng cửa
Back-door Listing Niêm yết cửa sau (mua lại công ty đang
niêm yết)
Brokerage Môi giới chứng khoán
Call Auction Khớp lệnh định kỳ
Ceiling Price Giá trần
Central Limit Order Book Phương thức giao dịch bằng khớp lệnh
Clearing Bank Ngân hàng chỉ định thanh toán
Continuous Auction Khớp lệnh liên tục
Cross-Listing Niêm yết chéo (niêm yết ở Sở GDCK
nước khác)
Daily Trading Limit Biên độ dao động giá/Giới hạn giao dịch
trong ngày
Dealer Người trungBA-2018
159
gian giao dịch chứng khoán
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Terminology

Floor Price Giá sàn
Initial Margin Ký quỹ ban đầu
Last Executed Price (LEP) Giá thực hiện gần nhất
Limit Order Lệnh giới hạn
Listing Niêm yết chứng khoán
Maintenance margin Ký quỹ duy trì
Margin Trading Giao dịch ký quỹ
Margin Trading Equity Vốn chủ trong tài khoản giao dịch ký quỹ
Market Capitalization (Market cap) Mức vốn hóa thị trường
Market Index Chỉ số thị trường
Market Order (Market Price) Lệnh thị trường
Market Value Giá trị thị trường
160 BA-2018
Terminology

Negotiated Trading Method Phương thức giao dịch thỏa thuận
Order Matching Method Phương thức khớp lệnh
Reference Price Giá tham chiếu
Proprietary Trading Giao dịch tự doanh
Public Corporation Công ty đại chúng
Quotation Phương thức giao dịch yết giá
Securities Dealing Trung gian giao dịch chứng khoán
Settlement Thanh toán bù trừ
Settlement Timeline Chu kỳ thanh toán
161 BA-2018
Terminology

Short-sale Bán khống
Specialist Chuyên gia giao dịch
Stop Order Lệnh dừng
Ticker Mã chứng khoán
Tick size Đơn vị yết giá, bước giá
Trading Mechanism Cơ chế giao dịch
Trading Order Lệnh giao dịch
Trading Platform Sàn giao dịch
Trading System Hệ thống giao dịch
Trading Volume Khối lượng giao dịch
Value of Stock Owed Giá trị thị trường của chứng khoán vay
để bán khống
162 BA-2018
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Secondary Market
Ü T he market where investors buy and sell

securities they already own
Ø Investors are responsible for their own risk and
profit
Ø No new capital raised for the issuers
Main content
Over-the-
Exchanges
counter market
Exchange
Listing
Trading
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Listing
Provide platform
for trading listed
Exchange Allowing members to provide
trading service to clients
firm’s securities
Issuers who list their securities

Investment Banks/Securities Firms
for trading on Exchange
who provide brokerage/trading services
Listed Client
Members
companies
Service provider
Exchanges
Ü Exchanges are the organizer of trading platforms

for securities.
NYSE – Financial Heaven
Ü  1.366 seats

Ü  1 seat= 3 million USD
Ü  Daily: 1,46 billion stocks
traded with total market
value of $46,1 billion
Ü  2,800 stocks are listed with
total market value of
$20,000 billion
Ü  The third largest exchange
in the world
Ü  N Y S E i s w h e r e t h e
"American dream" was
completed and buried most
pressing
168
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Roles of Exchanges
Ü Creating a platform for daily trading activities.

Ü Fair determination of securities price (through
trading mechanism)
Ü Information disclosure (Public, Transparency,
Equality)
Ü Main function: Maintain the market for eligible
securities to be traded.
Types of ownership of Exchanges
Limited Liabilities
Corporation
State-owned
Of Singapore stock exchange

http://www.sse.com.cn
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172
Members of Exchange
•  Types of members
1
•  Criteria for eligible members

2
•  Rights and responsibilities of

3 members
Types of members
Brokers: conducts a transaction of securities

1 purchase or sale for clients for commission.
Dealers: involves in security trading by its

2 own capital in order to get profit
Specialists: are dealers or market makers

assigned by the exchange to conduct the
3 auction process and maintain an orderly market
in one or more designated stocks.
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Brokers
Ü The investors places an order with a broker. The

brokerage firm owning a seat on the exchange
contacts its commission brokers, who is on the
floor of the exchange, to execute the order.
Ü Floor brokers are independent members of the
exchange who own their own seats and handle
work for commission brokers when those brokers
have too many orders to handle.
Dealers
Ü Post prices at which they will buy or sell a

specific security of instrument (Bid & Ask
price)
Ü Designated as a “market maker” –
provides liquidity and transparency by
electronically displaying
Ü Bid-ask spread represents a tangible cost
to investors and profit to dealers
Specialists
Ü As dealers, they trade for their own accounts in any

temporary absence of public buyers or sellers, and only
after executing all public orders in their possession at a
specific price
Ü As agents, they execute market orders entrusted to them
by brokers, as well as orders awaiting a specific market
price.
Ü As catalysts, they help to bring buyers and sellers
together
Ü As auctioneers, they quote current bid-ask prices that
reflect total supply and demand for each of the stocks
assigned to them
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Member criteria
1 2 3 4
Compliance
Financial Performance with the
Infrastructure and regulations
condition
experience of Stock
Exchange
Member criteria
- Able to maintain a
required infrastructure for
- Behave ethically, in good
trading of securities.
physical condition for the
- A staff of experienced
Insitutions
job.
and certificated
- Well-educated in
Individuals
employees
Economics, Banking,
- Appropriate deposits at a
Finance, Stock market.
highly-reputated financial
- Financially stable
institution
- Own appropriate
- Fully compliance of laws
degrees/certifications
and Exchange regulations
Why do Exchanges impose such high

requirements for their member?
HOSE’s criteria for members
Criteria Requirements
Certification Is the securities company with the brokerage certification from State
Securities Commission (SSC)
Depository member Is accepted by the Vietnam Securities Depository (VSD) as the
depository member
Infrastructure • Appropriate IT infrastructure meeting the requirements of HOSE
• An appropriate software for trading and settlement.
• Joining the data transmission system as required by HOSE
• Monitors and other devices available for investors to view trading
information on HOSE
• Means of information disclosure available
• Back up system available in case of emergency
Ability and Experience • Ability of CEO as required by laws and regulations
of the Head of entity • IT officer has to have at least a BA degree in Information Technology
and 1 year of experience.
• All staff have to comply with the business ethic code.
Others According to Hochiminh Stock Exchange
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Procedure for acceptance of members
1 2 3
Receiving Processing Making

registration registration decision to
documents document accept the
member
Rights of member
Receiving information
Using services and

Utilities by Exchanges
Proprietary trading
Of securities
on Exchange
Rights
Charging the customers

Voting for the Exchange’s For services provided
Board of Administratives
Responsibilities of member
Supporting other members
All fees must be

Being monitored by
fully paid
The Stock Exchange
Respon-
sibilities
Reporting to the Stock Exchange Complying other regulations
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Listing on the Exchange
Ü To list the securities of a corporation is to allow

the trading of eligible company’s securities
Ü Listed firms are primary market’s issuers who
are listed on the Exchange.
Listable securities
Securities Exchanges
Listable
Stocks Bonds Convertibles Derivatives
Definition
Ü A company must apply to a stock exchange to

have its shares quoted if it wishes to become a
publicly listed corporation and raise equity
capital through an offer of shares to the public
Ü The stock exchange will ensure that the
company complies with the stock exchange
listing requirements.
Ü Delisted: if a listed corporation does not
comply with the listing rules of the stock
exchange, the offending company is liable to be
suspended from quotation, or it may be
delisted
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Type of listing
Initial Change
listing listing
Back
Cross-
Door
listing
Listing
Listing standards
Quantities Quality others
- The level of
- Capital
national interest - Audit’s
- Time of
- The position opinions
operation
of the Company - Disclosure
- Profitability
- Prospect - Securities
- Debt ratio
Company
HOSE HOSE HNX

Capital 120 billion VNĐ 30 billion VNĐ
Type of 2 years operated as joint-stock 1 years operated as joint-stock
business company company
Profit The latest ROE ≥ 5% The latest ROE ≥ 5%
Business operation in two years No accrued loss
preceding the year of listing is No payable debt > 1 year
profitable
No accrued loss
No payable debt > 1 year
Ownership -  At least 20% voted stocks hold -  At least 15% voted stocks
by 300 investors hold by 100 investors
-  Limited transfer -  Limited transfer
… ….
Question: Listing standards in Securities Law 2019 ?
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Listing procedures
3/1/2010
A company apply to an exchange
Review
Apply for listing on the official exchange
Check the listing
Approve the listing
Listed
190
Pros and Cons of Listing
Cons Pros
Fund raising
Lower cost of cap

Information Disclo ital
sure
Public relationship
Takeover target
Liquidity
Exchanges
Listing
Trading
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Trading
Trading
Order
process
Trading Special
Mechanism transactions
Trading procedure on Exchanges
- Open account
- Order
Investor HOSE
Brokers
Investor
VSD Clearing Bank
Investor
Brokers
Investor HNX
Front Office Back Office
Vietnam Securities Depository
Ü  On 27th, July, 2005, The Government signed

the decision for the establishment of VSD
Ü  On 1st, May,2006, VSD started its operation
Ü  29th, July, 2009, VSD changed its ownership
types to state-owned one-member Limited
Liability as Vietnam Securities Depository
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Vietnam Securities Depository
Ü Main functions of VSD:

Ø Securities registration & depository
Ø Clearing and Settlement
Ø Securities-related rights
Ø Set trading code
Ø Set securities tickers
Types of order
Orders
Common Other
Types Issues
What is an order?
198
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Trading position
Purchase Sell
Cancel and Amend order
Ü Cancel order
Ü Amend order:
Common orders by price
Limit Order (LO)

At The Open (ATO)
Stop Order (SO)
Common
orders
At The Close (ATC)
Market Order/Price (MP)
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Limit order (LO)
Ü A limit order is an

order to buy or sell
a stock at a specific
price or better
n  A buy limit order
n  A sell limit order
Ü  Advantages
Ü Disadvantages
n  No guarantee it will
be executed
n  Executed after MP
Market order (MP)
Ü Market order is An order to buy or sell a security

at the best price currently available.
Ü Advantages:
n  buy or sell a stock at the best available price.
n  will be executed, priority & immediately
Ü Disadvantages:
n  the price at which a market order will be executed
is not guaranteed.
ATO order
Ü ATO is An order to buy or sell a security at the

opening price.
Ü ATO priority over limit orders in the matching
process.
Ü No specific price ATO records.
Ü ATO will automatically be canceled after the time
of the opening price for the order is executed or
the order remains unfulfilled.
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ATC order
Ü ATC is An order to buy or sell a security at the closing

price.
Ü ATC priority over limit orders in the matching
process.
Ü ATC is entered into the trading system during the
periodic order matching to determine closing prices.
Ü ATC will automatically be canceled after the time of
closing price determined for the command is
executed or the order remains unfulfilled.
Stop orders
Ü A stop order, also referred to as a stop-

loss order, is an order to buy or sell a
stock once the price of the stock reaches
a specified price, known as the stop
price.
n  A stop order to buy
n  A stop order to sell
n  A stop – limit order
Buy stop order
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Buy stop order
Sell stop order
Sell stop order
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Other issues
Ü Methods to give orders

Ü Order standard
Ü Order Availability
Ü Preference
Ü Price Unit
Methods to give orders
Ü Order slips
Ü Online trading
Ü Phone with record in Brokerage firms.
Ü Contact with brokers (mobile phone, facebook,
LINE, Zalo call, etc.) then sign the order report
later
Orders
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Order Slip
Online Trading
Online Trading
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Order Standards
Good-Til-Cancel(GTC)
Immediately-Or-Cancel(IOC) or Fill-
Or-Kill (FOK)
All-Or-None(AON)
Day Order(DO)
Order Availability
Order Order Matching Market Negotiated

Opening Call Continuous Closing Call Market
Auction Auction Auction
ATO X
LO X X X X
MP X
ATC X
Preference
Price
Time
Amount
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Price unit
M a r k e t p r i c e HOSE HNX UpCom

(VND)
< 10,000 10 100 100
10,000 – 49,950 50 100 100
≥50,000 100 100 100
Not applicable to negotiated market and bonds
Orders matching
Order
matching
Call Continuous
Auction Auction
Call Auction
Ü Applied for: opening session & closing

session,
Ü is utilized in calculating the opening and
closing prices of a security at the opening
and closing of the trading hours.
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Opening and closing Price
Ü Step 1: an arrangement of all orders from clients

within a certain period
Ü Step 2: Buying accumulated with price – priority:
n  ATO/ATC
n  From Highest price to lowest price
Ü Step 3: Selling accumulated with price – priority:

n  ATO/ATC
n  From lowest price to highest price
Ü Step 4: determines the number of stocks that can

be traded/matched
Opening and closing Price
Ü Step 5: The opening/closing price will be determined

from:
n  The price that generates the greatest trading volume.
n  If there is more than one such price, the value that is
closest to the last execution price will be chosen.
n  If there is still more than one such price, the higher one
will be chosen.
Ü If the closing price of a security cannot be calculated
utilizing the above criteria, the last executed price of
that day will be chosen to be the closing price of that
particular stock.
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The orders matching principles
n  All buying orders having price higher than the

listed price and all selling orders having price
lower than the listed price are executed
n  All buying orders having price lower than the listed
price and all selling orders having price higher than

the listed price are not executed
n  Buying and selling orders having price equal to the
listed price can be partly or fully executed depend
on each case
Example
A Stock exchange hold a periodic call auction

to fix an opening price. After opening 30
minutes on 1/1/N, all related orders of stock A
are as the following table (the prior closing
price of stock A was 29,500VND/stock)
Example
Buying order Price Selling order

Buying Quantity Number Number Quantity Selling
accumulated sign sign accumulated
5000 A1 ATO B2 4500 4500
29500 3500 A3 29000 B4 3200 7700
26000 7200 A2 29100 B6 3100 10800
18800 4100 A4 29200 B1 3900 14700
14700 2500 A5 29300 B3 5400 20100
12200 3200 A8 29400 B5 2700 22800
9000 4000 A7 29500 B8 4600 27400
228
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Example
At both price of 29,200 and 29,300, the quantity of

traded stocks are the biggest. However, price of
29,300 is determined as a listed price since at that
price the quantity of traded stocks is the highest and
closer to the prior Last-Exercise Price – LEP (which
is the previous day’s closing price) of 29,500
229
Continuous Auction
Ü  Continuous Auction

Method of order matching during the regular
trading sessions. The Exchange continuously
matches the first buy and sell orders in the
queue, and at the same time, confirms each
executed transaction via the member's
(broker's) terminal
Ü  Matching principles:
- The purchase price must be greater than or
equal to the sell price
- Matching the price of the previous orders.
Example
Time Investor Buying Price Selling Price

quantitative quantitative
10h01 A 1000 50.5
10h02 B 700 50
10h03 C 500 51
10h04 D 2000 52
10h05 E 3200 MP
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Result
Buying Selling
Time Price
quantitative quantitative
10h01 No transaction
10h02 A-700 50.5 B-700
10h03 No transaction
10h04 D-500 51 C-500
D-1500 52 E-1500
10h05
A- 300 50.5 E-300
232
EXAMPLE
TIME INVESTOR BUYING ORDER SELLING ORDER
QUANTITY PRICE QUANTITY PRICE

(shares) (1000 VND) (shares) (1000
VND)
9h31 A! 500 36.5

9h32 B! 300 36.7
9h34 C 400 36.6
9h35 D 300 MP
9h59 E 100 36.7
Exercise 1
Ü Call auction with all limit orders

Purchase Price Sale Expected
Amount Accumulated (1,000 VND) Amount Accumulated matched
100 29 1,000
1,200 28.9 1,200
1,100 28.8 1,500
800 28.7 900
750 28.6 1,000
550 28.5 450
110 28.4 100
100 28.3 200
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Exercise 2
Ü Call Auction with ATO/ATC

Purchase Price (1,000 Sale Expected
VND) matched
Amount Accumulated Amount Accumulated
2,000 55.5 1,200

3,000 55 2,000
6,000 54.5 1,500
1,200 54 700
500 53.5 1,100
1,000 ATO/ATC 1,300
Exercise 3
Ü Continuous auction with MP

Time Investor Purchase Sale
Amount Price Amount Price
9h30 A 500 50.5
9h31 B 200 50.6
9h33 C 1000 50.7
9h34 D 1500 MP
Daily trading limit

Each trading day, the price of stock could only fluctuate
within a limit, namely, daily trading limit
Daily trading limit is the price fluctuation during the
day compared to the reference price
Ü  Reference Price: Usually the closing price of the
previous session (unless specified otherwise)
Ü  Example: The reference price is 20,000VND/CP
n  The order is only valid if the price is within the range
of 19,000 to 21,000 VND per share
Ü If the reference price is valid 50,000VND/CP
n  Daily trading limit: 47,500-52,500
237
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Trading limit
Country Daily trading limit

Poland +/-10%
Malayxia +30%
Shanghai +10%
New York Dows Jones decreased by 250 points, NYSE stop

for 30 minutes
Dows Jones decreased by 400 points, NYSE stop
for 60 minutes
HOSE +/- 7% reference price for company shares
Trading limit
Ü From the reference price and price spread, we

calculated the price ceiling and price floor:
Ü The price ceiling is the highest price of a stock may
change during the session compared to the reference
price
= Reference price ceiling price + (price reference
price fluctuation x)
Ü Price floor: the lowest price of a stock is done in
session
= Reference price floor price - (price reference price
fluctuation x)
The stock market index
Ü Market index is the measure of overall stock

market performance, comprised of all (or a
number of representative) stocks on the market.
Ü Market indexes could also be used for:
ü A benchmark for portfolio performance
evaluation.
ü A Measure of performance of Market Portfolio
ü An underlying assets for Derivatives (Ex. Futures
on Index).
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Ü Examples of market indexes (indices)

Ø Dow Jones Industrial Average
Ø S&P 500
Ø NYSE (equal-weighted)
Ø NYSE (value-weighted)
Ø Nikkei 225
Ø Kospi 100
Ø VN-index
Ø VN-30 index
Ü Types of Market Index:

Ø Price-weighted average (DJIA)
Ø Market-value-weighted average (S&P 500)
Ø Equally-weighted average (NYSE)
Price-weighted average
Ü 
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Market-value-weighted average
Ü Measure the return of a portfolio of all (or a

number of) stocks on the stock market in
proportion to their market value
Ü Computed by the return of total market value of
all (or a number of representative stocks)
Ü Base on a starting value (such as 100) to calculate
the index divisor
Ü 
Ü 
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Ü 
Stock Outstanding Price at time Price at time Market cap Market cap
shares 0 ($) 1 ($) time 0 time 1
A 50 3 4 150 200
B 50 1 1 50 50
C 70 7 7 490 490
D 20 9 9 180 180
E 10 10 9 100 90
Total 970 1010
Ü 
Equally-Weighted Index
Ü 
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Special transactions
Margin Short
trading Sales
-The investors trade/buy on margin -The investors borrow securities

(borrow funds from securities and sell them today in order to
firms to buy more shares than subsequently buy back at lower
their financial position allowed) price in the future.
-The securities bought are used -Also called Securities borrowing
as collateral for the funds borrowed & Lending (SBL)
Margin trading
Ü Margin account – You have to open a margin

account to buy on margin.
Ü Minimum investment amount – The investment firm
sets the minimum amount you must deposit in a
margin account. This is sometimes called the
minimum margin.
Ü How much you can borrow – This depends on the
price of the stocks you're buying. Your investment
firm may lend you up to 70% of the money you
invest. This is called your maximum loan value.
Short sales
Ü Allows investors to profit from a decline in a

security’s price.
Ü An investor borrows a share of stock from a broker
and sells it.
Ü The short-seller must purchase a share of the same
stock in the market to replace the share that was
borrowed. (Covering the short position)
Ü Short-seller must pay the lender of the security any
dividends paid during the short sale.
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Ü For both margin trading and short-sales, the investors have to

pay a deposit as follows:
Ø  Initial margin: the amount of value (cash/securities) owned by
the trader which the trader have to deposit at the securities
firms to initiate margin trading or SBL service.
Ø  Maintenance margin: the amount of value the trader have to
maintain on his/her account in order not to get margin call.
Ø  Margin call: When the value of the investment on drop below
maintenance margin, the traders get a margin call from the
securities firms.
- Upon receiving a margin call, an investor have to deposit more
value into the account to raise the value of the investment to at
least maintenance margin level or sell all or parts of his/her
investment.
- If he/she failed to satisfy a margin call, their investment will be
liquidated immediately.
Margin call
Ü Initial margin = Equity in account / Value of stock

Ü Maintenance margin
!"##$%&!!"#$%!!"!!"#$% − !"#$
!Curent!!"#$%& =! !
!"##$%&!!"#$%!!"!!"#$%
Ü Current value of stock = Number of stock x

current market price
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Margin trading
Ü Example
On 17th, June, 20XX Mr. Investor buys 100 IBM
shares at $10 per share (total of $1,000)
•  Initial margin: 60%, Investor has to deposit 60%×
1,000 = $600 ($400 is the amount borrowed from
securities firms
•  Maintenance margin: 30%
Margin trading
Ü On 20th, June, 20XX price of IBM share rises to $25

•  The value of the investment: $2,500
•  The value of the Investor’s equity (deposit) rises to: $2,500 -
$400 = $2,100
•  The deposit ratio now is: $2,100/$2,500 = 84%
à Investor could either withdraw:
2,100 - 60%×2,500 = $600
à Or borrow 600/ 60% = $1,000 to buy more share
For $1,000: the Investor could buy 40 = 1,000/25 shares
Margin trading
Ü On 25th, June, 20XX price of IBM share drops to $5

The value of the investment: $500
The value of the Investor’s equity (deposit) drops to: $500 -
$400 = $100
The deposit ratio now is: $100/$500 = 20%
à Investor has to either deposit an extra amount of: 60%×500 –
100 = $200
à Or sell: (500 – 100/0.6)/ $5 = 66.67 shares
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Short-Sale
Ü Example
On 17th, June, 20XX Mr. Speculator shorts 100 APPL
shares at $50 per share (total of $5,000)
•  Initial margin: 50%, Investor has to deposit $7,500
(include $5,000 as the proceeds from short-sale and
$2,500 from the investors)
•  Maintenance margin: 30%
Short-Sale
Ü Example
On 25th, June, 20XX price of APPL rises to $70 per share.
The market value of the APPL short-sale rises to $7,000.
- The maintenance margin: 30%, the speculator should have
in his/her account the amount of:
$7,000 + 30%×7,000 = $9,100
- Since the deposit of the speculator at the beginning is at
$7,500. The investor get a margin call and have to deposit
($9,100 – $7,500 = $1,600) more.
Real situation in Vietnam
Short selling
Not Strongly
popular developed banned
2007 depression
2008 2009 11/2009
Developed
in some
securities
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The Over-The-Counter market
Overview
The market for unlisted A

stocks Over – The
– Counter
There is no membership B market
requirements for trading &
securities
Trading via the computer-linked C

network, telecommunications
network
D
A broker can execute a trade by
contacting a dealer listing an
attractive quote
Exchange & OTC market
Ü Location
Ü Securities
Ü Risks
Ü Market
makers
Ü Settlement
Ü Regulations
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Trading methods
Agreem
ent
OTC
Quotation
Market
makers
265
(1) Agreement transaction
!
Buyers Agreement Sellers
Buyer’s Seller’s
brokerage firm! brokerage firm!
Confirm the Receive Confirm the

Confirm the transaction execution
execution orders
Transaction
system!
Settlement system!
266
(2) Quoted transaction
Buying order Buying order

Investor Brokerage firm
A A
Inform the Inform the
execution execution
Confirm the
transaction Transaction
system
selling order
Inform the
results
Inform the selling order
execution
Investor Brokerage firm

B B
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(3) Market – maker transaction
Market Market
maker A maker B
quotation
Confirm the quotation

orders transaction
Report the
execution
orders
OTC
Investor A Brokerage firm
central
Inform the
A confirmation system
result
quotation
Market
maker C
Nasdaq stock market
Ü Established in 1971
Ü A telecommunications network that links thousands of
geographically dispersed market – making participants
Ü Its electronic quotation system provides price quotations
to market participants on Nasdaq – listed stocks
Ü Brokers register with the SEC as dealers in OTC
securities. Security dealers quote:
n  Bid prices at which they are willing to purchase securities
n  Asked price at which the dealer is willing to sell securities
Ü A broker/dealer who receive a buy or sell order from an
investor can examine all current quotes, contact the dealer
with the best quote, and execute a trade
Market maker on Nasdaq
Ü Continuously post two-sided quotes (bid & ask) for 1,00

shares. (if any NASD member presents an order to a
market maker, he is obligated to trade at term no worse
than its quotes. Failure to do so constitutes “backing
away”, which may be subject to regulatory sanction
Ü Report trades promptly
Ü Be subject to automatic execution against their quotes via
Small Order Execution System (SOES)
Ü Integrate customer limit orders and not place a quote on
any system different from their Nasdaq quote unless that
system is linked backed into Nasdaq
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Quotation system
Nasdaq has three levels of subscribers

Ü Level 3 (the highest)
n  is for firms dealing, or market makers, in OTC
securities.
n  Subscribers may enter the bid and asked prices
at which they are willing to buy or sell stocks

into the computer network and update these
quotes as desired
Quotation system
Ü Level 2
n  Subscribers receive all bid and asked quotes but
cannot enter their own quotes
n  These subscribers tend to be brokerage firms
that execute trades for clients but do not
actively deal in the stocks for their own account
n  Brokers attempting to buy or sell shares call the
market maker who has the best quote to
execute a trade
Quotation system
Ü Level 1
n  Subscribers receive only the median, or
“representative”, bid and ask price on each stock
n  Subscribers are investors who are not actively
buying and selling securities, yet the service
provides them with general information
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Other OTC markets
Non-Nasdaq
OTC market
OTC Bulletin Pink Sheet

Board (OTCBB) -Dealer quotations
-Display real time were disseminated
quotes, last sale by paper copy
prices, & volume - An electronic
information version of the Pink
- Includes stocks Sheet is updated
not traded on the daily &
NYSE, AMEX, or disseminated over
Nasdaq the market data
vendor terminals
The third market
Ü The third market refer to trading of exchange –

listed securities on the OTC market.
Ü Member of NYSE were required to execute all
their trades of NYSE-listed securities on the
exchange and to charge commissions according to
a fixed schedule
Ü Like Nasdaq, the third market is a network of
broker/dealers that aggregates quotation
information and provides interparticipant order
routing tools, but leaves order execution to
market participants
The fourth market
Ü The fourth market refers to direct trading

between investors in exchange – listed securities
without benefit of a broker.
Ü Electronic Communications Networks (ECN)
Ü Crossing networks
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LOGO
Chapter 5
REGULATION AND
INFORMATION DISCLOSURE
Terminology
Information disclosure Công bố thông tin
Market failures Các thất bại của thị trường
Information asymmetry Thông tin bất cân xứng
Adverse selection Lựa chọn bất lợi
Moral Hazard Rủi ro đạo đức
Externality Ảnh hưởng ngoại lai
Perfect competitive market Thị trường cạnh tranh hoàn hảo
Securities Commission Uỷ ban chứng khoán
Insider trading Giao dịch nội gián
Accounting fraud Gian lận kế toán
Market manipulation Thao túng thị trường
Securities Law Luật Chứng khoán
The Decree Nghị định
Circular Thông tư
Decision Quyết định
BA-2018
278
Contents
v  The Need of Market Regulation

v  Market Failures
-  Information Asymmetry: Adverse Selection; Moral Hazard
-  Externality
v  Regulation System: Laws and Relevant Supervisory Bodies
v  Information Disclosure
279
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Content

-  Externality
280
THE NEED OF Stock market Regulation
Why do we need stock market regulation?
Ø  The important role of the securities market to the overall

economy.
Ø  The risks that are generated from the trading activities to the
investors
Ø  The existence of foul activities: cheating, deception,

manipulation, etc.
Ø  The risks from the financial services to the financial system
Ø  The impact of the crisis on market to one country and to the
world
281
THE NEED OF STOCK MARKET REGULATION
Conditions for perfectly competitive markets:
n  Many suppliers with an insignificant share of the market. The decisions of
each supplier are too small to affect the overall market
n  The trading of identical products. One product is a perfect substitute for
another
n  Consumers have full information – about prices and quality of the products
n  No barriers to suppliers entering and leaving the market, at least in the long-
run
n  All suppliers have equal access to resources
n  No “externalities” and therefore no divergence between private and social

costs and benefits
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THE NEED OF STOCK MARKET REGULATION
Ü In many cases, the absence of one or more conditions has

consequences that are “market failures”
Ü Market failure occurs when freely functioning markets

fail to deliver an efficient allocation of resources
Ü The need for regulation:
n  Market failures in financial markets: Asymmetric

information, externalities
n  Regulation is an economic good of value to certain

groups in society
Content

-  Externality
284
Asymmetric information
Ü Asymmetric information: A situation where one party to a

transaction has better information than the other
Ü In financial markets, suppliers of capital generally have
less information about how their funds are going to be
used than the borrowers have
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Ü Adverse selection:
n  Before transaction occurs
n  Potential borrowers most likely to produce adverse outcomes

are most likely to seek loan, willing to pay high interest rates
and be selected
Ü Moral hazard:
n  After transaction occurs
n  Hazard that borrower has incentive to engage in undesirable

(immoral) activities making it more likely that won’t pay loan
back
Take in example in Insurance:
-  A Healthy person only have to pay $1,000/year for a life
insurance
-  An Unhealthy person have to pay $5,000/year for a life
insurance
If, due to the lack of information, the insurance company
could not decide whether a person is healthy or not. They
will assign an average premium for the insurance at $3,000/
year
Who do you think will be willing to buy the insurance?
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The same goes for stocks. if due to the asymmetric information,
the investor could not differentiate between good and bad
companies. He/she will decide to pay an average price.
Ø  The good companies will refuse since they are being utterly
undervalued
Ø  The bad companies will take immediately since they are being
overvalued
Ø  All the stock markets will be flooded with bad companies
Ø  The investors may decide not to invest, ever!
Ü Moral Hazard:
After the transaction, when the funds are provided to the
company. If the company does not disclose the information, the
investors will not know how well the company is doing or how
their funds are used.
The company may take part in risky investments or misallocate
the funds to suboptimal investments.
Ü Moral hazard problem in 2008 financial crisis:

n  “Too-Big-to-Fail” creates serious moral hazard problems:
Banks are encouraged to take extremely risky strategies
because they thought that the state would always protect the
from outright failure => “Profits were privatized (went to the
banks and their shareholders) while losses were socialized
(were met by taxpayers)”
n  When US and UK regulators were slow to act in the early
stages of the crisis (US: allowed Lehman Brothers to fail), the
shock sped up the crisis
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Externalities
Ü Externalities: Cost (and benefit) which is NOT paid by either

party to the transaction; it is paid (or received) by those who
are external to the deal.
n  Positive externalities (benefits) => underproduced
n  Negative externalities (costs) => overproduced
Externalities
Ü  Financial institutions and externalities: While financial

institutions take into account risks in pricing deals among
themselves, they fail to account for the costs if either of them is
default:
⇒ “contagion” beginning to emerge very quickly
⇒ financial and payment systems grind to a halt
⇒ firms and households cannot make payment/get funds for
operations
⇒ trade stops, economic activities reduce
⇒ The costs of the original default are many thousand times
greater than the cost to the financial institution
⇒ Risky lending is being “overproduced”
Content

-  Externality
294
98
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Market Regulation: RELEVANT BODIES
Who is in charge of securities market regulation?
Ø  The Congress (for the establishment of Securities

Law)
Ø  The correspondent ministries (Ministry of Finance,

for instance)
Ø  The Securities Commission
Ø  Exchanges; Dealer Association (self-regulated)
295
Securities Commission
Ü The Securities and Exchange Commission (SEC) in U.S.

Ø  Created in 1934
Ø  Monitor and enforce laws created to govern the existence
of securities and other related assets in the United States.
Ø  License all exchanges in the U.S.
Ø  Enforce legislation to control securities trading
Ø  Investigate incidents of crimes associated with the trade
of securities
Ü Crimes under SEC’s enforcement:

Ü Insider trading
Ü Spreading false information
Ü Accounting fraud
Ü Market manipulation
Ü Collusion
Ü Breach of fiduciary duty
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Ü  In other countries?

Ü  Similar to SEC in the U.S., countries with a securities market all
establish a securities commission
Ü  In Vietnam, we have State Securities Commission of Vietnam (SSC).
SSC is established in 1996 as a government agency (under the
monitoring of Ministry of Finance)
Other regulatory bodies
Ü In U.S., beside SEC, there’re other regulatory bodies

such as:
Ü Financial Industry Regulatory Authority (FINRA):
regulate stock brokers and investment firms.
Ü Commodity Futures Trading Commission (CFTC):
regulate commodities trading.
Ü National Futures Association (NFA): regulate futures
trading.
Law and Regulation system
The 5 major federal securities laws:

ü  Securities Act of 1933 (regulating distribution of new
securities)
ü  Securities Exchange Act of 1934 (regulating trading
securities, brokers and Exchanges)
ü  Trust Indenture Act (regulating debt securities)
ü  Investment Company Act of 1940 (regulating mutual
funds)
ü  Investment Advisor Act of 1940 (regulating investment
advisors)
The Congress has amended those laws for several times.
Each amendment gets its own popular name
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Ü The Popular names for the amendments of securities laws
ü  Securities Investor Protection Act of 1970
ü  Insider Trading Sanctions Act of 1984
ü  The Insider Trading and Securities Fraud Enforcement Act of

1988
ü  The Dodd Frank Act (Also called the Dodd Frank Wall Street
Reform and Consumer Protection Act of 2010 to reform in the
wake of financial crisis 2007-2009).
Ü Other securities laws:

ü  Private Securities Litigation Reform Act of 1995
ü  Sarbanes-Oxley Act of 2002 also known as the "Public
Company Accounting Reform and Investor Protection
Act" (in the Senate) and "Corporate and Auditing
Accountability, Responsibility, and Transparency Act" (in
the House), dealing with information disclosure
ü  Jumpstart Our Business Startups Act of 2012, on the
funding of small businesses (including crowdfunding).
ü  State laws on issuance and trading of securities (or blue sky
laws)
Ü Other related laws:

ü  Glass-Steagall Act of 1933
ü  Gramm-Leach-Bliley Act of 1999
Depite not being securities laws (in fact the two acts are in
banking system), they still relate to Securities market since
one requires the separation of commercial banking and
investment banking (Glass-Steagall) while the other enables
the convergence of commercial and investment banking.
The Gramm-Leach-Bliley Act is also attributed to the
deregulation that leads to financial crisis of 2007-2009.
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Timeline of securities law
Glass-Steagall Act Gramm-Leach-Bliley Act
1929 1933 1934 1964 1988 2000 2007 2010

The SecuritiesSecurities AmendedBasic Inc. Fair FinancialDodd
Wall Act and the Acts vs DisclosureCrisis Frank
Street 1933 Exchange for OTC Levinson Regulation Act
crash Act companiescase
leads to
new
amendments
Ü  The system of Securities Laws and Regulations

ü 
Vietnam
Securities Laws (By Congress)
ü  The Decree (By Government)
ü  Circular (By Ministries)
ü  Decisions (By SSC)
ü  Other (regulations by Exchanges)
The main laws and regulations

Ü  Before 2006, there was no official law governing the Securities
Market. All securities market related issues are in Decree 144/2003/
ND-CP on the issuance and trading of securities
Ü  In 2006, the very first Securities Law of 2006 (Law number 70/2006/
QH 11) was established
Ü  In 2007, Decree 14/2007/ND-CP was issued to explain and enforce
the Securities Law of 2006.
Ü  In 2009, Decree 53/2009/ND-CP was established to guide the
issuance of bonds in oversea markets.
Ü  In 2010, the Securities Law was amended and changed to Securities
Law of 2010 (Law number 62/2010/QH 12).
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The main laws and regulations

Ü  In 2012, Decree 58/2012/ND-CP was established to explain
and enforce Securities Law of 2010
Ü  In 2015, Decree 60/2015/ND-CP amended the Decree
58/2012
Ü  Also in 2015, Decree 42/2015/ND-CP was issued to allow
for the development of trading of Derivatives on Stock
Exchange.
Ü  Securities Law 2019
Ü  …..
Circulars and Decisions

Ü Circulars are issued by the Ministry of Finance to give
guidance on different aspects of securities laws that the
decree has not specified
Ü Decisions are made by the SSC to give guidance in
details on different issues of securities markets. For
instance, the calculation of margin, the forms to disclose
information, the ratios to keep in order to maintain
financial safety for brokerage firms, the regulatory capital
needed for some services to be provided, etc.
Ü For the full law and regulations system of Vietnam, visit

the State Securities Commission’s website at the tab
Legislation and Guidelines
Ü http://www.ssc.gov.vn/ubck/
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Content

-  Externality
310
Information disclosure
Ü Why information disclosure?

Ø  Information Asymmetry
Ø  Investors protection
Ø  Preventing fraudulent activities: insider trading,
manipulation, etc.
Ø  Monitoring from Investors, Banks, Governments
Ø  Required by laws
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Ü  Principles of information disclosure
Accurate •  Information from reliable sources
Timely •  Information should be disclosed in a timely

manner
Fully •  Information should be disclosed in full
Ü What to disclose?
Primary market Secondary market
Information - About an issuance (price, types of - Price, trading volume

securities) - Firm’s financial conditions
- About the issuers - Firm’s performance
- Others
Who disclose? - Issuers - Issuers
- Underwriters - Investment banks/securities firms
- Related parties - Related investors
- SSC, Stock Exchanges, etc.
When? - When issue new securities - Periodically disclosure
- When inquired - Any events happened
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9/11/22

Ü Four hours class contact per week for one

Assessment Task Due Date Value

RESOURCES AND REQUIREMENTS

Ü HANDOUT TEXT BOOK

INTRODUCTION TO SECURITIES MARKET

Ü Europe, early of 13th century, city councils

The history of stock markets is attached to crises

Ü The global crisis 2008

Ü The Asian financial crisis 1997

Ü The crisis of 1987

Ü The Tulip Mania

Ü At the peak:

The dot-com bubble

Ü A speculative bubble, remembered as ‘Internet

Ü Started in 1995, boom-and-burst period 1999 – 2001

Down Jones declined by 22.5%

Vietnamese stock market?

Ü A component of the

Securities Long term

REAL ASSETS AND FINANCIAL ASSETS

Free market, close to perfect

Long term funding

Capital turnover in the financial market

Who has capital Who need capital

Role of securities market

Mobilizing capital for governments,

Creating liquidity for securities

• Market for stocks

Ü Regulators and market organizers:

- Who are they? Household

(1) HOUSEHOLD SECTOR

Ü Everyone seeking to satisfy unlimited wants and

Investors & Speculators

(2) BUSINESS SECTOR

Ü Make use of securities market to manage

Limited liability Joint stock

(3) GOVERNMENT SECTOR

Ü Finance their expenditures by borrowing

n Treasury bonds (T-bonds)

Ü Agencies of central government:

n Borrows money by issuing securities and lends this money

(4) FINANCIAL INSTITUTIONS

Ü Provide financial services for investors and issuers in

n Pension fund

n Hedge fund

n Venture capital fund

n Foundation fund, ….

- Securities company is defined as a legal institutions

STOCK PRICE BOARD

Redemption date Ngày hoàn trả

Non-participating preferred stock Cổ phiếu ưu đãi không tham dự

Securities that confirm the rights and legitimate

Ü Confirm the legal rights of securities holders,

- An instrument that signifies an ownership

Ü An instrument that signifies the borrowing

Ü A security whose price is dependent upon or derived

Ü Objectives of issuing Derivatives

Basic characteristics of securities

The degree to which an asset or security can be

Classified Company shares

- Elect the company’s board of the

2. Market Value (Market Price)

Ü Four hours class contact per week for one

Ü HANDOUT TEXT BOOK

Ü Europe, early of 13th century, city councils

Ü The global crisis 2008

Ü  The Asian financial crisis 1997

Ü  The crisis of 1987

Ü  The Tulip Mania

Ü At the peak:

Ü A speculative bubble, remembered as ‘Internet

Ü Started in 1995, boom-and-burst period 1999 – 2001

Ü  A component of the

• Market for stocks

Ü Regulators and market organizers:

Ü Everyone seeking to satisfy unlimited wants and

Ü Make use of securities market to manage

Ü Finance their expenditures by borrowing

n  Treasury bonds (T-bonds)

Ü Agencies of central government:

n  Borrows money by issuing securities and lends this money

Ü Provide financial services for investors and issuers in

n  Pension fund

n  Hedge fund

n  Venture capital fund

n  Foundation fund, ….

Ü  Confirm the legal rights of securities holders,

Ü An instrument that signifies the borrowing

Ü A security whose price is dependent upon or derived

Ü Objectives of issuing Derivatives

-  Elect the company’s board of the

n  Uses of par value?

n  Varies in maturities: Short-term bonds (1 – 5 years), Mid-term

n  Can be larger, smaller than, or equal to the par value

n  Can be annual, semi-annual, quarterly or none (Zero coupon bonds)

n  Denoted by symbol

n  Moody’s: Aaa

n  S&P: AAA

n  Fitch: AAA

n  Investment grade bond & high – yield bond

n  Rating transition matrix

Ü Factors considered in assigning rating (Cs)

n  Capacity of issuer

Ü Coupon securities: pay interest every 6 months,

Ü Issued by state and local government (cities and

Ü Provisions for paying off bonds

Ü  Convertible and exchangeable bonds

Ü A security whose price is dependent upon or

Ü The underlying assets can be tangible or

Ü There is no transfer of money at the time of contract

Ü Price is determined today, but transaction occurs

Ü Liquid Ü Standardized contract =>

Ü A deposit or initial margin must be lodged with

Ü The size of the deposit will depend upon price

Ü The deposit should be sufficient to cover a large

Ü Each trading day, the clearing house calculate

Ü At any given time, the clearing house ( and its

Ü Is an account balance falls below the minimum

Ü The margin call will require the account holder to

Ü Failure to meet the margin call will result in open

Ü Hedgers, speculators and arbitrageurs rarely

Ü Open contracts are closed out prior to settlement

-  Right to buy underlying

-  Right to sell underlying -  Receive premium